The Thesis Driving M13's Fintech Investment Strategy

We dive into how the fintech sector has changed, key opportunity areas, and where we’re placing our bets on the future of money.

March 28, 2023


At M13, we’re thrilled to invest in the massive opportunity presented by today’s financial services market, with a focus on supporting solutions across financial connectivity, embedded finance, and financial services for independent workers. (More on those below.) We believe the future of money lies in making financial services accessible to every person and every business, which is why we’ve made fintech a key focus of our overarching investment thesis.

Financial services presents a massive market opportunity, with profits more than 9X greater than the software industry. Historically, most of the value of this sector has been locked inside dominating legacy financial institutions—but fintech is changing that.

As technology advances and users continue to move toward digital mediums, legacy banking practices are becoming increasingly obsolete. This movement toward a digital-first economy has only been accelerated by the Covid-19 pandemic. Moreover, the recent collapse of Silicon Valley Bank and its impact on other regional banks has shown the need for deeper partnerships between fintech companies and financial institutions to provide banking infrastructure and diversification that can mitigate risks.

We seek fintech solutions embracing these changes to truly open access to financial services, with a focus on sourcing companies that truly understand—and work to shape—changing consumer behavior.

Where specifically are we looking to invest? Read on for a deep dive on the areas where we see the most opportunity for disruption and innovation in the fintech space.


Where we are now: The fintech market opportunity and 3 major breakthroughs

    Acceleration of digital banking

    Unbundling of financial services

    Rebundling of financial services

Mapping the fintech landscape today

Our focus areas

    Financial connectivity of identity & assets

    Embedded finance

    Financial services for independent workers

Our Portfolio

Request for startups

Where we are now: The fintech market opportunity and 3 major breakthroughs

The market opportunity for the financial services sector—which includes banking, lending, payments, insurance, and investing—is larger than any other major industry. Gross profit outweighs software, e-commerce, and even healthcare.

And this industry is only growing, with the global market expected to top $30T in the next few years.

Gross profit by sector
Financial Services Market

Gross Profit By Sector Image Source: Coatue (see pg 8), October 2022
Financial Services Market Image Sources: IBIS World & The Business Research Company

Within this massive opportunity, fintech penetration is in the early innings: fintech represents only 2% of financial services’ public market cap. The global fintech market, which was valued at $111B in 2020, is by some estimates projected to reach nearly $700B by 2030, growing at a rapid 20.3% CAGR.

The perfect storm of declining legacy systems and rapidly expanding fintech market opportunity drives our belief that fintech has massive potential to unlock the value that entrenched players previously had tied up in the wider financial services space.

How did we get here? In the last decade, three major waves of fintech innovation have shaped both the financial services sector and our fintech investment strategy today. We outline them below.

The Evolution of Fintech Innovation
Source: M13

Breakthrough #1: The acceleration of digital banking

The days of physically visiting a bank branch are falling behind us, spurred by technological advancement in the space as well as increased demand for digital services brought on by pandemic-era social distancing protocols. Today, nearly two-thirds of the US population uses digital banking services, with almost 80% of millennials leveraging the tech. Meanwhile almost 30% of Americans use an online-only bank, reporting markedly higher rates of satisfaction than traditional bank customers.

The ubiquity of smartphone banking apps, followed by the birth of the iPhone in 2007 and the release of the first banking app in 2011, has shifted what consumers expect from their banks. Mobile apps for direct deposit, bill payment, money movement, and more have become table stakes for the average smartphone user.

The technology ushering in this change included mobile apps developed by banks as well as Zelle, a consortium of banks that joined forces to facilitate inter- and intra-bank money transfers. In the last 5 years, users have sent more than 5B Zelle payments, with payments volume increasing 27% year-over-year in 2022. Today, 80% of the US population has Zelle connected through their banking app.

Money center banks were the biggest beneficiaries of this digital banking boom. The shift to digital saw several category winners, including Chase, Bank of America, Wells Fargo, and Citi. Today, these top four banks still account for 67% of market share in the US, as measured by total assets, and almost one trillion dollars in market cap.

Breakthrough #2: The unbundling of financial services

In the mid-2010s, as consumers grew used to the intuitive design and personalization of social apps like Facebook, they began to expect the same seamless user experience in other areas—including financial services. With narrower offerings and nimbler teams, fintech apps could offer sleeker, more user-friendly financial experiences than incumbent banking apps.

Consumers began to adopt these fintech apps to spend, save, invest, borrow, and generally manage their money. For instance, rather than rely on their bank for everything, a user might routinely use Mint for personal finance management, Venmo for peer-to-peer payments, and SoFi for managing their student loans.

The technology that enabled this unbundling of banks—and the proliferation of fintech solutions at the application level—came from bank account aggregators and verification providers at the orchestration level, including Plaid, Yodlee, Finicity, and MX. These developer platforms gave fintech apps the ability to connect to their users’ bank accounts to enable use cases like personal finance, investing, retirement, lending, BNPL, payroll, insurance, and payments.

Breakthrough #3: The rebundling of financial services

As consumers used more fintech apps, they were also becoming overwhelmed by the number of apps required to carry out various financial functions. Subsequently, consumer behavior shifted away from single-use fintech apps and toward financial super apps across three key categories:

Digital wallet apps (PayPal, Venmo, Cash App, ShopPay)

Investing & banking (SoFi, Chime, Robinhood, Coinbase)

Buy now, pay later (Affirm, Klarna)

Having a few banking super apps to perform a range of financial services became preferable to single-use fintech apps.

The tech stack powering this rebundling are orchestration companies that enable application companies to embed powerful financial features into their products across several categories:

Banking-as-a-Service: Provides high-interest, FDIC-insured checking and savings accounts (Unit, Treasury Prime, Green Dot)

Payments: Allows users make and receive payments (Adyen, Stripe,

Cards: Providing fully programmable, high-interchange debit cards (Marqeta, Galileo, Lithic)

Brokerage: Enables stock trading (Apex, Drive Wealth)

Crypto: Enables crypto trading (ZeroHash, Paxos)

A number of “money super apps” have emerged as winners of the rebundling movement, successfully offering a bevy of financial services users traditionally would find at a bank, from transfers to savings accounts to direct deposit capabilities.

Fintech apps are increasingly adding a wide suite of services

Source: Bloomberg, data as of Dec 2021

The fintech landscape today

With these three major waves of fintech innovation as context, we visualized today’s fintech landscape into a market map to help us better understand the current state of the market—as well as identify the biggest gaps for today’s founders to fill.

Note:Companies included are illustrative and not exhaustive of players in the space. Our goal is to show the major categories to consider within each layer of the fintech market.

Fintech landscape
Source: M13

The infrastructure layer refers to traditional financial institutions: large banks, sponsor banks, card networks, acquiring and issuing processors, credit bureaus, and insurance carriers. (This is where we see the decades-old incumbents of the financial services industry.) This layer consists of the institutions that make money movement available and enable transactions to take place when you swipe your credit or debit card. We don’t anticipate significant disruption at this layer, due to the regulatory nature of our industry.

At M13, we are especially excited about investment opportunities at the orchestration layer. This is where developer platforms wrap an API around traditional financial institutions to make powerful financial products and features available to companies at the application layer. Orchestration companies act as a go-between, so application layer players don’t need to spend time working directly with the legacy institutions at the infrastructure layer in order to offer their financial products.

Finally, the application layer includes anything end-user-facing. These are the apps individuals and companies use for daily financial transactions, from paying bills and doing their taxes to buying insurance and saving for retirement.

Our focus areas

Against the backdrop of today’s fintech landscape, we’ve identified three major gaps where we see huge potential for disruption and innovation. These are:

Financial connectivity of identity and assets

Embedded finance

Financial services for independent workers

Financial connectivity of identity & assets

We believe that every consumer should have full access to and authority over their financial identity. At the orchestration layer, this means giving fintech apps the ability to provide a universal verification process for consumers and the ability to move assets across apps.

Fintech landscape: financial connectivity disruption layers
Source: M13

For example, say a user wants to use the balance in their Venmo account to buy stocks or cryptocurrencies on an investing platform like Robinhood. Right now, this requires them to transfer the Venmo balance to their bank account, then use bank funds to make transactions on Robinhood. An underlying interconnectivity solution would instead allow them to seamlessly transfer money and identify information directly between Venmo and Robinhood.

Financial connectivity empowers users to own their own information by giving them the ability to take their identity and assets wherever they go, without relying on a central institution as a middleman.

Current state

With financial connectivity
Source: M13

Where the opportunity lies: As the regulatory environment continues to shift asset ownership toward consumers, there will be a need for financial connectivity between multiple fintech platforms, especially around identity verification. We see particular promise in KYC/AML, where traditional solutions fail to allow consumers to create financial identities that can be used across multiple providers.

This will enable consumers to “Bring Your Own Brokerage” (BYOB) inside any app and execute trades, as well as transfer cash, assets, liabilities, and crypto across apps. In turn, this will spur new use cases in social investing, digital wealth management, tax optimization, cash flow underwriting, and crypto payments enablement.

Why we see potential: This is a pro-consumer area: simple, flexible, and focused on easy cross-application use.

Investing in “write” functions (as opposed to read-only solutions, which can read financial data but not facilitate financial transfers) can lead to new use cases in assets and liabilities transfer. We’ve also seen recent regulatory tailwinds around open banking, as CFBP Director Rohit Chopra highlighted in his remarks about open finance and consumer data ownership at the most recent Money 20/20 conference. There is also potential for players in this area to allow connectivity between web2 and web3 financial systems.

Other considerations: This category is in the early innings, and there is low consumer tolerance for failure when it comes to user privacy and security. Existing applications may be hesitant due to worries about data leaks from their own ecosystems, while walled gardens (banks and massive asset holders) may be reluctant to shift financial identity ownership to consumers.

Emerging players:


Embedded finance

Embedded finance allows non-financial services companies to offer powerful financial features—for example, a clothing store that offers a branded credit card, or an airline that lets customers purchase flights in its booking app. We believe embedded finance players at the orchestration layer are advantageously positioned to offer financial products to the specific industries they serve.

Fintech landscape: embedded finance disruption areas
Source: M13

Where the opportunities lies: We see a major opportunity for embedded finance platforms to offer unique financial products for vertical SaaS: retail, restaurants, healthcare, trucking, construction, and food and agriculture. Embedded finance platforms are uniquely positioned to make appropriately structured, appropriately priced, and industry-specific financial products directly available to the businesses they support. The most relevant financial products here span payments, lending, insurance, tax, and accounting.

Why we see potential: Proprietary data allows for flexible and customizable products. Solutions here lend themselves to easy expansion across financial services and potential cost savings via bundling those services.

Other considerations: Legacy institutions have scale and dominate payment flows here, and there’s potential that they may step in to fill this gap. Consumer wariness about non-financial providers facilitating financial services is another consideration.

Emerging players:


Financial services for independent workers

The independent workers category includes gig economy workers, freelancers, solo entrepreneurs, creator economy participants, and others who work beyond the traditional company-employee model. Today, there are ~70M Americans participating in the independent work economy—with that figure projected to reach 90M by 2028, representing more than half of the country’s workforce.

We aim to invest in companies that fill the gap in financial services available to this growing demographic.

Fintech landscape: financial solutions for independent worker disruption areas
Source: M13

Where the opportunity lies: At the application layer, we need to empower independent workers and help them solve their biggest financial needs: banking, accounting, tax management, and legal formation. Tax solutions at the orchestration layer present another opportunity to better serve this group.

Why we see potential: Strengths of this market include market tailwinds around the growth of independent workers, growing consumer acceptance of multi-earner culture, and improving financial security and business viability for this class of workers. We see further optionality to license technology to marketplaces in rideshare, healthcare, delivery, food services, and more.

We also believe organizational and financial products can increase independent worker productivity, presenting a flywheel opportunity to grow with customers and expand into SMBs run by independent solo entrepreneurs who expand their work.

Other considerations: Platform service offerings pose a potential threat: will gig economy operations like Uber begin offering their own benefits here? Regulatory uncertainty (e.g., will gig workers ever be classified as W-2 employees?) is another consideration.

Emerging players:


Our portfolio

M13’s overarching investment thesis is predicated on understanding changing consumer behavior, and we invest in companies that are building defensible businesses around these emerging behaviors.

Our fintech portfolio spans both the application and orchestration layers. We’ve backed companies from gamified consumer savings apps (Prizepool) and the world’s first 100% collateralized crypto-backed mortgage (Milo) to infrastructure for item-level receipt data (Banyan) and the rails facilitating near-instant crypto transfers (Lightning Labs).

Future of Money
Source: M13

We've also invested in two business super apps at the application layer: Rho and Ampla.

Rho provides an all-in-one finance automation platform that enables finance teams to command and control spend with products across accounts payable, credit cards, banking, expense management, and treasury management. With the unfortunate fallout of SVB, Rho's guidance and service in areas of capital preservation, risk management, and income generation have been monumental.

Ampla is building the operating system for the CPG supply chain by providing growth capital, banking, billpay, and data analytics to consumer brands.

We believe the future of employee retention and engagement will increasingly become centered around financial wellness—which is why we invested in Northstar, which offers financial wellness as an employee benefit through employers.

As more people embrace digital assets, we’ll continue to see novel applications across a variety of new real-world use cases, from Lightning Labs (building rails to make Bitcoin globally usable for transactions) to Nori (incentivizing farmers to sequester carbon in their soil).

On the real estate side, technology platforms and tools are modernizing the $36T residential real estate market for buyers, sellers, landlords, and tenants (Doorstead, HomeLister, Doorvest).

What’s next? Request for startups

We seek to propel the next generation of fintech founders shaping a more democratized financial world. We also understand the long-term value that can be realized from investing in a recessionary environment, and our model allows us to continue supporting founders even in adverse economic conditions.

We especially want to hear from you if you’re building:

A financial identity platform that gives ownership of financial data back to the consumer

A next-gen financial connectivity platform with read, write, and transfer capability

An embedded finance platform that serves not only fintech companies, but also industry verticals

Does this sound like you? Let's talk. Please reach out to Karim:

email icon Karim Bhalwani

Twitter icon @KarimBhalwani

Linkedin icon Karim Bhalwani