Millennial MBAs, NextGen FinTech & the Rise of the Micro Conference

Continuing the millennial and fintech discussion, I recently attended the country’s largest (business) student run digital media conference, the Berkeley HaaS School of Business’ PLAY — a show curated by high achiever millennials, in which SoFi and PayPal were major sponsors, where some 20% of the agenda was focused on financial services disruption, and 25% of the exhibiting, pre-funded start-ups proposed some kind of re-invention of personal finance.
My learnings:

  • In an unstructured analysis by Foundation Capital, roughly 3500 fintech start-ups have received funding in the past 10 years, with some 60-70% started in the past 4. This indicates that many new fincos are just now coming out of their incubation and beta periods.
  • To be perfectly clear, SoFi aspires to do away with your old school banking relationships (if you’re a millennial). SoFi’s narrow target allows the company to rely less on lead generation vehicles – a cost and competitive advantage.
  • As a whole, SMB lending is in trouble, and that’s exactly where nextgen fincos are finding opportunity.
  • Lending Tree portfolio extends to medical and educational loans though SMB lending is still its core. The company has loaned $13 billion so far, with $9 billion in just the past year.
  • Credit Karma claims 45 million members – representing a quarter of all US residents who have a credit score. As a partner to lenders, the company is currently focused on facilitating the student and SMB loan process, but counts as well amongst its customers a broad base including top 10% earning individuals such as consultants, lawyers and bankers.
  • The bulk of finco competition resides on the supply front, with many companies competing for traffic and attention – this situation likely to force many companies to focus on a specific niche, and to become brands and product lines within larger well-resourced entities.
  • Lending Club on average reduces the debt load for SMBs and consumers by 7% versus their old loans.
  • Banks for the most part are embracing the fintech newcos (know they enemy), but not so much Sallie Mae which is finally seeing a threat to its student loan monopoly.
  • That said, SoFi has originated $6 billion in student loans so far in 2015, tiny in relation to the $1.4 trillion market.
  • Fintech newcos are developing their own models of risk, with a focus on cash flow and income versus credit score benchmarking. SoFi no longer uses FICO scores as a “blunt instrument.”
  • That said, most established newcos are not using un-tested “wacky” data like social media profiling either – primarily to adhere to regulations and best practices such as Fair Lending rules.
  • FDIC reports show that there’s been a rise in bigger loans above $1 million – up 55% — while small loans (i.e. for SMBs) are down 24%. So the customer base for alternative lenders is growing, with “even young white guy business owners” having trouble getting SMB loans via traditional outlets today and seeking other means of financing versus a past demographic of primarily black and Latino business owners from the inner city and other less affluent geographies.
  • Mobile usability still has a long way to go in fintech, with only a small handful of newcos allowing for account opening via mobile.

My take:

  • Contrary to some naysayers who believe that we are about to hit a fintech bubble, we are not yet at the peak of the next gen finco wave as companies who have been in stealth mode the past 1-2 years are now emerging, with the strongest finding their product-market fit in the coming year.
  • Niche in fintech is big business. Whether it’s taking SoFi’s stance of focusing exclusively on millennials, or addressing a single sector area such as auto loans, consumer acceptance of handling their finances online and via mobile has reached enough critical mass to support these niches.
  • FICO score will be largely irrelevant in next 5 years. While the company has remained under the radar with the Consumer Financial Board, which is too busy attacking the banks to yet look at the underlying flawed foundation/credit bureau underpinnings of people’s financial lives, the fintech newcos are heeding consumers’ pain and addressing it appropriately with their own measures and credit risk models.
  • The success that alt lenders have with SMBs will continue to accelerate as new small business owners discover the advantages of going with non-traditional lenders and the word spreads organically throughout local business communities. As some of these businesses grow into small franchises over the next decade, they will continue to be proponents and users of crowdfunding and alternative lending as their loan size needs increase and in some cases, become permanently disenfranchised from traditional lenders.
  • Mobile is still greenfield for fintech. The companies that figure this out will rule in the next 5 years, regardless of their position today.

While small compared to more formal tech industry events, the PLAY conference is representative of a new wave of bringing tech to a wider audience in the spirit of Dreamforce (i.e. providing substantive sessions and/or high profile speakers at low cost/free tickets) and content curation in which students or “non-experts” are developing independent voices and running their own home grown events versus passive attendance at more established/massive industry events. Panels and speakers tend to be less scripted, if at all, engendering honest and meaningful discussion. While not entirely free from “pay for play,” these under the radar “micro conferences” are at the least refreshing and gaining mindshare as they literally allow everyone to be in the same room, and can be highly insightful when attendees’ and presenters’ guards are down. We’ll be covering more of these organic, niche events in the coming year.

Slack Posts New Functionality

Slack is widely acknowledged as the enterprise real-time messaging (work chat) tool with the most traction, having passed the million daily user mark in June. It seems that the company is not content to stay boxed into the work chat category, however. Yesterday, Slack announced and released Posts 2.0, a feature that enables the rich authoring of blog posts and publishing them to targeted collections of people.
Since its launch, Slack has had this feature, called Posts, that lets people write content that far exceeds the length of a normal chat message. However, it was so clunky that few people used it, if they were aware of it at all. To create a Post, one was sent out of the Slack application to a web browser, where text was written using a very simple editor and then saved back to Slack as an entry in the conversation stream of a specific channel or group.
The new Posts 2.0 includes an inline text editor, which improves the experience in two ways. First, it keeps users inside the Slack app. Second, it lets them create rich text with formatting styles like headlines, bulleted lists and checkboxes. Beyond that, the new editor also acts on embedded URLs by automatically displaying graphics, showing previews of websites and expanding tweets.
Once written, Posts can still be shared with specific individuals, channels and groups, whose members can comment directly on the entry (as opposed to creating an chronologically-ordered entry in the Slack conversation stream). This is one of two places in Slack where properly threaded discussions are possible; Files is the other.
There is another important new feature in Posts 2.0 – the ability to save and access Posts in the Files section of the Slack application. So rather than having to scroll through or search the Slack conversation stream to view a specific Post again, it can be easily found in the Files repository. Additionally, if an author stars a Post in the editor or a reader does so in the conversation stream, it will show up in Slack’s Starred Items list. 

Cool, But Do Businesses Need This? 

With Posts 2.0, Slack has complemented existing features with new ones that, in combination, begin to move the application beyond being primarily a work chat tool. Slack has now effectively become a lightweight Web Content Management System that enables blogging (to a targeted audience), file storage and sharing and threaded discussion (around Posts and documents stored in Files only). It’s a lightweight people directory with profiles too. Oh, and it’s still a communication and collaboration tool.
This expansion of mission is fine, but it immediately raises the question that I previously asked and continue to pose about Slack. Why? Do work teams really need an alternative to existing corporate communication and information management applications that already satisfy the same use cases that Slack is addressing? How is Slack better than the status update, IM, blogging, file sharing, and discussion tools for communities (groups) that are bundled in the enterprise social software applications and platforms that organizations have already licensed and deployed?
In addition to the functional redundancy, one also wonders if Slack will ultimately lose its audience by becoming the opposite of what it was originally. The application’s strong initial appeal was the simplicity of its user experience. By adding more communication and collaboration features, Slack risks becoming a complex mess of functionality that few will care to use, especially on mobile devices.
On the other hand, Slack may intentionally de-emphasize its application in the future, positioning and going to market as a platform on which developers can create their own apps. We’ll see. Many already refer to Slack as a messaging-centric platform. Time will tell if that is indeed their market strategy for the long-haul, but, for now, Slack is beginning to look like yet another bloated application.

ZestCash gets $19M to offer data-driven loans

ZestCash, a next generation loan-service for the underbanked led by former Google CIO Douglas Merrill, has raised $19 million to expand its data-driven approach to offering short-term loans. The company uses online data to help determine the credit worthiness of customers.