The Backbone of Innovation: How Infrastructure Fuels Fintech and Wealthtech Growth

Matthew Goldman is a regular contributor to TWIF Signals, the Founder of Totavi, a boutique fintech product & marketing consulting firm, and the publisher of CardsFTW.

The story of fintech’s explosive growth is, at its core, a story of infrastructure. Early pioneers like Venmo were forced to build foundational elements from scratch. Venmo’s success is even more remarkable when you consider how many of these tools didn’t exist, from ACH authentication to ID verification to reconciliation. Today, thanks to companies like Plaid, Alloy, and Modern Treasury, launching a fintech startup is far more accessible. These infrastructure providers solved common pain points, reducing friction and empowering new entrants to scale faster. 

The earliest fintech companies created a fertile environment for a new wave of API-driven infrastructure companies. These infrastructure providers supported existing fintech companies' growth and inspired a continuous cycle of innovation. As new fintech startups emerged, they introduced new needs and challenges, fueling demand for even more specialized infrastructure solutions. This self-sustaining wheel of innovation has been key to the ongoing evolution and expansion of the fintech ecosystem. 

The wealthtech sector is now at a similar inflection point. As I mentioned in my last article, wealthtech companies seem poised to take center stage. As AI-powered robo-advisors become more ubiquitous, so too will opportunities to invest in alternative investments such as real estate, private equity, hedge funds, art, wine, etc. The wealthtech wave will bring with it ample opportunities for wealthtech-supporting startups to thrive, just as fintech startups like Venmo paved the way for companies such as Alloy, Plaid, Finicity, Cognito, Sardine, etc.

Here are a few areas within wealthtech that will thrive over the next decade.

Many entrepreneurs who were successful in fintech (or tech generally) will likely seek to improve access to alternative investments through modern platforms. However, many of those entrepreneurs will likely be less well-versed in regulatory and compliance requirements as dedicated by the SEC vs. regulatory bodies that govern consumer fintech like the CFPB or OFAC. I see a significant opportunity for wealthtech-focused regulatory and compliance service providers to educate founders and build tools that allow wealthtechs to surpass SEC standards.

Data management is particularly challenging for wealthtechs that deal with or offer fund of funds. K-1s from wealthtechs to customers (or LPs) are especially delayed as a result of wealthtechs having to wait for data from multiple external fund managers. This data must then be internally reconciled, verified, and pulled together for LP-facing statements and tax documents. Just as Plaid created infrastructure and APIs to make it easy for fintechs to connect to customer bank accounts, a company may emerge that will allow for seamless, accurate connection between wealthtechs and external fund managers.

Fintechs often think of banks as outdated with their clunky customer portals. However, anyone who is an LP in a PE fund or hedge fund has likely seen much worse. One of my colleagues is an LP in a PE fund that has $17 billion AUM, and she receives K1s and quarterly statements in Dynamo, which offers a customer portal so clunky it makes the consumer bank portals seem lightyears ahead. Just as tools like Carta and Sydecar made it easier to manage SPVs and RSUs, new tools that are geared towards serving mobile-first LPs are likely to displace outdated platforms such as Dynamo.

As more accredited investors start to explore alternative investments, there will likely be a stronger appetite for platforms offering insights and perceived information arbitrage. We already see the larger funds adopting AI tools to keep them ahead of the curve. Generally, individual investors follow investment trends set by the larger wealth managers (when they have the means to.) One promising company that has emerged in this space is Brightwave, which received a lot of attention following Money20/20. 

Although it’s likely that established financial institutions with robust equity research teams (i.e. Goldman Sachs, Citadel) will continue to leverage tools like Brightwave first, I feel it is only a matter of time before the masses adopt these tools—whether Brightwave launches an individual consumer offering, or another company launches a product designed for individual investors.

Measuring the risk of a single stock is one thing; but how do you measure the risk of investing in rare wines? What are the downstream effects of a recession on a funeral home roll-up? 

As individual investors become more financially exposed to private equity, hedge funds, and alternative investments, empowering them with tools to help them evaluate risk will become more important. The ability to synthesize vast amounts of data and information with AI tools presents an opportunity for companies to make risk analysis more digestible for the average investor.

Wealthtech is on the cusp of a transformation. Just as fintech’s growth was powered by a wave of infrastructure companies, wealthtech’s explosive growth hinges on solving unique infrastructure pain points in creative and efficient ways. As someone who was part of the earliest wave of the fintech boom, I find myself excited to see the same early signs of explosive growth within wealthtech.

There is no lack of problems and challenges to be solved. Good luck to the next wave of entrepreneurs entering the space!