This week’s Future of Fintech is on the future of automated finances, discussing whether people prefer picking investments vs. having it automated, how the pandemic influenced this space, and upcoming opportunities.
Guests for this week include:
- Maia Bittner, Head of Business Operations at Chime
- Chris Hutchins, Head of Financial Operations at Wealthfront
- Yinon Ravid, CEO of Albert
- Anish Acharya, General Partner at Andreessen Horowitz
Highlights from Future of Fintech: Automated Finances
This interview has been lightly edited for length and clarity.
How has the pandemic shaped people's personal finances and automated finances?
ANISH (Andreessen Horowitz): Consumers have done surprisingly well. The consumer balance sheet was a lot healthier going into COVID than it was going into 2008. The stimulus has been beneficial. If people are looking for something to not pay, they often don't pay their personal loan first. Charge ops, personal loan charge ops have been tightly banded. Same with credit cards. Consumers are doing better than anyone expected a year ago.
CHRIS (Wealthfront): People have a greater interest in the market and investing. We've seen an increase in investing savings as well.
MAIA (Chime): The stock market has been booming. But nothing is as dependable as it was pre-COVID. There's so much frothiness and excitement about cryptocurrencies and things like that. I wonder if that's going to reduce excitement for automation.
Does automation exist? Or do founders and VCs just write articles about it?
YINON (Albert): Customers like automation, but never use that word. If you tell a customer here's a regular savings account and here's a savings account that will pull a few dollars every day when you don't notice (and can afford it), about two thirds of customers choose the smart option. We saw no change during COVID last year, even when incomes went haywire.
When it comes to investing, if you give customers the option to either save manually or for us to put aside $100 every other paycheck, customers are open to the auto option. If you put these use-cases together, you end up with the VC concept of automation.
Customers don’t think about it that way, but today’s customer is more receptive to letting an app on their phone take control of their savings account and move money. It exists but customers don't think of it as automation. They think of it as “how can I do things easier?”
There was an explosion in retail trading this year, e.g. with GameStop. Do you think people should trade individual stocks? Do customers demand that?
YINON (Albert): It's bad for customers to put all their assets into individual stocks and gamble. However, when people want access to markets, they want access to individual stocks. Can you nudge the customer in a direction that's responsible? Can you get somebody to put aside 70% of their investments into an automated, intelligent portfolio and have them invest the rest? That's natural. It's unnatural to tell somebody, "Eat your veggies, but no dessert.”
People know when everybody around them is participating in the new euphoria, whether it's GameStop or crypto. If you say, “no, you're not allowed to participate [in individual stock trading],” the customer will end up not participating in your service at all, which means you can’t help the customer.
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In the last year, I've seen this narrative that people should be picking stocks and researching everything. Everything before 2020 was the exact opposite: no one can pick stocks and everyone should be passive. Is this just a narrative or is there a real shift where people do want to be more active with their finances?
YINON (Albert): It's a sign of the times. Everything goes up. It doesn't matter what you touch – crypto, joke cryptos, GameStock, things that used to be short squeezes and would die – now you can raise capital after a short squeeze. The frothiness knows no bounds. People look at it and want to participate and not be left behind. It’s tough to fight that.
How many people are actually doing the research?
ANISH (Andreessen Horowitz): Experience is the best teacher. When you lose some money, you decide to then do some more research or become a passive investor.
YINON (Albert): Everybody should have access to buy Dogecoin, GameStop, and any stocks they want. But we’re asking if we should build services for people that have a more long-term view.
MAIA (Chime): These high risk investments are the new lottery tickets. There's a reason why the people who have the least to spare, end up spending a lot of money on lottery tickets. To catapult out of poverty, $100 in an extremely volatile high-risk stock like Dogecoin or GameStop is more interesting than saving $100 and earning 7% in compound interest a year.
ANISH (Andreessen Horowitz): Should you spend the $100 on Nike stock, on Nike shoes, or in a passive ETF? It's better to own Nike stock than a lottery ticket or buy a pair of kicks. That's how those habits start.
How long will this current bull market continue?
YINON (Albert): How are you defining this bull market? There’s a secular bull market, which is going to end at some point. It always does. But there's this idiosyncratic bull market, too. Does all this crypto stuff have to necessarily correlate with the secular bull market? I'm not sure and that's weird.
CHRIS (Wealthfront): I have no idea whether the market will be up 10% or down 10% in the next 90 days. I'm not sure any of us would.
Is inflation healthy? Various people argue that it's unhealthy since it erodes the working class. But others have money and assets that inflate.
ANISH (Andreessen Horowitz): They've been predicting inflation for a long time and we haven't seen it in years. The optimistic view is we’ll have more remote work, Lambda School, and other models for education. Healthcare feels intractable, but new models are emerging.
What are some fintechs that help consumers get access to different asset classes?
SHEEL (Better Tomorrow Ventures): We've seen platforms that allow access to alternatives from wine to art, NFTs to classic cars. There's a lot of consumer interest in it. Personally, as an investor, I've stayed away from those markets. If you look at the entire world of investable grade wine, it doesn't seem big enough for me.
CHRIS (Wealthfront): Every time I see a founder who's pitching a real estate company providing access to private deals for everyone, I ask, “why go after consumers?”
Consumer acquisition is hard. Wouldn't it be way easier to raise a billion dollars from one institutional investor than $100 from 10 million consumers?
SHEEL (Better Tomorrow Ventures): Many platforms that started out as peer-to-peer in the lending space end up being a way to aggregate institutional buyers into buying loans. The same is true for the 1.0 version of what you're talking about: fractional homes. But there are some that are successful.
What's the biggest technical limitation or breakthrough you're anticipating that could lead to further automation?
YINON (Albert): Going back to the initial question, “is automation a thing on its own, or does it come down to specific use cases?”, it comes down to specific use-cases like automating savings. The toughest part of fulfilling these use-cases is the amount of plumbing required in the background: ACH transfers, money, KYC, fraud, regulatory restrictions.
The hardest part about automation is building the plumbing, fund structuring, and regulatory frameworks to seamlessly move money. Over time, that will get easier. But it’s still a pain point for customers, and therefore for businesses.
Do people still hold financial accounts at other institutions? Or do they migrate fully over to new products?
MAIA (Chime): Most of the time, members come from Chase, Wells Fargo, Bank of America, and big banks, despite being younger. What’s key for moving over to a new account is setting up direct deposit. The easiest time to set up direct deposit is when you're switching jobs. In the last year, the employment landscape has been crazy. As people switch jobs, the bar for switching financial institutions is a bit lower.
From my understanding a lot of challenger banks in the consumer space use ClickSWITCH to switch direct deposit. Is that smooth enough?
MAIA (Chime): ClickSWITCH is cool and there are a bunch of new competitors. It’s a hard problem. It’s much easier in the UK where open banking regulations have made it seamless to switch over bills and everything. These products are a part of the solution, but they're not 100% the solution.
ANISH (Andreessen Horowitz): We haven't come up with enough creative use-cases. Infrastructure is the barrier. People don’t control the core but they cross-sell on automation. It’s a marketing bundle.
For all the things we’ve done better than the incumbents, we haven’t done this better. We need to build products that are complementary and create utility for the consumer. That’s the way home on automation – not to cross sell and just offer a bunch of the same products without additional utility.
What is the possibility of being able to have a system that can auto balance a portfolio between traditional and crypto assets?
CHRIS (Wealthfront): I expect consumers to be able to do that this year, but probably not this month. Multiple people will tackle it. It already happens across different types of assets. The math isn't the problem.
A lot of Wealthfront customers have equity exposure from their place of work, which has gone up in value. Do you take that into consideration when balancing their portfolio?
CHRIS (Wealthfront): One of the things we launched last week was giving people more ability to control their portfolio. I thought that people would de-weight technology, but, in some cases, we saw people increase their weight on technology.
Even if you link your Carta account and we see how many shares you have in some stock, there is no public database for what those shares are worth. But giving people the ability to customize their portfolio – whether to skew it against technology holdings or towards socially responsible, clean energy investments – is what we shipped last week and are continuing to push.
There's only so much I think you can tell someone to do if they want to do something else. We’ve embraced that and tried to build supportive products.
ANISH (Andreessen Horowitz): We've got to not [impose]. If someone wants to buy a stock or invest in crypto, there can be implications in terms of diversification and what portion of your portfolio to allocate, that can help improve the quality of that decision without fundamentally undermining it.
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The Mercury Team