Rebundling of FinTech

Kleiner Perkins just released their 2017 FinTech trends report and highlighted that there’s been a “cambrian explosion” of fintech companies created over the past 10 year. That’s created 18 US Unicorns with an aggregate equity value of $58B and when compared to the $3.8 trillion of equity value held by 252 US public financial institutions, there’s a massive opportunity ahead.

Why now:

• massive incumbents are vulnerable
• new digital acquisition channels
• capital markets open to innovators
• startup friction is decreasing

What’s next:

• unbundling will lead to rebundling
• no more low-hanging fruit
• fintech eventually disappears
• Crypto Wildcard

One trend that I’ve been thinking about for a while (apologies in advance for some bad writing there)is the concept of unbundling in fintech. Banking infrastructure inherently wasn’t designed for the 21st century. The original concept of a bank was a location that literally held your cash securely, and then you would visit to take money out. This turned into banks creating other financial products that hopefully helped you save money and make a little bit more money, but the branch was still the primary interaction model and it worked! Move into the 1990s and internet banking was the new craze, followed shortly by mobile banking in the 2000s. Fast forward to 2010’s and there’s a ton of companies really focusing down on the user experience through an app-based model.

It’s been really amazing to see the level of execution that occurs when a company takes an extremely product focused approach towards reducing friction for a specific financial pain-point. However, I don’t believe that the future of banking is an iPhone folder with 100 different apps, each one accomplishing a separate function. I use a ton of fintech applications and even I’m starting to lose track of where all my money is outside of my primary bank. The theme of the 2010 decade may have been the unbundling of FinTech, but I think 2020 will see a lot more rebundling towards full stack, especially as these apps are trying to appeal to similar user bases.

We’re already starting to see this trend of fintech companies increasingly becoming competitive with each other today . For example, take Stash which started off with offering brokerage accounts for micro-investing, and just announced that they’ll be offering a savings account. Wealthfront, which started off with robo-advisor brokerage accounts and now offers a personal financial management platform. The Kleiner Perkins report highlights Revolut, N26, Varo, Simple, etc expanding from budgeting via aggregation towards full stack banking, mortgage companies such as Opendoor and Better moving from lead gen to lending, and many more instances.

Increasingly, the strategy for fintech seems to be: launch an initial differentiated financial product as a beachhead, acquire as many users as possible while also building brand equity through product execution + transparency, and create new products to cross sell. Sure reminds me of how banking came to be a little bit :).