Three Opportunities For Fintech Companies

Recently I attended the Future of Fintech Conference, where a major theme was the disruption of the financial services industry by clouds, machine learning, blockchain, and other technologies. Speakers reflected on how the bigger fish (e.g. NASDAQ, Bank of America, MunichRE) and smaller fish (e.g. Robinhood, Affirm, SoFi) have acted on and reacted towards these phenomena.

Three opportunities for fintechs stuck out from the conference. Read on for what they are.

1. The customer relationship with traditional financial institutions is broken

   Harit Talwar, Head of Marcus by Goldman Sachs, cited a survey of 10,000 individuals that broke down the issues customers face today regarding the financial establishment, e.g. large banks, into three factors:

   Consumers' relationship with money is broken: they are confused by the number of available accounts, cards, and other financial products. Those who need to borrow are forced to enter a cumbersome, sometimes humiliating process. Those who save, in contrast, feel disrespected by the financial industry due to the lack of return opportunities provided. As a result, customers have developed a level of distrust towards traditional financial institutions.

   Fintechs can perhaps take advantage of this situation to design financial services that fulfil customers' true needs. For example, a business model that counts on customers not paying back their loans on time (thus causing late fees) would not address customers' true needs; but tailoring a service to customers' capability to pay loans back on time would.

   The latter is the approach taken by Affirm, a fintech company from San Francisco. Founder and CEO Max Levchin says Affirm's mission is to provide simple, clean, low interest, tailored loans as an alternative to traditional credit card transactions, according to the mantra, "Let's do things that are good for consumers". Similarly, Anthony Noto, CEO of SoFi, describes his firm's business model as reinventing the relationship with consumers in order to help them "get their money right" through analytics-enabled tailored services.

2. Transparency as a unique selling point in the financial services industry

   Customer distrust is largely caused by the lack of transparency from traditional institutions on their services. According to Andy Rachleff, Co-Founder and CEO of Wealthfront, traditional large financial institutions are constantly looking for excuses to keep their data hidden from customers, especially when it...