Dan Simon is founder and CEO of Vested, a communications firm specializing in the fintech industry, and author of a forthcoming book on the recent history and explosion of the FinTech industry. With over 15 years’ experience in PR, Marketing and Advertising, he has led campaigns for some of the biggest brands in finance and FinTech, including Bloomberg LP, J.P.Morgan, and Citigroup. Dan is a regular columnist for Forbes, Markets Media and Coin Telegraph and he co-chairs the Museum of American Finance Communications Advisory Board.
1. FinTech has only become a household word in the last 10 years. Was there a particular moment or company that made FinTech a commonly understood and relatable concept?
The short answer is yes, but it’s important to give it some context. The date we chose for the book is 2008, which was significant for a number of reasons. First, there was a little thing called the 2008 financial crisis; banks, as we understood them, were put under an enormous amount of pressure. Stand-alone investment banks like Bear Stearns and Lehman Brothers went under, while others were was forced to merge. This was coupled with exponential oversight in financial services through Dodd-Frank and the formation of the Consumer Financial Protection Bureau (CFPB). Quickly, innovation became a dirty word inside banking because it was associated with complex derivatives that nobody could understand.
At the same time that banks were retrenching, Facebook had just hit a billion users and launched its app store. Meanwhile, Apple had sold 100 million phones and launched the app store. It was those inventions that spurred much of the tech, and subsequently FinTech, world as we know it today. That combination of a banking vacuum coupled with rapid tech innovation created the conditions for FinTech to thrive. This is when PayPal goes mobile and really takes off, later buying Venmo. It’s when Credit Karma and LendingClub launch. There was, of course, FinTech before 2008, but if you had to pick a moment in time and a place in history, it would be the coinciding of the financial crisis and the explosion of innovation.
2. In those 10 years, financial technology has advanced and taken off significantly.
How has it changed since first being introduced to the mass market?
It’s changed in a myriad of ways. I’d say the most obvious answer would be to talk about how 2008 created an explosion of banking, both literally and figuratively. By this, we mean things that you traditionally went to a bank for were being split into separate apps. So, if you’d previously gone to the bank to access your checking account, or your savings account, to get a mortgage, or to look at lending options, you could now do those things individually through apps. It’s a bit of an oversimplification, but when the app store came out, that “app mentality” migrated to finance, and over the last 10 years, it’s been all about unbundling the bank. All of those services above that a bank offers were siloed and there were dozens of mobile apps to help you invest or save, or cut down on credit card debt, among other services.
I think what’s changed in those 10 years is that now, after totally dis-assembling a bank, FinTech is trying to put the bank back together. So the next 10 years will be defined as the rebundling of the bank. Apps like Robinhood, MoneyLion, Elevate…they’re all offering different parts of that continuum.
3. To the point above, there have been some FinTechs like Venmo that have been wildly successful, while others have fallen flat. In some ways, the “unicorns” have been identified — so what’s next for the industry?
Last year was a record investment year for FinTechs. Over $40 billion of venture capitalist money was invested in FinTech, but it was also at a five-year-low for early-stage investing. If you put those two stats together, it shows venture capitalists have basically decided that we’ve run out of new areas to discover, and it’s time to start backing your winners and consolidating your markets.
FinTech is good at stripping the costs out of banking. However, it also means FinTechs are operating on razor-thin margins and have to achieve scale in the longterm in order to be successful. This is what will drive greater and more rapid consolidation and, as we were discussing before, the “rebundling” of the bank.
4. Despite the success we looked at above, there’s been a very low rate of acquisition of big banks buying FinTechs. Why do you think that is?
I think there are quite a few possible reasons, the first being that banks’ instincts have been to just build these apps themselves. Much like the robo-advisors through Schwab and Morgan Stanley, I think there are plenty of financial institutions who believe it may be a better cultural fit for their company to create their own as opposed to acquiring a different one. Secondly, many banks have chosen to partner with FinTechs, which is affording them the benefits of innovation without the costs of acquisition.
Finally, I think it could be strategic on the banks’ part. They could just be holding out to see who the “winners” are before making their moves. I think we’ll see more activity after this period of consolidation. So for now, it’s a bit of a waiting game.
5. For the big banks that have acquired financial technology platforms, is there an opportunity to use this as a way to shift their culture?
Absolutely. Is it a coincidence that Goldman Sachs — which bought Honest Dollar and Clarity Money — recently changed its dress code? I think FinTechs are helping banks appeal to a younger demographic as both a service and as a potential employer. I think FinTechs can help traditional financial institutions push the envelope in reimagining their brand and image, and we’ll see more of that going forward.