Show me the Fintech!
At least once a year, the Luge team takes a breath from traversing through the weeds of day-to-day investing activities, and tries to look at the fintech “forest” from a 30K-foot view. It’s a way for us to call out the mistakes we’ve made, highlight what we got right, and also a chance for us to reflect on the areas that we think look the most promising over the horizon. Each person on the team is tasked with taking the rest of us to school on some specific topics, based on their learnings over the prior year.
The result: a curated list of themes that have captured our attention, both out of interest and for potential investment. In this post, we’d like to share a few of these ideas in the hopes that they invite debate and help us connect with the builders in these spaces.
Let’s unravel…
A universal ID passport
We now live in a world where deepfakes are becoming mainstream. The widespread availability of powerful AI tools capable of generating synthetic data, including fake identities and images, has received considerable attention.
This presents a complex challenge for underwriters tasked with distinguishing the genuine from the fraudulent. As we navigate through these evolving threats, there emerges a clear demand for a revolutionary, digital-native ID system, designed to ensure each component is verifiable, portable, and seamlessly integrated into digital transactions, setting a new standard for secure and trustworthy online interactions.
The need for enhanced digital identity issuance and verification is especially evident in the financial sector, where a person’s ID is integral to daily operations, from opening bank accounts and applying for credit to purchasing insurance and executing payments.
The Play: A universal, reusable, verifiable digitally-native ID
The Challenge: Getting widespread adoption, and keeping up with the evolution of fraud tactics
The future of employee benefits
The modernization of employee benefits has received much attention from investors. The definition of what constitutes employee benefits has progressively expanded, extending beyond traditional offerings like health insurance to include supplemental coverage for virtual healthcare as well as fitness, wellness, and more. A diverse array of industries and sub-sectors have begun offering “X-as-a-benefit” models targeting employers directly. We have observed this take the form of all sorts of offerings like legal services, pet care and pet insurance, caregiving, and student debt forgiveness — all “as-a-benefit.” Employers are now also beginning to use benefits platforms to reward employees for performance or work-anniversaries. Ultimately in this evolving field we have two critical questions, the answers to which could uncover significant opportunities for startups:
1) Who is going to provide coverage for the “modern employee” as the definition of what that means evolves?
The profile of the average employee has undergone significant transformation over the past decade, and even more so in the last five years. Rideshare platforms like Uber and Lyft led the way in the rise of the gig economy, and other types of temporary and contract-based employment are becoming increasingly common. This trend is being further accelerated by the rapid growth of the creator economy, making flexible work arrangements more common than ever. Moreover, the pandemic and the rise of remote work have led to company workforces becoming increasingly distributed across various countries. As investors, we’re excited to see continued innovation in how the modern worker is able to get the coverage they need, whether it is through their employer or they get it themselves.
2) What will emerge as the next big category of employee benefits? Which offerings will become the new standard and which will become “nice-to-haves” as part of a strategy for improving employee retention?
Solutions for solving many of the expensive problems facing employers in areas like musculoskeletal therapy (MSK) and mental health have already been developed. Looking ahead, we’re curious to see which new category will capture employers’ attention next, whether it is health-related or something that caters to a different type of wellbeing, such as financial health. How easily employers are able to plug-in and out the benefits they value is another area where there is opportunity and where we have seen investment already. Regardless, there is no doubt that what is considered standard for employers to offer will continue to evolve over time, as will the way these employers use supplemental benefits to better retain talent.
The Play: An evolved form of employee benefits that are personalized and address modern needs.
The Challenge: Getting employers to offer a new benefit, in a world where they’ve been pitched new ideas regularly. It’s a bit of a chicken and egg problem: in order to sign on employers you need to show them the data that employee satisfaction and retention actually increases, but you need to sign on employers in order to gather that data in the first place.
Financial OS for businesses
A third area we’re thinking about is the development of a comprehensive financial operating system for businesses. More specifically, to empower business owners and founders to more efficiently manage everything “finance” from a single platform. Starting a company is an immensely challenging thing to do, often accompanied by an overwhelming flood of information coming from all directions. As investors, we recognize the critical need for tools that enable finance leaders to discern what is signal from what is noise.
Imagine a dashboard view that gives you access to inventory, cash flow, revenue, opex and any other information you might need from one location, as well as an automated analysis on what to do with that information. This concept is all about empowering the startup CFO, someone who needs to manage everything from accounting and financial reporting to budgeting. It’s a role that requires juggling a ton of information across many different platforms. You might have your sales data in Shopify, your enterprise leads in Salesforce, your accounting done in QuickBooks, your cap table in Carta, your customer support insights in Zendesk, and your HR functions in Workday, in addition to managing your company bank accounts. Especially at the early-stage when resources are low, we think there would be a ton of value in a solution that could allow you to tap into the insights from all these platforms from a single command center. Companies like Rippling, through connected workforce management, are already starting to do this. But just how far can this idea extend? Need to check the headcount budget? New hire salary data is readily available. Landed a big client? Contract details are easily at hand for updating projections and rewarding the winning salesperson.
This central hub wouldn’t just streamline information intake; it would empower seamless outward communication for investor reports, customer updates, and more. Incorporate the ability to pull in public data, such as key news relevant to your business, and you begin to form the blueprint of an idealized virtual command center for all essential operations. Version 2.0 of this might even give you automated insights based on the information. For now however, we think that simply housing all these signals in one spot would be a great start.
You often hear this concept referred to as “the office of the CFO” but we think it extends beyond that.
The Play: A one-stop OS for finance and operations teams to increase their visibility of everything happening in their organization and help make reporting easier.
The Challenge: Connecting and integrating with all the tools where financial information currently resides and building a clean, intuitive UX that presents this information in an actionable way.
Tools for helping FIs cross-sell
The sales process for financial products is unlike that of other consumer-facing products. Some, like credit cards, are frequently sold and can be issued multiple times throughout a customer’s relationship with a financial institution as their credit and life circumstances evolve. Others, like mortgages, occur less frequently but represent significantly larger transactions. Products like life insurance are often tied to pivotal life moments, such as the birth of a child. The point is, sales cycles vary across financial products more than they do in arguably any other consumer-facing category. This variability presents unique sales challenges and amplifies the importance of having access to customer information. Despite this need, there remains a notable gap in tools designed to help financial institutions predict these important life events to effectively upsell and cross-sell to their customers with accuracy and at scale.
Imagine a scenario where you can immediately identify when a customer is ready to purchase a new vehicle to offer them auto insurance, or when they are exploring options for their child’s first credit card. Navigating privacy concerns is crucial in this context, but we envision the future of financial services, including wealth management and insurance, shifting towards a relationship-driven model rather than one that’s purely transactional. Your financial institution should be an active partner in your life’s journey, ready to proactively provide the products and services you need at the right time. Companies capable of acting as the informational bridge between financial institutions and their clients will be instrumental in turning this vision into reality.
The Play: Tools to help financial institutions gain deeper insights into their customers.
The Challenge: Demonstrating the accuracy of predictions and convincing customers that the value of preventing missed opportunities and reducing customer churn outweighs the cost of implementing the solution.
These are just a few of the areas that we’re interested in. One thing that I love about being a fintech-focused investor is the breadth: we all interact with the world of financial services in some way, and for us, this means unlimited opportunity in the fintech space.
Whether it be in any of the areas mentioned or not, if you’re building in fintech at the early-stage, we’d love to hear from you! You can contact us anytime via our website, or by reaching out to me directly on LinkedIn.
About the author
I joined the Luge Capital investment team in Montreal about a year ago after completing my degree in Systems Design Engineering from the University of Waterloo. As a student, I worked in a variety of roles across product, strategy, and data science. Most recently prior to Luge, I helped build collaboration tools for technical teams at a startup called Mattermost (YC S12) and worked in product analytics at the buy-now-pay-later company PayBright during their acquisition by Affirm (NASDAQ: AFRM).
