FinTech activity has shifted from consumer to business offerings in 2023. According to Dealroom.co, B2B SaaS startups attracted 58% of fintech funding last year (as of November 30), while B2C startups attracted 20 % Just. . This represents a sharp decline from more than 50% in B2C in 2016, and is a trend to watch. But the subtrend is the pivot that B2C companies are making in the B2B arena.
When capital was flowing, so were consumer startups. Neobanks, trading apps, budgeting tools, you name it; They were all firing massive rounds. But many of these companies had one thing in common: a killer experiment they couldn't monetize. As the environment changed amid rising interest rates — overall fintech funding reached its lowest level since 2017 in the third quarter of 2023, according to the data set — many startups faced an ultimatum: show a viable path to profitability or fail.
Enter the shift from B2C to B2B. A number of companies are dealing with the profitability challenge by using technology they developed to serve consumers and selling it to businesses instead. Specifically for financial institutions. For example, in November, neo-consumer bank HMBradley announced that it would close its consumer operations and instead focus on selling its technology to banks. More recently, HSBCHBA built its new fintech app, Zing, using Monese's XYB money app platform. Children's banking app Greenlight also sells its technology directly to banks and credit unions under its partnership program, called Greenlight for Banks. These are just a few examples.
This makes a lot of sense. As stated in the CCG Catalyst report, Top 5 Things on Our Minds Heading into 2024, “It's hard to make money selling banking products to consumers – the market is very competitive – but there are also many fintech companies that have built great experiences on impressive foundations. Technique.” Transforming these experiences and selling them to financial institutions that already have the consumer relationships needed to scale seems like a smart business move. This can be complementary to or in place of consumer operations.
Moreover, this model is easier for investors to understand than the typical “exchange” model that many consumer fintech companies, especially neobanks, rely on. As Christoph Stegmaier, senior partner at Simon Kocher, recently told American Banker: “Investors are more knowledgeable about the technology, licensing revenues, and subscription revenues” from selling software to companies. They prefer it to the revenues they get from bank-like activities. (This is likely largely because those revenues, often exchange-based, are known to be associated with heavy losses.)
So, the B2B pivot gives fintech companies a way to generate sustainable and predictable revenue through licensing fees while also helping to make their businesses more attractive to investors. This feels like a win. In fact, this may be the future of the fintech industry. Although there will always be a few outliers able to compete effectively enough to make a B2C offering successful, the truth is that if what you're really good at is building, it may make sense to sell through those with a history of doing so.
Going forward, we can expect consumer fintech companies to continue to face headwinds. Even major players like Chime have been pretty quiet lately — the unicorn hasn't raised any money publicly since 2021, though it cut its headcount by 12% at the end of 2022, making it part of a long line of fintech companies that have done so. That's in the last year or so.
Over time, these companies will need to figure out how to grow without breaking the bank, or they will cease to exist. If corporate transformation is the answer, the ongoing fintech recalibration may end up focusing on the relationship between bank and fintech – not in a partnership but in direct sales. This would turn the raison d'être of fintech on its head. After years of fintech companies coming to the banks' lunch, we can see these startups finally finding sustainability by turning their major competitors into valuable customers.
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