Skeptics have it wrong: there are great opportunities for disruption in financial services

“You have a great UI, but this is never going to work: people don’t trust startups with their money”

This was a comment often heard during the presentations of the two following financial startups during the Tecrunch Disrupt conference in New York: Plantly and Betterment. It appears that most(?) people in the industry seem to believe these skeptics/realists (depending on your point of view) are right. In the FastCompany article on BankSimple a journalist noted the following:

Online personal finance has proven to be a difficult business to master. Witness the fall of FiLife last month. Mint.com has not seen a significant increase in unique visitors since it sold to Intuit for $170 million in September. Thrive was sold to Lending Tree in February of 2009 in a rumored fire sale. And Geezeo dropped its consumer facing service in January. And while online banking works, for the most part, no one raves about innovation in that space.

On the other end, during the Techcrunch Disrupt conference I saw these guys presenting:

disrupt on livestream.com. Broadcast Live Free

Skeptics have it wrong, there is something great happening in the financial services industry. Plantly may not be the best company, may not succeed, may not have a crazy business model but here are two guys (one somewhat related to Finance) building something in their “garage” to solve one of their issues, making investment decisions understandable to them through technology.
Everyone knows the famous Bell Curve of the technology adoption lifecycle

On the left side of the graph you find the Plantly, Banksimple creators; it is probably an obvious statement but innovation comes from entrepreneurs trying to solve their or others pain points. The fact that we see more and more people on that left side of the curve in financial services innovation makes me believe that there will be new viable key disruptive companies in financial services soon.

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  • I am bringing over the comments put on BankInnovation, where this post was also published, as I think the add an interesting conversation.

    from JJ Hornblass:

    Yann, this is a great post, so thank you for it.

    My reaction to this post is similar to my sentiments regarding many of the innovative financial services ventures: what’s the bottom line? You’ve named a few “innovative” ventures in your post, but when I think about their performance versus that of the tried-and-true, old-school banks, they simply pale in comparison. And this is the fool’s game that is being played. We focus much of our attention on a Plantly or a Betterment or whatever when Bank of America on any random day can tweak a fee policy that generates more revenue for the bank in a week than 10 Plantlys will generate — ever. Finovate and the like are perpetuating this mirage, of course, and I think in some way this mirage does a disservice by obscuring the real innovation deserving of our attention and analysis.

    That is not to say that Mint isn’t a valuable endeavor. It certainly is, as is Plantly and Betterment and other ventures aiming to radically change the financial services status quo. But each has to be put in context. Innovation — and disruptive innovation at that — of the most significant order (and by “significant,” I mean from a financial standpoint) is still most likely to come from within the existing banking community. Such innovation might not be sexy, but from a bottom-line perspective, it matters most. The traffic bankofamerica.com gets so dramatically outstrips Mint.com, as evidenced below, that it isn’t even fair to mention the two in the sentence:

    In other words, I think it is hugely important that we embrace some perspective when quantifying the innovation that I agree will continue to remake financial services in the years to come.

    My $0.02. Arrows welcome.

  • I am bringing over the comments put on BankInnovation, where this post was also published, as I think the add an interesting conversation.

    from JJ Hornblass:

    Yann, this is a great post, so thank you for it.

    My reaction to this post is similar to my sentiments regarding many of the innovative financial services ventures: what’s the bottom line? You’ve named a few “innovative” ventures in your post, but when I think about their performance versus that of the tried-and-true, old-school banks, they simply pale in comparison. And this is the fool’s game that is being played. We focus much of our attention on a Plantly or a Betterment or whatever when Bank of America on any random day can tweak a fee policy that generates more revenue for the bank in a week than 10 Plantlys will generate — ever. Finovate and the like are perpetuating this mirage, of course, and I think in some way this mirage does a disservice by obscuring the real innovation deserving of our attention and analysis.

    That is not to say that Mint isn’t a valuable endeavor. It certainly is, as is Plantly and Betterment and other ventures aiming to radically change the financial services status quo. But each has to be put in context. Innovation — and disruptive innovation at that — of the most significant order (and by “significant,” I mean from a financial standpoint) is still most likely to come from within the existing banking community. Such innovation might not be sexy, but from a bottom-line perspective, it matters most. The traffic bankofamerica.com gets so dramatically outstrips Mint.com, as evidenced below, that it isn’t even fair to mention the two in the sentence:

    Comscore

    In other words, I think it is hugely important that we embrace some perspective when quantifying the innovation that I agree will continue to remake financial services in the years to come.

    My $0.02. Arrows welcome.

  • – First, not taking into account financials (which I did not mention on purpose in my post); my key point here is not on individual companies but on the rise of a new environment for innovation in financial services: Mint, Betterment, and others are some of the first companies created in a market structure where banks are starting to open as platforms. In a pure black box, closed system, which was the case for banks until recently (not in all financial services), there is no opportunity for innovation outside. However, the fact that data (financial and others) is made available to others (through APIs) is going to radically change the business model of banks in the long term. As mentioned in my post, that 2 guys can build a new business on top of banks (acting as a platform) with relatively low capital investment is a disruptive change. Whether it will lead to the creation of new independent companies, or more acquisition of startups by banks, these innovations will have an impact on how financial services evolve. (as well as internal innovation, but I believe external innovation plays a stronger role). By helping demonstrate the case for PFM, Mint has had a key role in “pushing” banks to integrate such platforms into their online banking offer.

    – Second, coming back to your point on counting points in term of financial value if we take the example of E*Trade ( I am not comparing E*trade directly with any of the companies above; but I think it shows how a small Silicon Valley based startup can grow fast and take a major position in financial services)
    in 1992: revenues $850 000
    in 1994: revenue $11 millions (44 employees)
    IPO in 1996
    in 2009 : revenue $2.22 billions

    PS: I liked your graph from Compete, but I wanted to add the year to date stats to provide a different perspective 😉

  • – First, not taking into account financials (which I did not mention on purpose in my post); my key point here is not on individual companies but on the rise of a new environment for innovation in financial services: Mint, Betterment, and others are some of the first companies created in a market structure where banks are starting to open as platforms. In a pure black box, closed system, which was the case for banks until recently (not in all financial services), there is no opportunity for innovation outside. However, the fact that data (financial and others) is made available to others (through APIs) is going to radically change the business model of banks in the long term. As mentioned in my post, that 2 guys can build a new business on top of banks (acting as a platform) with relatively low capital investment is a disruptive change. Whether it will lead to the creation of new independent companies, or more acquisition of startups by banks, these innovations will have an impact on how financial services evolve. (as well as internal innovation, but I believe external innovation plays a stronger role). By helping demonstrate the case for PFM, Mint has had a key role in “pushing” banks to integrate such platforms into their online banking offer.

    – Second, coming back to your point on counting points in term of financial value if we take the example of E*Trade ( I am not comparing E*trade directly with any of the companies above; but I think it shows how a small Silicon Valley based startup can grow fast and take a major position in financial services)
    in 1992: revenues $850 000
    in 1994: revenue $11 millions (44 employees)
    IPO in 1996
    in 2009 : revenue $2.22 billions

    PS: I liked your graph from Compete, but I wanted to add the year to date stats to provide a different perspective 😉
    Comscore 2