Is The Future Of Fintech B2B?

Fintech activity shifted from consumer to business propositions in 2023. According to Dealroom.co, business-to-business SaaS startups attracted 58% of fintech funding last year (through November 30), while business-to-consumer startups pulled in just 20%. This marks a steep drop-off from over 50% for B2C back in 2016, and is a trend to watch. But a sub-trend is the pivot B2C companies are making to the B2B arena.

When capital was flush, so were consumer startups. Neobanks, trading apps, budgeting tools, you name it; they were all raising tremendous rounds. But many of these companies had one thing in common — a killer experience they couldn’t monetize. And, as the environment shifted amid rising interest rates — overall fintech funding hit its lowest level since 2017 in Q3 2023, per the dataset — many startups were faced with an ultimatum: Demonstrate a viable path to profitability or fail.

Enter the B2C to B2B shift. A number of companies are tackling the profitability challenge by taking the technology they built to serve consumers and selling it to businesses instead. And, specifically, to financial institutions. For example, in November, consumer neobank HMBradley announced that it would shut down its consumer operations and instead focus on selling its technology to banks. More recently, HSBCHBA 0.0% built its new fintech app, Zing, using money app Monese’s XYB platform. Kids banking app Greenlight also sells its technology directly to banks and credit unions under its partnership program, called Greenlight for Banks. These are just a few examples.

This makes a whole lot of sense. As noted in CCG Catalyst’s The Top 5 Things on Our Mind Heading Into 2024, “It is hard to make money selling banking products to consumers — the market is extremely competitive — but there are also many fintechs out there that have built fantastic experiences on impressive tech.” Turning around and selling those experiences to the financial institutions that already have the consumer relationships necessary to scale it therefore seems like a savvy business move. This can either be complementary to consumer operations or in place of them.

Moreover, this is a model that is easier for investors to understand than the typical “interchange” model that many consumer fintechs rely on, especially neobanks. As Christoph Stegmeier, senior partner at Simon-Kucher, recently told American Banker, “Investors are more familiar with technology, licensing revenues, and subscription revenues” of selling software to businesses. They prefer it over revenues received for bank-like activities, he explained to the outlet. (In large part, that’s likely because those revenues, often based on interchange, are known for being tied to huge losses.)

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