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FinTech Gets Personal

The Helm’s Managing Partner, Erin Shipley, explores the next wave of companies reshaping our financial future.

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Each month, Tech of the Town takes a deep dive into the technology trends we are most excited about through the specific lens of our monthly theme. For this month’s theme, Women, Money & Power, we’re exploring the future of financial technology (FinTech) – and more specifically, the companies and innovations that are enabling the next wave of consumer financial services.

If you’re reading this, odds are that you are interacting with and benefiting from “FinTech” every day, maybe without even realizing it. If you’re a small business owner, it may be the Square plugin that lets you take credit card payment or the software that helps you track and manage your business spending. If you’ve ever used a mobile banking app, had part of your investment portfolio managed by an automated investing service like Betterment, or used Venmo to pay your roommate for utilities, you’re using FinTech software. The very fact that a new generation now uses “Venmo” as a verb speaks to the increasingly mainstream, if not the ubiquitous use of FinTech solutions to traditional financial problems today.

The financial innovations of the past decade have made our interactions with money—and the financial system more broadly—faster, cheaper, and easier than ever before, but for many people, FinTech has only scratched the surface of its long-term potential. This is because some of the most significant financial challenges that people face are personal, individual, and their solutions are much harder to scale. What does it mean to retire well? How can I afford to start a family? What kind of insurance do I need? How do we define what it means to be creditworthy?

Americans have over $1.4 trillion in student loan debt, with the average debt burden on graduating students increasing steadily each year. Interest rates on this debt are still largely determined by congressional decree and student creditworthiness by outmoded systems of risk assessment. Financial security is another critical challenge: an estimated 63% of Americans don’t have enough savings to cover a $500 emergency expense. Yet another obstacle: access to modern banking services. The percentage of the population that is totally unbanked—not served in any capacity by a financial institution—is close to 8%, and the percentage that is underbanked is close to a staggering 20%. Take a moment to consider that, at a time when more and more people pay for their morning coffee with a seamless iPhone-POS interface, nearly one in five Americans still do not have consistent access to a bank account.

These problems are big and enduring, and they do not have one-size-fits-all solutions. The most exciting FinTech companies are building products that recognize that people’s financial lives, and challenges, are dynamic. Here are a few of the companies we see reshaping our financial future.

Take a moment to consider that, at a time when more and more people pay for their morning coffee with a seamless iPhone-POS interface, nearly one in five Americans still do not have consistent access to a bank account. Tweet

Companies Building for the New Normal

Despite enormous demographic shifts, consumers are still largely limited to financial products that are rooted in old paradigms. In 2016, 61% of households were dual income vs. only 25% in 1960. Women are having children later, and in 2016, for the first time in history, women in their 30s were giving birth at a higher rate than women in their 20s. There is also an increasing shift in the kind of financial security individuals can expect from their jobs. More companies are shifting to contract labor positions that leave individuals responsible for their own insurance and retirement planning, and Americans are continuing to live longer, which will have a significant financial impact not only on retirees but on their children as well.

Companies Putting the “Service” Back in Financial Services

As an industry, traditional financial services companies have endemic customer satisfaction problems. On an industry-wide basis, Net Promoter Scores (NPS), which measure customer loyalty, are consistently low, with the average (on a scale from -100 to 100) for banks at around 32. The average NPS for the health insurance industry is even lower, hovering between 12 – 18. So what does this mean? Quite simply, customers are unhappy. America’s three largest banks made an estimated $6.4 billion in 2016 from ATM and overdraft fees alone. It’s still not out of the realm of possibility that, in 2018, your insurance company could ask you to fax them a document. The result? Large incumbent players have been losing market share to new companies that can prioritize transparency, convenience, and service, and we are still in the early innings of this trend.

Companies Rewriting Credit

Historically, an individual’s creditworthiness has been determined by their credit score, standardized by FICO in the late 80s and tied to a limited set of data points. But think about the dynamic data points we as individuals – through our actions, our networks, our homes, and our devices – are creating most hours of every day. How are companies continuing to push beyond the limitations of the traditional credit score, so that more individuals can access capital to start businesses and buy homes? Smarter data utilization has already changed who can lend and how we think about creditworthiness, and we are continuing to see more sophisticated underwriting and novel applications of data create new business opportunities.

So often, new startups prioritize consumer convenience over need. But at The Helm, we believe that it is that rare but magical intersection of true consumer need with novel technology that will ultimately drive the scale and enduring value of the next wave of financial services. The future of FinTech is personal.

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