There's no doubt that new technology offerings are disrupting traditional financial services. But as with any growing industry, many unanswered questions remain in the minds of executives and their backers. As fintech PR professionals, we at Cognito are constantly seeking out the latest information and insights shaping the space to better understand our clients and the challenges they face.
Last week, the LA office was provided an opportunity to do just that while attending the CFA Society of Los Angeles’ Venture Capital and Fintech Symposium in Santa Monica, joining leaders from the west coast financial technology and venture capital communities to discuss their thoughts on the state of the budding industry.
The event kicked off with a panel of executives in the financial technology space, including Andrei Cherny, CEO of Aspiration, Andrés Diana, Managing Director for SeedInvest, Alan Snyder, Founder and Managing Partner of Shinnecock Partners and Raj Udeshi, Co-founder of HiddenLevers. Colleen Poynton, VP at Core Innovation Capital, moderated the discussion which ranged from whether Los Angeles is uniquely positioned for innovation (it is—but mostly because the weather attracts top talent) to consolidation in the robo-advisor space (very likely to happen).
One panelist, Andrei Cherny, argued that fintech is actually going away! Not the technology itself, but the designation. Fin has always been tech he says, and we will eventually cease to separate the two. The lack of consensus on what to call the industry blending technology and traditional financial services was the perfect foreshadowing to a panel where opinions varied widely on some of the key questions shaping its future:
Will growth in fintech come from the affluent or the unbanked?
While assets flowing to fintech are sure to increase over the coming years, the panelists were not on the same page when it came to where that growth would come from. Is the best strategy for a new automated wealth management platform or other fintech tool to gain support from affluent individuals who have more money to invest, or will growth come from democratizing financial services by providing strategies for the millions who don't use banking services at all? Andrei Cherny said he sees a huge opportunity with those making less than 50k who make up half of the consumer base. The question for the fintech industry, he says, is, "Can we build a set of companies and solutions that work for them?" His firm, Aspiration, is a wealth management platform geared towards middle class investors that offers socially-conscious investment options, a pay-what-you-wish fee model and donates ten cents of every dollar earned to philanthropic causes. Raj Udeshi, whose company HiddenLevers provides risk analysis solutions that "make portfolio stress testing cool" said that one of the biggest drivers in the fintech space is the rise of the mass affluent, which has grown from 12% of the population in 1980 to 30% in 2016.
What is the biggest challenge holding fintech companies back?
From cybersecurity concerns to deeply entrenched relationships with existing financial services companies, the path to fintech adoption is no easy road for emerging companies. Andrés Diana, Managing Director for SeedInvest, suggested that trust is a huge hurdle to overcome for fintechs and traditional financial companies alike. Diana said financial services is facing an era of distrust and the big question is whether it's possible, in this environment, to create a customer relationship that lasts. If you're not dealing first and foremost with trust you're not dealing with the elephant in the room. “We need to not only be 10x better, but 10x different," he says. Alan Snyder, Founder and Managing Partner, Shinnecock Partners, said the big challenge that many fintech companies face is creating an attachment point with a customer. Credit card companies, for example, have a natural connection to the consumer because most people use their cards every day. If a consumer defaults, they're more likely to choose not to pay a marketplace lender as opposed to the credit card company they rely on and have a physical link to through a card, he said.
Is cost the main agent of disruption when it comes to fintech?
Many fintech companies drive adoption by offering traditional financial services at a fraction of the cost. But cost isn't the main pain point, Cherney said. Low cost products are already available on the market, and lots of potential investors aren't using them. "Things are holding people back other than price," he said. Finding those pain points, and adapting to them, is going to be a huge point of differentiation for fintech companies now and in the future.