With 15 million self-employed individuals in the U.S., fintech companies are spinning transactional data into personalized gold. And that’s only one market. Learn from industry leaders how to attract and retain the next generation of banking customers.
“If you sell things online, you’re a small business. If you’re a 1099 employee, you’re a small business. And most banks don’t actually know who small businesses are,” says Jim Del Favero, chief product officer at Personal Capital. “The bulk of small businesses are just independent individuals.”
But sometimes they don’t even realize they should be considered small businesses.
“Jump in the next Uber and ask them if they’re a freelancer or a consultant. You’re going to get a spectrum of answers,” says Alex Cram, co-founder and chief technology officer at Track Technologies. “These are almost accidental freelancers. They don’t even know that they have to pay self-employed taxes – and they don’t know where to go for a good banking solution or accounting solution.”
And according to the U.S. Bureau of Labor Statistics, as of July 2016 there were over 15 million self-employed people in the country. That’s compared to just 6 million businesses with one to 100 employees.
But traditional lenders, still dealing with fallout from the financial crisis and new mortgage regulations, have not been able to break out of their silos and keep up with innovations in leveraging transactional data. It’s the fundamental, perhaps unrecoverable flaw of a traditional bank: that they don’t—and often can’t—service the activity of a small business owner in the 1099 economy.
“And I think that’s a huge missed opportunity today,” Del Favero says. “If you’re a small business, you may not need payroll. But you may need to track your expenses for tax purposes. So that’s the opportunity, and using data, you can actually see who those people are and target the right service to them.”
Fintech startups have become something that’s a lot more powerful than just a financial services company or an alternative to banks, explains Mani Fazeli, VP of product at Wave.
“They’ve become a central repository of all the financial data and services regardless of which bank or credit card company it lives with,” he says. “And they have none of the limitations of an individual financial institution.”
These innovative fintech companies have the ability to start with one really powerful value-add for the consumer or small business, and then use that data to pivot into other areas, boosting their ARPU and lowering their CAC to LTV ratio, Fazeli says.
“The biggest players in fintech—like PayPal, Square, Shopify—all began saying, I need to do one thing extremely well, and as I do it, I will gain enough data and insight to be able to do the very thing that banks don’t,” Fazeli continues. They’re also the players that are dominating the scene by targeting the small businesses that are too often ignored.
But are consumers willing to allow access to all of their transaction data, across their financial lives?
“Privacy perception is one of the biggest questions in the space,” Cram says. “It’s a challenge for most companies, but especially in fintech. All of us are building businesses on top of trust. I mean, most of us in fintech are asking for bank credentials. So we need to ensure the highest level of security.”
The fact is, Cram explains, consumers own their data, and they are very aware of that. “It’s not the fintech company’s data, it’s not the bank’s data—it’s really the user who owns this data,” he says. “And it’s our job in fintech to add value from this data.”
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