Fintech Looks for an AI Boost

Bloomberg

Watch Fintech Looks for an AI Boost - Bloomberg on Dailymotion

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00:00You have some stellar companies in the portfolio. We've also seen fintech on a tear until the

00:05government shut down with Klarna and Chime coming to the market. So how much is artificial intelligence

00:11what companies need to infuse within themselves right now? Yeah, well, first of all, thanks for

00:15having me. I think financial services is one of actually the most interesting verticals for AI.

00:22First of all, if you just look at the size of the industry, right, financial services,

00:26about 25% of the economy, about $17 trillion of aggregate market cap. And then second,

00:31if you look at just the amount of both structured and unstructured data that you have to work with

00:36that is currently not being used in the industry, if you think about receipt data, bank statement data,

00:4310Ks, 10Qs, earnings calls, there's all of this data that's currently not being used in an optimal way.

00:49And then I think the last thing is if you think about the incremental economic value of making

00:54slightly better decisions with that data, whether it's making investment decisions,

00:59making underwriting decisions for credit or for fraud. And so, yeah, at Greylock, we're very

01:05optimistic about the opportunity for AI in financial services. It's interesting that at the moment,

01:10we come off a week where there has been anxiety fueled into the public parts of the market right

01:15now. We're worried about community banks and their exposure to credit risk. And Jamie Dimon and JP

01:19Morgan talk about cockroaches when we've suddenly seen some key companies roll over with exposure

01:25to auto loans and the like. Will AI feed that out? I feel like that's the story of the economy in

01:30general. There's a lot of risks underlying and then everyone's very excited about AI. Right. And so

01:35we're focused a little bit more on the early stage software side. And the opportunity that we see

01:40is we're moving from a world where software is maybe, you know, one to two percent of the overall

01:47budget of a company, maybe point seven percent of the GDP represents software spend. We're moving

01:53from capabilities where software is just a tool where people can enter data to software is actually

02:00capable of completing end to end work. So if you just take any sub sub segment within financial services,

02:06take accounting, for example, you have maybe one and a half billion dollars spent today on accounting

02:10software and you have one hundred and forty billion dollars spent on bookkeepers and accountants

02:16that are actually doing the work. And we believe that gap is actually going to narrow significantly

02:20because AI and software is now actually capable of completing end to end work. And that is just

02:25one example. But if you take every piece of the services side of financial services, that's kind of

02:30the trend that we're paying attention to. But for those services to be so impactful and so productive

02:35has to be the infusion of generative AI. That has to be correct if we're talking about making

02:41sure that the cockroaches aren't creeping in. And so how are companies in stress testing ensuring

02:46that the advances they're making aren't having unknown consequences for the companies that take it

02:52on? That's a great question. And the first thing that we think about is you're not comparing yourself

02:58against perfection. You're comparing yourselves against humans. And unfortunately, humans are also

03:03not perfect. Right. And so if you take compliance as one example, right, this is a huge cost center for

03:07banks. Right. If you take one of the large tier one banks, they can spend upwards of three to four

03:13hundred million dollars on compliance analysts. And the problem is they're spending three to four

03:18hundred million dollars for terrible outcomes. Right. We're still seeing three to five billion

03:23dollars a year in compliance fines. We're still seeing very slow customer onboarding. We're still

03:28seeing very inconsistent results. And so, for example, one of the companies that we invested in at

03:33Greylock is called Greenlight, they use AI to basically automate this compliance workflow.

03:38And if people are concerned initially about accuracy, they basically use a human in the loop

03:44system. Right. So they have Greenlight basically automate a lot of the work that L1 analysts do.

03:50And then you still have L2 and L3 analysts checking the work and signing off.

03:54When you're thinking about investing in a Greenlight, there's also another Greenlight that my family

03:58uses when it comes to saving for small children and their literacy. You are starting to see these

04:04companies looking for the public markets themselves. How is your portfolio looking at aging out when

04:08you're writing into the smaller, earlier stage companies? Are they seeing a ray of light by what's

04:14happened with Klarna and Chime, even though we've seen some volatile trading?

04:17Yes. I mean, we were fortunate to be early investors in Coinbase, you know, which is one of the public

04:23fintech companies in our portfolio. And yeah, I think what's interesting about the public market

04:31opportunity for fintech is there's just a supply and demand imbalance, right? If you look at the 17

04:37trillion dollars of market cap and financial services, a very small percentage of that is

04:43currently represented by fintech companies that are available for public market investors. And so I think

04:49there's a very interesting pipeline of really high performing and valuable late stage privates,

04:54including Ramp in our portfolio, you know, Revolut, Wealthsimple in our portfolio, as well as

05:00companies like Stripe that everyone knows. What about M&A? Because I know Steve Square has been buying

05:06up certain fintechs as well. I think the theme, like in all areas of the economy, is going to be AI.

05:12And so I think if larger companies don't have an AI native strategy, they're going to be looking for

05:18for M&A opportunities.

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