Tectonic Shifts In Fintech

Below are some quick thoughts.

Several earlier fintech companies found success, with younger adults being solid customers. Today, we see newer companies target teens and kids through several gifting platforms that have closed rounds the past few quarters (i.e., UNest). This is good, but it will be difficult for those companies to scale over time as business models that target teens are targeting the adult(s) who manage the finances for the family or that specific teen. The company (startup) is likely looking for a customer who can provide an on-ramp to those children (i.e., a parent or their distant relatives). B2C is hard to do, but B2C2X is even more challenging.

A re-thinking of financial services needs to happen. But for that to occur, investors and founders alike need to understand better trends happening now, as well those that will become increasingly important in the next multi-year period. Let’s take an example and stick with one class or group (i.e., millennials for now):

  1. Millennials have gotten a mass of attention in the past decade.
  2. They are still underserved.
  3. Have low brand loyalty to incumbents.
  4. Love technology.
  5. Their needs are still somewhat simple.

For example, I just ended up getting a will executed. The company I picked was Trust & Will. I picked Trust & WIll because:

  1. Cody (the founder) is a great individual who I know.
  2. The platform he built is super easy to use.
  3. The entire process is quick (it took ~30 minutes on my computer.
  4. The cost is affordable.

My wife and I did not go through an incumbent or someone akin to Fidelity Investments’ network for our wills, and I likely could have never convinced my wife even to do so either.

This brings me to two trends which are circling the ‘accessibility’ of financial services and potential customers that are targeted – regardless of B2B/B2C, or class of clients: (1) past offline services are being put online, and (2) Americans are more concerned with stability vs. mobility.

One example crossing both chasms is Aven. Aven company building a credit card backed by your home mortgage loan targets a segment that was once done in person (loans) and focused on stability (accessing a line of credit for financial access). This example is significant, as sometimes Americans’ only money is trapped in their house. Another is electronic wills, which Trust & Will is providing. A process that was once done in-person focusing on the stability of the individual or family.

There are also unique opportunities to engage consumers through their place of work. There are ample opportunities, make financial services accessible by distributing them through employers. For example, in the 401K space, you have companies (like PaceIT, Human Interest, Manifest, Vestwell, etc.) servicing the SMB area with massive success. When it comes to early wage access, Branch, Daily Pay, and Even are servicing employers to provide better benefits to employees.

Others channeling their business models through enterprises are Goodly, working with companies to help their employees service student loans. Then you have HSA/FSA providers like Lively, who have seen strong traction as of recent. But most of the aforementioned is B2B2C.

When it’s B2B2C, you have the potential to build a direct relationship with the end consumer and run traditional vertical SaaS plays. Typically your enterprise will be paid by the reoccurring SaaS fees without waiting for AUM to accumulate. This allows for a scalable, repeatable business. As for a byproduct, the company acquires many employers employees who become users with direct relationships.

Lastly, lending, savings (with higher yields), and personal tax services will grow over the next few years, targeting the younger generation(s).

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