Gooood morning! Here’s to hoping this week starts with peace and positivity 🙏🏾
This week I wanted to share insights on Reconcile, fintech, and positivity in difficult times.
Let’s get to it!
During a recent fundraising pitch, I was asked, “what will make this a billion-dollar company?” Honestly, I love this question because it lets me paint the vision that I live, breathe, and dream about every day. I decided to turn it into a blog post so that I can share this with everyone. Here’s a link to view my draft! Feel free to share your thoughts and feedback in case I’m not thinking big or broadly enough. Here’s a quick snippet:
We want to remove the financial friction from our users’ lives so they can focus more time and energy on solving our biggest challenges — climate change, urban mobility, healthcare, sustainable agriculture.
Some of my non-finance friends asked me to write a report on fintech trends. I’ve already written about some of them in previous newsletters, but I’ll share a few snapshots in case you’re not up to date! If you would like more information and a copy of the report, leave me an email at firstname.lastname@example.org!
Automation is Coming After Personal Finance
The last ten years of fintech has produced some amazing companies working to simplify financial management, chiefly by taking the onus of responsibility away from users. Some examples of startups performing this automation include Digit (taking money out of our paycheck into savings accounts), Acorns (rounding up the difference from our debit and credit card purchases into investment vehicles), Betterment (choosing which funds to invest into for us).
The key behavioral insight this trend touches upon is the pain most of us feel when managing our money. Our lack of formal education and understanding of complex finance concepts keeps us from actively participating. Therefore, startups helped users become financially healthy without requiring them to do much, if any, work.
We are seeing this trend touch several sectors of financial management - saving, investing, advising, spending, bookkeeping, etc.
Open Banking is Reshaping Innovation in Financial Services
Open banking is a concept introduced by the European Parliament via PSD2, a rule aimed at promoting the development and use of innovative online and mobile payments. What came out of this is a system that provides third-party access to financial data through the use of application programming interfaces (APIs). In simple terms, banking went from one major provider of services to several providers each connecting into each other.
This initiative helped startups focus on tackling singular pain points faced by consumers (e.g. signing up for a credit card, transferring money overseas, seeing all accounts in one place). By devoting all resources to fixing one problem, startups could supercharge its innovation efforts to perfecting the end-user experience. In order to broaden its product offerings, a startup could simply tap into a banking API to access data, products, or services.
This specialization has led to many advancements for consumers who have traditionally fallen victim to the poor product experience designed by big banks.
Every Company will be a Fintech
This is a common joke floating around the fintech community. However, it makes a lot of sense. Fintech refers to software and other modern technologies used by businesses that provide automated and improved financial services.
One of the biggest financial services is credit. Traditionally, banks were the main credit providers. They financed cash flow for large and small players through loans, credit cards, etc.
Now, major tech players like Amazon or Uber can enter this space by offering credit directly to its stakeholders. As companies gain more insight into their buyers and suppliers, they can underwrite their own credit deals. For example, Uber can provide its top drivers with an auto-loan with favorable terms. We’ve seen Apple introduce its own credit card with extremely rewarding deals on its own products (e.g. 5% cashback on Apple purchases).
As we’ve entered this era of mass-consumption, companies have no choice but to enter the financial services space to incentivize buying and retention.
Banking is Moving Digital
Digital banking, which first started around 1999 using SMS-channels, is set to take over as our primary financial service interface. Traditional banking involved physical branches, paper checks, deposit slips, etc. Now, just about everything we’re used to can be done via a digital interface (mobile, web, voice). The key driver in the shift to digital is enhanced user experiences. We expect the products and services we use to be friendly, simple, and fast. Banking is just now catching up to this reality. The winners of tomorrow will be determined by the cleanliness of their digital interfaces and the accessibility of their applications.
We’re already in the midst of this evolution. Challenger banks (what we call new up and coming entrants) have exploded in the last five years because of their digital-first approach. They’ve reallocated resources traditionally set for brick and mortar for software engineering and design. Therefore, they are better able to compete against mainstream banking technology departments and introduce innovation at a faster clip.
Here’s an example in the context of opening a bank account. Traditionally, we would need to spend hours reviewing paperwork with a bank manager and then wait weeks to finalize the account. In the new digital banking era, we can open an account in minutes and begin using it in just a few days.
Our health and wellness are coming under direct fire in these last four months. Frankly, 2020 feels like it can’t get much worse than it is already. I keep reminding my family and team that our objective should be to survive the mental challenge most of us are facing.
As a team, we’ve started doing weekly meditations over a video conference to help ground us. If you want to join, leave your email and a preferred time slot here!
Here are handpicked resources to help get you through these troubled times:
I am fundamentally an optimist. Whether that comes from nature or nurture, I cannot say. Part of being optimistic is keeping one’s head pointed toward the sun, one’s feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lay defeat and death. - Nelson Mandela
Thanks for reading!
Jaimin Desai - CEO & Co-Founder of Reconcile
*P.S. If you have any thoughts on our content, please leave a comment or email me at email@example.com!