24/ One "obvious, popular, consensus opportunity" is "Gee, wouldn't it be swell if we just had a no-fee bank account made for folks in economic precarity. There's lots of them; clearly this is a business worth being in." If only banks had good people who are good at math, right.
-
-
37/ But different firms can allocate the bill differently, via pricing, and so it matters *quite a bit* if you think that customers and businesses discover price sensitivity in deposits in the next 10 years, because that implies that the price of non-deposit services is going up.
Show this thread -
38/ I used to be freaking mystified why it seemed like all the banks went out of small business lending at traditional rates after the 2008 financial crisis, and would only offer credit on credit cards to that segment.
Show this thread -
39/ This is *essentially* a pricing decision, with some regulatory background. Non-intuitively, a bank would far prefer to give you access to a credit line at 9% APR if you access via a credit card than a 9% APR unsecured line of credit.
Show this thread -
40/ The reason for this is that the credit card would generate interchange revenue, which effectively acts as a kicker to the APR (potentially a 10%+ kicker depending on your behavior!). I never understood that when I was on the customer side of credit cards / loans / etc.
Show this thread -
41/ Here's that complexity again. This is a bank relying on a four-party agreement between them, a credit card brand, a supplier, and a small business to facilitate what a lot of people think is the #2 reason banks exist, to provide loans to businesses for cash flow needs.
Show this thread -
42/ Effectively the conceptual negotiation, which critically never takes expensive human thought because all parties have pre-committed to their position, is: Bank: "I can't take all this risk to build restauraunt." Town hardware store: "They're my customer. I'm good for a bit."
Show this thread -
43/ If you *can't* have the town hardware store, or somebody else, agree to subsidize your risk (via interchange revenue), your traditional options at banks either dried up or got much more expensive, or you now go to OnDeck/etc wrapping private capital providers for much more.
Show this thread -
44/ One of the big opportunities in financial services are places where fees are theoretically supposed to pay for unconflicted advising by expensive people but where the quality of the advice is, ahem, highly variable.
Show this thread -
45/ You can often find these opportunities where it is literally illegal to read the industry's uncontroversial best practices to the customer accompanied by the words "You should" unless you are a licensed professional.
Show this thread -
46/ For example, under some regulatory regimes, I can probably say that whole life insurance has fat margins, that it embeds extremely suboptimal investment decisions, that the most valuable part of it is the actual life insurance, and that term life is a better vehicle for it.
Show this thread -
47/ But I'm probably legally prohibited from saying "You should buy term life insurance" or causing a computer program to do so if I'm anywhere near a transaction, at least under some regulatory regimes. I haven't passed the test.
Show this thread -
48/ (I also haven't posted a reputational bond which would allow a regulator to threaten disproportionately severe punishment if I were to exceed their tolerances for salesmanship, which is an intended component of regulatory regimes that tech has insufficient appreciation for.)
Show this thread -
49/ Regulatory compliance is a fun area for financial companies, largely because the regulations aren't the regulations and the regulations that aren't the regulations aren't static.
Show this thread -
50/ On the extremely suboptimal side of the house, successfully grokking the *real* regulations is treated as a proof-of-work, such that if you're capable of talking the talk and walking the walk you've earned a bit of a buffer around your activities. Few would admit to that.
Show this thread -
51/ On the better side of the house, regulators are not uniformly clock-punching value-destroying intermediaries (like geeks often assume) but are frequently informed professionals with lots of institutional memory and some level of appetite for listening to proposals.
Show this thread -
52/ Firms largely choose one of a couple engagement strategies with regulators. The dominant one is Enthusiastic Compliance (TM). "Break the rules until you can make the rules" is extremely, extremely not the norm in financial services, except in the cryptocurrency economy.
Show this thread -
53/ There is, as of 2019, more paper, and more *required* paper, than you would think in financial services. This is decades after frontpage stories about Paperless Offices. But there has been substantial improvement, even in the last few years.
Show this thread -
54/ The same goes of phone calls, faxes, API-via-secure-FTP, harddrive-over-FedEx/couriers as an encrypted API transport, etc.
Show this thread -
55/ Costs of customer acquisition in financial services are routinely in the hundreds to thousands of dollars for *retail-facing* accounts, because they anticipate customer lifetimes measured in decades and growth in the value of those accounts over times.
Show this thread -
56/ When e.g. Chase paid $1,000 apiece for signups to their new top-tier credit card, there was widespread chortling by competitors, not because they thought that was unfair or unseemly but because they thought it was *unwisely calibrated*.
Show this thread -
57/ This is unfortunate for competitors to financial services, which want to grow explosively but want to do it on extremely light marketing budgets, relying on e.g. product quality, social amplification, and better understanding of App Store SEO to drive adoption.
Show this thread -
58/ Startups don't want to spend hundreds of dollars on customer acquisition with razor thin margins because then sustaining their growth ramp will cause them to lose more money every year, costing them more dilution every year.
Show this thread -
59/ This is as true of e.g. mattresses as it is of financial services, but startups in finance have a problem that other startups do not: in finance you can pay the cost of customer acquisition *directly to the customer* without this looking like accounting shenanigans.
Show this thread -
60/ Ever wondered why "Silicon Valley preferentially makes products for rich people in the bubble" is widely believed and yet Chase and Amex probably have 90% wallet share of SV participants? This is basically why.
Show this thread -
61/ When AppAmaGooBookSoft think of financial products they think of ones which can be distributed virtually universally over their userbase (e.g. Apple Card). When startups think of them, they often are forced to look at customer groups that Chase et al don't want.
Show this thread -
62/ The toothbrush test is approximately as applicable in financial services as it is for marketplaces. (The toothbrush test: no marketplace you don't use twice a day will be a massively viable business. Uber for X is a lot worse than Uber for Uber.)
Show this thread -
63/ The exception to the toothbrush test is originating extremely, extremely valuable set-it-and-forget-it transactions, ideally ones which are hugely backweighted. Unfortunately these are limited in number by nature and switching costs are extremely high.
Show this thread -
64/ I think you will find many more interesting startups in financial services either at the toothbrush test or at the "giant, compounding transaction with multi-decade time horizon" than you will in the No Man's Land of e.g. credit card refinancing.
Show this thread -
65/ In the No Man's Land you have to pay essentially your entire customer acquisition cost over again to reacquire customers you already won, while not having them increase in value in interactions with you, and also not materially decreasing in risk or operational costs.
Show this thread -
- 36 more replies
New conversation -
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.