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Fintech has dominated the news cycle this year. Bold headlines celebrated large exits (Plaid, Credit Karma, Personal Capital) and venture-capital investment poured in.

While the category has heated up quickly, the sheer size of the fintech opportunity suggests that these exits are just the tip of the iceberg. In the next five years, fintech will drive some of the biggest VC exits.

In 2019, US software businesses raised $43.5 billion in an environment where global enterprise software spending reached $456 billion. Meanwhile, fintech businesses raised $17.6 billion while revenue for the top four US banks alone hit $461 billion! By that measure, fintech is not yet overinvested.

In 2018, US banks claimed a total market cap nearing $2 trillion with 22 individual banks had market caps exceeding $20 billion (see below). No one talks about disrupting KeyCorp, but becoming the 20th largest bank in the United States would mean a market cap in excess of Twitter, Snapchat, and Pinterest at the time of IPO.

Fintech companies addressing seemingly arcane parts of our economy are big businesses. Below I’ve listed a few areas of the fintech ecosystem that are often overlooked but present massive opportunities for disruptors:

Exchanges: The New York Stock Exchange is an iconic American institution. Its parent company, ICE, boasts a market cap above $50 billion. But it’s not the most valuable exchange in the country. That honor belongs to the CME Group, the world’s largest derivatives exchange, clocking in at a $65 billion market cap.

Payments: While Stripe’s rise looms large in Silicon Valley, consider that Visa has a market cap of $385 billion and regularly posts profit margins exceeding 50%. Discover Financial has a market cap of $12 billion. No offense, but when was the last time you saw that card? There’s clearly room for a disruptor here.

Infrastructure: Fiserv is a $70 billion business that provides banking core systems, payment processing, and other commercial plumbing to banks.

Data providers: Verisk ($25 billion), FICO ($10 billion), and Experian ($21 billion) might not be  the most admired companies in the world, but businesses in this category benefit from network effects and generate immense value by collecting and monetizing consumer data and predicting risk across the financial system.

Mortgage/Insurance/Corporate finance: Technology providers to specific areas of finance have created significant businesses. Across the insurance ecosystem, Guidewire, Applied Systems, and Vertafore capture $10 billion of value. BlackKnight, the leading analytics provider to the mortgage industry, is an $11 billion business. Are you thinking about managing financial documents for your public company? You may turn to Broadridge, which makes a pretty penny in this business, boasting a $13 billion market cap.

While these are massive markets, it is not easy to disrupt incumbents. A combination of regulatory hurdles, entrenched behavior, low risk-tolerance, and the benefits of larger balance sheets have kept upstarts at bay for decades. However, as venture capital supports the ecosystem, modern technology creeps into the sector (cloud, APIs), connectivity and data exchanges improve, and consumers grow tired of incumbents, the tide continues to shift.

This shift and the challenge to the status quo by fintech upstarts will have lasting effects. Even when incumbents acquire their biggest disruptors, such as Visa’s acquisition of Plaid, innovations pioneered by those startups become integrated into the system and help move the industry forward. And it also leaves room for the next challenger to stake their claim.

While I don’t expect a wholesale disruption of the ecosystem anytime soon, if VC-backed disruptors can bite off even a fraction of the value now owned by legacy business, returns would easily eclipse all other sectors of venture capital.

Steve Sloane is a Partner at Menlo Ventures

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