Quantitative Easing (QE) forced massive, often uninsured deposits onto bank balance sheets when loan demand was weak. These deposits were highly rate-sensitive. When the Fed began raising rates, this "hot money" quickly fled the system, contributing to the banking volatility seen in March 2023.

Counterintuitively, the period of slower market growth was more fulfilling for Plaid's leadership. The hyper-growth 'summer' felt like just riding a wave, whereas the 'winter' demanded true innovation and customer focus, leading to a 'refounding moment' and increased product velocity.

While consumer fintech gets the hype, the most systematically important opportunities lie in building 'utility services' that connect existing institutions. These complex, non-sexy infrastructure plays—like deposit networks—enable the entire ecosystem to function more efficiently, creating a deep moat by becoming critical financial market plumbing.

In the post-zero-interest-rate era, the “everything rally” driven by liquidity is over. Higher base rates mean companies must demonstrate fundamental strength, not just ride a market wave. This environment rewards active managers who can perform deep credit selection, as weaker credits no longer outperform by default.

Once considered safe due to low CapEx and recurring revenue models, the technology sector now shows significant credit stress. Investors allowed higher leverage on these companies, but the sharp rise in interest rates in 2022 exposed this vulnerability, placing tech alongside historically troubled sectors like media and retail.

The macroeconomic shift to a high-margin, high-interest-rate environment means SaaS companies must abandon the 'growth at all costs' playbook. Pricing decisions, such as usage-based models that delay revenue, have critical cash flow implications. Strategy must now favor profitability and immediate cash generation.

Mercury's CEO explains that achieving profitability is a strategic decision to reassure customers. In a sector rocked by instability (like the SVB collapse), financial sustainability signals that the platform is a stable, long-term partner for a startup's core operations.

The 2022-2023 market downturn acted as a forcing function for survival. Point solutions like neobanks had to expand into lending or investing to retain users. This culling process resulted in the winners emerging as much more comprehensive, full-fledged financial platforms, not just niche apps.

While typical banks earn a 1-1.2% return on assets (ROA), credit card-focused banks achieve ROAs of 3.5-4%. This exceptional profitability, driven by high interest rates, explains why the sector is so attractive to new entrants, as it is one of the most profitable areas in all of finance.