I have a confession. After finding out that the U.S.
military has a task force for tracking UFOs, I’ve become a little obsessed with
extraterrestrial life.
This curiosity is only further stoked by Netflix’s Alien
Worlds, a series that uses scientific information about distant planets to
imagine what kind of life may live on them. For example, exoplanet Atlas has
three times Earth’s gravity, which actually causes air molecules to collapse
and results in thicker air.
Atlas’ creatures, the show’s creators imagine, might include
winged animals that live almost their entire lives in the sky, coming down only
to lay eggs and die.
Sound fantastical? Perhaps a little, but I actually think
this is a great analogy for fintech’s evolutionary history and current
developments.
Early Life On Planet Fintech
On the planets in Alien Worlds, and even on Earth, planetary
rules like environment and atmosphere dictate evolution.
Fintech innovation can similarly be boiled down to
infrastructure and products. In this analogy, Planet Fintech has planetary
rules (infrastructure) shaping unique life forms that adapt to these rules
(products).
Planet Fintech was an analog planet until a few critical
environmental changes in the 1950s, ’60s and ’70s. A computer processing
revolution made batch processing and synchronized bank accounts across branches
possible — an important infrastructure change.
This new planetary atmosphere gave birth to a novel creature
on Planet Fintech: the credit card. However, with payment rails supplied by
companies like Mastercard and Visa and developments like the mag stripe, this
little creature began to change the environment that created it.
The Financial Tree Of Life Grows Fast
Back in 1999, PayPal began offering electronic payments via
linked credit cards and bank accounts. In those days, internet startups had to
buy their own servers and configure their own routers before they could even
write a single line of code. Then, they’d spend hundreds of hours dealing with
payment authorization, user authentication, SSL certification and more.
The resulting new payment creature was clunky, but it was an
innovative form of wobbly kneed life emerging on Planet Fintech.
By 2006, startups like Prosper and Lending Club were
experimenting with marketplace lending. The term “fintech” formally emerged to
describe these new, somewhat awkward creatures. Many of them did not survive,
learning a hard lesson that better lending terms couldn’t outweigh a cheap and
stable source of capital like that secured by previous species.
Increased Evolutionary Pressure Prompts Customer
Centricity
Today, the rules of Planet Fintech are changing in another
major way thanks to the various creatures that have evolved there. A major
atmospheric change is infrastructure as a service, or IAAS.
IAAS is a prebuilt computing infrastructure available as a
subscription. With it, startups no longer have to buy their own servers,
configure their own routers or even write their own code. They simply set up an
Amazon Web Services account, for example, and shortly after, a new fintech
creature emerges.
This environmental change has fueled a Cambrian Explosion of
sorts on Planet Fintech. In the early 2010s, creatures whose evolution depended
on changes to infrastructure emerged en masse. Consumer deposit account
provider Chime appeared in 2013, for example, thanks to a partnership with an
infrastructure startup called Galileo.
Galileo agreed to create external APIs for Chime, which
allowed Chime to easily roll out checking accounts that reached out to the 25%
of the market that depends on check cashing services and payday loans to meet
liquidity needs. In the new resulting environment, startups like Chime could
focus almost exclusively on their customers rather than the tech hurdles of
online banking. Both Chime and Galileo experienced massive success thanks to
this work, and their story is only the tip of the iceberg.
Every Company Will Be A Fintech Company
With the help of IAAS providers like Stripe, Plaid,
Finicity, Alloy and Symphony, many originally nonfinancial companies have made
financial services a major source of revenue. This is possible when tech
companies use deep customer information and niche industry knowledge to offer
personalized financial services that other fintechs can’t touch. In the
process, these companies become primarily fintech companies in practice.
This adaptation is about vertical tech companies everywhere
leveraging their unique insights, networks, data and customer relationships to
create successful fintech businesses. That’s the big evolutionary event
happening now.
And it’s far from over; Planet Fintech’s rules are still
changing. At the a16z Summit in 2019, Angela Strange explained why we should
expect to see many more new products emerge in the years ahead and asserted
that in the near future, every company will derive a significant portion of its
revenue from financial services. Apple, Uber and Lyft are already well on their
way.
The Future Of Life On Planet Fintech
We are still early in this revolution. Combined with the
unexpected timing of a worldwide pandemic that evolved the relationship between
regulators and fintech companies, rapidly shifted consumers to digital
commerce, and accelerated digital transformation for financial institutions,
the environment is ideal for continued evolutionary explosion.
Fintechs helped the government distribute checks to
Americans and loans to small businesses. Last year, Square saw its direct
deposit volumes triple from March to April, while Chime saw record signups, and
mobile banking engagement rose 50% for traditional banks and credit unions in
the first four months of the year.
We saw the launch of Stripe Treasury, which focuses on
helping companies add financial features to their products. These types of
solutions are making things easier than ever before.
When an environment changes, the life within it follows.
These evolved life forms then change the environment in return. By thinking
about the fintech environment and its products this way, we can better
understand the evolutionary phase we find ourselves in.
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