So much of the conversation these days circles around two things: Fintech and newsletters. The former is trying to change the face of banking and the latter is trying to change the face of the media. For the Fintech obsessed, one newsletter has become an absolute must-read over these last couple years: Fintech Today.
Ian Kar was a Fintech reporter before moving over to the startup side where he worked as a product manager at Acorns and Tasting Room and as a product consultant for Fintechs. He launched Fintech Today in July 2019 as a side project — quickly, it became a full-time job. Today, he runs it with Cokie Hastiotis and Julie VerHage-Greenberg.
We gave Ian a call last week right as Robinhood was halting the trading of GameStop on its platform. We wanted to know more about where Fintech is heading and how the incumbent banks dropped the ball.
It's really funny when people ask me this question, because Fintech Today started as a passion project. I was doing consulting work for startups as a product manager, and I wanted to get my thoughts and ideas out there about products in the Fintech space. I was a product manager at Acorns and I was a Fintech journalist in a past life, so I wanted to marry the two skill sets. The newsletter was a lot of fun when I first started it and it took off pretty quickly. What I realized was: there's a lot of people that are interested in learning about Fintech and understanding what's going on in this space. So, yeah, it was a side project that turned into a real business pretty quickly.
Oh, I totally disagree with that sentiment. I think, to be quite honest, bubbles imply systemic risk to the financial system and Fintech just isn't big enough. I think that's pretty quickly changing, obviously, with Robinhood and so many Fintech companies going public, but, in the grand scheme of things, Fintech is still pretty small in terms of both user adoption and how prevalent it is in the overall US economy, when compared to the traditional banking system.
When I think about the future of Fintech, I think about how it's much more of a growth story. It's a small slice of the pie that's expanding pretty rapidly. A lot of companies are focusing on underserved markets, both on the consumer and business side. Vertical Fintech businesses focused on small businesses and embedded Fintech are both really interesting — they cater to a lot of business users that have typically been underserved. On the consumer side as well, there's a lot of a lot of room to grow.
But the real key and real opportunity seems to be infrastructure. You can't have a lot of financial innovation without the pipes and the plumbing underneath being more modern, as well. There are a ton of interesting companies that are out there trying to do that. So, I'm really excited about that sector.
No, I don't think so. What Robinhood does really well, they still do really well, which is making it super easy for someone to go in and trade. This is a bump in the road, so to speak. It's something that they'll have to diagnose and understand and try to figure out how to solve for next time.
They need to reassess more deeply how to manage the risk. This was a scenario, which is hard to predict. But it does speak to the fact that when you democratize things like information sharing and trading, it can have unintended consequences. That's something that I think all entrepreneurs need to be aware of.
There's a lot in that question, so let's go one by one. The first part is, 'Where did banks drop the ball?' To answer that, you've got to separate out into consumers and businesses. Infrastructure is certainly one of the banks missteps, though the history of infrastructure may be a question for someone else. But I can definitely focus on the consumer business side. On the consumer side, the problem is that there's not really an impetus. Making a really high-quality app that does account onboarding to replace the need to visit a bank branch really competes with their own business model: we buy these bank branches and operate these massive bank branch networks that are really expensive as a way to sell our products. It's the same reason it's really hard for a store like Nordstrom to become an entire digitally native brand.
Banks didn't really have never really had an incentive to create online-first or online-only banking. The one that did succeed and was early was Goldman, and that's because they didn't ever really have a consumer division to compete with. When they first launched Marcus and I was a reporter at Quartz, I wrote that they had a lot of potential to build a really strong brand, because it wasn't cannibalizing a core part of their business. Whereas at JPMorgan, the question is: why would I drive users to Fintech when I know that Fintech success means I'm losing money on my bank branches?
On the business side, the issue was that it's always been really complex to work with small businesses. How am I going to do a working capital loan for a small coffee shop in Princeton, New Jersey that wants to expand to the next town as a banker at JPMorgan? For a long time, it was an issue of gaining insight without the data. But with new tools like QuickBooks and the API's that are out there, lenders are using digital services to improve underwriting. Square Capital and Shopify Capital are really good examples of the opportunity around offering digital financial services to businesses. So far, banks have not really capitalized on that for some reason. I think they must see it as too small and too much of a hassle for them to do.
For the last 25 years, banks have been suffering from Clayton Christensen's Innovator's Dilemma. How do I innovate without cannibalizing this massive part of my business and jeopardizing this revenue? What if it doesn't work? These are problems that are solvable through other channels, but they don't seem to be solvable inside of a bank at this point. The culture and the way that a bank does risk assessment on a per project basis makes it really difficult to get even somewhat risky ideas out the door.
Honestly, I don't know if we're gonna have a new massive market leader in consumer finance. I mean, Chime is obviously a massive winner already. But even with so much growth, and so much more potential, you kind of hit it on the head: these big disruptive Fintechs have been built by just taking over a tiny slice of a bank's business. So, maybe you don't need to recreate an entire bank. Maybe there needs to be a lot more fragmentation around specializing in aspects of what a bank does. Find different niches and focus on that. It's hard to predict who the big winner will be but if I had to guess, I'd say Chime. I mean, Chime is the sponsor for the Dallas Mavericks — my mom knows what Chime is!
But there are going to be more Fintech winners that emerge. There's plenty left to disrupt when it comes to banking.
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