by Alex Lazarow, Managing Partner at Fluent Ventures

This piece was originally published on Alex Lazarow's column in Forbes

Much ink has been spilled about where fintech is going. It is refreshing to ground this in a retrospective. In this vein, I wanted to deep dive on three reflections from this excellent report by F-Prime: The 2023 Fintech Index.

1. The historical trajectory continues unabated – with a now-corrected 2021 aberration

2023 was a seemingly exceptional year for public market fintechs. The F-Prime index was up over 100% year over year.

Yet the reality check is equally important. Fintech valuations remain nearly two-thirds down from their 2021 peaks.

But when drawing the trend line from 2014, the index’s inevitable march forward up and to the right continues.

After peaking at $1.3T in late 2021, the F-Prime Index Fell and then rebounded (F-PRIME)

What’s actually happening of course is the correction of the 2021 aberration. Perhaps an even better way to look at this is on a multiples basis. Today, valuation multiples are back to historical ranges (and, if anything, may have some room to increase relative to historical averages).

Public investors assigned high multiples to fintech companies, but they are back to historical averages (F-PRIME)

2. Fintech innovation’s success has been uneven

Over the last decade, a mega trend in fintech was unbundling: taking the most profitable business lines from banks, and creating stand-alone businesses. This gave us lending startups, insurtechs, investment houses, and neobanks.

In some of these unbundled categories, fintechs have become market leaders. These tended to be in categories where software innovation was meaningfully better than its alternatives (e.g. Stripe and software-based payments) or where new categories were created (e.g. BNPL).

Financial services areas that were won or lost by fintechs (F-PRIME)

In others, incumbents caught up and dominated. Taking roboadvisors as an example, and per the report’s analysis: in 2021, Betterment and Wealthfront were roughly 50% each of the total roboadvisor market. By 2021, they were 8% and 6% respectively.

Similarly, Lending Club was over 80% of peer-to-peer lending in 2014. By 2020, they were only 20%, with institutional players dominating the market.

Over the last two decades, the top five banks and brokerages have actually seen their market cap increase not decline. JP Morgan just announced they are increasing their branch network. Incumbents are far from dead (or unbundled).

3. We remain in the early innings of fintech innovation

While many fintechs are already generating billions in revenue, overall market adoption remains well under 10%.

Many categories have yet to take-off. While real-time payments have seen explosive adoption in India and Brazil, reaching 83% and 50% respectively, the US remains de minimis under 2%. As a result there is still meaningful room to continue maneuvering.

New emerging technologies may continue to be a boon. Artificial intelligence is being widely adopted by both incumbents and scaled fintechs over a range of use cases. This promises both an opportunity for personalization and reducing costs.