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Being a 25-year veteran of creating products in consumer finance has provided me the platform to see incredible change in how consumers interact with money and the underlying technology that creates these experiences. In the late 1990s, I was a young marketing manager at a credit card start-up called First USA, and we were wrestling with how to get customers to sign-up for credit cards on the internet while debating whether it made sense to put a URL on a paper application.
At that point, all my peers were pursuing their own start-up aspirations at various .coms, and I decided to stick it out at the bank and get some experience I was unqualified for because there literally was no one left to do the jobs I was assigned. I learned from many mistakes, got overpromoted, and developed an expertise in fearlessness that still sticks with me today.
With that confidence, I experimented with all things digital and took a big bet in 2005 by repurposing my discretionary display advertising budget at the bank into creating a digital-first product in a little student website working its way across U.S. campuses called “The Facebook.” With some help from some smart friends, we created Chase +1, the first student credit card with a rewards program built on credit responsibility. We had a currency that only lived on Facebook, and you could either redeem points in a simple white-labeled Amazon catalog or you could “poke” points to your friends.
The key to making it work was to have everything live “in Facebook.” The irony, of course, was at the time, Facebook was viewed as a display advertising garbage heap because click-thru rates were insanely low. Our theory was that the performance was low because users were happy in Facebook and didn’t want to leave…so we needed to create something inside of Facebook. To make this work, we implemented the first commercial use of Facebook’s nascent API and learned a ton about the importance of the user experience. The program successfully displaced American Express as the campus card of preference. This was my first glimpse into what I would call Fintech 1.0.
The core driver underpinning Fintech 1.0 is based on leading with experience and product. That actually becomes THE marketing platform. In Facebook, the experience in that environment was a self-perpetuating marketing machine. That was very different from sending traditional mail with an offer and driving you to an analog product.
We also imagined putting a product experience on the phone at that time. We all had Blackberries, and I remember sitting in consortium development meetings with banks, cellphone handset makers, the software companies serving the manufacturers, and Visa and MasterCard. The monstrosity of these meetings made a phone-based future seem dim. You know you are in trouble when you have more lawyers than product people present. There was no viable path forward until Apple introduced the iPhone in 2007 and, more importantly, the third-party app store in 2008. All the hairy stuff this motley crew would never be able to sort through become irrelevant. Apple went over the top. And everything changed.
Building on what I had already learned around leading with product experience became much more important because, soon, billions of people would have this powerful device in their hands that would allow them to have product experiences in financial services that we couldn’t have imagined in even the most unconstrained brainstorming session.
I took a four-year detour in China to start a payments business and saw the power of “the leap forward” one can have with platforms like WeChat when you have these devices and no legacy consumer expectations on product experiences and no legacy infrastructure, particularly in payments, to wrestle with..
As I returned to the States, the Fintech 1.0 world was beginning. Facebook effectively pivoted to mobile. Plaid was getting started. Companies like Chime, Acorns, and Robinhood were founded. With the ability to pair the product experience distribution that the smartphone provided with the effectiveness of Facebook mobile advertising, companies could reach millions of Americans in incredibly effective ways that didn’t require buying a bunch of stamps or producing a Super Bowl ad. It was cheap, and these companies (and many others) were exceptional at addressing some of the core complexity of financial products. They simplified and humanized the experience, attracting millions of Americans to their products.
At the same time, Facebook became the most powerful direct marketing platform ever created. The ability to be very sophisticated with customer acquisition investments gave these new Fintech companies a customer acquisition edge over any incumbent. Combined with a historically low cost of capital, these allowed these venture-backed companies to grow to large organizations rivaling the incumbents they set out to disrupt. With CAC so low, LTV was mostly an afterthought.
Lastly, a set of services in the infrastructure side of things made starting a fintech startup very capital-light. You could rent a bank charter, outsource risk and KYC, and move money with modern technology with a few simple API integrations and a credit card.
The unique targeting ability of Facebook allowed you to go after market segments that were underserved or rejected by the incumbents in an efficient manner. Because the marketing cost was low and the relative operational overhead was constrained by the efficiency of these infrastructure providers, a class of deadly incumbent sicarios was created.
The elements of Fintech 1.0:
- Simple user experience to combat complex legacy products, oftentimes using behavioral economic insights to inform these experiences
- Unique product angle feature to serve as a key marketing hook (free trades, get paid early, spare change)
- Cheap customer acquisition via Facebook
- Willingness to do business with customers that were hard to reach by the traditional industry and the cost to acquire those customers for the incumbents was prohibitive, creating large, untapped growth audiences
As we reconciled our Covid moment as a society, it was also a moment of clarity. The growth we had all experienced was real in one sense but unsustainable in another. Fintech 1.0, as we knew it was over. Why?
- The incumbents have invested and bought into simplification. What used to be an experience gap is no longer an advantage for Fintech. These experience best practices are ubiquitous.
- Everybody has all the easy features
- With IOS 14.5, acquisition advantages have been destroyed
- With today’s market and the current cost of capital, customer acquisition investment has much more scrutiny
What is Fintech 2.0?
Fintech 2.0 is about facilitating relationships and trust between people and networks. We have been building towards this for two decades, but the convergence of technology and user expectations is only happening now. While this has long been predicted, its finally coming true.
You can see the threads of this in the social features of Facebook and Twitter, the success of Zelle, Venmo, and Cash App transactionally, and the emergence of crypto and web 3.0.
Fintech 2.0 will be a community and trust-enabled network. This community will be transparent, with real identity. It will be performance-based, and trust will be policed not only by regulators but also by the participants themselves. Customer acquisition will be relationship-driven, and profit will be shared on a contribution basis.
It’s been an exciting journey, and I am thrilled about how we are building on top of all of this progress.
Manning Field is CEO of Follow, the first social investment platform to automate copying of trades for US equities to US clients.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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