How Fintech Failed Those That Need It Most
Hi all, Julie here. Someone posed an interesting thought to me last week and I decided to dive deeper into it for the newsletter.
Over the past decade, fintech has given us access to better investing tools at lower costs, bank accounts without hidden fees, and better ways to refinance at lower rates or optimize our credit. Yet, it doesn’t feel like those that need it most are much better off. We’ve all seen the stats about how many can’t cover a surprise $400 expense and how little we all have saved for retirement. Those stats haven’t improved much over that same time frame.
Has fintech failed those that need it most?
Drew Bublitz, who works on the Uber money team, gave me a very interesting analogy that put a lot of this into perspective for me.
“The fintech and savings dilemma is like kitchen tools and food. You can have the absolute best technology to make good food, but if you don’t have enough ingredients, you’re just limited in what you make.”
The two root causes are gaps in wages and financial education. Thankfully, both of these problems can be improved with tech. So far, we’ve done more for financial education than for wage gaps (unless we’re talking about Robinhood). I’ve seen a few strong arguments lately that we need to solve the wage problem before we can even begin to help people with financial education. This is sort of like that kitchen analogy as well. Someone can know a ton about what they should and shouldn’t do with their income, but if that income is minimum wage, it really doesn’t matter. We’ve started to see companies take a crack at this in some instances, but we clearly have a long way to go.
One example is Uber letting drivers get paid more frequently. Another is Chime offering its Spot Me product where people can get access to up to $100 to avoid overdraft fees (if they have a direct deposit with them) or giving customers their paychecks two days early.
https://twitter.com/maiab/status/1273601931559108609?s=20
If we can focus on solving the basic problems of the worst off, we could hopefully help them progress enough where they actually do have the ingredients to make a healthy financial future. Having a robo advisor with low fees doesn’t do much if you’re unemployed or earning minimum wage. So in some ways, fintech has almost worsened the gap. The people that were well off enough to be able to try some of these new services and find new ways to invest and save money are now even better off while we haven’t done much for those most in need.
Take me for instance. Prior to the current round of innovation, I had to pay a monthly fee at JPMorgan once in a while, I had to pay to make a trade or an advisor fee on my investments, and finding renters insurance would have been harder (and likely more expensive). Now, Chime doesn’t charge me a monthly fee, Betterment and Schwab have far better trading and investing options, and Lemonade made renters insurance easy.
The middle and upper classes have almost certainly received the biggest benefits from Fintech 1.0. And unfortunately, there’s an argument to be made that not only did fintech make gaps worse, it even took advantage of those that are worse off.
Fintech far too often resorts to exploitative or unhelpful business models because poor people don’t have money, and the startup needs to make money somehow. I’m not going to name anyone here, but I guarantee that there are a few companies that come to your mind right away.
Whether it’s certain payday lending alternatives, trading platforms that don’t educate consumers, offering investing products that help you more than your customers, or asking consumers to tip on loans or other financial services…you should ask yourself if you’re really helping people, or if your services are now taking advantage of those worse off than you simply because you have growth and revenue metrics to hit for your VCs.