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Bad Metrics, Peak Regulation + Credit Suisse Meltdown
The latest in generative AI x finance
Pranjal Daga
November 05, 2024
What’s up, everyone – Pranjal here.
After a packed - but great - few days at Money2020, I'm glad to be back in New York.
Speaking of great news, we got an incredible shoutout last week in Foundation Capital's Services as Software market map! 🎉 Huge thanks to Jaya Gupta and the team for featuring Accend as a leader in financial services. Their piece highlights how the future of financial technology lies at the intersection of sophisticated software and human expertise - which aligns perfectly with what we're building at Accend.
Pretty cool to see our vision of AI + human expertise getting recognition from folks who really get it.
My favorite finds of the week.
NEWS
Have we hit peak regulation?
The backstory: In 2008, Jamie Dimon and eight other bank CEOs were summoned to Washington to accept a $250 billion government bailout. This moment kicked off a massive regulatory overhaul that shaped banking for the next 15+ years. Fast forward to today, and Dimon (now the only CEO still standing from that original group) is calling for banks to "fight back" against further regulation.
Now... We're seeing what appears to be "peak regulation" in banking, with several key indicators:
Banks are pushing back against new rules across the developed world
The "Basel Endgame" rules are being diluted after intense industry lobbying
Regulators are shifting focus to non-bank risks
Politicians are becoming more sympathetic to banks' competitive concerns
THE TAKEAWAY
Everyone's focusing on the surface story: "Banks want fewer rules, regulators want more rules." But that misses what's actually fascinating here.
We're watching the first major "regulatory rollback" attempt that might actually work, and it's not because banks got more powerful—it's because the nature of financial risk itself has changed.
Think about it this way: In 2008, if you wanted to blow up the financial system, you had to be a bank. That's why all the rules focused on banks. But today? The biggest financial risks are coming from places that don't even look like banks:
Private equity firms are now bigger lenders than many traditional banks
Fintech companies are handling billions in payments
Non-bank firms are becoming the go-to places for corporate loans
So when Jamie Dimon says "it's time to fight back," he's not just whining about rules—he's pointing out something legitimately broken: Banks are carrying the regulatory burden for an entire financial system while their competitors run free.
The really wild part? The regulators actually kind of agree with him. That's why you're seeing the Bank of England test 50 different financial institutions (not just banks) for systemic risks. They've realized that regulating banks super strictly might actually make the system more dangerous by pushing risky activities into less regulated shadows.
This is like putting all your security guards at the front door while leaving the windows open. Sure, the front door is super secure, but that's not where the threats are coming from anymore.
What makes this moment so pivotal isn't that banks might win their fight against regulation—it's that we might be witnessing the end of "bank-centered" financial regulation altogether. The next chapter isn't about loosening the rules; it's about completely rethinking who needs to follow them.
For anyone building in fintech or working in traditional finance, this shift has huge implications: The competitive advantage might not go to who can best handle heavy regulation or who can best avoid it, but to who can help bridge the gap between the regulated and unregulated worlds.
MY TAKE
Why fintech founders are tracking the wrong metrics
Every fintech deck I've seen in the last year amplifies with the same three metrics: ARR growth, NDR, and CAC payback periods. Pure SaaS metrics that tell us almost nothing about the actual health of a fintech business.
It's not hard to understand why. SaaS metrics are clean, comparable, and well-understood by investors. But forcing fintech companies into a SaaS metrics framework is like trying to judge a restaurant solely by its turnover rate – you're missing the whole point.
Traditional SaaS companies and fintech companies create value in fundamentally different ways. When Salesforce acquires a customer, their marginal cost is essentially just servers and support. When a lending fintech acquires a customer, they're taking on actual financial risk. When Stripe processes a payment, they're accepting potential chargebacks and fraud liability. When a neobank adds a deposit account, they're managing real money that needs to be available on demand.
This creates some fascinating distortions.
A fintech can have amazing NDR numbers while building a terrible business. How? By underpricing risk. If you're lending money below market rates, customers will absolutely expand their usage – right up until your loan book implodes. The same customers who drive your "negative churn" might be the ones who default six months later.
Conversely, a fintech can have seemingly poor NDR while building an incredibly robust business. Responsible risk management sometimes means not growing with certain customers, even when they want to expand. Your best customers might be the ones who decrease their usage because they're financially healthy.
The CAC obsession is even more problematic. In SaaS, CAC is straightforward – it's what you spend to acquire a customer. But in fintech, customer acquisition costs are deeply intertwined with risk appetite. A lending platform could cut its CAC in half tomorrow by loosening underwriting standards – but that would be exactly the wrong move.
Beyond Traditional Metrics
So what should we be measuring? The metrics that matter in fintech are fundamentally different:
Risk-Adjusted Revenue Retention
Track how customer risk profiles evolve over time
Monitor utilization patterns across risk bands
Measure the correlation between usage growth and default probability
Analyze pricing power with different risk segments
Quality-Adjusted CAC
Segment acquisition costs by risk profile
Measure the true cost of customer verification and underwriting
Track conversion rates across different risk bands
Understand the relationship between marketing channels and customer quality
Portfolio Stability Metrics
Monitor concentration risk across customer segments
Track vintage performance by acquisition channel
Measure the impact of economic cycles on different customer cohorts
Analyze the stability of funding sources
Operational Resilience
Monitor exception rates and manual review requirements
Track regulatory compliance costs per customer segment
Measure the scalability of risk operations
Understand the true cost of customer service across products
The most sophisticated fintech investors already get this. They're asking deeper questions:
How do unit economics vary across risk segments?
How stable is the funding base?
What's the true cost of risk operations at scale?
These questions matter because they get at the heart of what makes fintech different from SaaS. We're not just selling software – we're building financial products that need to work in both bull and bear markets. Here’s what I think measuring success in the right way looks like:
Developing new frameworks for board reporting that capture financial risk
Creating metrics that align growth incentives with portfolio health
Building dashboards that show the full picture of customer relationships
Understanding that sometimes the best growth is no growth
The winners in fintech won't be the ones with the best SaaS metrics. They'll be the ones who understand they're building financial companies, not software companies.
Until next time,
Pranjal
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