Financial health is a core tenet of our lives. It matters for individuals just as much as for institutions and society. It is one of the highest impact levers in our lives. Incremental improvements in financial wellness and fintech can have cascading effects.
We have let path dependence and inertia define our financial lives for way too long. Why should people get paid on bimonthly cycles for the work they do everyday? Why should people have to pay fees for simply not having the cash today to meet an unexpected expense when they know they will have the cash tomorrow? Why should immigrants have to struggle in getting basic access to credit? Why can’t we systematically reach some segments of the population with better banking services? Why should easily managing your money and creating wealth be luxuries? Why is it so confusing for employers that care about the holistic health of their employees to offer customized services? Why is it so difficult for those who can imagine a better world of financial services to realize their vision? Why should the delivery of basic financial services be confined to the traditional incumbents? Why should we limit what is possible to what fits within the constraints of established business models, historical norms and familiar interaction paradigms? There is no shortage of things that don’t make sense and they persist nonetheless.
WHY WE CARE ABOUT FINTECH
Getting timely paid for the work you do matters. Accepting and making payments matters. Sending money anytime, anywhere, to anyone matters. Building wealth matters. Saving and investing matters. Managing finances and planning for the future matters. Having banking products matters. Having access to credit matters. Being able to buy whatever you want whenever you want however you want matters. Getting insured matters. Managing debt and bills well matters. Having the capital to start & grow ventures matters. Being able to share finances with others matters. Being able to use information locked up in archaic systems to provide better & more financial services matters.
There is absolutely no reason why hundreds of millions of people should suffer through the burden of not being able to do a combination of the above.
If technology can help unlock even incremental improvements across price, speed, usability, access, quality, transparency, personalization and reliability in any of the above mentioned categories, it is a worthwhile pursuit. If we can demystify and simplify the process of creating, managing and growing new products, more people will have more options and incumbents will be forced to adapt or become irrelevant. The story of Robinhood is not just about Robinhood but about them forcing all the incumbents to adapt! We should want more upstarts across all areas to have a similar impact! We should want more building blocks to enable more & faster innovation!
HOW WE GOT HERE
Throughout the 90s, 2000s and early 2010s, fintech has been a vertical. It has been a collection of companies that used technology, product-first thinking and digital marketing to challenge norms, reimagine financial services, expand access, and make interactions with basic financial services simpler, better, cheaper, faster. They started out as financial services firms and forced incumbents to change. Even today, there are countless such players taking off all over the world. Consumer expectations are rapidly shifting.
There is still so much room for innovation across problems ranging from how to broaden access to wealth accumulation to how to change the underlying plumbing of how money moves domestically & internationally. Unlike pure software plays like social or enterprise software, financial services are not global from day one and are beholden to domestic regulations. That reduces winner-take-all dynamics and creates room for lots of companies going after the same problems over similar timelines across regions. This is expected to continue and we are nowhere close to being done even in seemingly saturated categories.
THE BIRTH OF EMBEDDED FINTECH
In the past 5 years, a series of successes and failures captured the imagination of a generation of builders and investors in fintech in the possibility of traditional software companies launching financial services for their customers. Square launched Square Capital in 2014. Shopify launched Shopify Capital in 2016. Lyft & Uber launched banking products in 2016. Flexport, Stripe and Toast launched Capital in 2019. Patreon, Gusto, Stem, Doordash launched lending and banking products in 2020. Goldman Sachs has partnered with Stripe on banking as a service, Apple on credit cards and Amazon on working capital loans. Google is getting aggressive with consumer finance products.
These high profile launches by beloved companies popularized the idea of what is now called embedded fintech. The very definition of fintech has started evolving. It is no longer just a vertical and can be thought of as a horizontal layer across traditional software categories. This expanded the scope of fintech radically. Now, companies that didn’t start out as fintech companies can have fintech products. This is possible because there’s a growing wave of companies offering the building blocks to do so across everything from banking, lending and payments to risk, fraud, compliance, identity, data, licensing and so much more. Furthermore, the same building blocks are enabling a new generation of fintechs to productize new behaviours, reach new audiences and focus on user experience.
We have seen over the past two decades how impactful it is when something that’s a vertical becomes a horizontal layer. We saw this with software and cloud broadly. We have also seen how much innovation gets unlocked when something that’s available to a few is made accessible to many. We are now seeing those same dynamics play out with fintech. If history is any guide, we are on the cusp of an explosion of financial services innovation across markets, regions, companies, demographics.
THE PATH FORWARD
An imperfect but illustrative analogy is internet native creators and influencers launching everything from cosmetics and apparel to podcasts and restaurants! Hotels, retail brands and airlines have long worked with financial institutions to have special credit cards and reward programs. Now, an entire generation of companies are cropping up to put that trend on steroids, widen the scope of what financial products can be launched and include software companies in this movement! On the flip side, an entire generation of software companies is now looking to launch financial services! More and more banks are looking to partner with the fintech infrastructure companies to stay relevant and find new revenue streams. There’s also a generation of founders, management teams and functional leaders getting up to speed on helping software companies design, launch, manage and grow financial products as quickly as possible.
All of this matters not because it is a good story that can fetch high valuation multiples, press coverage and twitter memes. It matters because we are using technology to improve across a combination of price, speed, access, quality, usability, transparency, personalization and reliability of financial services.
This is why some of us care about fintech. No matter how cringey we get, all of us want to play a role in improving the financial health of people.
This column was written by Sar Haribhakti. Sar is a program director for embedded fintech at On Deck. He has previously worked in partnerships at Clearbanc, as a GM of financial services at Slice and in investing at Science.
To contact the author of this story:
Sar Haribhakti at [email protected]
This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners. To contact the editor responsible for this story: [email protected]