Conference Presentation, Keynote
The Next 3 Billion in Financial Services
- The US financial services market is highly concentrated: the top five banks hold 50% of all assets, while the credit card sector is even more consolidated, yet 50% of Americans rely on alternative providers (e.g., Check 'n Go, MoneyGram) for cash, prepaid debit, remittances, and payday loans.
- Alternative financial services (AFS) represent a massive transaction volume of $320 billion last year, debunking the perception of the sector as a small, niche market.
- A significant misperception exists that AFS users are exclusively minimum wage earners; data shows usage spans well above the median income, with over 25% of those earning under $15,000 utilizing these services.
- Fees in the $1.6 trillion financial services market totaled nearly $150 million last year, creating a "rich get poorer" dynamic where users effectively pay 10% of a $100,000 balance in fees.
- Real-world budget constraints are highlighted by the "Alice" case study: a worker earning minimum wage across two jobs faces a budget gap where rent ($1,000 average vs. $600 assumed), missing gas costs ($250), and daily spending ($25) leave no margin for high-fee financial services.
- Five key pain points define the current market inefficiency: lumpy income, insufficient savings, difficult access to government benefits, excessive debt, and lack of credit history.
- Lumpy income creates volatility; minimum wage earners can see weekly revenue swings of 60%, while median income earners face swings of up to 30%, making consistent budgeting impossible.
- Earnin addresses lumpy income by leveraging payroll data (e.g., hours worked at McDonald's over the last eight days) to advance earned wages before payday, allowing users to avoid 15% APR payday loans.
- Earnin utilizes a voluntary tip model rather than interest charges, capitalizing on user frustration with predatory lending and generating a sustainable revenue stream.
- 46% of Americans cannot cover a $400 emergency expense, prompting solutions like Digit (round-up savings) and Empower (machine-learning budgeting based on spending patterns).
- Payjoy mitigates the challenge of large upfront costs for essential items (e.g., smartphones) by installing remote-control software on devices to disable functions upon non-payment, eliminating the need for traditional credit checks.
- Token Transit enables users to purchase monthly transit passes in installments rather than a lump sum, addressing cash-flow barriers to public transportation.
- Government assistance programs like SNAP ($70 billion budget, 40 million participants) suffer from poor user experience; Propel integrates SNAP balances into a mobile app, offering real-time budgeting and grocery store navigation to maximize value.
- US consumer debt has reached $1 trillion (pre-crisis levels), with households paying an average of $2,500 annually in interest alone.
- EarnUp assists consumers in prioritizing debt repayment across multiple cards and varying interest rates.
- Truaccord improves debt collection rates by analyzing behavioral data (e.g., social media usage) to send personalized, humane recovery messages, moving beyond traditional collection tactics.
- Lendstreet partners with banks to analyze income streams and negotiate partial settlements (e.g., accepting 50% of debt to avoid bankruptcy), increasing recovery rates compared to standard collection methods.
- 90 million Americans are "mispriced" or "credit invisible" (lacking credit scores), a demographic often excluded from affordable credit despite being capable of repayment.
- LendUp constructs credit scores using behavioral data, such as the time taken to make financial decisions on a slider interface, to assess risk for users with thin credit files.
- Nova facilitates international credit reporting by connecting global credit bureaus, allowing immigrants to transfer credit history from their home countries to the US.
- Global opportunities are driven by high smartphone penetration (projected 70% by 2020) in emerging markets, bypassing traditional banking infrastructure.
- M-Pesa in Kenya achieved 60% penetration (30 million users) within a 50 million population, creating a data-rich foundation for credit scoring and lending.
- Branch utilizes M-Pesa transaction data and device signals (e.g., OS update frequency) to generate credit scores and extend micro-loans in Kenya without traditional credit checks.
- Juvo partners with telecoms to use prepaid minute repayment behavior as a proxy for creditworthiness, offering zero-marginal-cost loans to unbanked populations.
- Three investment criteria for financial services startups: owning the customer through high-frequency engagement, targeting specific inflection points where users seek solutions, and building new operating systems/platforms that may evolve into de facto credit bureaus.
- The speaker projects that within a few years, new brands worth billions will emerge from this sector, reshaping the financial services landscape for tens of millions of users globally.