Contrary to popular belief, at least among venture capitalists, consumer-facing fintech is not dead, says Bradley Leimer, managing director and head of fintech strategy at Explorer Advisor & Capital.
“Personal finance and robo — that ship has sailed,” said a venture capitalist at a fintech conference last summer.
“Direct to consumer fintech ideas outside of Venmo haven’t been blockbuster hits,” another said.
But just because there have been so few new companies have become the next Robinhoods or Digits doesn’t mean it’s over. The news last week that SoFi is rolling out checking accounts and debit cards, without getting that ILC it once talked about pursuing, is proof enough that there’s a lot more in the tank as far as front-end fintech is concerned, Leimer said.
“There’s almost no area where a bank can’t be improved upon,” he said. “It’s just like retail. What’s happening with large commerce providers is there’s not an area that can not be disrupted to the ground and banks won’t be an exception to that.”
Tearsheet caught up with Leimer, who was previously head of innovation at Santander before starting Explorer, which advises and makes seed investments in fintech companies. He addresses the increasingly popular view about fintech apps, finding investment opportunities in crowded markets and how companies should use data to engage, educate and sell new products to customers. The following has been lightly edited for length and clarity.
Why are so many VCs saying consumer-facing fintech is so over?
This is the rub about most VCs… they don’t tend to take in the people who have been in the belly of beast for a decade. VCs come in and say “Where’s the 10, 20, 30x opportunity? Where’s the Transferwise or Robinhood or the company that’ll take something completely inefficient, strip it down, add technology in a new unique way, be able to scale, be able to leverage all these growth hacks of super business adoption and truly disrupt.” Because they haven’t seen a continued flurry of exits, acquisitions and IPOs they somehow think those things are dead.
Do you agree?
There’s so much more we can do for individual consumers or businesses. Anyone in the VC community that says direct-to-consumer fintech is dead doesn’t have enough curiosity. And that’s the business: their end 20 or 30x return. That’s fine, but there’s an awful lot more opportunity and that’s the biggest message of the past couple years. Look at how SoFi is providing checking accounts without a banking license. It’s not dead, if anything, it’s just going to provide more choice, more transparency, lower cost and it’s going to continue to evolve to the point that if banks aren’t paying attention, they truly will have more than just a slice of the fee income, they’ll take it off the balance sheet.
Where is the opportunity for early-stage B-to-B companies?
Companies helping a bank or someone else target consumers; that are leveraging machine learning tools that instead of taking 10 or 12 variables take thousands of variables. Banks are investing in Socure for a better AML stack, a better way to look at transactions and reduce false positives. The Socure team is probably less than 25, 30 people but it represents a huge opportunity to take what in a large bank might be two or three or 10 thousand compliance people, many of whom are looking at the same data and many are going to face a future where they have to shift what they do because algorithms are doing a much better job.
What’s your biggest challenge?
You have more and more companies coming up in the past couple years with pretty substantial clients. The challenge I have as someone looking to invest in these companies are to find the spaces where there are only two or three. Or step back and say maybe the investment side of this isn’t as necessary as partnering with these companies and layering. In the identity space there are seven or eight platforms that have reached global scale. You have to wonder if there will be opportunities for yet another identity play. Maybe not, because you have to be kind of standard and be able to explain to your investors how you’re going to get positive income.
What are you most interested in?
One piece starting to be deployed by Chase and others is this idea of everpresent or always on offers. The marketing of the past especially in our space has been about push and about targeting; whereas this idea of always on credit offers or always on savings, or other types of investment offers, that perpetually drives engagement and eventual purchase of additional services to a household or business is something we’ll continue to see.
Subscribe or simply put your email address onto a Lending Club or Stash Invest or whoever to go through even a portion of the on boarding process and then find out in the next 90 days how many times you get targeted. But what I’m talking about is beyond that: if I’ve expressed interest, am I going to be hammered by offers? Within mobile, online, eventually voice and other parts of the stack will always be there to provide you something that says “hey you’ve got these seven products that fit into what you’ve shown to be your financial life.”
So that’s an acquisition play.
Yes. If the consumer says, “I have a need that might require a credit product,” the first thing they’ll think of is the financial institution that has already enabled seven different types of credit offerings to tap into credit card, personal loan, mortgage, that are always present as offers. And they become more intelligent every single day, they can change every minute. They can do what Amazon does where when we click through and search for something they can have dynamic offers that change.
Are companies doing enough with data to engage with customers in a valuable way?
Using customer data to educate is a thing I’ve seen in the last several years slowly creep up as being important. Engagement of brand is more about content and relevance around what I do day to day. When you have an opportunity to tell someone about their financial situation, like a future advisor giving me information about my portfolio — when I’m not even a client, I’m just an aggregator with them — becomes more relevant and more like a connective tissue between brand and individual, because they’ve leveraged my data to tell me a story.
How do you tell customers stories with data?
Take early days of Digit. What was unique about it is it was through SMS so they texted you data about your savings activity. It’s not that difficult to see Kasisto or Finn or Clinc take that approach and doing it via chat. Or “Alexa, tell me a story about my finances or my bank.” She doesn’t know it now, but she will. People underestimate content. We’ve been working with digital marketing communication content and services that tie into the mobile app for quite a while now. These are the types of companies we seek.