The Parallels Between The Dot-Com Bubble And Fintech In 2023.

Do you remember 1996? I do. 

Back then I was at a media buying agency in New York and I was one of the two people designated to work on “the internet”. It was me and my boss, Pete. Pete left our media shop to go build one of the first digital ad agencies in the world, and I went with him. The VP of Account Services sat me down when I announced I was leaving and she said, I will never forget, “Are you sure you want to do this? You have a bright career ahead of you in media, and this Internet thing is a flash in the pan. It is likely the CD-Rom of tomorrow.” 

Needless to say, I left.

Do you remember 1999-2000?  I do. 

That was when the dot com bubble burst. I was splitting time between San Francisco and New York and while things had been going well for the agency I was a part of, the world around us was beginning to crash. The mainstream media was calling this the end of the Internet because the proverbial floor was so low and it had not yet woven itself into everyday life. VC’s were funding ideas like, my absolute favorite, BBQ.com, with millions of dollars to sell things like tongs and spatulas for barbecue. That was nonsense. It was a sock-puppet for a mascot type of time. It was the best of times, it was the worst of times, so to speak. Many of us stuck with it though, because we had to. We believed in the foundation of the web and that it was going to continue to change the world.

Do you remember what happened the last two weeks? We will for a long time. 

The collapse of SVB and Signature Bank feels eerily similar to that dot com crash in 2000. At first there are a couple of big flops, and then things start to snowball (although they haven't yet - maybe they won't). In this case, the snowball is the negative perception around banking and fintech (see here). The press is creating the bandwagon for people to jump onto. They’re calling out that VC funding for fintech is starting to dry up like Lake Travis in August (Austin reference for those in the know). Trust and reliability are more important than ever. Banks need to manage their risk tolerance and be careful to insure they have enough money to cover their bets on hand. Executives are being held to a tighter leash by their boards and consumers are ever more watchful of what is going on. Fintechs are taking down rounds as their valuations are cut in half, or more. Some start-ups are even completely wiping out their previous rounds, taking as low as 94% valuations (not a fintech, but check out Good Eggs) just to stay afloat.

Fintech in 2023 is like dot-com in 2000. There are a LOT of companies who were getting a bit "big for their britches" and whose egos are taking a beating right now. Many of these companies had more attitude than revenue, and they are coming crashing down to earth as a result. It has been the definition of a bubble. Conversely there are many companies who were measured in their growth and didn’t buy into the hype. The companies who’ve been building a strong foundation of revenue and customer relationships will build the cornerstone of the next wave in fintech much like what happened in digital media. 

Banks have been challenged the last few years, and this adds pressure on them to evolve, but banks plus fintech with actual measurable value will be a bedrock for growth in the next ten years. Fintech is inevitable because it is a wave of innovation that focuses on the customer, and giving them a more convenient view of what they need, when they need it. Fintech demystifies banking to some extent, and most consumers don’t understand banking. If anything, the issues in the banking sector accelerate strong fintech companies to succeed because a lack of faith in banks will not force customers to start walking into retail bank stores more often. They will tune them out more than they have the last few years.

The floor is higher in fintech than it was ten years ago, so when companies start to fail, they will not fall as fast as they once might have. The same happened in 2000. Many companies fell two steps backward, but if your floor was established, you survived (or were acquired). Those who were built on a house of cards fell apart, and the resultant budgets were distributed among the companies left standing. The same will happen with fintech. There will be a number of great companies that survive and thrive and grow the next ten years. They will experience a higher tangible ceiling rather than the false value represented by unicorn valuations at 25x their true impact.

This collapse is a bump in the road rather than a massive sink hole.

Either that, or we are all screwed. 

photo accompanying this post is courtesy of UnSplash