Fintech startups need to be AI firms now to survive

It's no secret that AI has stolen fintech's thunder as the sector in which everyone wants to work, and every VC wants to invest. Unfortunately for those in fintech less bullish on the technology, a veteran venture capitalist has suggested that fintechs need to be AI firms now to survive.

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Jack Selby, an MD at Thiel Capital, has said that AI is now a "ubiquitous ingredient" in successful startups in a recent interview on YouTube. Even if a startup is successful, a lack of AI implementation will give investors a "moment of pause."

It's a hard enough time for fintechs as it is without accounting for this AI necessity. Speaking at last year's Singapore Fintech Festival, Selby suggested that large numbers of unprofitable fintechs are running out of runway, and could be in serious trouble as soon as next year. Fintechs like Revolut have been swinging to profitability, but many still have work to do.

Selby says top AI talent is "really, really scarce" and "really, really expensive." The majority of startups won't be able to hire the AI staff "that can really move the needle" and will be reliant on larger companies like Google and OpenAI to do the work for them. He estimates that the number of world-class AI experts in the US are "in the low thousands."

Selby says, more positively, that the advancements made by those AI giants "levels the playing field" among startups by massively improving the efficiency of various processes. Not using them, however, can be detrimental; Selby says a worst-case-scenario is that a competitor will enter the field with a similar product, but also leverage AI, and see more success.

Fintechs often gain that 'efficiency' by using AI to reduce their headcount. Klarna, which is planning to go public soon, has used AI to do the work of 700 employees and reduced its headcount by 27%. Barclays' MD and global head of fintech banking, Sabry Salman, has said AI in its current form can reduce headcounts for engineering teams by as much as 88%.

Stripe is one of the exceptions. According to Live Data Technologies, it has hired more employees in the second half of 2024 than any other startup, including AI firms like OpenAI and Anthropic. It hires its own machine learning experts, however, and is likely one of those competing for the needle-movers. A current opening for a staff machine-learning engineer working on implementing GenAI pays up to $382k in salary alone.

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