Bundling Works In Tech, But Does It Work In Fintech?
Hi all, Julie here.
This week I want to talk about bundling. It’s not an idea or concept that any of us are new to, but a recent post from Ben Thompson got me thinking about it again.
There’s a constant hypothesis that one way to succeed in business is either bundling or unbundling. When fintech was in its early days, everyone was going after one thing—payments, robo advice, trading, etc—essentially unbundling a bunch of the services that consumers use. Then, these players started to add on new services (which was always part of the plan) in order to cross sell their users on other products.
Ben Thompson focuses on a few of the big players in the tech space in his post—Netflix, Apple, Amazon, Disney, to name a few. Thompson focuses on the media side of these companies, but Apple’s entire business is built on what was once unbundling and is now bundling. If I think back to when I was a kid, the iPod was the only Apple product that was super popular and I had to have, even though my parents wanted to save money and get me a Microsoft Zune instead (oh man, remember those things?! It was actually a great product as well, and failed for other reasons...but I digress). Anyways, today, I have an iPhone, Mac, iPad, Apple Watch...and I am stuck. I can’t get a FitBit since it’s so convenient to have an Apple Watch instead. I can’t get an Android because then my Mac becomes less valuable, as does my Watch. You get the point. Apple has made us sticky. It’s hard to leave, perhaps even impossible unless you want to get a few new tech products.
This will never work in fintech from a direct to consumer standpoint (and has never worked in finance in general, unless you count grouping together insurance products...which sort of counts), and there are a few reasons why.
First of all, I (as well as others) are not sticky in the slightest. Exhibit A: I remember walking home from a tattoo consultation, of which was going to cost me $400, and seeing an add from Citi for a $400 bonus if I moved over $10k and kept it there for 3 months. The next day I opened an account and moved all my money over from Chase. Oh, and I’m now at Chase again since about 9 months later, they had an offer for a $300 bonus if I moved $5k over and kept it there for 3 months. I then later moved it so SoFi to get a bonus and then Chime to get paid two days early….and then a small part of it back to Chase to get yet another bonus. Anyways, you get the point. Credit cards, insurance, maybe slightly less so trading accounts since it involves migrating positions over, but we aren’t afraid to move around. And your competitors are always ready to come in and steal your customer away by either giving them a better offer or giving them a bonus to move.
What does this mean for the companies in our space? Well, first I should say that this is very much focused on the US. I haven’t studied other countries enough to know if the same dynamics are at play overseas. I’d assume many of the developed countries are similar, but more developing ones are not. Second, founding teams have to keep all of this in mind when launching new products and deciding how much they can spend on acquiring customers. The main questions should be: what is going to be our key revenue driver, how many of our users are likely to use it and stick with it, and can other bundled services help with that?
Frank Rotman has a good post from 2019 that looks at this topic, and Cokie addressed this a bit in our free newsletter on Friday. Frank takes a slightly different stance and thinks this is possible for fintechs, largely because “If done right, Vertical Banking = Relationship Banking” and fintechs have the data and the ability to use that data better than the traditional finance system. They can forecast what a customer might need in the future and surface those opportunities at the right time, streamline the signup process for other products, and in some cases even proactively move them into better products and services. Big banks can’t do this, at least not well.
“Their systems (traditional banks) for the most part don’t talk to each other. Their interactions with existing customers are shallow and transactional which doesn’t leave room for collecting information about their future wants and desires let alone checking in with them from time-to-time to review any life changes or emerging needs. And the concept of proactively ensuring a Bank’s customers are always getting the best product or service it offers is plagued by major economic and process issues.”
When I was talking about this topic with Ian, he pointed out that Alipay has done a good job of this, and NuBank in Brazil is showing some promise in this area, but agreed that we haven’t seen the same kind of product gain traction in the US. However, having a bundle come from an aggregator should work. Credit Karma is the closest thing we have to that right now in the US, and they do a few of the things Frank mentioned, such as surfacing opportunities and predicting what that customer might need in the future. They have the added benefit of not having to worry nearly as much about a competitor undercutting them since they’re showing you a bunch of offers from you and your competitors. And while they aren’t completely agnostic on which option the consumer chooses, they are more agnostic than most.
The last thing I’ll leave you with, is that assuming someday someone does figure out how to make this work, there are a few players that are better positioned than others. This comes from both a data perspective and a customer trust perspective. I hate to bring up Robinhood again, but I just don’t see people trusting them with things other than trading or thinking of them as their bank account or retirement account (this doesn’t matter in the short term and may or may not matter in the long term given how many people are now trading stocks and the lack of regulatory scrutiny for how Robinhood makes money). Whereas depending on the situation to a certain extent, starting out as a bank account can be a good entry point into other offerings like credit cards, insurance (likely via a partnership) etc.
Would love to keep this conversation going since I think it’s an extremely important one, so feel free to ping me on Twitter or the FTT Slack!