Fintech
To Niche or Not to Niche, That Is the Fintech Question
October 1, 2019
A store that sells only cufflinks. A restaurant that serves nothing but grilled cheese sandwiches. A tiny stand where you buy only artisanal salt. In the not-too-distant past, these kinds of shopping and dining options were almost unheard of. Readers of a certain age will remember that if you wanted cufflinks, you went to an all-in-one department store like Macy’s. If you had a hankering for a grilled cheese sandwich, you ordered one off the kids menu at TGI Fridays. And if you wanted fancy salt, you probably learned how to make it yourself. But as times changed, so did consumer behavior, and industries adapted; these days a consumer can find a singular shopping or dining experience for almost any bespoke want or need (entirely egg-based restaurants—they’re a thing). These specialty places have done well by a) focusing on a niche product or service, b) applying expertise to something they believe in and c) executing and perfecting it daily.
In the past decade, the fintech industry has followed this model to a tee. Whether it was B2B or B2C, fintech startups broke the banking business into narrower segments, offering singular niche services for various finance needs, e.g. credit card refinancing, small business loans, student loans, P2P payments, mortgages and more. From this model, big banks became the TGI Fridays of financial offerings (where you go to experience a full spread of financial services), and fintech platforms became the speciality grilled cheese shops (where you go to get the one thing you really crave).
Fintech Niches Fill Big Gaps
Many startups went niche not only because it was a business model that worked, but because the legacy banking industry model was out of date and there was room for true disruption. With these opportunities, niche fintechs could hone in on services that fulfilled singular needs, and they could do it with a focus, passion and dedicated customer service that most general banks couldn’t provide—and the results of this have been mostly positive. Globally, financial inclusion of unbanked people has improved. According to The World Bank, 69 percent of adults or 3.8 billion people now have an account at a bank or mobile money provider. In the U.S., niche fintechs made it easier for small businesses to get a loan post-recession. A host of online lenders stepped in to fill the gap, understanding that without access to relevant capital, small businesses struggle, which ultimately affects economic growth, jobs and inflation.
Can Fintechs Stand up to Tech Giants?
Tech giants thrive when users treat their platforms/offerings as a one-stop shop, something that is already commonplace in China, where millions of people use Tencent’s WeChat app to do almost everything—pay bills, book medical appointments, chat, play games, read news and pay for meals. Although this is not at the same level of activity in the U.S., it is a trend likely to continue.
The winds have been shifting as fintech companies question whether it makes sense to stay true to their niche or offer additional services as a path to scalability and profitability. By taking the latter path, former niche startups are now either a) building out and offering more financial services or b) partnering with more established companies/banks. Some recent examples include eBay and Square Capital, Venmo and Uber and KeyBank and HelloWallet. These partnerships seem to be a win-win—for the niche companies hoping to solve for scale and revenue stream issues, and for the established companies looking to offer complimentary services their core customers already use—but they also have fintech startups standing at a crossroads. Will working a niche be sustainable in 2020 and beyond, or is becoming a jack of all trades the only means of survival?
Beware of Diluting the Brand
For starters, the only means of survival for any fintech company is to solidly define what the company brand is and what it stands for. For example, many small business lenders are deeply passionate about fueling the American dream through helping business owners unlock their financial potential. Supporting small business is key to our country’s economic fabric. Dynamism and the ability to recover from an economic downturn are both dependent on startups’ ability to grow quickly, and in most cases, the only way for them to do so is through access to capital. For a fintech lender to become a trusted brand to small business owners, it must remain devoted to them as a company that has the financial wellbeing and vitality of small businesses in mind. This means facilitating the right loan for them, right when they need it.
The key for fintech companies is to be careful about diluting the brand. When companies stray too far from what they are passionate about, their core audiences suffer. Tech giants enter new spaces every day, whether from R&D or acquisitions. A strong brand (and the loyalty its customers have to it) will not only insulate a fintech company from the tech giant threat, but make its mission and voice stronger by comparison. Think about this the next time you are eating at In-N-Out Burger (sorry, East Coasters!). The humble hamburger shop became a cultural phenomenon through its razor-sharp focus on simplicity, quality and consistency.
Always Consider the Human Factor
Innovation and automation are both critical to survival in the fintech space. But how much tech can a fintech leverage in its solutions to avoid becoming too niche? The answer lies in understanding the core customers’ needs and how much technology can be used to fulfill those needs. For an e-wallet app, the key needs of customers are frictionless payments and transfers happening in real time; it is not a solution (when it’s working) that needs a lot of human interaction. A fintech company such as this can use technology and machine learning to automate most of its services.
Conversely, the human factor is still a huge part of the equation in some fintech services. For example, a person’s livelihood is at stake when a small business takes on a loan or another capital solution for its growth needs. This is a very personal and consequential decision for a business owner. In fact, in the majority of cases, they don’t want to rely solely on a technology-powered platform to deliver the most appropriate loan options for their needs, not to mention address their specific concerns and questions. A fintech lender can leverage technology at every touchpoint to optimize the application and loan approval process; but ultimately, many business owners will desire interaction with a live representative, not a chatbot. The human factor is crucial in business lending, and something that could become lost as a result of brand dilution. While scalability is important, customer service is equally so.
In the end, the decision to offer niche services or to go wide will depend on what’s at the core of a fintech company. Indeed, the pressures to scale, grow and earn returns for investors are huge for any business, but decision-makers must keep their perspective on the market they serve and the problems they solve best. If expanded offerings and partnerships with other service providers enhance your brand and what it stands for, then this approach makes sense for growth and customer satisfaction. If not, then serving up the best grilled cheese sandwiches around, to the folks who really crave them, may well be the best path.
New SoFi Stadium To Host Rams, Chargers, Super Bowl & Olympics
September 15, 2019
SoFi’s appetite to reach NFL viewers is going above and beyond just Super Bowl commercials. The fintech company that started with student loan refinancing, has secured the naming rights to a new professional football stadium in Inglewood, California. SoFi Stadium, which opens in 2020, will host both the Rams and the Chargers. The stadium will also be home to Super Bowl 56 in 2022 and will serve as the venue for the opening and closing ceremony of the 2028 Summer Olympics.
Anthony Noto, SoFi’s CEO, served as CFO of the NFL for almost 3 years from 2008 – 2010.
In an interview with CNBC, Noto explained that the naming rights are more than just people coming to a game and seeing their brand there and that it will also give them a TV broadcast platform for all types of events the stadium hosts. It’s the ultimate advertising campaign, which the company believes they need to market their new products such as SoFi Money.
“Now that we have a complete suite of financial services […] we have to build awareness of those products, which requires us also to build trust, so being part of this iconic destination, allows us to elevate and accelerate how quickly we can get there,” Noto said.
The move could be perceived as too flashy or premature given how young and new SoFi is, but Noto says that the naming rights only make up about 10% of their marketing budget.
A single night of football, they estimate, would put them in front of 10-15 million unique potential customers, equal to all of their other total sponsorships they’ve done combined.
LA Rams Chief Operating Officer Kevin Demoff said during a separate CNBC interview, “I think when you look at someone like Anthony Noto, who was in part of the NFL, who understands the allure of football and what it brings to people on sundays, and throughout the nation and helps bring people together, but also right there the entertainment factor when you think about what can happen, on this field right below, I think it’s something that gives everybody a point of pride.”
PNC Bank Launches Fintech Startup numo
September 3, 2019
Last week, PNC Bank announced its latest venture, numo, which aims to function as an internal startup, developing apps and other services to expand PNC’s operations.
The first such app is indi, a bank account for gig workers that is exclusive to mobile phones. Offering customers tax calculators, tax savings goals, and dynamics adjustments that react to how much they’ve saved, PNC is joining the list of financial institutions which are doubling down on banking apps. The numo accounts are FDIC-insured, are held at PNC, and include a Visa prepaid debit card.
Speaking on the benefits of indi, numo CEO David Passavant said, “How do you estimate your tax liability when you don’t have an employer doing it for you? We built a system with intelligence to estimate what you should set aside for taxes.”
Beyond indi, numo has two other projects in the pipeline. One of these is unknown as of yet, but the next to be launched will be a service for companies that run portfolios of retail properties.
Not the only announcement to come from PNC last week, the bank also revealed its partnership with the RippleNet blockchain network. Joining together to offer swift cross-border payments for PNC’s commercial clients, the news comes almost a year after the bank stated that it planned to partner with RippleNet in September 2018.
“The speed of doing business continues to accelerate,” explained PNC Treasury Management Executive Vice President and Head of Product Chris Ward in 2018. “And the efficiencies of RTP [real-time payments] allow our clients to not only keep pace, but stay ahead.”
Apple Card Partnership Sees Goldman Sachs Lending to Subprime Borrowers
August 25, 2019
Apple Card launched this month, and with it have come some complaints over the unforeseen damage that wallets can do as well as an official guide from Apple on how to tend to and clean your new credit card. But aside from aesthetic and hygienic concerns, the card’s release to the wider public has raised eyebrows with news of subprime borrowers being approved.
Forged from a partnership between Apple and Goldman Sachs, a bank known for dealing with corporations and the rich, the move seems out of character for the 150-year-old institution.
Rolled out initially to Apple employees as a test, rumors began to circulate of early adopters expressing surprise at being approved despite having FICO scores in the middling 600s. Then, upon Apple Card’s wider release, Ed Oswald came forward and spoke to CNBC about receiving his card, along with a credit limit of $750 and an interest rate of 23.99%, despite having a credit score of around 620.
But this is not the bank’s first foray into FICO’s less than 700. Since its launch, Goldman’s Marcus has issued $4.75 billion in personal loans, 13% of these going to borrowers with a FICO of 660 and under.
This 13% and the partnership with Apple are indicative of David Solomon’s tenure as CEO of Goldman Sachs, who has sought to expand into consumer finance following years of declining trade revenues.
And while this contrasts the bank’s history, the push for more access to credit is aligned with Apple’s values. In fact, in the 1990s, when the tech company was in talks with Capital One over a potential card partnership, Steve Jobs “had an aversion” to rejecting any customers who wanted to sign up. Such yearning for openness and ease of access has reportedly scared off other banks. According to CNBC, Citigroup was in advanced talks with Apple prior to Goldman Sachs’s confirmation, but pulled out of the deal due to concerns over the profitability of the partnership. Similarly, JPMorgan Chase, Barclays, and Synchrony all allegedly bid on the deal.
But what does such access mean? Well opening up credit to those with a less-than-proven track record increases the risk of losses due to unpaid loans. The speed with which funds are made available, the application and approval process takes two minutes, means that Apple Card could rival payday loans and alternative finance for those customers looking for more modest funding. And as well, the commodification and attention paid to the appearance of the card by Apple has led to it being viewed as the latest gadget from the company rather than a tool to use when financially necessary, as pointed out by Macworld, raising questions over how credit cards should be marketed.
On the topic of access, Ian Kar, the author of the Fintech Today newsletter said that “Apple is only making one card, so they have to target everyone … It’s not like they’re Chase with multiple cards like Sapphire Reserve to target a higher demographic and other cards for lower segments.”
This singular approach to credit joins Apple’s growing collection of services. Likely being pushed to account for the falling sales of the iPhone, Apple Card is the latest in a line of launches that includes Apple News+, Apple TV+, Apple Pay, and Apple Arcade.
This year, iPhone sales saw a drop of 12%, making up 48% of total Apple sales. While Apple services rose by 13% from 2018 to become the second largest segment of the company’s sales portfolio, being 21%.
When discussing Apple Card and its role in the bank’s ecosystem in an internal Goldman Sachs memo, Solomon, hinting at further partnerships, said “Apple Card is big, but it’s also a beginning.”
LendingPoint Places Seventeenth on Inc. 5000
August 14, 2019
Today Inc. 5000 released is 2019 list of the fastest growing private companies in America, featuring alternative finance company LendingPoint in seventeenth place after it witnessed a three-year revenue growth of 9,265%. LendingPoint offers consumer loans of up $25,000 and provides financing to merchants, service providers, and medical institutions via its LendingPoint Merchant Solutions program.
This is the Atlanta-based business’s debut on the list and it comes after LendingPoint had a strong twelve months, with it being on track to reach $100 million per month in loan originations by the end of 2019 as well as it being the year the company turned profitable. On top of these, LendingPoint also has plans to expand its operations by hiring an additional 100 people, bringing its Atlanta HQ up to nearly 300 staff members.
In a press release, LendingPoint CEO Tom Burnside claimed that “Our platform saw more originations in 2018 than in 2015, 2016 and 2017 combined [sic], and at the same time our credit performance improved allowing us to facilitate more financing for consumers online and at the point of sale.”
Such growth is attributed by Burnside to LendingPoint’s use of technology. “We started by using data and technology to provide access to credit to underserved [sic], expanded to providing financing options at the point of sale to virtually everyone, and are now working on ways to integrate financing and payments with loyalty using blockchain to protect PII and enhance customer experience.” Such technology makes use of over 10,000 alternative data points, while also using FICO as a weighted factor of their analysis, to determine an applicant’s approval.
“We spend a lot of time cross-tabularizing the data points,” said Mark Lorimer, LendingPoint’s Chief Communications and Public Affairs Officer, when asked about the company’s approach to tech. Confronted by vast amounts of data, Lorimer noted how LendingPoint makes use of its technology to determine the value of different variables, “it really is a matter of taking the data and turning it into information.”
On the subject of LendingPoint’s placement on the Inc 5000, Lorimer told deBanked that the company was “not really surprised” by the news. According to him, his colleagues had been keeping an eye on the performance of those companies who previously placed on the list and were aware of what was required to appear on it, while his CEO has a more exuberant take on it: “It has been quite a ride for the last three years, and we’ve only scratched the surface.”
Canada Fintech Week Launches in Toronto
August 12, 2019
This week sees the first ever Canada Fintech Week (CFW) in Toronto. Running from August 12th to the 15th, the four-day celebration of everything fintech in Canada features a slew of events and panels for those in the industry.
Ranging from how to incorporate blockchain technology in Holocaust asset recovery to cybersecurity, to the future of open banking, CFW appears to cover a mix of topics and issues that are at the forefront of various corners of the scene.
CFW was launched by the Digital Finance Institute (DFI), a thinktank established to provide assistance to the digital finance ecosystem of Canada, with particular attention being paid to inclusion, responsible innovation, and the supporting of women in fintech. Having held the Annual National Fintech Canada Conference for the previous four years, DFI is combining the two events into one this year, with the fifth conference taking place on Wednesday.
In the lead up to CFW, DFI has released a list of its top 50 fintech companies in Canada that features the likes of Interac, OnDeck, and Lendesk; which accompanies its previous list of the top women in Canadian fintech. FundThrough, whose Director of Innovation spoke with deBanked last month after appearing on this list, will be hosting a panel covering alternative finance on Thursday.
CFW is coming at a time when fintech in Canada appears to be on the up, with a recent report from PwC-CBInsights finding that the first six months of 2019 have seen totals funds raised by Canadian fintech firms almost doubling from $133 million in Q1-Q22018 to $251 million. As well as this, investments in seed-stage companies have risen too, with the portion of seed round investments made in the first six months of 2018 being 36% of total investments, while 2019 witnessed 49%.
Import/Export SMBs Introduced to Fintech Lending Options
August 2, 2019
Early this week TangoTrade announced its partnership with the online lender Fundation. TangoTrade, which deals primarily in payment assurances for US small business importers and exporters, will now offer alternative financing to SMBs with the help of Fundation.
The development is a reaction to the struggles faced by small businesses who engage in global trade. Sam Hayes, Co-founder and President of TangoTrade, said that “If you’re an SMB and a transaction goes south, it causes major problems for cash flow. There’s very little recourse you can have as a small business.”
Explaining that about one-third of all US imports and exports originate from small businesses (roughly 200,000 small businesses import and 300,000 export), Hayes notes that this is a large portion of the American economy that is potentially at risk. Especially when they are being left out to hang by banks whose debit and credit facilities come attached with lengthy approval wait times and complex application processes that are often too inconvenient for SMB owners.
The partnership with Fundation, which is backed by both Goldman-Sachs and SunTrust Bank, will enable TangoTrade to fund SMBs up to $1 million. As mentioned, TangoTrade also offers payment assurance for importers and exporters, which reduces payment risks by managing the entire payment process for both parties involved and offering imbursement via 130 currencies. As well as this, the option to wire funds globally is available through TangoTrade’s partnership with TempusFX.
These services have been centralized by TangoTrade, being made accessible through the business’s site, a decision that is key to the company’s vision of offering services through a platform, Hayes told deBanked. “We’ve seen innovations in cross-border payments and global sourcing, but not a whole lot in this particular area,” which is why TangoTrade is pushing to incorporate fintech in their dealings.
And this impetus has attracted attention. With a diverse set of investors ranging from Hard Yaka, which has ties to Square, Ripple, and Twitter; to Village Global, a venture capital network that is backed by Bill Gates, Jeff Bezos, and Mark Zuckerberg, TangoTrade has links to large names. Such diverse connections are mirrored in the company itself, with their team bringing together experience from MasterCard, Payoneer, NASDAQ, and Oracle.
A cabal of tech heads to be sure, Fundation CEO Sam Graziano says that this approach will “enable small businesses to access low-cost capital through an integrated user-friendly digital experience on their platform.”
Chinese Funder MYBank Using Advanced Tech to Provide Capital
August 1, 2019
MYBank, the largest non-bank funder in China, is using new technological systems to approve loan applicants. The company, which is backed by Alibaba founder, second richest person in China, and former English teacher Jack Ma, is now in its fourth year of operations and has thus far provided 2 trillion yuan ($290 billion) in funding to 16 million customers.
Having partnered with Ant Financial Services, a payment processing company which Ma is also involved in, MYBank has received access to a host of data. In order to apply for a loan, SMB owners give access to their real-time payment records, and from the analysis of these, as well as the non-bank’s own risk-management appraisal system which runs through over 3,000 variables, a judgment is made as to whether or not to fund the applicant.
Ant also provides MYBank with other tech, such as facial recognition software to detect fraud, and aids them with their implementation of cloud-computing and big data. But as well as these methods is another system unique to China: social credit. Currently in its pilot stages, this national reputation system is set to rival traditional credit score systems. It works by increasing or decreasing a citizen’s rating based off whether they perform a good or bad action. Yell at someone unnecessarily on your commute? Your social credit scores lowers. Help an old woman cross the street? It’ll go up.
When discussing how the system could be implemented, MYBank President Jin Xiaolong gave the example of a small business owner who, upon forgetting to return a borrowed umbrella, finds it harder to get a loan. As well as this, Bloomberg reported in 2018 that a very poor social credit score could lead citizens to being barred from staying at luxury hotels, buying high-end real estate, and enrolling their children in elite schools. The flip side of this is that those with impeccable ratings will receive discounts when commuting, relaxed scrutiny when seeking financial aid, and priority when applying to schools.
Made possible by data-tracking tech, social credit scores appear to be almost revolutionary for the alternative finance industry. Partnered with the other technological tools available to MYBank, the company could experience previously unseen heights of successful loans. Or rather it does already, with default rates at approximately 1%.
Accessible via a few taps on a smartphone, MYBank’s application process takes 3 minutes and due to automation, customers are often instantly approved with funds being made available straight away. One customer described this shift in supply as “unimaginable” and praised how easy it now was to find capital as soon as he needed it.
MYbank also revealed Tuesday that it intended to raise $871 million at a valuation of approximately $3.5 billion.
