Over the past ten years, there has been a proliferation of startups attacking various segments of the financial space. That excludes the proliferation of crypto companies in the space.
Even with payment megacompanies like PayPal that were formed in the early 1990s, new payment companies are created yearly that try and fill niches PayPal can’t.
Bill Harris was CEO of PayPal and took pen to paper in the Financial Times. It’s part of the FT’s financial literacy and financial inclusion campaign. Personally, I hate titles like that. There are a lot of people that are financially illiterate and even though I have spent my entire career in finance with business degrees from top universities I am still learning about it.
Everyone needs to be financially literate and included if they want to be successful and have access to opportunities. It’s not just a specific group. FT’s phrasing smacks of a different agenda and I don’t like that.
Harris decries the proliferation of the many startup fin techs and thinks they muddy and confuse the market. I don’t agree with him.
I do think that the goal of every startup that is going from zero to one is to create a walled garden that captures customers and tries to create high switching costs. One of the goals of the megacorporation is to crush its competitors so it has a monopoly. I have been with the same bank since 1987 and it is basically because of the time it would take to switch to a new bank and re-enter all my data and schedule bill payments. I certainly don’t love my bank, who does? But, I am not looking for a new one due to the high switching costs.
One of the hopes of crypto is to blow up those walled gardens and put more control in the hands of the consumer. We have yet to see it but that is the premise behind a lot of crypto companies.
I have had successful fintech investments and a few unsuccessful ones. One of the things I love is the democratization of capital and the opportunity to allocate your capital to what you want to allocate to. The ethos goes along with “free to choose”. I simply hate the “accredited investor” IRS standard. It creates an elite class and furthers disparity between classes.
I also know there is a lot of misinformation and illiteracy when it comes to basic finance. Government-run schools do not teach it, or if they do they don’t teach it well. I am invested in a startup, HelloSpring that is attacking this space. Give them a click and see what you think. There are other companies in this space too because it is so large.
I also know that people look to borrow money at different places than a bank. With the draconian rules issued by the government, it’s become a lot harder to get a loan. Community banking is dead. That’s one reason I invested in FinMkt. What Luan and her team are doing is revolutionizing a piece of the debt market.
We invested in Vauban for similar reasons and they are a part of Carta now. Carta is a fantastic company and Vauban is simply so much better at capital aggregation than any other solution on the market that if you are in that business you are hurting yourself by not using them.
Democratization of capital and opportunity are dear to me and the investment we made in Pipit reflects that. Recently, they issued a cryptocurrency, Konect, to help immigrants with cross-border transactions. Pipit has built one of the largest payment networks in the world for immigrants to use.
There are so many niches inside of fintech, one company cannot fill them all. One size doesn’t fit all for sure in this space. I didn’t invest in this space so that companies stay small. I want them to grow into big multi-billion dollar companies. I want to see them crush their competitors and win. There is no second-place ribbon when it comes to startups.
The big guys like PayPal and the big corporate banks try to kill innovation. They don’t want the competition. Their actions follow the tried and true path of dominant corporates:
Ignore
Try to copy
Try to regulate them out of business
Try to buy them at a cheap price
Sue the bastards
Buy them at a high price
Finance is integral to our lives on earth. There are 8 billion people here today. You cannot expect to serve 8 billion people with several giant corporations.
This may not make me popular on this thread but I think we overemphasis the financial sector as a segment of the economy and have done so for at least 50 years. This got worse during the dotcom era in the late 90s and continues to this day. FinTech is a symptom of that.
It’s a function of brains and incentive- where do we, as a society, point our best brains? It appears to me that, starting around 1995, it became common that companies were created to be sold and not to be built. A quick 2-3 year unprofitable growth period coupled with fancy PowerPoint presentations created a few millionaires in a sale and a bunch of eventual layoffs. Most sales were not IPOs that kept the company intact. They were sales to larger companies eliminating the smaller firm. I have no data. It’s just what I’ve seen in my professional life.
This creates a transactional economy and mindset. Of course that points our best brains into employment in either the financial industry or finance slots in existing companies. I have seen clients with good operational businesses pay more attention to finding a CFO who can prepare them for sale than they do making their product or service better. Were that attention and those brains pointed towards operational improvements we would live in a better world, IMHO.
I look around daily and see things that don’t work as advertised. Self scanning registers that don’t scan, customer service numbers that don’t satisfy, email, text and cell phones that have become unusable do to spam, supply chains that don’t supply, etc. etc. I can continue with education that doesn’t educate and government services that don't provide service. On the margins many things are falling apart.
I don’t blame anyone for going into fintech. It where the money is. I wish we had a way to put the carrot elsewhere.
Thanks for letting me yell at that cloud. Now please get off my lawn.
Jeff, excellent article. The more things change, they more they stay the same---especially now with tech censorship and killing innovative companies.