*Fintechs $300 trillion Opportunity*
Financial services revenue is $30 trillion globally
Fintech has captured around 1% of that or $300 billion.
The problem with a lot of financial services revenue is that it it requires a lot of ppl and is low margin.
AI is starting solving for the margin issue.
Things that used to require lots of ppl won’t anymore.
This won’t happen overnight. But it is very likely to happen in the next decade.
That enables several things
- higher margins
- better products w/ more things bundled together.
Today, financial services companies in aggregate trade a little around 1x revenue (I’m bundling in a lot of things you won’t see in public markets like tax prepares, CPAs etc. public market companies tend to have different quality revenue and trade at higher multiples).
Today the market cap of all financial services company is around the same as the revenue but revenue (around $30 trillion each) is largely low margin.
When software starts replacing ppl we are going to see rebundling on steroids.
We will also see revenue multiples expand to software like multiples, call it 10x.
So Market cap for all financial services companies powered by better software could be $300 trillion.
There are a number of objections to this.
- Won’t incumbents benefit too? Yes, but I think startups are better at rebundling and rebundlers will get most of (but not all the gains).
- Won’t software lower the cost of intermediation and reduce revenue for financial services shrinking the category? Yes to an extent. But again, I think more things will get bundled in. When you start replacing ppl and automating flows you can charge the same (or more) bc you provide more value.
- $300 trillion is a crazy number you must be an idiot. Ok, maybe that’s a bit excessive. Even if I’m off by an order of magnitude there is still a ton of enterprise value up for grabs.
Looking forward to fintechs most exciting decade.
