Why FinTech Has a First Mile Problem
A drone drops a package containing a fresh, new shirt on your doorstep. You ordered it an hour ago when you realized that your go-to button-down was at the dry cleaners; and now, it’s here.
While this idea was science fiction a few years ago, early tests of drone delivery are underway, and a variety of other strategies are being deployed to conquer the final frontier in online retail, the last mile problem.
The name originated in the telecommunications industry, where it described the elevated cost and difficulty of getting service piped into people’s homes. Now, it’s come to represent the challenge facing companies like Amazon and Google that are striving to break the same-day delivery barrier.
Innovators in online retail radically changed our purchase behaviors and decision making, expediting selection and transaction in the purchase of goods. Now, merchants and resellers need to deliver orders as close to instantly as possible for consumers to have exactly what we want, when we want it.
Financial technology has moved in the opposite direction.
Invention in the Internet age brought forth new payment technologies, designed to move our money in the newly connected world.
Some major problems we had to solve were getting money from party to party via the Internet, and to do that great companies like PayPal, BrainTree, and Dwolla emerged. The challenges of cross-border payments and security are being addressed by cryptocurrencies and open-ledger systems that quickly move value across a closed system, utilizing system design that is self-validating and trusted endpoints to pay in and out.
All of these technologies and constructs suffer from a common problem – they have grown further and further from the established banking system, which makes them cumbersome and, in some cases, prohibitive for the average consumer to become a part of.
This is the first mile problem in FinTech.
Technological innovation has accelerated rapidly, but the most common solutions for payments are either new, closed systems for clearing or systems built on the expensive and dated credit card rails, the invention of which dates back to the Eisenhower administration.
Transaction is quite simple once you are into an ecosystem like Dwolla or Bitcoin, but to enter these systems, you must buy in, transferring money to an account or wallet. In most cases the process to get set up is rather cumbersome. Either you fund an account with a credit card, which levies a 3% (or greater) tax on your money (certainly a burden if you are expecting to make money trading inside these ecosystems), or you use a traditional ACH payment – if you can remember your routing and account numbers and don’t mind waiting up to a week to put your money to work.
Getting money out of a closed system is equally a hassle. I’m sure many of you are familiar with the experience of selling something on eBay and receiving money into your PayPal account. Funds show up in PayPal right away, but if you want to get the $399 that you made selling your old baseball cards into your bank account, you’ll be stuck waiting days for a transaction to clear.
The time is right to close the gap.
The time is right to address the first mile problem in FinTech. Global connectivity is the norm. We’ve learned volumes on subjects like security and identity. We’ve created currencies that are ubiquitous worldwide. Now it’s time to close the gap between our old banking systems and the new world of transaction.
As we figure out what this evolution means, a critical piece will be solving the first mile problem by making sure that we lower the cost and the effort required of all of us when it comes to transitioning into new payments and monetary systems. By doing so, we can rapidly accelerate the adoption of new financial technologies across the increasingly connected population.
The big question on my mind is, “Why? Why should we be so eager to get more and more people connected to the future of money and transaction?” The more I become involved in FinTech, the more needs I discover for these new technologies, from international remittance to microtransacitons, but these uses are incredibly fragmented.
What keeps cropping up as I think about it and talk about it with others is that we really don’t know with certainty what is going to happen. As it was with the Internet in its early days, the days before AOL and Netsacpe propelled it to ubiquity, it is now with money and FinTech.
We know that the future is bright, and the technologies are promising, and by allowing more and more people to have their hands on them, experiment, and build, we will see amazing creations.
The first mile of a journey can be daunting.
