June 28, 2017.

• Too many fintech investments are going to the interface of consumer products instead of actually fixing the financial system
• Consumer fintech may be past its prime, but it may be too early for deep back-end technologies -- Series A is a good place to be

Written by Tanaya Macheel,Michael Deleon,Zoe Murphy,Tearsheet Editors,Zack Miller   Originally published at this link.

Personal finance apps and robo advice are so over, according to VCs at this week’s Future of Fintech conference in New York.

Instead, they’re more interested in the “picks and shovels businesses” — those that create tools for other companies to use when building financial products but not the end product itself — according to Rick Yang, a partner at New Enterprise Associates and a manger in its seed practice. Fraud, compliance, core banking infrastructure; “all the systems which are very aged and banks really do need help with,” said Rebecca Lynn, Canvas Partners’ cofounder and general partner, at the event Tuesday.

“These big banks pay billions of dollars on essentially body shops,” Lynn said, suggesting that spend can be as high as $6 billion on the front end. “That’s just not sustainable as the fraud gets more intense.”

It’s a sentiment that’s been echoed across the industry over the last year from both legacy and startup firms: A new user interface is nice, but what desperately needs disruption in financial services is the plumbing. At the speed other companies in other industries are playing, it won’t be long before a pretty, smooth-running app doesn’t satisfy the customers; they’ll start to expect actual services, like moving money or approving a loan, to run faster. They’ll probably be doing those things with Amazon while banks catch up.

“We don’t need another fintech app frankly,” said Satya Patel, partner at Homebrew Ventures. “It just becomes so rigid; it limits the types of transactions, the ways money can move, the types of customers that can have access — all those things lead to the opportunity to unbundle the industry.”

For easiest example is in peer-to-peer payments apps; most of them operate the same way below the surface: they’re card-to-card transactions with limited access based on who customers bank with. There’s Venmo, PayPal, Facebook Messenger; now there’s Zelle and soon there’ll be payments over Apple’s iMessage. It’s becoming tiring for customers who don’t want to open a new app each time they want to transact. Studies show people use only 5 apps on their smartphones.

The market for consumer-facing fintech is just so crowded now, it would be hard for a robe-adviser to enter the market and try to challenge Wealthfront and Betterment; there’s a wealth of financial management apps like Moven and Clarity — and many Mint users are still use it avidly; online lending doesn’t need another SoFi or OnDeck.

“Personal finance and robo — that ship has sailed,” Lynn said.

However, infrastructure startups might be able to re-energize consumer fintech, Yang said.

“Consumer is crowded and a very hard place to invest, but if you look at the biggest outcomes and where all the success is, it’s all consumer products,” he said. “You can’t talk to an early stage fintech company that’s not using or thinking about using Plaid,” the data sharing startup employed by apps like Robin Hood.

Although other infrastructure startups (like some blockchain companies) have enormous opportunities but may not be ready.

Lynn said she’s most motivated by the Series A to B space where there’s just enough product-market fit that a firm can focus on helping those companies scale, one of the biggest dilemmas for startups.

“Being too early is no different than being wrong in venture,” Lynn said. “Let the first mover go out and then you come in behind them and are born from their mistakes. And then you build a company better.”