Wednesday, June 01, 2016
Fintech and Friction
‘Fintech', the latest buzzword in the global startup scene. Covering everything from personal finance products through to bitcoin and cryptocurrencies, the term is today loosely applied to any startup marrying aspects of ‘Finance’ with ‘Technology.
Globally, Fintech is a sector attracting considerable attention from investors, banks (often seen as competitors), consumers, and the tech press. A quick survey of investment priorities for major venture capital and private equity firms during 2015 and 2016 provides an insight into the continuing rapid growth expected in this sector.
As user adoption of the smartphone hit critical mass, consumers demanded the same ease of interaction with everyday tasks as they now had for communicating, finding and booking a restaurant, or getting directions. In tech circles we commonly refer to this as “removing friction”, essentially making a task easier by eliminating pain points. Consumers now wanted a ‘frictionless’ experience for everything, including managing their finances and moving money.
The beginning of the Fintech craze primarily grew out of the US and innovation around personal finance and accepting payments. The finance sector was seen as technologically outdated and slow to innovate, with players and components who could be easily disrupted.
Mint.com which launched in 2007, the same year as the iPhone, started as an online financial tool that aggregated all your banking and credit card accounts. In the US, institutions were slow to offer customers money management tools and the prevalence of storecards meant keeping track of different institutional accounts was important. Mint was acquired in 2009 by Intuit for approximately $116 million.
LearnVest offered to help you understand your financial habits and manage your finances accordingly, also offering easy access to financial planning services. Initially, it was targeted primarily towards women. Last year LearnVest was acquired by NorthWestern Mutual for $250 million.
Square allowed farmers market traders and mobile vendors to easily accept card payments using their phone and a magstripe reader plugged into the headphone jack, and spawned numerous competitors. Today it is used by merchants looking for a cheaper lightweight service than a traditional bank based merchant account.
Even with fast paced innovation and consumer demand, in a large market with numerous players and entrenched business models, ubiquity is often difficult to achieve. Last year at a payments conference in Austin, Texas (a major startup hub of the American South) I took a cab ride only to have my card place on an old manual “Knuckle buster” machine along with a slip of carbon paper, when I asked to pay by credit card.
‘Checking accounts’ (chequing accounts) are still the primary bank account for most Americans, where recurring transactions often incur large fees and internal bank transfers between different account holders are typically not instantaneous. Services such as Venmo, allow you to make and share payments with anyone, instantly, for free. Head out to dinner with friends and colleagues in the US, and you’re likely to find the cab and dinner bill split via Venmo. In Australia, we’d just open our mobile banking application and transfer the money.
Conversely with a far more consolidated banking sector, Australia's banks have largely kept pace with consumer expectations and offered innovative ways to access and manage your money. This has meant that many of Australia’s high profile Fintech growth has been diversified across various fields including; payments (Tyro), point of sale (Kounta), personal finance (Pocketbook), settlement (Ripple), trading (TradeFloor), and Bitcoin and blockchain (Bitcoin Group)
As Australia continues to cement it’s place as a key Fintech innovation hub in Asia, we now face competition from abroad. Whilst legislative and security requirements generally slow Fintech companies expansion more than traditional startups, the pace of innovation is still frenetic. US companies including Acorns and Robinhood are already eyeing our markets. As a sector, we have to continually innovate and grow.
The rise of Fintech is a lesson for all industries. It doesn’t matter whether your end users are internally facing or external consumers. Software and technology should become a tool for removing user friction. If you don’t make it easy for your users, they’ll find a new service that does.
Robert Leigo is the CEO @SelfPOS_AU, an entrepreneur, startup junkie #fintech