Make Cents: The Universe of Fintech Infrastructure

The picks-and-shovel building blocks that power fintech use cases

In my last post I walked through the opportunity for enabling fintech infrastructure and where innovation is most needed. The tl;dr: despite all the innovation and meteoric growth in the category, it is still very expensive and time consuming to launch a fintech company, and it’s equally challenging to operate once live. I believe we are in the early innings of the next generation of enabling infrastructure that will continue to drive down the amount of time and people required to innovate in financial services.

For this post, I’ve created a market map that illustrates the current infrastructure landscape and key categories I see at play today. These companies provide the picks-and-shovel building blocks that power fintech use cases. This is important to emphasize—they can power traditional fintechs but also non-fintechs that want to include financial services in their offering. This is a growing trend that I continue to be bullish on. Check out a previous series on embedded fintech if you’re interested in digging deeper.

I’ve segmented the market by use case to help operators navigate the landscape of companies they can leverage for any specific need. Whether you want to learn who the players are, or see where there’s white space, this market map can help you wrap your head around the many areas of fintech infrastructure, how they fit together, and where opportunities exist.

While these organizations span the gamut, I’ve grouped the landscape into nine use cases:

1. Lending

2. Identity, fraud, and risk

3. Banking

4. Crypto enablement

5. Insurance

6. Data aggregation and normalization

7. Payments

8. Brokerage

9. Income verification and payroll

Here's how I see these infrastructure companies enabling the next generation of fintech.

Lending

This category includes companies that build the tooling so businesses can provide their end customers with access to capital. This can be in the form of loan platforms, card offerings, or even software for debt servicing. I’ve included cards in this category because a significant amount of revenue for most use cases comes from interest on a revolving balance, though it could also be classified under payments given equally meaningful interchange revenue.

The thesis for offering capital to one’s customers is relatively straightforward: leverage a direct relationship, proprietary data, and/or access to cash flows to underwrite and cross-sell customers. Not only does this engender loyalty, but the access to capital also enables customers to spend more and transact more often. 

The thesis may be clear but the execution is anything but. Launching a lending or card offering requires some combination of bank partnerships, lending partners or balance sheet capital, servicing capabilities, and underwriting expertise. Companies like Kanmon, for example, enable their customers to provide instant growth capital to their end users. By delivering the onramp, underwriting, funding, and servicing as one offering, they can turn yearlong investments of up to millions of dollars into something much more turnkey. Lithic has a similar value proposition for launching a card program. They have abstracted the banking, issuing, and BIN management complexity away into a simple, easy-to-use interface that allows companies to launch credit and debit cards in weeks.

Identity, Fraud & Risk

To provide a fintech offering profitably, managing fraud and risk is essential. The core of this is identity—verifying that your customer is who they say they are and they are using your product in the way they claim and how it was intended. This may sound obvious and straightforward at the surface, but fraudsters are sophisticated, evolving as fast (or faster) than the latest technology to identify them. 

The companies in this category offer various services to better identify and manage fraud and risk. This can be verification for KYC, AML, and compliance or better modeling and identification of fraud to reduce losses. Some services like Hummingbird’s compliance product focus on workflow solutions, while others like Sentilink are more opinionated with scoring. Some of these companies primarily leverage internal data to glean insights, while others enhance their recommendations with external sources.

Banking

Banking is a notoriously sticky product. The average U.S. adult reports having used the same primary checking account for 14.3 years! Whether a business or a consumer, if you have a primary banking relationship, chances are you will be around for a while and provide meaningful revenue to the company you bank with. 

Similar to the thesis around lending above, providing banking products can be a clear opportunity to drive retention and LTV but is extremely challenging to launch from scratch due to regulation and complexity. Companies in this category, also known as banking as a service (BaaS), like Unit or Treasury Prime not only allow companies to spin up checking and savings accounts quickly, but also to offer more sophisticated features like interest rate segmentation, joint accounts, and high yield savings.

Crypto Enablement

A category I’ve highlighted previously, crypto enablement describes companies that enable traditional financial institutions and fintechs to offer crypto compliantly and more seamlessly to their end customers. Despite still being in the very early innings of this market, 31% of 18-29 year-olds already own cryptocurrency. That number will only continue to grow. As the lines continue to blur between traditional financial services and crypto this will become an increasingly important part of the infrastructure toolkit.

Insurance

The insurance industry is huge. Across segments, premiums were ~$1.3T in 2020. The market is highly regulated and therefore, like many other financial services discussed previously, it can be extremely complicated to launch an insurance product. For example, most insurance is licensed on a state-by-state basis, which requires new players to go through the licensing process dozens of times. The companies within insurance enablement are working to reduce some of this burden and span a variety of needs, from tooling that streamlines agent and carrier workflows, to insurance infrastructure that enables companies to offer turnkey insurance products.

Agentsync, which streamlines compliance workflows for agents, and Ascend, which enables insurance premium payments by reducing financing friction, are examples of companies enhancing processes for agents and carriers. On the other hand, Tint and Lula provide infrastructure that enables companies to offer insurance products on their platforms by powering operational requirements like fraud detection, policy management, and claims handling.

Data Aggregation & Normalization

An important task for many fintechs is aggregating internal and external customer data and making sense of it by cleaning and normalizing it for underwriting, risk management, scoring, and prioritization. In general, these data providers either focus on consumer or small business data.

The companies in this category offer access to data across various categories including banking, accounting, revenue, and even brokerage. Many offer read and write access, which not only enables companies to pull information, but also modify back to their partners based on activity via two-way sync. The best known example of this is Plaid, which offers consumer bank account linking as a core product, and has expanded to several other use cases and segments over time. 

Like many fintech workflows these seem straightforward on the surface, but a practitioner quickly realizes that integrating, managing data schemas, and normalizing data across sources to make sense of it is a complex process that requires expertise and can benefit from economies of scale.

Payments

Payments is arguably the meatiest of these categories because it encompasses the ways in which money can be moved and has to be managed. If done properly, there are so many benefits to sitting within the flow of funds both in terms of revenue but also retention, mindshare, and data. Companies within payments can approach the need from a variety of ways. For example, Stripe (a Redpoint portfolio company) and Finix provide the rails for companies to accept payments. These are horizontal offerings that can be used in e-commerce, marketplaces, and many other use cases. There are also e-commerce-focused providers like Bolt that are optimizing their UX and GTM for this use case, for example with a one-click checkout. 

Within the payments workflow ecosystem, there are also companies like Dwolla or Modern Treasury that are focused on other types of money movement like account-to-account payments and ACH. 

The last, and equally important area within this segment is focused on an emerging category called payment ops. Companies like Proper Finance are helping to manage the complex operational requirements of money movement that sit outside the flow of funds such as ledgering and payments reconciliation.

Brokerage

In a world in which consumers are increasingly interested in understanding and actively engaging in their finances, the ability to provide an investing offering is more important than ever. r/wallstreetbets (almost 12M members strong today!) and the meme stock phenomena are just one example of this increased interest in investing. Brokerage platforms like Apex and Embed offer companies the ability to white label brokerage offerings into their experiences more easily—from onboarding and account opening to trading and tax filing.

Income Verification & Payroll

I believe that income and payroll data is very valuable and would have many use cases if it were easier to access. Today, the prevailing process to verify this information is by calling a consumer’s employer (very high cost and friction) and therefore is only used for high value transactions like mortgage underwriting. If this data were easier to access, it could be used for smaller cash advances, other lending products, and even financial planning. 

Companies in this category span everything from facilitating income data and verification to providing the infrastructure to create an entire white-labeled payroll offering. Income verification providers like Pinwheel and Atomic hook into traditional payroll providers to provide the data. Different vendors leverage different routes to optimize data access and accuracy—some have opted to do so via consumer logins, others via partnerships with employers and sometimes even with the payroll companies themselves.

Companies like Check and Salsa are building the infrastructure to enable companies to provide a white-labeled, embedded payroll product. By offering a flexible, modern payroll API, these platforms enable companies to launch a customized payroll product tailored for their use case relatively quickly.

As the market map above illustrates, there are dozens of companies that underpin fintech innovation, addressing needs from fraud protection to data aggregation. However, startups aiming to enter the market face a paradox: while it has never been easier to build a fintech company, at the same time, it is still too expensive and time consuming to launch a fintech. As the fintech infrastructure landscape matures, we will see more categories and companies develop that will drive down this friction, especially around product launch, operational workflows, and crypto enablement. 

Missing any companies? Send me a note. I’ll plan to update and expand the market map over time as a living reflection of the market.