The History of The Fintech Industry, Explained

a16z's David Haber and Plaid CEO Zach Perret chart the dramatic seasons of fintech, from the explosive VC-fueled boom of 2020-2021 to the deep freeze of 2022 and its current resurgence. They explore the transformative forces reshaping the industry today, including AI's dual role as both a primary tool for sophisticated fraud and the ultimate defense against it. The conversation also covers the rise of embedded finance, the renewed importance of deposits, and how incumbents are finally embracing external software, with Plaid's own journey serving as a microcosm of the industry's evolution.

December 19, 2025 5 min read

The History of The Fintech Industry, Explained — source: https://www.youtube.com/watch?v=pDC8mIbjRgM

The fintech industry has navigated a dramatic cycle of boom, bust, and recovery, which can be understood through the analogy of seasons.

The Seasons of Fintech

Late Spring (2018-2019): A period of steady growth where “fintech” became an established industry. A “million flowers bloomed” as countless startups focused on digitizing traditional banking services, giving rise to companies like Robinhood and various neo-banks.
EDM Pumping Summer (mid-2020 to late-2021): The COVID-19 pandemic triggered an “utter insanity” of growth. With consumers stuck at home and buoyed by stimulus checks, digital finance adoption exploded. At its peak, about 25% of all venture capital dollars were invested in fintech.
Fall & Winter (H2 2022 - 2023): The market reversed sharply. Rising interest rates squeezed lending margins, and the flow of venture capital collapsed to “basically 0%”. This period saw a significant washout, where many fintech companies, especially lenders, shut down or were acquired.
Return to Spring (2024-Present): The market is now thawing. The companies that survived the winter emerged much stronger, having diversified their product offerings (e.g., adding lending or investment features to a neo-bank) and focused on profitability. There is a renewed sense of responsible growth and innovation.

Key Industry Shifts and Trends

1. From Niche to Mainstream: Fintech has evolved from a startup-centric category to being “synonymous with financial services.” This includes the rise of embedded finance, where non-financial companies like Ford and John Deere integrate financial services directly into their products, fulfilling the prophecy that “every company is a fintech company.”

2. Incumbent Institutions Embrace External Tech: Large financial institutions have shifted their posture. They have moved from a “not built here” mentality (e.g., Goldman Sachs building its own email client) and attempts to become fintechs themselves (e.g., Marcus), to a more open approach of adopting best-in-class external software. AI is accelerating this cultural change, as its potential is intuitively understood from the board level down, shortening enterprise sales cycles.

3. The Next Frontier: From Access to Excellence: The first wave of fintech largely solved the access problem—making financial products available digitally. The next phase is about making these products excellent and solving endemic problems.

Credit Scoring: Moving beyond traditional, lagging credit files to dynamic, cash-flow-based models. Plaid’s Lens Score is an example, which analyzes real-time income and expenses to create a more logical and fair credit assessment.
Payments & Crypto: There will likely be a convergence between traditional finance and crypto, particularly with stablecoins like USDC being integrated into wallets and checking accounts as a new form factor for existing consumer behaviors like spending and saving.

The Double-Edged Sword of AI

AI is arguably the most powerful force reshaping the industry today, for both good and ill.

AI as a Tool for Fraud: The single biggest use case for AI in financial services right now is, paradoxically, “fraudsters committing fraud.” Financial fraud is growing at an alarming 18-20% annually, powered by sophisticated AI tools that automate scams like “pig butchering.” As Zach Perret notes, “it’s a cat-and-mouse game, but the mouse is winning right now.”

AI as the Ultimate Defense: In response, the industry is building advanced anti-fraud tools. Plaid’s Protect suite, for example, creates a networked defense by analyzing user actions across the entire Plaid ecosystem to assign a trustworthiness score. AI-powered voice agents are also being deployed in areas like loan servicing to improve compliance and customer experience.

Plaid’s Journey: A Microcosm of Fintech

Plaid’s evolution mirrors the broader industry:

Phase 1 (2014-2019): Focused on enabling access by linking bank accounts.
The Visa Saga (2020-2021): The planned acquisition by Visa, signed just before the COVID boom, and its eventual termination, marked a “refounding moment” for the company, forcing a cultural reset.
Post-Winter Acceleration (2022-Present): The market downturn became a period of intense focus and building. This led to increased product velocity and the launch of sophisticated data and analytics products like the Protect anti-fraud suite and the Lens Score credit model. The focus shifted from just surviving rapid growth to building durable, long-term value.