In a insightful presentation, Angela Strange from venture capital firm Andreessen Horowitz (a16z) outlined how fintech is ushering in the next wave of disruption in financial services - the ability to build financial products and services by drawing on APIs and modular “banking as a service” infrastructure.
A decade ago, fintech startups like online banks proved that physical branches were no longer needed for many banking activities. But as Strange explains, we’re now entering an “AWS phase” for fintech, where the fundamental infrastructure for creating new financial products is being unbundled and offered as services via APIs.
Just as AWS provides services like computing, storage, and databases that any company can build on top of instead of having to build that infrastructure themselves, emerging fintech companies are now offering modular banking services that can plug into any product or app. This includes banking licenses, regulatory compliance, payment processing, core banking systems, and more.
Strange provides examples of some of the pioneering fintech infrastructure providers, like Plaid for connecting to consumer bank accounts, Synapse for offering banking-as-a-service, ComplyAdvantage for meeting compliance requirements, and SentiLink for identity verification and fraud prevention.
The implications are profound. Any company can now seamlessly integrate financial services into their offering by taking a modular, building block approach instead of having to build a complete banking stack from scratch. Strange points to Uber and Lyft, which both recently added digital wallet and banking features by integrating third-party fintech services.
This allows both startups and established brands to rapidly roll out innovative financial products tailored to their customer base and use case. As Strange states: “We would expect this innovation to come from startups, to come from existing financial services institutions. But a great majority of it, I think, will come from companies that are adding financial services for the very first time.”
In essence, fintech infrastructure is democratizing the ability to create new financial services in the same way cloud computing democratized the ability to build and ship software products. We are entering an era of “embedded finance” where any company can potentially become a fintech company by plugging into a modern banking backend.
Of course, challenges around regulation, security, and market acceptance remain. But this fintech Infrastructure wave is empowering an unprecedented wave of innovation that could completely reshape how we interact with financial services. The future of finance is being built as a platform, one modular building block at a time.