The least sexy areas of fintech — compliance, fraud, and infrastructure — may be the ones that hold the most potential for future expansion.
“Larger institutions are spending millions on body shops [in order to deal with fraud and compliance issues]. As fraud in particular becomes more intense, these institutions will need to implement systems in order to help reduce risk,” said Rebecca Lynn, co-founder and general partner at Canvas Ventures, speaking at the CB Insights’ Future of Fintech Conference.
The panel on early-stage fintech investing also included Rick Yang of New Enterprise Associates and Satya Patel of Homebrew, and was moderated by Dominic Chu of CNBC.
Within the fintech realm, many startups have popped up in the areas of personal finance and insurance, and at this point the market is oversaturated. However, fintech startups developing creative, scalable systems for dealing with regulatory, fraud, and compliance issues may have some of the best runway for growth as they offer a way for established institutions to cope with the fast-changing financial landscape.
Additionally, startups innovating in the area of infrastructure such as Plaid, which allows fintech applications to connect with users’ bank accounts, are also opportune for growth as they open a new gateway for further innovation by others.
Regulation isn’t just a new opportunity for startups. It’s also central to every fintech startup’s pitch according to Patel. Patel likes to see companies educating regulatory bodies on their technology early on, so that they can “see where they can push the boundary.”