A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
The Rapidly Falling Fintech Valuation Story Shows No Signs of Stopping
What happened: A measure of secondary share activity shows that out of the many dozens of fintech startups a grand total of three have kept or exceeded their peak valuation.
Why it matters: Underwater investors and VCs are far less likely to raise subsequent rounds to provide further funding to the next era of startups. Minus a few thousand employees who have meaningless equity, it’s they who suffer most.
What’s next: If the soft landing actually happens, expect those three that kept their value (and others) to go public. Then we won’t have to rely on private sales to determine these fintech companies’ actual value. (By Mary Ann Azevedo, TechCrunch)
Banks No Longer Offer the Best Window Into the Health of the American Economy
What happened: The business of commercial banks has now spread to a lot of places where we have no visibility. “A trillion dollars of corporate debt is held by private lenders, and so when default rates spike — which is already happening, and which S&P Global expects to peak early next year — it won’t be seen on bank balance sheets.”
Why it matters: “Too big to fail” is bad. So too is “we’re not sure who’ll fail and when.” How long before a private lender gets bailed out is a great parlor game for macro followers and a terrible bellwether for American politics.
What’s next: Somewhere in the next few years someone will be telling people to look up what happened to Long Term Capital Management, and not for any good reason. (By Liz Hoffman, Semafor)
The Small Firms Bucking the Major M&A Trend
What happened: The world of investment banking is topsy-turvy. Household names are shedding jobs and smaller firms and boutique houses are suddenly fielding inbound interest from managers who previously wouldn’t give them the time of day.
Why it matters: The upside-down nature of hiring and firing in investment banking is really an argument about the future of dealmaking. Are the boutiques right that the next cycle of M&A is around the corner? Or are the Goldmans of the world correct in seeing a semi-permanent slump?
What’s next: It feels too simplistic to say, but doesn’t this, just like nearly everything, come down to what happens with rates over the next few years?. (By Jan-Henrik Foerster, Bloomberg)
Legacy Software Is Hard to Kill, Even Harder to Integrate
What happened: Deutsche Bank bought smaller competitor Postbank in 2010. It didn’t actually port over all of the rival’s 12 million customers until earlier this month, approximately 13 years later, and not without “the most ambitious and fraught integration project” in the very old bank’s history.
Why it matters: A cynic could look at the fintech market, especially in an age of lowered valuations, and declare that it’s too crowded. But stories like this one, which reads as much like a thriller as is possible in the world of bank IT, just demonstrate how much greenspace is available to startups if they can solve what are currently time and labor-intensive problems for legacy institutions.
What’s next: A well-deserved holiday for the “200-strong team of retail bankers” who finally got this project over the finish line. (By Olaf Storbeck, The Financial Times)
Was the Fed Really Inspired By Crypto?
What happened: The U.S. Central Bank’s FedNow program is an attempt to make payments and settlements available 24 hours a day, seven days a week, and 365 days a year. Sounds great, unless you’re in crypto where a lot of builders say they’ve been trying to solve the same problem while the Fed has actively worked to hamper their own progress.
Why it matters: It’s going to increase the sense of victimhood, fairly or not, amongst an entire generation of crypto founders now finding themselves in competition with the regulator they believe is unfairly holding them back.
What’s next: Beyond a lot of complaining, perhaps a reasonable argument for why startups who took the time to get bank charters should be allowed to experiment just like the Fed. (By Crystal Kim, Axios)