The Age of Unbundling

Un·bun·dl·ing: “a process by which a company with several different lines of business retains core businesses and sells off assets, product lines, divisions or subsidiaries” (more here)

Many financial service companies have been unbundling over the past decade. However, despite the common definition, the unbundling of traditional financial service companies is largely involuntary. Wells Fargo did not sell off their “investing and retirement” business, rather their users were stolen by startups like Robinhood and Stash. Wells Fargo also did not voluntarily give up its “financing and credit” business to startups like Kabbage and Fundera. The list goes on, as traditional banks have also lost users to startups offering alternative personal finance, insurance, and payroll platforms.

Since the great recession in 2008, fintech startups have capitalized on two important trends in the financial services industry. The first is the lack of digital innovation demonstrated by the traditional financial institutions. As digitization becomes cheaper and more accessible, it will quickly become the norm (if it has not already) for all companies attempting to maintain their existing user base and attract new users. By not implementing new internet platforms with more intuitive UIs, utilizing AI, and now investing in blockchain technologies, traditional banks quickly saw an exodus of users. Those users were gobbled up well-funded fintech companies, just chomping at the bit to show users what truly consumer-oriented financial services look like.

The second trend is the increasing lack of trust that millennial consumers have in traditional financial institutions. Considering millennials will soon inherit ~$41 trillion from baby boomers, they are the user base traditional banks desperately want to retain. Nevertheless, millennials do not feel the same as baby boomers about the ever-powerful and inherently experienced Goldman Sachs banking system with its silver plaque on the wall. They are willing to switch to a system of à la carte financial services, especially after traditional banks f*cked up in 2008. Fintech startups are quickly gaining the trust of millennial consumers via insanely easy-to-use UXs and UIs, as well as through transparent company branding and structure. According to a study conducted by Ipsos MediaCT and LinkedIn, “less than half of Millennials (46%) see themselves staying with their current financial services companies over the next few years. And about half of affluent Millennials (48%) say they’re open to switching to another company offering better products and services.”

The fact of the matter is that millennials no longer trust the blue-suited guy on wall street and prefer to trust the robo-advisor or bankless bank.

One day, Max the buffalo got a bit too comfortable eating grass out on the plains. A pack of hyenas came along and instead of killing the buffalo, proceeded to bite off bits and pieces of the buffalo’s flesh, very slowly, until it succame to its injuries and died. See any parallels?

Traditional banks realize that the hyenas will not stop and so they must somehow adapt. Perhaps a quick thrust of the horns and quick burst of speed to the brush…

In 2016, Goldman Sachs created a service, Marcus, offering no-fee personal loans in an attempt to appeal to millennial consumers. The service is intended to compete with companies like Affirm, SoFi, Lending Club, and Prosper. It remains to be seen whether traditional banks like Goldman Sachs will succeed at maintaining a large millennial client base. Will the buffalo make it to the brush and survive?

A brief list of hand-selected fintech startups by industry to peak or extend your interest:

Consumer Banking:
1. N26
2. Simple
3. Monzo
4. Starling Bank
5. Monese

Lending:
1. Affirm
2. LendingClub
3. LendingUp
4. Better Mortgage
5. Kabbage

Payments:
1. Venmo
2. Adyen
3. Gusto
4. Square
5. Stripe

Investments:
1. Robinhood
2. Betterment
3. Wealthfront
4. Neighborly
5. Hedgeable

Personal Finance:
1. MoneyLion
2. Even
3. Credit Karma
4. Earnin
5. Grove

Insurance:
1. Lemonade
2. Metromile
3. Oscar
4. Clover Health
5. Insurify

If you have questions or just want to discuss this topic further, feel free to ping me at noahbbrown97@gmail.com