The Rise, Fall & Reset of The Fintech Industry

**Zach Perret** (0:00)
2018, 2019 in Fintech was late spring. You get into 2020 and COVID, and that was utter insanity of a story.

**David Haber** (0:09)
Like 25% of all venture dollars in that period went into Fintech. Wow, 25%.

**Zach Perret** (0:13)
The stat after that is not a good stat, which is starting in the second half of 2022, basically 0% of venture dollars went into Fintech.

**David Haber** (0:20)
That was the drought, maybe.

**Zach Perret** (0:21)
Yeah, yeah. Fintech winter was the second half of 2022 Most of 23 and 24 things started to thaw a little bit. And now we're very much back in the spring. It turns out the biggest use case for AI is fraudsters committing fraud against financial services companies. Financial fraud is growing at like 18 to 20% a year, which is insane, and it's already a huge market. I mean, the cattle win long term, but the mouse is winning right now.

**Erik Torenberg** (0:45)
At the peak of the boom, roughly 25% of all venture dollars were flowing into Fintech. Two years later, that number was close to zero. Today, with a16z general partner, David Haber, and Zach Perret, co-founder and CEO of Plaid, we trace what happened between those extremes and why the market is heating up again. We look back at how the industry moved through its boom and bust cycle from the explosive growth of 2020 and 2021 to the freeze that followed and where things stand now as activity returns. We dig into the biggest forces shaping Fintech today. AI's impact on fraud and underwriting, the shift towards deposits and full-stack financial products, incumbents finally adopting outside software and embedded finance showing up far beyond traditional banking.
Zach, David, we did this podcast, I believe, seven years ago, and it's great to have the gang back together. Thanks for joining.

**Zach Perret** (1:36)
Thank you for having us.

**David Haber** (1:36)
Great to be here.

**Erik Torenberg** (1:37)
Of course, a lot has happened since the last conversation in our personal lives, and a lot has happened in Fintech more broadly. I was listening to the episode that we did the last time we spoke, and we were talking about what has changed in Fintech from early 2010s to just before 2020 And I'm curious if we could just sort of check in or reflect back. Since the last time we spoke to now, would have been some of the major themes in Fintech. Catch us up if someone was in a coma after listening to the last episode and just woke up and said, Hey, what's changed in Fintech? What would we say?

**Zach Perret** (2:07)
Let's see. So last time we talked to it was called 2018, 2019 Is that right?

**Erik Torenberg** (2:11)
Yes.

**Zach Perret** (2:12)
So let's see. A lot. There's been a bunch of different eras, or maybe we can think of it as almost seasons in some sense. 2018, 2019 in Fintech was, I guess, kind of late spring. A lot of really good growth. The industry had a name. The name probably came about. I actually think that, David, you created the name. No one will give you credit, but I will give you credit. I think you created the name in 2015 But we now had a name for this industry. We had gone past, oh, some people are maybe building financial services products, too. It is an industry, and there are a lot of things being built. We started to see the million flowers bloom, to really overextend this analogy. The million flowers bloom from, call it, 2014, 2015, up until 2019, 2020 Zillions of first time, hey, can I take this thing outside of a physical bank branch and deliver it to a consumer digitally? So you saw applications like Robinhood come up and grow incredibly well. You see all sorts of Neobank, Neobank for X or Y or Z sub-market.
Those are everywhere. You saw crypto, like the first crypto apps really start to emerge and grow a lot. And then kind of from 2019, you get into 2020 and COVID, and that was just utter insanity of a story. The first few months of 2020 were totally normal. Then you get into early COVID, where everything froze. Basically every business kind of locked up, including all the fintech companies. But within two, two and a half months, you then had this total inversion of fintech. So you went from late spring to big EDM pumping summer really fast. The EDM music turned on very loudly, very quickly. So you just had this insane growth period for fintech from mid 2020 through the end of 2021 and even into early 2022 And yes, a lot of new companies formed, but every investor, whether venture or public markets or whatever it was, wanted to push money into fintech. And so you had this huge boom in funding, tons of new stuff grew. It was really fun and very chaotic time, honestly. It was a hard time to manage because the feature chase, the things we had to build were going so rapidly.