Fintech
May Fintech Newsletter: New a16z Fintech Podcast, Q&A with Rocket Companies’ Varun Krishna, and more
Published May 16, 2024
This content first appeared in the May 2024 Fintech Newsletter. If you would like more commentary and analysis on news and trends from the a16z Fintech team, you can subscribe Here.
Introducing Nel Vault
For too long, technology and finance have existed in parallel universes. Financial institutions believed they had to develop solutions entirely in-house, while startups struggled to navigate these complex organizations. But that culture is changing and at a16z Fintech we are accelerating this change.
As former founders and senior executives of incumbents, we have seen both sides. Financial institutions are becoming more open to adopting third-party technologies, and a new generation of founders is focused on solving workflow challenges with software + AI rather than competing directly.
a16z has deep relationships with the CEOs and executive teams of the world’s most educational financial institutions. That’s why we’re bringing you some of our exclusive conversations in a new podcast series: In the vault on a16z live.
We celebrated the launch of this new series with 3 episodes, and you can follow “In the Vault” on our podcast feed so you don’t miss any future releases.
In the first episode, a16z General Partner David Haber speaks with Marty Chavezvice president and partner at Sixth Street Partners, on the critical role he has played in merging technology and finance throughout his career, and on the magical promises and regulatory pitfalls of artificial intelligence.
In the second episode, David talks to Marco Argentichief information officer at Goldman Sachs, on automating financial workflows, turning developers into customers, and how artificial intelligence is a major turning point in the history of technology.
In our final launch episode, a16z General Partner Angela Strange talks to Jeff Sloanformer CEO of Global Payments, how he was able to identify significant industry trends early, how bets can move an organization and the seismic shift that artificial intelligence represents for the financial services sector.
Dispatches from a16z’s Connect/Fintech
In March we hosted our third annual Connect/Fintech event, a three-day retreat that brought together a group of the country’s top fintech founders and executives. Among other conversations, this year’s event featured:
- a16z General partner Alex Rampel sitting down with Varun Krishna, CEO of Rocket Companies and CEO of Rocket Mortgage (an excerpt of their conversation is directly below).
- a16z member Alex Immermann chatting with Immad Akhundco-founder and CEO of Mercury, and René Lacerte, founder and CEO of BILL, on selling to small businesses, the importance of keeping culture a vital part of a company, and the wide-ranging implications that generative artificial intelligence will have in fintech.
3 questions with… Varun Krishna
It didn’t take long to convince Varun Krishna, CEO of Rocket Companies and CEO of Rocket Mortgage, to join the retail mortgage giant last year. The role provided the Intuit veteran with the opportunity to test new transformative fintech strategies, reflect on regulatory and cultural challenges, and lead a large company through the most innovative of new platform changes: generative artificial intelligence.
a16z General partner Alex Rampelwho joined Rocket’s Board of Directors as an independent director earlier this year, recently spoke with Krishna at a16z Connect/Fintech event on how he’s approaching his new role, how Rocket thinks about the intersection of AI and fintech, and the future of real estate.
Here is an edited excerpt of their conversation.
Alex Rampell: In the startup world, we often talk about the 0-to-1 concept and building a product from scratch. Rocket is a multi-billion dollar company, which is probably more like 1 in a billion or 1 in infinity. Given the size of the company, how do we start thinking about growth, especially in light of the revolutionary change brought about by generative artificial intelligence?
Varun Krishna: The starting point for me was really grounded in learning from companies that understand 0-to-1 and 1-to-100. These are two different things and require two different types of teams and people. In the 0-to-1 world, you need more entrepreneurial types who have seen failure, have resilience, and understand product-market fit. In the 1 in 100 or 1 in a million world, you are looking for people who understand growth, have a leadership mindset, and understand analytics. Using product as an example, because it’s in my DNA, your 0 to 1 product manager is obsessed with customer experimentation so they can understand product-market fit, while your 1 to 100 product manager knows how to write the query language and review analytics every day.
In the world of AI, this is exacerbated, because you have to understand a different level of technology, a different scale, a different pace. There’s a big, big learning curve. So, you need to understand how to inject talent into your company that can rub off on the rest of the population: you need to understand how to drive transformation in a broader way.
Alex Rampell: Generation AI models have been known to generate hallucinations, which is fine when you’re writing song lyrics, but disastrous for a heavily regulated industry like fintech. You can’t ask a Rocket chatbot to tell a customer they can get a 1% 30-year mortgage just because the customer threatened the bot, for example. What are your thoughts on integrating AI into fintech companies and products?
Varun Krishna: The level of precision in fintech is extremely high, and unlike open-ended generative AI, in fintech, when users ask a question, they want a specific answer. I think fintech companies need to think about how to put guardrails around the prompt or origination thesis, so that users can get a more specific answer. Also, because we are experimenting, we have a higher threshold for accuracy. We also have a high threshold of risk, brand, security, reliability – all of these things.
Another tricky thing is figuring out how to experiment at scale. I think the practice of refining early adoption programs where possible work with expert users who are more tolerant of things going wrong, that’s really hard to do in fintech. But it’s incredibly necessary.
Alex Rampell: The National Association of Realtors recently settled a lawsuit that could eliminate the traditional 5-6% real estate agent commission and effectively change how real estate agents are paid. This will obviously have a big impact for Rocket and the real estate industry in general. What is your opinion on this change?
Varun Krishna: This is great news. When you look at the mortgage industry as a whole, it’s a massive $1.5 trillion addressable market, the vast majority of which are purchase transactions. If you take that and say, “Hey, 6% of that is what real estate agents command,” that’s a $90 billion market that’s on the verge of collapse. So, we’re excited about it, because fundamentally, our thesis is about creating value for the consumer, and that ultimately delivers more value to them. Whether you are the buyer or the seller, you either save more money or earn more, and the commoditization of knowledge occurs. So when you add AI, to provide personalization and simplification and add transparency to things like pricing structures, ratings, remodeling fees… I could go on and on. It will be a better world for consumers.
This month in Fintech News
The bond markets have become the new stock markets — due to the growth of electronic trading platforms, the advantages of algorithms in pricing bonds and the ability of proprietary trading firms to take bond inventories — so says Bloomberg’s Matt Levine.
Wall Street is considering how to do it incorporate artificial intelligence tools into your work as an analystintegrating positions that were traditionally time-consuming and labor-intensive.
Consumer Financial Protection Bureau updated as designates a non-bank for supervision on April 16. It says the new rule will streamline how it reviews financial institutions to spot problems before they cause damage or become systemic.
Mastercard has launched a new app aimed at helping organizations include its virtual cards in digital wallets. In his announcementMastercard highlighted use cases for healthcare, insurance and corporate travel expenses.
European Union regulators say so ready to approve Apple’s proposal to open up its tap-to-pay technology in the EU, which would resolve an ongoing antitrust investigation.
The Federal Reserve seeks to add approximately 8,000 financial institutions to FedNowits instant payments network launched last July.
Chris Britt, CEO and co-founder of digital-only bank Chime, detailed the company’s past and present to Forbesfrom its inception through a potential IPO in 2025.
Intel’s recent M&A and market transactions
Digital promotions and performance marketing solutions company Ibotta price its IPO on April 17, raising $577 million by offering 6.6 million shares at $88. On the first day it grew by 17%.
CoStar online real estate market leader announced acquiring digital sister platform Matterport on April 22 for approximately $1.6 billion in cash and stock. CoStar was an early adopter of Matterport’s technology.
Digital Investment Advisor Improved announced the acquisition of Marcus Invest’s accounts and assets under management from Goldman Sachs on April 22.
Nigerian digital payments company Flutterwave announced changes to its corporate team on April 23 in preparation for an IPO.
Thunes, cross-border payments company announced the acquisition of payment platform Tilia on April 23, to accelerate its growth in the United States and its presence in the online gaming market.
B2B payments company Paystand announced acquiring spend management software provider Teampay on April 25. Paystand says the acquisition expands its network to include more than 1 million businesses.