This first appeared in the monthly a16z fintech newsletter. Subscribe to stay on top of the latest fintech news.
In 2021, financial services continued to have its moment – fintech fundraising surpassed all years prior; it was a banner year for fintech IPOs; and fintech mega M&A activity was at an all time high. We saw one of the largest fintech IPOs just before year-end with Nubank raising $2.6B (as the largest digital bank), one of the largest fintech M&As with Square acquiring Afterpay at $29B, the first ever direct listing in the UK with Wise, the first ever fintech/crypto direct listing with Coinbase, and multiple fintech SPACs.
Crypto infuses all financial services
Twenty years ago, “is it an internet company?” was a common question. Today, (almost) every company is an internet company. Ten years ago, “is it a mobile company” was a common but now obsolete question. Similarly, we will soon stop asking “Is it a crypto company?” because most companies – starting with the broader financial services industry – will have a crypto component.
As crypto takes up more and more mindshare of consumers, financial apps are adding crypto products to gain further wallet share. For instance, Robinhood started with stock trading and now facilitates some crypto trading; some neobanks allow customers to earn higher yields through DeFi (decentralized finance); and larger banks are in the early days of experimenting with crypto offerings. In 2022, we’ll see more crypto infrastructure built for transfers, wallets and yield as a service, custody, and more, so consumers can continue to integrate and manage both their fiat and crypto financial lives. We’ll also see a new wave of fintech companies that are powered by crypto infrastructure in the back-end, and what others are calling DeFi mullets (fintech in the front, DeFi in the back).
– Angela Strange, a16z fintech general partner, and Sumeet Singh, a16z fintech deal partner
The web3 community will emerge as a major political constituency in the U.S. midterm elections
As we close out the year, one in five American voters now owns cryptocurrency. According to a recent poll we conducted, web3 and the future of the internet will impact the way many people vote in the 2022 U.S. midterm elections.
The web3 constituency is young and diverse: 79% of millennial voters, 73% of Hispanic voters, and 79% of Black voters are more likely to vote for a candidate that supports expanding web3. These voters largely came of age in the wake of the Great Recession, and many of them come from communities that have been given short shrift in their attempts to build generational wealth. They seek a meaningful alternative to the current financial system — one that gives them direct control over their money and provides investment options for parts of society underrepresented by traditional financial institutions.
So what do these voters care about? By a wide margin, they want policymakers to focus on regulations that crack down on bad actors and illegal activity while being careful that regulations don’t stymie economic opportunity for average Americans. They want policymakers to lean in and participate in our national technology strategy. They overwhelmingly believe that web3 can give consumers more control over their data. They believe that web3 can bolster U.S. technology leadership on the global stage. And they want government to play an active role in supporting community-owned web3 platforms.
There’s no question that web3 will be a major part of next year’s election, and policymakers are quickly coming to realize what’s at stake.
– Tomicah Tillemann, a16z global head of policy for crypto, and James Rathmell, a16z crypto counsel
Community-first social investing platforms
What do the GameStop saga and ConstitutionDAO have in common (besides Citadel’s Ken Griffin)? They both illustrate the desire for internet community participants to collectively direct their money towards a greater goal – whether that goal be running a distributed hedge fund or buying a copy of the Constitution.
In 2022, we’ll see multiplayer, community-driven social investing platforms that tap into this internet culture of collective action. We’re seeing a number of products being built here that aren’t skeuomorphic to other social products, so rather than having features, like leaderboards and trade-following, they’re building around new product primitives, such as asset pooling, voting, and coordination, that enable collective investment, whether that’s distributed hedge funds, advancing social and environmental goals, or pooling money to purchase collectively owned assets. These products will have clear advantages – embedded distribution given the multiplayer approach and higher engagement given they can be flat-out fun.
– Sumeet Singh, a16z fintech deal partner
Every healthcare company is a fintech company
Fintech products enable vertical SaaS businesses to diversify into new revenue streams, as we’ve said before. In healthcare – a system that represents 20% of our nation’s GDP – we see three areas where fintech capabilities can supercharge the industry in 2022: consumer payments and lending, provider practice enablement, and insurance. Healthcare payments are particularly complex due to our country’s third-party payor system, in which providers bill for services, payors reimburse for those services, and consumers receive the service. So a generalized solution, such as Stripe, is unlikely to provide the full set of capabilities, like regulatory compliance and health plan integration, needed to comprehensively support a medical practice. This leaves open the opportunity for vertical-specific payment gateways and financing products, such as “buy now, pay later” (BNPL), that help consumers finance their healthcare bills and mitigate the risk of bankruptcy from unplanned medical expenses.