Joel van Arsdale, Managing Partner, and Rom Mascetti, Principal at Flagship Advisory Partners, sat down with Elisabeth Magnor, Senior Manager, at Flagship Advisory Partners to unpack the real story behind public fintech growth and to reveal new research across 50 listed fintechs. From revenue efficiency to the rise of SaaS-with-payments, cash flow health, and what AI and IPOs mean next, this episode is your data-driven guide to how fintechs are really performing.
The episode focuses on the financial health of public fintech companies. Topics covered include:
- The shift from rapid, cost-heavy growth to disciplined, efficient operations
- What exactly lies behind the growth
- Why SaaS-based fintechs like Shopify and Toast outperform through embedded payments
- The growing impact of AI and IPO momentum on fintech performance and investor sentiment
Listen to the latest episode on the following platforms:
Please do not hesitate to contact Joel Van Arsdale at Joel@FlagshipAP.com or Rom Mascetti at Rom@FlagshipAP.com with comments or questions.
Transcript
(00:01) Elisabeth Magnor
This is FinTech Conversations with Flagship, a podcast production by Flagship Advisory Partners. In this podcast, we discuss the big topics shaping the world of payments and FinTech and each episode will bring you sharp insights and fresh perspectives from the industry. So whether you're building, investing or simply just curious about FinTech, you're in the right place.
(00:18) Elisabeth Magnor
Hello and welcome to the very first episode of Fintech Conversations with Flagship. My name is Elisabeth Magnor and I'm the host of this episode. We are Flagship Advisory Partners a consultancy that specialises in strategy and M&A in the payments and fintech space. Today we're diving into a very interesting topic which is the financial health of public fintech companies. Over the past years, fintech has been on a rocket ship. Growth everywhere, funding pouring in and headlines full of big promises. But here's the question we wanted to answer:
What exactly lies behind the growth? Is growth powered by efficiency? So are fintechs finding smarter and more automated ways of generating revenues or are costs secretly piling up in the background with ballooning operating expenses? That's exactly the analysis our team has been working on. And without giving away too much just yet, I can tell you this: the way fintechs manage their financials has shifted dramatically over the past three years. So in this episode, we're going to unpack what's really going on under the hood.
But first, I'm happy to introduce the guests of this episode. First up, have Joel Van Arsdale a truly impressive person. He's the managing partner and founder of Flagship.
He has supported hundreds of deals across his career and Joel's financial sponsor clients are among the world's most successful investors in fintech. Welcome Joel.
(01:35) Joel Van Arsdale
Thank you, Elizabeth. Thanks for hosting the discussion. And we're excited to discuss this topic, which I think is a very interesting one. I mean, I think what the audience will hear is really dramatic shifts in how fintechs are managed as seen in the public markets over the last five years. And so we're excited to get into the details of that.
(01:51) Elisabeth Magnor
And in addition to Joel, we also have Rom joining this episode. Rom Masetti is a principal flagship and he brings more than 10 years of experience in FinTech and is considered a trusted advisor in domains such as CFO SaaS, B2B payments and payments orchestration. Welcome Rom.
(02:06) Rom Mascetti
Thanks Elisabeth, looking forward to exploring some of the key drivers behind the fundamental shifts and discussing how we see the market developing along some of these themes.
(02:18) Elisabeth Magnor
In this episode, we are discussing the financial health of publicly listed fintechs. The background is an interesting analysis we did now in 2025, which was a refresh of an analysis we did back in 2023. And the topic gained a lot of attention in our network. So Joel, before we dive into the data and specifics, appreciate that not everyone listening are familiar with our research.
Could you please share some background on why we conducted the analysis at the time and what metrics we looked at?
(02:43) Joel Van Arsdale
Yeah, so firstly, flagship publishes, you know, 100 insights a year and one of the advantages of the fintech industry is that there are a lot of publicly listed companies, you know, dozens of listed companies around the world and across different subsectors within fintech. This analysis specifically focused on 50 publicly listed fintechs. It was an analysis first conducted in 2023 using 2022 data. The reason why we conducted the analysis then
is because we were essentially emerging from a valuation and exuberance bubble in the public markets and fintech equities. And so, we essentially wanted to test sort of what was the management philosophy of fintechs coming out of that bubble or as existed during that bubble. And so we ⁓ prepared a data set using really two basic KPIs, which we converged into one measure of performance index. So we essentially looked
looked at gross profit growth
and 2022 in the original analysis that we published in 2023. And then more recently between 2023 and 2024, the analysis that we just published, we essentially measured gross profit growth over each of those time periods and then OPEX growth over each of those time periods. And then we created a simple metric that we call revenue efficiency, which is
the gross profit growth divided by the OPEX growth. The reason why we picked this
KPI is that FinTech is an industry that should be delivering very significant scale efficiencies. And one way to measure scale efficiencies is just by measuring your top line versus OPEX growth or top line versus bottom line effectively. And for you to be generating efficiencies, that number has to be above 1.0 And for you to be generating significant scale efficiencies, that number really has to be above 2.0 And so that's simply how we went about the analysis. We also took those 50 companies and we bucketed them by business model.
So we define them as either diversified processors, as merchant PSPs, as payment schemes or networks, as B2B fintechs, as SaaS fintechs, or as product specialists or other types of fintechs. And we did that just to understand if there were categorical trends within business models that were impacting the overall performance KPIs that we were measuring.
So that's the basis of the analysis. I mean, we're using a good deal of public equity data, but actually measuring efficiency performance or scale economy performance using one simple metric. Gross profit growth over OPEX growth, 1.0 being a baseline for your effectively generating no scale efficiencies, 2.0 being a baseline for generating significant scale efficiencies.
(05:25) Elisabeth Magnor
So to put it simply, you're comparing how fast revenue is growing versus how fast operating expenses are growing. And obviously for an ideal fintechs, revenue growth should outpace expenses if you do it in an efficient way. And when you think about it, it's such a straightforward but really clever way to look at things. So Joel, in our research from 2025, this is an update of your 2023 analysis, which we rightfully gave the title, "Higher Growth
Fintechs Must Now Learn efficiency". So if we go back two and a half years from today reviewing that 2022 Fintech performance, what were some of the key observations you made back then?
(05:58) Joel Van Arsdale
So 2022 was really the high watermark of exuberance in FinTech valuations. And so this is one of the reasons why we went looking for these insights is that we suspected that the industry had really lost track of focusing on scale economies and efficient operations. And that in fact is exactly what we saw when we went looking, which I'll explain in a minute. essentially FinTech went through an exuberance bubble
COVID really focused attention on the industry as the entire world sort of transitioned towards digital transacting and digital commerce as opposed to physical commerce. so Fintechs, by and large benefited significantly from a focus on digital commerce. And so all Fintechs essentially achieved peak valuations in 2021, 2022. And so 2022 being the baseline of our analysis, we were essentially capturing the end of that
exuberance bubble. so what we saw was correspondingly not surprising. really told us, in fact, that that's exactly where we were in the cycle. Because when we looked at the data, what we saw was that over half of the companies had a revenue efficiency index of less than 1.0 meaning their OPEX growth, in fact, was exceeding their gross profit growth. less than or only 15 % of the companies had a revenue efficiency index of greater than 2.0. And so those
were dramatically poor results, quite frankly, because it meant on average, entire industry was failing to deliver on scale economies. What's really impressive, though, is that the most recent analysis is really the flip side of that storyline, which is there's been a dramatic reversal or dramatic improvement rather, in how fintechs are managed financially. In the most recent sample, in fact, the majority of companies were well above 1
in their revenue efficiency index, greater than only 21 % of the sample of 50 companies was below 1.0 in their revenue efficiency index and fully 50%, half of the sample was above 2.0 in their revenue efficiency index. And so the entire industry rather dramatically shifted from failing to deliver scale economies to delivering scale economies on a relatively broad base. And we think this is exactly what the industry should
be doing when capital is properly deployed. The reality is that in the course of the bubble, capital was being misallocated, valuations were too high, capital was chasing growth without really having recognition of underlying earnings fundamentals. And that has now corrected itself. rather quickly, that correction happened over the period of two years, which is probably faster than I would have expected. But it's a testament to the CFOs in the fintech industry being adapted
and reacting well to changing market conditions.
(08:49) Elisabeth Magnor
So if we take a step back, what Joel just described sounds like the story of an industry going through full cycles. So first the exuberance and inflated valuations, then what sounds like a painful realization that operating costs were outpacing growth. And then you mentioned Joel, a pretty remarkable turnaround. So that's actually a nice bridge into my next question. And over to you, Rom. I mean, you did the work updating this analysis with more refreshed data now looking at 2024 annual reports.
Could you please elaborate a bit more on what Joel mentioned about the market correcting itself? what are the top line findings from that updated report?
(09:25) Rom Mascetti
Yeah, so Joel definitely hit on one of the biggest ones, right, which is this flip in operating efficiency. And I think as we go through the conversation here today, we'll get into some more of the details just naturally throughout the conversation. But the big picture is this: the operating expense growth is slowed across every cohort, which is obviously a sharp turn away from the kind of concept of growth at all costs, the playbook that we saw running
only three years ago as Joel was alluding to earlier. What's interesting is that many of the high growth fintechs that we looked at, so the likes of the Affirms, the Toast, the Shopify's of the world, they're actually proving that hyper growth is still possible and that efficiency can go alongside that hyper growth. By that I mean they're all growing gross profit by more than 30 % while still keeping their operating expenses under control.
All three of those being part of that cohort that Joel described the 2.0 index. Even the most recent quarter backs up these findings. So the trend is holding that capital efficiency is certainly a focus. Though there is a twist. I would say that some of the largest global fintechs, so Visa, Corpay, Global Payments as examples, just to name a few.
are seeing expenses start to increase, at least at pace relative to gross profit. But these more mature players that we observe are certainly adjusting their models as they face pressure from smaller, more agile, fintech challengers. And I think that's something that we're gonna poke on and discuss more as we continue the conversation.
(10:59) Elisabeth Magnor
So you mentioned a couple of interesting names there, Rom. And I think, Joel, you also mentioned earlier that the report clusters or buckets different fintechs into different categories. And not to spill the beans, but one category that stood out in the research were the SaaS, 'Software -as-a-Service' of companies that have software DNA having expanded into fintech , so the likes of a Shopify and a Toast. So Joel, could you please elaborate on what stood out to you in the research looking at these categories and how they perform in terms of efficiency?
(11:25) Joel Van Arsdale
Yeah, I mean, first of all, we recognize that, you know, being categorical and putting all these 50 fintechs into buckets is an imperfect exercise, right? You know, within any one bucket, you'll have a fair amount of variability, but we're consultants, and so we like to draw boxes around things so that we can reach categorical conclusions. And so we we do think that there is some validity in the sort of broader categorical trend lines that you see in our analysis. I think, you know, quite frankly, almost effectively, all of the categories improved on the revenue efficiency index. And so, I think that's the key
conclusion is really broad based, dramatic change in the way that fintechs are managed financially. But I think, you know, the category that jumps out, I think most dramatically is just the SaaS fintech cohort, as we're calling them that went from kind of the far right of our index, meaning well below 1.0 to the far left of our index, meaning approaching 2.0 or higher for a lot of those companies. That's incredible shift in underlying bottom line performance. And I think it's a testament
to the profitability and the scalability of the SaaS FinTech model. The reason why SaaS plus FinTech is so powerful as a business model and also an investment vehicles because SaaS FinTechs benefit from huge economic advantages in their financial performance. They're very low CAC ratios, very low customer acquisition costs relative to standalone companies. And they have much greater abilities to cross sell and upsell
and benefit from price insensitivity within their product bundles. So for
like Toast or Shopify is effectively attaching their payment service with zero customer acquisition costs, whereas an independent payment service provider is actually paying quite a lot of customer acquisition costs to sign up that customer. Or similarly, Toast or Shopify can cross-sell a loan at little to no acquisition costs, whereas a lender independently
selling that same loan would have a high customer acquisition cost. And so you just see these efficiencies now translating into the bottom line performance of that category.
I will note that SaaS tends to account for their revenue somewhat differently than FinTechs. And so the way in which they treat COGS tends to be a little bit different and therefore gross profit tends to be a little bit different. But the underlying conclusions of the analysis are still very much valid and dramatic shift in bottom line delivery from that category of companies, which we think is a trend that will continue based on the power of the business model.
(13:53) Elisabeth Magnor
Yeah, that's interesting. And if you think about acquisition cost of, for example, a small to medium merchant, I recall from research we've done in the past that those can range widely from a couple of hundred euros to up to several thousand euros or dollars. And obviously a reasonable acquisition cost needs to add up in terms of the revenue that that merchant will generate over its lifetime. So, so, automation and quick seamless sales and onboarding process are really key in something that these SaaS companies, do really, really well.
and speaking of a couple of other KPIs I think Rom in your updated analysis you did mention a couple of other interesting KPIs such as profit margins, cash flow coverage and leverage. Could you please tell us a bit more about what these KPIs tell us about FinTechs today?
(14:34) Rom Mascetti
Yeah, sure. So at the risk of burying the lead, I think overall we're looking at a financially healthy cohort overall. And so I think there's exceptions to every rule, of course. Some of those have been all over the news and we won't dive into them here. But I would say based on the data, broadly speaking, tells a pretty positive story. And I would say the three stats that you called out in your question or the three that we looked at, the three that we chose, we looked at several when sort of developing our insight.
But I'll touch on those three quickly. So first, from a net profit margin perspective, overall, these seem to be stabilizing for many of the market leaders that we've mentioned throughout the conversation. It's just proof that fintechs can reach sustainable profits when applying real operating discipline. So for all the reasons that we've discussed, whether it be the stronger model that embedded SaaS with payments can offer,
whether it's just overall focused by CFOs on better bottom line discipline, all of that can be applied and still seeing meaningful outcomes, meaningful positive ⁓ performance as a result. Second is cash flow coverage. So for most companies, it's in pretty good shape. They're generating more than enough operating cash flow to cover, for example, their capex. That said, there are some firms showing strain in the most
know, latest fiscal quarter, again, some of those we've seen in the news, but overall the cohort very healthy from a cashflow position perspective. Then finally, leverage. And this one probably varies the most. ⁓ And it's not a surprise given the, ⁓ M&A that we've seen in the industry where debt or leverage can oftentimes be a catalyst for some of those M&A decisions.
When we dive into the cohorts a bit more, diversified processors and SaaS providers with embedded payments tend to run with relatively low debt. unsurprising there. But, know, acquisitive players like a CorPay, who we've seen many times in the news making relatively large acquisitions in the last, two quarters, tend to lean more into that heavy borrowing. So to circle back, I would say that the ratio analysis really informs the same message that I said, you know, a couple...
couple questions ago, which is the sector is really moving away from that growth at all costs mantra and towards a more balanced model and one that's better equipped to handle some of the macro volatility that we see today and some investor scrutiny. So overall, just a much healthier place than we were at, you know, call it two and a half years ago.
(16:54) Elisabeth Magnor
So really what I'm hearing is that fintechs today are in a much healthier and maybe more disciplined place than just a couple of years back. And those are some really great findings. That makes a good bridge into the future. So Joel and Rom, as we are about to wrap up, let's look into the crystal ball. What predictions or expectations do you have for these public fintechs moving forward? Maybe starting with you Joel.
(17:19) Joel Van Arsdale
Well, I think the most dramatic force of of influence on revenue efficiency, the coming five years, for example, will be AI because AI has such amazing potential to generate operating efficiencies in areas like technology development, customer servicing and many others. And, you know, AI is inevitably one of those things that you tend to underestimate in the longer term and overestimate the near term. But we're already seeing evidence of impact on areas like technology
development and service automation among many others, by the way, and we'll cover that in a separate podcast. But we do expect to start seeing the impacts of AI over the next two to three years. Klarna's IPO underscores that they already see impacts. think part of that was kind of good preparation and dressing of their IPO. But there's also legitimacy underpinning that, right, that we're seeing in other parts of the industry. And so I think FinTech just has incredible potential to yield high gains in productivity because what
of the key constraint really in the industry today is people productivity, because almost all fintechs still have challenges with the growing costs of people, whereas the revenue productivity of people are more disappointing relative to the cost. so not that, you know, certainly I'm advocating a downsizing of the industry from a people standpoint, but we can get a lot more out of the people that are in the industry with the help of the right AI tools. So I do think we're going to start to see that impact more significantly in the
data over the next two to three years.
(18:46) Rom Mascetti
Yeah, so we've seen a lot of public activity this year, including several public to private deals in the first half. But that phase seems to be winding down and more fintechs are now heading down the IPO path. So of course we have the Klarna IPO that just happened not too long ago and we have Chimes IPO from Q2. I think we'll see more fintechs that had been sitting on the sidelines start to go public as the market is continuing to stabilize.
You know, just recently we learned that T &E platform, the travel and payments FinTech Navan filed for its IPO. Sum Up also rumored to be exploring one. Of course, Stripe remains to be the big one that's still primed for its long anticipated IPO. So I think in the public markets, we'll continue to see a lot of investor enthusiasm, whether that's, IPO driven or even some interesting valuations on the public to private side, which still seem to be happening.
⁓ throughout the course of year.
(19:40) Joel Van Arsdale
One of the advantages of companies IPOing now, some of which were slated to IPO during the bubble, is that those companies are now IPOing in a healthier state of revenue efficiencies. And so, you know, those same companies had they IPOed in early 2022, probably would have been punished by the markets as they figured out how to be more efficient with their bottom lines and with their revenue. But now they've had the benefit of prepping those activities
and getting healthier before they enter the public markets. And so it's actually kind of a healthy outcome in hindsight for those companies now that are prepared to IPO over the next year or two.
(20:18) Rom Mascetti
And I also find it interesting back to your AI point. I mean, I think even in the public markets, right, investors are starting to reward the AI shift. And so if you take Dave, who's been public now for a few years, I mean, they recently repositioned as an AI first public fintech. And it's a great example of how AI can help turnarounds in the public market. I mean, think their stock is up something like 180 % year to date and something like 500 % over the last several years.
So just showing how AI, as a continued improver of performance, whether on the revenue side or on the cost side, really does categorically change both the performance of a company as well as investor sentiment on the company as well.
(21:00) Elisabeth Magnor
With that, Joel and Rom, thank you so much for sharing your insights. I certainly look forward to checking back in when you update the analysis with the 2025 data.
(21:10) Joel Van Arsdale
Yeah, excited to publish an update to the analysis. We hope that you all take a moment just to look at the figures and data because we think it is really compelling and interesting. we'll be excited to revisit this analysis in the coming couple of years to see if this trend continues or even accelerates on the back of innovations like AI.
(21:27) Rom Mascetti
And of course, if anybody does have a chance to go through the images and the analysis and you have any questions or comments, you know never hesitate to reach out to Joel, myself, Elisabeth, or anybody else at Flagship.
(21:43) Elisabeth Magnor
That was it for now. One thing is clear, there is no doubt that the rules of the game have changed and top line growth alone is not enough to make investors happy. Growth must include the bottom line, including a story on growing in an efficient way. You have listened to a podcast by Flagship Advisory Partners. Stay tuned for more exciting FinTech topics and conversations.
