Over the past decade, fintech has evolved from a label for plucky startups to a sustained movement that has disrupted the traditionally boring financial services industry. Much has been written about the success of fintech and how this wave of technological innovation has changed the lives of consumers.
But there are losses in all the celebration of success and billions of dollars in venture capital funds in numerous bankruptcies. Over the past decade, many once-promising innovations have failed and failed to live up to expectations. It is important not only to celebrate success but also to learn the lessons of fracaso.
It is worth first defining how we are categorizing “failure”. We will focus on the ideas of fintech that received some degree of enthusiasm and momentum initial, but ultimately did not fulfill their promise. We'll look at ideas that failed to catch on and change financial services in the way that founders they originally intended.
Algorithm-based buy/sell/hold advice for investment portfolios
The fintech must keep in mind that the average consumer does not like to think about money and wants someone else to take care of it.
Several companies that would eventually be referred to as “robotic advisers” began life as a fintech company that provided algorithm-based buy, sell, and hold advice for a user's investment portfolio. Customers would enter their names user and passwords for your financial accounts, and these services would provide holistic advice specific to each individual holding (for example, sell this stock and buy this ETF instead).
This technology would help consumers improve their investment portfolios on all your accounts, regardless of the institution you are at. Below is a picture of what this looked like.
Capture of buy/sell/hold recommendations in 2013 FutureAdvisor.
The technology was very impressive, but the idea did not catch on. Within a few years, companies offering this service (such as Financial Guard, FutureAdvisor, Jemstep, and SigFig) changed to a model different commercial. According to Simon Roy, former CEO of Jemstep, “the cost to start-ups without customer acquisition brand that they were wealthy enough and willing to trade their own portfolios using our service was too high. We couldn't find enough to make the economy work and, like everyone else, we turned around.”
Why didn't established financial services giants give their customers direct access to this technology? Since many of the large companies offer your own funds mutuals and ETFs, which an independent buy/sell/hold advice engine might recommend selling, the established industry was not interested in offering clients a service that could divert money away from the company.
Therefore, in 2023, the average online investment tool is well below the services that were available a decade ago.
Peer-to-peer (P2P) lending and insurance
In the 2010s, P2P lending and insurance startups received significant attention. Companies like Lending Club and Prosper in the field of loans, and Lemonade and Friendsurance in the field of insurance, launched their business focusing on the model P2P. This model promised better experience and treatment than receiving a loan or an insurance policy of a faceless corporation.
Capturade Lending Club of 2013. Here the current website to compare.
What happened? While these companies helped create a whole new category of online-only insurance lenders and providers, the dream of peer-to-peer deals going mainstream didn't pan out.
To oversimplify, the companies struggled to attract a side of the model peer-to-peer: investors. The companies were largely unable to attract enough investors fast enough to raise the capital they needed. Many of these companies ultimately failed or resorted to raising capital from institutional sources, which is relatively easier than raising capital from thousands of individual investors.
On-demand insurance and standalone financial planning apps
During the last decade, the financial planning apps On-demand and direct-to-consumer insurance have had their moments of glory. Dozens of standalone mobile apps have been released to help consumers plan and manage their finances. These apps were generally targeted at younger and/or less wealthy consumers who were not wealthy enough to qualify for a traditional financial advisor relationship.
On-demand insurance promised consumers the ability to purchase a relatively small insurance policy on short notice: a single insurance policy for a 30-hour trip across several states, for example.
Both on-demand insurance companies like independent financial planning apps they have generally failed or taken a turn. While these are different ideas, they failed for the same reason: overestimating the average consumer's enthusiasm for personal finance.
Most people don't pay enough attention to their financial life to remember to buy special event insurance. Similarly, companies learned the hard way that most people do not enjoy thinking about money or financial planning, and standalone applications they struggled to keep users engaged and paying fees month after month.
Additionally, in recent years, the established financial industry has caught up, offering customers free financial planning and/or budgeting tools as part of their existing bank or brokerage account.
Services that imitate trade
Over the past decade or so, at least 40 startups Different fintechs have launched products that offer consumers the ability to automatically copy transactions from major operators onto their platform., the best trading algorithms and/or reflect the transactions of major hedge funds, thanks to regulations that require hedge funds to disclose their holdings on a quarterly basis.
There was some excitement around the idea that such platforms could democratize finance, giving savvy traders a chance to shine even if they had no connections to Wall Street and help retail to beat the market.
Screenshot of site from DittoTrade 2013.
Yet a decade later, most investors are not using some form of automated platform that mimics trading to invest your money. While many people turn to friends and family for investment advice, the average consumer doesn't seem comfortable following the trades of complete strangers.
As of 2023, investors looking to outperform the market are still primarily using large, established financial brands to manage their money. While BOTS and a handful of other trade-imitating companies have been relatively successful, the model has yet to catch on.
Fintechs cannot afford to forget the lessons of their first decade
There is nothing wrong with early failure. Pivoting to find the right product for the market is a natural part of the startup life cycle.
That said, it's important to remember which ideas didn't succeed and why, to avoid repeating the same mistakes. Looking at these four examples of fintech ideas that didn't catch on, there are two main takeaways:
- First, fintech must remember that the average consumer doesn't like to think about money and often wants someone else to take care of it.
- Second, the industry must be realistic about the cost of acquiring clients and how difficult it is to get consumers and investors to transfer money to the platforms.
The entrepreneurs who will lead the second decade of fintech should learn from the lessons of the past.
