Tweaking Money (Part 1)
Malcolm Gladwell, in his 2011 New Yorker article “The Tweaker - The Real Genius of Steve Jobs”, discusses the difference between Visionaries - who start with a clean sheet of paper, and reimagine the world, to Tweakers - who inherit things as they are, and push and pull them toward a perfected solution. In his words, Visionaries create macro-inventions that spark new realities, like the invention of automobiles, electricity, television and the internet. Tweakers create micro-inventions which are necessary to make macro-inventions highly productive and remunerative. For example, Henry Ford did not invent the automobile nor the assembly line, but by welding them together in an efficient way, he converted the automobile from an expensive curiosity into a practical conveyance that changed the landscape of the twentieth century. Lawrence Lessig, in his Ted Talk “Laws that Choke Creativity”, calls them Re-mixers; they borrow features and change something from its original form, transforming it into something new, pushing the human race forward.
The Internet was an inflection point that was created by the Macro-Inventor Tim Berners-Lee. It introduced the first large-scale, open rapid communication infrastructure that continues to transform every facet of our lives. But it wasn’t before companies like Google, Facebook, Youtube and most recently Uber harnessed its potential by tweaking it through highly productive and remunerative products and services that the Internet could be seen in all its glory. However, these companies were not the first to try and do this. What distinguishes them is great timing, ruthless execution and constant iteration. These traits (amongst others) have helped them achieve success, and not just own but dominate their market.
The Financial Services industry, like many other industries that have now been transformed by the Internet, is characterized by fragmentation, complexity and high barriers to entry. Many companies have tried to solve the problems and inefficiencies in the space, particularly in Payments. These companies range from Paypal which introduced a revolutionary solution to increase trust and security in online transactions, to Mint which introduced a better way to manage your money, to Nectar and LevelUp which connect merchants to consumers to increase loyalty. Largely speaking we can group most of the companies that provide solutions in the Payments space into three groups:
The first is the ‘Gap between Merchants and Consumers’; as a merchant I do not fully know the customer, and therefore I cannot communicate with him. This lack of communication creates both Fraud and challenges around Loyalty and Rewards. There are a plethora of loyalty apps that I can install on my smartphone, yet most merchants don’t have the technology nor scale to offer a robust solution to match. So they use stamp cards instead. This is where companies like Nectar and LevelUp have flourished, by aggregating merchants and providing a single reward card/app to consumers.
The second is the ‘Gap between the interfaces’. 60 years ago we could pay with cards and cash everywhere. It worked seamlessly. However, with the introduction of the Internet and mobile phones, new interfaces have emerged and with them- new challenges. The more you move towards online and mobile interfaces, the more fraud and less conversions merchants experience. This is where companies like PayPal, and other Alternative Payments providers have flourished, decreasing fraud and increasing conversions to merchants and consumers alike.
- The third (and most complex) is the ‘Relationship people have with their money’. Most users don’t feel that they own their relationship with their finances- for a broad and sometimes very personal range of reasons. Many companies have sprung up to try and solve this tackling different specific issues; from companies such as TransferWise which minimizes your currency transfer costs, to companies such as Mint and You-Need-A-Budget, which provide you with better clarity of your spend and enable better financial decision making, to alternative credit providers such as Affirm, Wonga and many others.
The issue is that although these companies individually relieve specific pain points, paradoxically as a whole they increase the fragmentation and complexity that previously existed. This just alienates the user further from their financial world. Pain points that are seemingly solved at a micro-level are unsolved at a macro-level. Put simply, the sum of the (new) parts don’t add up to a simple, understandable comprehensive whole. Add to this the significant barriers to entry that characterise the financial services industry due to complex regulations, capital requirements and maturity of incumbents, and it suddenly becomes clear why we haven’t seen a total revolution as we have in other industries.
But times - they are changing. We are on the brink of an explosion of innovation in the financial space. Governments and economic unions worldwide are introducing new policies and regulations that increase competition by decreasing barriers to entry. The outcome: over $12Bn in 2014 alone (almost tripling the amount invested just a year beforehand1), invested by multiple startups and incumbents on all three verticals. But what are these companies doing? Some are continuing to try and solve specific pain points, such as small-business lending, mobile banking and Fx. But others aim for the holy grail - Tweaking the disparate pieces of the jigsaw puzzle to create a single holistic solution that will unify and simplify the fractured space and in doing so will become your Everything Money.
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