Rob Heyvaert, Founder and Managing Partner of Motive Partners, on a quarter-century in fintech and what to watch for in five fast-moving sectors.
Duckbucks: You started your first company at age 24, developing capital markets settlement infrastructure, and ten years later founded the consultancy Capco during a period of tremendous technological upheaval. How did that era compare to the current moment in financial technology?
Rob Heyvaert: It was 1998, a time when entrepreneurs were still buying up domain names in the hope that they would strike gold. We were beginning to feel exposed if we left the house without a mobile phone. The excitement of what would come next in the Wild West of fintech was balanced by the fear of what might happen as the clocks struck midnight on the first day of the new millennium. (We spent more time preparing for the “millennium bug” than the Covid pandemic.)
I was hardly the first to understand the potential of this sector; I wasn’t even part of the first generation. “Financial technology” had been born some hundred years before, when cables were laid across land and sea enabling the wire transfer of funds. By the 1950s, credit cards were emerging, followed soon after by ATMs. But the “age” of fintech, the catalytic moment, is inextricably linked to the Internet. Online banking began to make things happen faster, even before disinter- mediation created direct markets.
Thinking back to the Capco days, I remember talking to a client at a large North American bank who asked me what disruption in financial markets really meant. I compared it to flight. One has an understanding that there is always a better way: a faster engine, a different take-off trajectory, new methods of fueling, perhaps even another means altogether of going about the entire process. But this comes with an acceptance of not knowing how things might evolve, and that they might do so while in “mid-flight” — acknowledging the complexity and the need to invest in those capable of making that leap.
DB: You’ve identified five sectors that are rapidly evolving due to advances in fintech: wealth management, banking and payments, capital markets, insurance and data. How is the changing distribution of wealth interacting with emerging financial technologies?
RH: There is a significant overlap between wealth and asset manage- ment on the one hand, and the banking and payments space, on the other. The shaded area inside that Venn diagram is “hyper- -personalization.”
We are in the midst of a $68 trillion generational wealth shift over the next 25 years. Inheritance and a new generation of wealth creators mean that younger, tech-savvy people are coming into money. Their online experience in the retail world means they expect the products and services they want — books by a favorite author, films on subjects they love — to appear magically on their screens. They expect that kind of service across the board.
This means their wealth managers need to provide the sort of service they’d expect from their online supermarket. That’s only possible when wealth managers can enable the hyper-personaliza- tion of financial products for advisors and consumers and can make them as readily available as a financial supermarket would — connecting the manufacturers of products and their distributors. I believe there is a strong tailwind behind products that can bring instant, personalized wealth management.
DB: Let’s look at banking and payments. How are players dealing with some of these same market dynamics?
RH: The aim of every design team in banking is to embrace new-age customer demand through digitization. This is where demand is in complete harmony with supply: customers get quicker, simpler, and better service through apps. Banks get the same customers embedded deep within their ecosystems, enabling data and analytics to work their magic.
From our perspective, this is a space that needs to be analyzed from multiple perspectives: The front office (from opening accounts to personalization and analytics), the middle office (marketplaces, risk and legal), and the back office (finance, infrastructure and lending), as well as non-banking businesses looking to implement banking solutions.
In 2023, there were sustained product development and commercial impacts across all of these, predominantly with financial companies continuing to improve banking processes using technology. AI remains on the frontier, with the potential to drive customer personalization and enormous efficiencies across the stakeholder ecosystem. I believe that’s where much of the focus will remain in 2024 and beyond.
On the payments side of the equation, the concept of installment payments is one we have been tracking closely — it’s come a long way since its humble beginnings as a simple layaway system in the early 20th century. In recent years, innovation by fintechs, coupled with the rise of e-commerce and changing consumer preferences, have converged to drive a significant and sustained market revolution.
Today, the growing adoption of consumer installment payments is driven by both consumer and merchant demand. Consumers enjoy seamless shopping journeys, instant credit scoring, and personalized, flexible payment options. Merchants offering installment payment options at checkout benefit from incremental sales, driven by increases in average order value and higher shopping cart conversion. Looking ahead, U.S. transaction volume is forecasted to surpass $400 billion by 2026, growing at a compound annual growth rate of 20%.
Our team at Motive has focused on traditional card-based payments players (issuers, acquirers, networks and gateways) who are searching for additional ways to (re-) capture economics from the growing consumer installment payments market, which typically take place outside the credit card rails.
DB: What should we watch for in capital markets?
RH: “Capital markets” are many and varied — and their electronification is not progressing at the same rate. Fixed income, derivatives, private markets and commodities are far behind equity markets. On the flip side, corporate bonds continue to make steady progress through the early stages of the electronification curve. The relatively slow pace of change means that opportunities abound for profound disruption.
Meanwhile, newer asset classes — involving smart contracts, tokenization, DeFi, stablecoins, CDBCs and more — are moving faster and require institutional-grade infrastructure. I believe that the market is growing fast, with opportunities aplenty. Deals are being driven by a concentrated group of large market participants demanding fewer vendors. This is pushing fintech companies to consolidate, expand their offerings, acquire new customers, move into new geographies and develop cloud-based models.
Within this nascent, volatile environment, firms are seeking operational efficiencies to improve profit and reduce risk. 2023 was once again a year of large-scale M&A activity. We’ve seen exchanges acquiring software providers to expand their coverage of the value chain, as when Nasdaq acquired Adenza, a software company servicing capital markets participants with end-to-end treasury, risk, collateral management workflows and regulatory and compliance software. The transaction sets a high-multiple precedent for large-scale consolidation even across non-obvious counterparties in the capital markets ecosystem. We also saw Deutsche Börse acquire the investment management software platform SimCorp, further demonstrating the appetite for large-scale capital market technology transactions.
DB: In insurance, you expect insurtech to help drive attractive investment opportunities for the foreseeable future. What are you seeing?
RH: Digitization in the insurance sector continues to accelerate. The most prominent sponsor deal of 2023 was Vista’s “take-private” acquisition of Duck Creek, a high-quality SaaS platform powering the core systems of many leading U.S. insurers. This was proof, if it were needed, of the continued demand for high-quality assets. Travelers’ acquisition of Corvus underscored the importance of managing general agents being able to access insurance capacity, as well as the desire of large insurers to acquire innovative platforms in areas like cyber insurance.
AI is also clearly central in this space. There remain numerous opportunities to automate processes and realize significant efficiencies in analysis and risk management in a sector that has long been behind the technology curve.
There is a caveat: Inflation and rising loss ratios have limited the capacity to insure risk. On the upside, I believe there will be more opportunities to invest in 2024 and beyond with less capital targeting insurtech and many companies seeking funding.
DB: What does the AI boom mean for data and analytics?
RH: This has been, and I believe will remain, a hub of activity and possibility. Simply listing data as an asset class in its own right — rather than a horizontal sub-sector within other verticals — is a sign of how fundamental it has become. Decision-making and differentiation are being driven by data, in turn driving investment. I predict an acceleration in capital deployment as a result.
More specifically, interest in generative AI accelerated in 2023. Demand for proprietary data from legacy businesses has grown, driven by the newfound interest in large language models.
For Motive, this has created exciting ways to seek value-creation in our existing portfolio, while increasing our ability to invest in data and analytics businesses. Hence, our investment in With Intelligence and our onboarding of several new leaders from the sector. We’ve also established a company-wide AI working group to allow us to leverage AI internally, with a focus on creating value across our portfolio and responsibly managing and mitigating the risks associated with these technologies.
The evolution in demand for (and analysis of) data across the broader value chain is enabling access to new sources of data and driving the greater adoption of analytics tools. I believe the sector is inundated with potential, from data sourcing, storage and quality to processing and analytics. A marked increase in the number of AI startups and ventures is forcing legacy firms to rethink their entire strategies and may lead to a rise in acquisitions.
It doesn’t take a market specialist to understand Microsoft’s mega-investment in OpenAI and its strategic rationale. Francisco Partners and TPG’s acquisition of New Relic was a marquee public transaction in the space that underscored the renewed interest in high-quality analytics platforms. Quantexa’s Series E raise of $129 million took it to unicorn status, a notable European transaction within the governance, risk and compliance space (and a member of our Motive Ventures managed portfolio). There will, without a doubt, be many more to come.
DB: How has the turmoil of the last two years changed your thinking about the future?
RH: Ultimately, we are in the business of change. We react to it and shape it. Change doesn’t always fit naturally into a financial cycle or a calendar year. Evolution doesn’t lend itself to deadlines for tax years or AGM speeches.
Having said that, it would be easy to look back on 2023 as a series of bumps in the road; tricky public markets were coupled with a lackluster IPO market. Valuations were rebalanced within a volatile interest rate environment. The geopolitical context in which we all work does not exactly lend itself to cheerfulness.
And yet I came into 2024 feeling more than a mild sense of optimism. One doesn’t need to be Warren Buffet to understand that challenging markets present golden opportunities — or that they enforce better hygiene and discipline within businesses, leaving them lean and hungry when better times arrive.
We have continued to invest, continued to recruit, continued to turn theory into practice by sharing insights, tools and efficiencies across our portfolio.
At Motive, we see young companies and incubators as critical to the forces of innovation. Newcomers with a beginner’s mind philosophy and fewer impediments than legacy players prove capable again and again of sowing disruption. They make enough progress so that the incumbents wake up, adapt and adopt, or die. We are seeing this everywhere in our space and this is why we operate across stages — each stage being complementary to the other. Success in fintech is not simply about creating a new product, nor just investing in the right business. It’s about understanding and taking advantage of an ecosystem that simply didn’t exist when I started working, and that will be unrecognizable (I hope!) by the time I finish.
Rob Heyvaert
Rob Heyvaert is the Founder and Managing Partner of Motive Partners, a specialist private equity platform aiming to “build, back and buy the technology companies that enable the financial economy.” Mr. Heyvaert has held senior leadership positions in leading financial technology firms and has founded, scaled and exited two global financial services and technology consulting firms.