"A robot solution that applies machine learning will never call outside the allowed time periods, it'll never curse at you, it'll always used approved language," said David Sica, partner at venture capital firm Nyca Partners, about his favorite type of fintech solutions.
The second wave of the fintech boom is here, says David Sica, a principal at venture capital firm Nyca Partners. First came the startups with their ideas, now banks are leveraging those ideas and delivering to customers.
Nyca was formed in 2014 as a fund for fintech startups that aims to bridge the different experiences on Wall Street versus Silicon Valley and provide entrepreneurs expertise on the inner workings of the financial system. Sica, who began his career at Merrill Lynch and moved on to Visa, was the first employee of the firm founded by Hans Morris, an ex-Citigroup investment banker and former Visa president.
Today Nyca Partners is the third-most-active venture capital firm globally in fintech, by the number of investments, according to a recent study by KPMG/CB Insights.
In an interview with American Banker, Sica talked about the future of fintech, how disruptive the burgeoning industry will really be to banks and differences between venture capital in Silicon Valley and Wall Street. The following is an edited transcript of that conversation.
How and why did you get to Nyca?
DAVID SICA: I started my career at Merrill Lynch, I worked in CMBS origination. It was a very active area and overnight in 2008 the credit market turned and we were no longer lending. I ended up getting a job internally at Merrill Lynch in the institutional sales group covering Russia, the Middle East and Africa. At the same time I met Hans Morris, who was on the roadshow for Visa's IPO and he invited me to come out to San Francisco to work with him.
It was a really exciting time to be in payments. You had all the regulation around the Durbin amendment, the various class-action lawsuits and all the new innovation that popped up at the same time. There were all these new business models popping up like Uber and Airbnb — these two- and three-sided marketplaces that can be unique payments solutions. The 'wow factor' with a lot of these companies was a seamless payments experience. After spending a good deal of time on the acceptance side of the business I decided I wanted to get more involved in the new businesses. That's where Hans and I teamed up again, and I was the first employee at Nyca.
What the future of payments?
The next big payment company will enable tech commerce that's not happening today. One of the areas I like is small-dollar cross-border payments. If you're Coca-Cola or General Motors, you have a lot of options. You can go to a bank and transfer money around the world. But if you want to do business internationally with small vendors, and send out many small payments to settle in local currencies, there aren't many good options. If there was better infrastructure in place you could see a real growth in crowdsourcing activities and hiring talent from around the world.
What's your favorite subset of the fintech industry?
Right now my favorite thing is digital advice. Machines are never out of compliance. Think of debt collection, people calling at midnight and threatening if you don't pay your bills — that sort of thing. A robot solution that applies machine learning will never call outside the allowed time periods, it'll never curse at you, it'll always used approved language. That's important. Whether it's investing money or recommending a whole life insurance policy or collecting on debts you haven't paid — being in compliance is a big thing and that will be a key motivator for banks. It's cheaper, more accurate, better than humans and compliant.
What's something all your portfolio companies have in common?
An A-plus management team. That becomes more important the earlier you go. It's a long path to build a fintech company. The thing we always ask ourselves about a founder is, would you work for this person? Because chances are the rest of the people they meet will feel the same way. We look for entrepreneurs that want to work — that want to work with regulators, that want to work with banks, that are open to collaborating with the existing financial system versus trying to kill it. That's a key thing.
You haven't exited any investments, but how do you determine when to get out of an investment? Is there a one-size-fits all exit strategy?
We're going to have a few big brands that come out of fintech. They're super well capitalized, they're spending a lot of money on building the brand, so people know what they are. They want to build the modern platform to provide financial services. Going into an investment it's important to determine which bucket a company falls into. Is it going to be a business-to-business enterprise software play that can get distribution through banks or is it shooting to become a huge brand? That also connects to the exit strategy. If you're investing in the first bucket you could potentially sell the company to a financial institution, a provider of technology to financial institutions or work with a private equity firm to do a secondary transaction. By investing in companies in the second bucket you're betting this is going to be a very big company with a potential IPO down the line.
To what extent will fintech really "disrupt" banking? Where do you see banks and fintechs in a few years based on the current innovation boom?