Inside Synchrony’s top strategy and corporate investing role with Trish Mosconi

Today on the Tearsheet Podcast we have Trish Mosconi, chief strategy officer at Synchrony. In addition to strategy for the bank, she also heads up the firm’s venture investing and M&A activities.  We discuss her mandate and how Synchrony looks at investing and partnering with fintech as it continues to invest in its consumer finance platform.

I appreciate how Trish and the bank have paired strategy to both investing for the long term and partnering for the present. The deterioration of the investment environment around fintechs can definitely play into Synchrony’s plans. 

Trish Mosconi is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

My name is Trish Mosconi. I'm the Chief Strategy Officer at Synchrony. I have strategy for the overarching enterprise and also Synchrony Ventures as part of my team. I lead our M&A activity under our Corp Dev, and I also lead our strategic partnership relationships.

The mandate for corporate investing

Synchrony Ventures started in 2016. And for us, it's a way to really understand what's going on in the fintech community -- we use it to actually discover a lot of what is going on. And we think of it as our way to investigate opportunities across three horizons:

• We look at things that can be immediately beneficial to us that we can actually take to our partners and our consumers.
• We look at things that are in adjacencies, or areas that we're interested in, and we really want to kind of test and learn.
• Lastly, we use it very much to understand what's disruptive, what's coming around that corner.

And we do all three of those with a view towards how we can be more focused on diversity and inclusion. So we have a real thrust around our investments supporting the Black and Brown and female communities of entrepreneurs and early investors.

Strategy + Investing

You are seeing [chief strategy roles combine investing] more and more, as I have heard from my peers and Chief Strategy Officers, irrespective of the industry vertical they're in. How we think about it is we set the strategy at the top and we look at our overall long term growth potential and how we're thinking about achieving that. And then the focus from there is how do you think about building out various capabilities? How do we think about buying certain capabilities? And how do we think about investing and partnering in those capabilities, and Ventures really takes the form of the investing in the partnerships.

It's a very holistic way to actually ensure that we're achieving our long term growth strategy, and it provides us a bit of a feeding ground for potential buy situations. We have invested in companies and partnered with them commercially that then become part of the Synchrony family as they mature along their lifecycle.

M&A

It's definitely changing. What's going on in the M&A side is very much with the decrease in valuations, you're seeing a decrease in M&A activity, particularly over the course of 2022. It was $130 billion in exits in 2021. We're down to about $85 billion in 2022. And the same kind of quarter to quarter comparisons to 2020 for early stage investing, though, from a venture standpoint, is actually still strong. What that means is you're seeing there's not the typical exit, that a later stage fintech would get at the five to seven year mark. And as a result, that whole dynamic is changing. With the lack of exits due to the higher valuations, you still have a reasonable bid-ask spread, which I think is starting to come together more and more. And you're even seeing some of the later stage fintechs revalue themselves.

But with valuations decreasing, there's less IPOs. So you've got less exits and less willingness to raise capital publicly because that will cause a revaluation. So the investments or the the growth can only come from two areas -- it's either strategic investors not creating a new valuation, or it's increasing the revenues, which is leading to a whole set of new opportunities for Synchrony that we wouldn't have seen one or two years ago. And those opportunities are really around partnerships with late stage fintechs. So fintechs that are very much evolved in their market capabilities in their products and an ability to now form partnerships in ways that you didn't see happening previously, because they would have been very focused on their exit.

Move from growth to profits

You're seeing a movement to profitability, or the talk of profitability, which was never the expectation, typically, in the fintech community. It was growth over profitability. And now you're seeing profitability over growth. And so, from a profitability standpoint, fintechs are going to need to drive revenue, as well as get their costs under control. And on the drive revenue side of things, you can see where Synchrony could commercially partner with our portfolio companies -- they would actually become vendors to Synchrony.

And it's that relationship that can help improve their products and capabilities in market with a company that has the scale of Synchrony: we have over 300,000 partners and merchants and we have over 70 million consumers. That can drive a win-win situation where we're bringing new products and capabilities to our markets. And we're actually testing those capabilities that the fintechs are bringing to market to really understand what's going to stick and what's not.

Joining the Synchrony ecosystem

Of our 14 active investments, today, 7 of the 14, half, are actually commercial relationships. And that's predominantly in that horizon one grouping. If we've got an opportunity that's very viable today, for either our merchants or our consumers, you can see that we can quickly come to a commercialization type of opportunity. An example of that would be Prove. It provides identification and authentication of an individual as we go through the underwriting process. It was an investment for us back in the 2017 timeframe, but a big partner for us, as we look to ensure that we're identifying and authenticating the consumer, the potential new consumer, and minimizing fraud to the best of our abilities.

Investment criteria

It is all hinged on strategy. I think that is why it's so unique that it sits within the Chief Strategy Officer's role. As we lay out our strategy on an annual basis around long term growth, we very much develop at the same time what our investment theses are, for both our acquisition opportunities and our venture investing. And so for us, our focus is very much around creating the leading financial ecosystem, a two sided ecosystem that brings our merchants and our partners together. And we do that through best in class technology products and capabilities. We're focused on finding who can accelerate that with us and who can bring us products and capabilities that we can bring to our consumers, merchants, and partners to accelerate our growth.

In addition to that, we're also looking at new areas to expand to and we are looking to go even deeper in healthcare. We've got a very strong focus right now on what healthcare fintech investing could look like for us, and how we might bring that into the community. We're also looking at more disruptive ideas, and how to think about things, like how should we be thinking about blockchain? How should we be thinking about other opportunities that might not be mainstay today, but are extraordinarily important to us and how we think about things to the future?

Areas of focus 

I think you're going to see a real thrust continuing around embedded finance. And that's all about making that two-sided ecosystem work even better. There's a lot of new and innovative ideas going on around where you actually present opportunities to consumers and how you think about the ease of use, how you think about multi-product presentment, how you think about single billing across a particular issuer provider. All of those kinds of capabilities are front and center for us and we're testing and learning to see what the better capabilities are.

We're also going much deeper on healthcare. We are looking to dramatically grow our healthcare business and understanding opportunities that exist within payments within the different sub verticals within healthcare. Understanding how to bring a very fragmented market of multiple providers to consumers is going to be critically important for us. We're on the lookout for partnerships with fintechs that can provide acceleration in those areas.

Synchrony Ventures' portfolio companies

If I look at horizon one, Prove is a very strong partner of ours. Another partner that we invested in last year, by the name of Skipify, actually allows you to present payment options, what we would call up funnel. So even while you're in your email, or even while you're searching, or looking at different opportunities in the digital world, Skipify presents you with what different payment options might be, so you can make decisions earlier as to whether or not there are opportunities from an affordability standpoint. We're also partnering with them today across many of our different areas of our business.

Going into adjacencies, and looking at net new areas for us where we can grow, we made an investment in Drop, a rewards platform. So as we look to continue to strengthen the value proposition that our partners can offer to our consumers, we're working with Drop to actually develop new rewards and innovative ways to actually approach the rewards. And then when we think about net new areas, and what's around that corner, we invested three years ago in a company called Grabango. That was touch and go shopping before Amazon. Understanding what that would mean for our retailers, understanding how that might change the landscape was very important to us -- to be an early investor to kind of test in those areas.

I'd also say a major thrust of ours is around diversity and inclusion. In 2022, we added to the investment in four funds that are founded by diverse leaders, to diverse new emerging investors. And they're committed to investing in black, brown, and female entrepreneurs in the fintech and healthcare communities.

Differentiation

We are a B2B2C company founded more than 80 years ago. Synchrony is very much founded on how we serve our partners and our merchants. What you're seeing in the fintech community is very much a B2C focus. But what it's done to actually benefit all of us is it's accentuated the criticality and importance of the consumer, to the merchant and partner to really create that overarching ecosystem. All of our investments are very much around serving our partners and our merchants, the criticality of doing that through a consumer lens, which a lot of what the fintechs have amplified, and done quite quickly is extraordinarily important to how we think about things.

We've learned a lot from them on how to B2B2c with a lowercase c; we are now in a position where we are working towards enlarging to an uppercase C, right? And how do we really amplify the consumer part to bring the total ecosystem together? We're differentiating ourselves through multi-product presentment. You are seeing some of the fintechs move to multi-product, as a as a way of rounding out that relationship with the partner and the merchant, but not as big of a focus. Right. So I think you will continue to see the differentiation on where they focus, and how they think about bringing products and capabilities to market.

Serving SMBs

As we look at the economy, the small business community is going to need a lot of support from payments and lobbying standpoint to ensure that their businesses remain strong through any upcoming economic challenges.

Surviving in this economy 

it is a marathon and to survive in a marathon, you need to have the underlying profitability and stability in the infrastructure to continue to be able to deliver to your partners in the consumer community. It's impressive to see those that have been able to pivot to much more of that profitability, focus and understanding the trade offs you have to make between profitability and growth. Understanding that some of the areas where they were actually gaining revenues, which are predominantly from the merchant and partner community, are going to be under strain in any kind of economic challenges.

I think those that learn patience and calibrate it out will survive. But I would also expect that we're going to see some exits right over the short term, just given some of those conditions and inability to potentially change your business model quickly enough to react to what is starting to happen in the market.

It allows us to have, quite honestly, more open conversations about what the future might hold. Valuations have come down, with bid-ask spreads becoming more in line. I think you're going to see increased opportunities for us around maybe potentially starting with a partnership and ending by bringing some of these companies into the same great family. I do think it, there's going to be a large opportunity for many of the incumbents to bring and accelerate bringing these capabilities in house in ways that we might not have been able to do a year and a half ago, with just the difference in valuations.

It is very difficult to buy some of these companies given the valuations and the lack of profits. The fact that they are not accretive for many years out makes it a very challenging situation for incumbents, but you're seeing those kind of coalescing and coming together in ways that can truly benefit both. I think many of them cannot survive as individual companies in the long term.

The importance of culture

Culture fit is very important to us -- I'd say almost as important as the capabilities and product set that's being brought to bear. Even as we go through diligence, from a purely investment standpoint, we have a very strong eye towards is this the right company for us? Is this the right founder for us? Is this the right partnership that we can actually build, because as a strategic investor, who typically gets a board observer seat, we're in there actually working with the companies, and it's very difficult to do that if you're not actually seeing that allegiance.

So it's extraordinarily important to Synchrony -- we are very values based company. And as a result of treating people right, diversity and inclusion is just core to who we are. And without seeing that within those that we would invest in and partner with, it would be very difficult for us to have a successful long term relationship. We've had three strategic exits, two of those have been through acquisition.

Challenges ahead

For us, it's really about speed. The fintech community has totally changed expectations by both partners and consumers, to things that we might have invested in and taking our time and bringing the market from a capability standpoint, or improvement on the customer experience, our partner experience might have been 18 months to 24 months long. Expectations have totally shifted. So speed is highly critical to us, which is why, things like strategic partnerships with fintechs provide just a whole new set of capabilities.

The other thing we're focused on is really how we think about one to many distribution. We've got a model that traditionally focused on our merchants and our partners. And a lot of those were very large and dominant players in their markets. As you look to the small businesses, it's extraordinarily important for us to be able to scale our model to work in a one to many environment and actually be able to support small businesses to support the broad provider community within healthcare in new and different ways.