What do Zillow / SecondMarket / Ebay / Square / Financeacar (Anthemis is an investor) / Betterment (as well) have in common? They all play a part in solving the important issue of price discovery: how much does it cost / how much should it cost?
Financial services products tend to suffer from complex pricing syndrom:
– First because asserting their price is sometimes difficult ie what is someone’s risk profile and how much premium it implies?
– Second because providers of complex pricing offers have incredible opportunity for excessive margin (ie bad long term behavior)
This presents an amazing opportunity for startups in financial services. Either by innovating on business models that allow simple pricing in a market using complexity or by creating efficient marketplaces to force price discovery.
Simple pricing: Pricing is an essential component for Simple as a Service companies (see previous blog post on the topic). When Square announces a 2.75% fee on their services or Betterment 0.9% management fees, they may not be the cheapest providers on the market but they are for sure the simplest. In a similar way, Finance a Car, by proposing monthly cost as the comparison point of various financing offers, serves as a translator between ancient-greek speaking financing services and their customers.
In a non-scientific guess, I believe being simple could allow these companies to maintain a premium on their price. Certainty has a value.
Square fee comparison courtesy of Feefighters
Market places: While it may have cost a cumulated gigantic amount of money to create viable stockmarkets (though they may have become broken : ), the internet / powerful computational powers have made it relatively cheap and therefore viable to build market places for other services. Zillow’s recent announcement of the integration of Mortgage offer in their app is a good example. After disruption price discovery for the actual property, they are creating a market place for mortgages inside their own app, making an important step is answering the actual question of “how much will it cost to buy this house?” (luckily on the other end of the spectrum, other companies are working hard on helping answer “Can I afford it and how?”). In a different field, Ebay’s move to implement barcode scanning on their mobile commerce application is key to extending their market advantage to brick and mortar retail.
In this case, this is not a premium but a traffic model. More flow goes through them because of their capacity to offer price comparison.
I can’t wait for more startups to innovate their way through simplification of pricing in financial services. Not only it’s good business, but I believe it is also a good business model.
What do you think?