by Alex Lazarow, Managing Partner at Fluent Ventures

This piece was originally published in Forbes

This year’s Money20/20 just wrapped up. The mood was palpably different than in years past. Certainly not somber, but neither was it ebullient.

It had the feeling of waiting—waiting to see what the public markets might bring in terms of stock recovery or new IPOs, waiting to see whether any of the historically transformative technologies would actually pan out (think crypto), waiting to see whether mainstream venture capital would return. Waiting.

To give you a flavor about what we might be waiting for, I asked leading venture capitalists and fintech CEOs for their reflections. Here are five.

1. New areas continue to emerge

The last decade in fintech brought us mass-scale digitization of every major product category—from life insurance to home insurance, mortgages to buy now, pay later, checking accounts to roboadvisors, and more.

Some ask, what’s next?

Perhaps the area with the most enthusiasm is embedded fintech. Simon Khalaf, the CEO of Marqeta, explained why: “embedded finance will exceed $7 trillion of total US financial transactions” (up from $2.6 trillion, referencing Bain research).

Many venture capitalists stressed the role of vertical software (think Toast for restaurants) as a channel to repackage financial services into the experience. This is becoming an area of interest in every major vertical.

The last few years saw unprecedented venture investment in global fintech. Many of these new geographies have unique needs. Carlos Alonso-Torras from Fintech Collective noted specific LatAM solutions in fraud and compliance where “the amount of fraud incidences across fintech companies is growing quickly.”

2. Realism about the next hyped technology

Crypto was all the range in previous Money2020s. This time, it was generative AI.

But where will it actually matter?

As Adam Coccari of IntuitINTU +1.2% described the likely phased impact: “For banks and wealth managers, it is starting to be adopted now for internal functions such as research, knowledge management, and cost centers like customer service with fewer regulations and a lower bar for accuracy. On the business side, companies will start by providing co-pilots within applications.”

Generative AI (like crypto and all other hyped technologies before it) will not be a panacea. And in particular for financial services. Simon Khalaf told me “AI has a higher bar in financial services. Generative AI typically generates content, but in financial services, it has to improve users' financial well-being.”

Yet this remains a place startups will have an advantage in fintech. Coccari adds: “Startups will be more comfortable operating in gray areas in the near-term and will be the first to experiment using AI for things like financial and investment advice to consumers. They will push the boundaries… Banks will watch carefully and adopt these features as consumer trust and regulations adapt.”

3. Consensus is up for debate

There is much debate about what actually succeeds over the long-term.

As interest rates rise, consensus seemed to be that asset-light businesses would thrive—particularly in fintech. Yet, Ben Savage of Clocktower expressed the opposite view: “We think the fintech VC ecosystem will end up leaning in more to balance-sheet-intensive companies over time. The companies may be less capital efficient at scaling than other business models, but the absolute size of the profit pools are large enough to more than make up for it on the upside.”

Barry McCarthy from Deluxe reflected on the isolated point solutions of the last decade and argued these will cool off in the near future as customers increasingly seek seamless, integrated solutions that provide a unified and convenient user experience.

Even the new hot thing is facing some reality checks. Dan Rosen of Commerce Ventures explained that the indiscriminate ‘genAI for everything’ won’t work. “We're excited by practical approaches to the FinServ genAI opportunity, but verticalizing LLMs is not trivial.”

My view: Fintechs that enjoy the three Ds of fintech—distribution, data and delivery advantage—will continue to thrive in the long-term, regardless of market (and one reason I’m an active investor in embedded fintech models like vertical software, B2B marketplaces and CFO tools).

4. Nearing valuation stability

Already, valuations are down in 2023 meaningfully and fintech venture funding has cratered. This is healthy.

As Steph Choo of Portage explains: “Ultimately, fintechs will get valued more as traditional lending and insurance businesses. They will trade as a premium if they can leverage tech to operate more efficiently.”

But there is not yet consensus on what valuations should be, or the right metrics at any startup stage (i.e., what the right revenue is for a fintech at series A).

We may also see an increase in M&A. As Barry McCarthy of Deluxe told me: “Over the next year, a significant fintech focus will be on simplifying and consolidating the multitude of existing bespoke solutions.” International consolidation may also take place. Sarah Biller of Fintech Sandbox noted that “For acquirers with a global lens, fintechs that are building for emerging markets—like Latin America, for example—are worth examining.”

5. Waiting to see what’s next

We are waiting—in some ways, many are waiting for the next phase in fintech.

The last decade has given us an explosion of fintechs, digitizing every major product category. The future remains bright. The future may continue to offer changes. Steph Choo concisely summarized the tech cycle: "2020: ZIRP. 2023: new normal (beyond profitability). 2030: new incumbents will be disrupted."

What is certain, in my view, is that fintech will be focused on sustainable inclusive business models. That innovation will take place globally. Certain topics may be fads, and others might just be hyped right now (e.g., genAI), but the long-term trend remains strong.