Many fintechs need to “fix their business models,” according to VCs who invest into fintechs.

Recent years have seen it become uncool to work for or bank with traditional financial institutions. Much cooler was banking or working with one the many fintech startups who seemed to shun stodgy financial brands.

After the Federal Reserve raised interest rates, stocks plummeted and many fintech companies that seemed to be doing well started looking less. hardy and hale. It is now questionable whether fintech has lost its mojo.

In a panel discussion hosted by this editor Late last week, in San Francisco, the answer was no. However, the panelists — Mercedes Bent, Victoria Treyger, Felicis and Jillian Williams, Cowboy Ventures — didn’t sugarcoat the facts.

Led by moderator Reed Albergotti —  the technology editor of the news platform Semafor The three VCs all acknowledged the many challenges that face the industry at present, but they also identified opportunities.

Albergotti pointed out that startups and their backers were clearly ahead of the curve during the pandemic. He observed that fintech was “going crazy” at the time when “everyone was working at home” and “using payment apps and lending apps”, but times have changed “tough” since Covid has faded to the background.

He stated that “SoFi” was in decline. “PayPal has gone down.” Frank, a college financial assistance platform that JPMorgan bought in 2021. JPMorgan lied to him about its userbase. Albergotti stated, “They don’t have 4 million customers.”

Williams agreed but noted that there are both positives and challenges for fintechs at the moment. Williams said that it was still early days for fintech startups, and she agreed with this. Based on her data, she said that there is still demand for better alternatives to traditional financial institutions.

Williams said that it is more problematic for these companies to address their business models. Many of those who went public should have done so. While a lot of the usage remains, some fundamental changes are needed. Many outfits have spent too much on marketing and now face increasing delinquency cost because they used less stringent underwriting standards than their traditional counterparts.

Williams also said, “The banks don’t think they are dumb.” I believe they are awakened to better things and continue to do so.

Treyger voiced her concern as well. She said that certain financial services sectors would face a difficult year ahead, and she was particularly concerned about lending. Lending will suffer huge losses. . . Because it’s an unfortunate triple whammy: consumers lose jobs, interest rates rise, [rise] Capital costs are higher.

Treyger stated that it’s a challenge for many players, even larger ones, and that even big banks have announced they will double their loan loss reserves. It could get worse for young fintechs. Many of them have “not managed to survive a downturn — started lending in six years or less” and that is where she expects “to see the most casualties.”

Bent, who manages a lot Lightspeed’s Latin America investments and is also on the boards for two Mexico-based fintechs seems to suggest that although U.S. fintechs are facing severe headwinds, fintech outfits based outside the U.S. continue to perform well. This may be because there are fewer alternatives.

It all depends on where you are located,” Bent said, noting that the U.S. has one of the highest fintech adoptions and wealth management services. In Asia, however, they have much higher lending and consumer fintech services.

According to all three, it’s not all doom-and-gloom. Treyger recalled that she was part of the founding group at a company before becoming VC. since-acquired Kabbage is a SMB lender. “Once a month, they would meet the new innovation unit that has just been established by bank XYZ. They’d like to learn about how to generate ideas and drive innovation.

Treyger stated that “in a downturn, CEOs and chief financial officers cut back on areas that aren’t critical.” This will lead to “significant opportunity” for fintechs, who are creating products that “essentially add to the bottom-line.” CFOs are, in fact, all about profitability. How can you lower fraud rates? How can you improve payment reconciliation? There is great opportunity for 2023 in this area.

Below, you can see the entire conversation which touches on regulation as well as crypto.