- firms focused on making back-office functions are likely to succeed first and fastest,
- consumer-focused startups that embody the FinTech ideal have a tough row to hoe, and
- pure cryptofinance target to small-businesses or consumers at any scale is neigh impossible for the market to understand and buy at this point in time.
Two of startups focused on the back office—Ascent and Dealroom—have quick value propositions. Ascent’s system manages the details of compliance, initially for derivatives trading houses, while Dealroom manages the documents, workflow, and communications of M&As and other transactions. In both cases, workflows consisting of filings, deadlines, and emails are more efficient, more certain, and less costly. You can do the math.
The third business-oriented startup, Connect Lending, connects businesses with commercial loans. They get heard because, in essence, they offer a part of the equation that any business seeks: qualified leads.
The consumer-focused startup I saw, Tip Yourself, supports the math of self-motivation—and requires the math of massive consumer adoption and use to succeed. My initial reaction wasn’t fair—I didn’t think my 26-year-old daughter would use an app based on encouraging saving money through self-motivation and reward—but a value proposition based on empowerment is a much more difficult sell.
It requires an empowering community, as Aaron Gillum, one of my fellow mentors, pointed out. Community building is no easy task even in the social media age, and it’s why you see consumer-focused FinTech firms with the cost-savings value proposition advertising on TV and transit and using other traditional advertising and marketing techniques.
As for a future of cryptofinance, Project Air took the back-office efficiency approach by focusing on how businesses can save card interchange fees by paying with a cryptocurrecy. The value proposition may be clear enough by the numbers—reducing a cost by a percentage or so—but that job requires much more than that: explaining an abstract technology, showing its relationship to existing institutions, and engendering trust in what amounts to an entirely new mathematical system.
PayPal was not so revolutionary as bitcoin and had the math still missing from consumer FinTech. Randall Kroszner, an economist at the University of Chicago, noted that PayPal made it easy for individuals and small businesses to sell over the internet. Combined with the eBay marketplace, PayPal removed the cost and friction of setting up a credit-card merchant account and provided a user interface that, for the time, was easy enough that consumers used it.
Cryptofinance will require legal and regulatory innovations as much as technological innovations to achieve mass use, he predicted at a Thursday evening talk on the global economy, sponsored by the Chicago Council on Global Affairs. In that regard, his speaking partner, Tyler Cowenan, economist at George Mason University, concluded that the killer app would be Africa, where people are used to paying with mobile phones, and where its countries do not have highly developed legal and financial structures.
Thinking on it later in the week, I saw a headline that reminded me of a quote from an Ernst & Young partner quoted last month in Business Insider “the big information void we’ve continually come up against in this space: is anyone actually using this stuff?” It also recalled a tweet I wrote at the Money/2020 FinTech conference last fall, a photo of a long line of startups looking for customers, with few to be found.
They will be found the old fashioned way, with cost savings (or avoidance), with the possibilities of generating new business, and perhaps with the promise of a more equitable way of living. FinTech as a philosophy is more idealistic than disruptive. The idealistic, optimistic heart of FinTech lies in the empowerment of individuals to take greater control and responsibility over their financial well being and for small businesses to gain financial resources they could not otherwise afford or obtain, and for community-based financial institutions to compete more strongly with large national and global banks. It will take more than technology to bring that about.
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