The rush to be the best bank-type platform has created a crowded market, both in the business-to-business and direct-to-consumer fintech sectors. Investors are placing their bets on tools that will gain wide adoption, creating a high bar for founders and product developers.
To one fintech investor, the plethora of digital banking platforms is hardly a negative development. Kelly Ford, who earlier this year was promoted to general partner at growth equity firm Edison Partners, acknowledged the herd mentality among founders and investors who support rebundled product and service offerings that manifest as challenger banks.
But despite the risks of an over-saturation of the market, the net effect will be to push the boundaries of product innovation, she argued.
“The challenger space could be considered overhyped, but in a positive way,” she said. “[With] funds flowing into it, the impact that it’s starting to have in terms of how the larger traditional institutions are responding — all of this is contributing to a buzz. Time will tell if the valuations and capital going into the space will truly pay off.”
Edison Partners, which is based in Princeton, N.J., supports high-growth companies with $8 million to $30 million in revenue. Its portfolio fintech firms include challenger bank MoneyLion, alternative investment platform YieldStreet and business payments tech company Bento for Business. She said winning companies will be those that solve compelling problem for end users, and said the bets her firm has made will make financial services accessible to a wider pool of consumers.
“We’re bullish on the challenger bank space, obviously with our bet on MoneyLion, and YieldStreet is making alternative investing accessible to the masses and at its core providing kind of a capital as a service platform for businesses,” she said. “They’re democratizing financial services, and we continue to get excited about anything that is differentiated in a way that makes financial services cheaper, more convenient and safer.”
On the business-to-business side, she noted that Edison Partners is interested in tools that help automate day-to-day tasks, and help integrate financial services functions into broader business processes, notably supply chain management.
“The intersection of vertical enterprise SaaS [software-as-a-service] with fintech is pretty exciting,” explained Ford. “Anything that removes friction associated with invoicing, payments, lending, insurance and putting that right into the flow of general business processes and the applications that support that is an interesting intersection and something I’m leaning into.”
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