At Balderton we have invested in four fintech businesses in the last year: Nutmeg, Motif, GoCardless and Crowdcube, and hope to add several more in the year to come. This builds on our existing investments in Wonga, Zopa, Betfair, eWise and Levelup. We also have the privilege to be based in London, the world’s financial hub and home to an increasingly vibrant fintech community.
A common challenge we see across financial businesses is in marketing. On the one hand, most fintech companies require a significant behaviour change on behalf of users. They require customers to actively think about how they manage their money and make a considered decision. Sign up typically is much more involved than one click. They face a lot of inertia: thinking through finances is not very fun and often involves facing up to painful realities. Finance is also often an opaque industry where fees and charges are complex or hidden, so consumers aren't aware of where they could save money. New disruptive fintech companies therefore need to give users a strong reason to switch, and so they need to be creative and shout loudly.
On the other hand, fintech startups have to rapidly build consumers’ trust. The banking crisis has created opportunity for startups, by pushing people away from the big banks, but it has also left its scars. People do worry that the money they commit to a company is still going to be there the next morning. So while people might be looking for something different, they are also going to be put off by marketing that feels too edgy or ‘startup-like’.
Covering both of these aspects while keeping marketing costs under control is a serious challenge, particularly when most fintech companies have high acquisition costs which are paid back fairly slowly over long user lifetimes.
The idea of this post is to outline a few approaches I have seen used by fintech startups that seem to work well. Would love to have more suggestions.
Founder as brand ambassador
People trust people a lot more than they trust websites. If one of your founders has the impact and charisma to work well on TV and in the press, this can be a great advantage to the company. They build trust in themselves which is then reflected in the company. There is a lot of media interest in new fintech innovation but it is much easier for them to make a story if there is a real personality they can anchor on. Nick Hungerford is a great ambassador for Nutmeg, as is Hardeep Walia for Motif. The ultimate example is the ‘Bank of Dave’ — perhaps taking it a little too far…
Using Peer to Peer to build trust and word of mouth
Peer to peer funding or lending is a neat way to avoid trust issues. “Don’t worry about whether to trust us — we’re not holding your money”. It also builds a strong sense of community which again helps the trust side. On the disruption angle there is a nice simple message which plays well: “Cut out the middle-men”. This has led to some impressive growth. ZOPA, the first P2P lender in the UK, have now lent out more than $1B. FundingCircle are past $0.5B. Crowdcube, on the equity side, recently raised £1.2M in 16 minutes.
Transparency is a great message to lead with as a fintech startup. It is a clear point of differentiation and a great way to build trust. It includes complete transparency on fees and real time updates on your money, but also should be part of how you communicate with your customers. Nutmeg are a great example of bringing transparency on both fees and investment performance. The challenge can be to make consumers aware of why they need transparency, for example in foreign exchange where people don’t realise that ‘commission free’ forex is usually at a high spread. Transferwise have gone after this challenge head on with advertising and eye-catching PR stunts (see photo).
Distribution via employers
Employers are a great distribution channel for fintech products. They are in a position of trust, and in a world where final salary pensions no longer exist, they feel increasingly obliged to make sure their employees make sound financial decisions. They also allow you to speak directly to a large group of potential customers in one place. The challenge of course is getting your foot in the door of your first big employer — there will always be some hurdles to jump. The anecdote doing the rounds on Wealthfront is that the huge majority of its $1.2B AUM comes from a handful of Silicon Valley companies, led by Google and Facebook.
Offer an attention-grabbing rate
Perhaps the most straightforward way to grow a fintech business is to offer a rate or a price that stands out from the competition. An example is SavingGlobal, who offered an attention-grabbing interest rate on savings of 3.3% by channeling the money to institutions in Bulgaria and Portugal, helping them grow very fast in the German market. Moneysupermarket’s early growth was driven by a market-leading loan rate that they had exclusive access to. The danger is that any competition on price ends up in a race to the bottom, squeezing the margins of all players. A great rate has to be part of any startup’s proposition, but as an investor I hate to rely only on this.
Be a trusted advisor: content marketing
This is perhaps an obvious one. Great content marketing has to be part of your marketing arsenal as a fintech company. It helps keep prospective customers engaged, and also offers huge SEO potential. Another of our investments Rentify (not strictly fintech but very similar dynamics) have attracted a quantity of landlords through free landlord guides on a variety of topics. Moneysupermarket were willing to pay £87M for Moneysavingexpert, the leading personal finance blog in the UK.
Whatever your thoughts on comparison engines such as Moneysupermarket and Comparethemarket, they do control a good chunk of distribution of financial products in the UK (and Germany, and to a lesser extent the US). If you have a great rate then these can be a strong channel.
What doesn’t work?
What are the channels that don’t work well for fintech?
- SEM does work, but tends to only deliver small volumes.
- SEO takes a long time to scale, as lots of people write on these topics.
- Display advertising is tough: hard to get a complex message across in a trustworthy way on a banner ad.
- I haven’t seen much data on TV advertising yet.
- One watch out on PR: it is (relatively) easy to to get quoted on a finance-related topic, but the impact on your brand is typically negligible; what really counts is an article specifically on your business model, which is much harder to secure.
- Finally, referral marketing should work really well for fintech, but for some reason people seem reluctant to recommended financial sites to friends. I have been a happy customer of First Direct for more than a decade, and they have a generous referral scheme, but just hasn’t been enough for me to push it out to my friends.
Final tip. The sign up funnel for any fintech business has to be professional, seamless and as quick as possible. Need to overcommunicate wtih customers at every single step. This is true for any business, but particularly so when people are putting large sums of money through you. Wonga have done a great job of this.
I am still at an early stage of thinking this through, so please do add your comments.