Fintech presents a treasure trove of opportunities for disruptors.

Steve Sloane, who is a partner at Menlo Ventures and runs the firm’s “Inflection Fund,” shared his vision for the fintech sector in an article in VentureBeat.

Fintech is rife with opportunity

Fintech was already hot, and VC funding was pouring in. COVID-19 added a fillip to the fortunes of payments fintechs as consumers pivoted to digital means of payments to support an increasingly online, e-commerce fulfilled lifestyle.

Further, the future looks rich with promise as hungry acquirers are paying up billions of dollars to snap up businesses such as Plaid, Credit Karma, and Personal Capital.

There is much more to come, however, according to Sloane. In his view, fintech as a sector is still underinvested. VCs taking a bet on disruptive fintechs now could reap rich rewards.

“In the next five years, fintech will drive some of the biggest VC exits,” predicts Sloane.

Potential targets for fintech disruption

“Fintech companies addressing seemingly arcane parts of our economy are big businesses,” says Sloane.

Furthermore, according to Sloane, a few sectors within fintech “present massive opportunities for disruptors”:

• Stock exchanges [Legacy example: CME Group (NASDAQ: CME), Market cap $59B]
• Payments [Legacy example: Visa (NYSE: V), Market cap $410B]
• Banking infrastructure [Legacy example: Fiserv (NASDAQ: FISV), Market cap $64B]
• Data providers [Legacy example: Verisk Analytics (NASDAQ: VRSK), Market cap $60B]
• Mortgage/insurance/corporate finance technology [Legacy example: Black Knight (NYSE: BKI), Market cap $11B]

However, potential disruptors will not find it easy.

“A combination of regulatory hurdles, entrenched behavior, low risk-tolerance, and the benefits of larger balance sheets have kept upstarts at bay for decades,” says Sloane.

“However, as venture capital supports the ecosystem, modern technology creeps into the sector (cloud, APIs), connectivity and data exchanges improve, and consumers grow tired of incumbents, the tide continues to shift.”

“If VC-backed disruptors can bite off even a fraction of the value now owned by legacy business, returns would easily eclipse all other sectors of venture capital,” observes Sloan.

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