Infrastructure for Financial Products
The “AWS of X” metaphor has certainly been overdone, and I know I’m personally guilty of this. It’s been overused because there is a lot of power behind the idea of an enabling infrastructure. Instead of every company having to build their own servers and hardware, one company (Amazon) eats the capital cost on their balance sheet but recoups it over time through leasing compute. AWS not only enabled existing software businesses, but paved the way for thousands of new ones to emerge in an expedited manner. AWS serves as an abstraction layer. The entire premise is that organizing the minutiae of cloud architecture is not mission critical for a software-driven enterprise. The company’s goal should be to deliver as much as value as possible to its customers; therefore, developers should focus on functionality and logic. I believe an analogy (albeit not a precise one) can be made to the world of financial services and products.
New fintech providers in spaces like insurance, lending, and wealth management often can’t start completely from scratch. They often need to sit on top of an existing body due to balance sheet or regulatory concerns. But, should these companies really spend an egregious amount of time architecting relationships or partnerships with banks and carriers? In my opinion, no.
I’m not the first to make this claim. Here are a few examples that come to mind:
- Stripe released Issuing, which allows developers to programmatically issue credit cards. The now-defunct Final also worked on something similar.
- White label banking solutions within financial institutions like Green Dot exist.
- Investment managers like Mark 2 Capital provide credit lines for alternative credit businesses such as Braavo and Payjoy.
As fintech companies start tackling more niche categories (#10 from Charley Ma), I’d be curious to see what these infrastructure and abstraction layers look like, especially in insurance. Perhaps it’s not a super-carrier or reinsurer living on the backend, but a way for startup MGAs and brokers (great blog post for context) to band together and leverage group dynamics to negotiate with traditional insurance players. Dense networks in the context of fintech are cool. This recent tweet from peter zakin got me thinking about it.
The final thread on this topic I’d like to broach is the question of whether this sort of underpinning for financial services is a new company or part of an existing financial institution. To my knowledge, no venture capitalists got directly rich off Amazon Web Services. Again, the key word is directly. This idea is a little less exciting to me if it manifests itself as a large company externalizing part of its infrastructure or balance sheet, but something I’m keen to continue discussing.
This post was part of a larger series I wrote at the end of 2018. You can check out the other ones here. If you’d like to get in touch, you can reach me at aashaysanghvi[at]gmail.com.
