How can the mega big financial institutions really serve the underserved? Last week American Express announced a massive restructuring of their enterprise growth division, which houses the Serve Prepaid Product. Is this bad news for the undeserved industry that a marquee financial services company could be leaving this market segment?
I don’t think so. First, the title of the article “Amex Finds Serve No Longer Serves” written on PYMNTS.com on 1/21/2016 is misleading. The Serve prepaid card is not being shut down, it will live on for now. But clearly as noted by Mercator Advisory, “Amex has a distant sixth place ranking among prepaid card firms at best.” The real market play here for American Express and most FIs in the U.S. is quite different as you will see.
Let’s talk about some good news. Last week, LendUp Raised $150 million to serve the financially underserved through their innovative small dollar lending products. Alternative lending is expected to become a trillion-dollar industry as reported by TechCrunch as the valuations of companies like Lending Club and On Deck put them into Unicorn status. With so much money, financial technology and creative energy pouring into the lending space, what will all these companies need and fight for the most? The answer is to get direct access to consumers and their data.
How will it work? Imagine you are on the web researching credit cards and credit card offers pop that meet your credit worthiness and needs. The same happens for auto Insurance. Or, let’s say you are about to purchase a TV or a cell phone online and again a credit offer pops us that you are already approved for. No need to imagine any of this because companies like Credit Karma, Nerd Wallet, Smartpay, CoverHound, and Affirm are doing this now.
Zachary Karabell wrote a great article in the WSJ last November “The Uberization of Money”. He argues that while “the financial world is one of the most mediated industries on the planet, and that is precisely what is about to change.” The confluence of massive technological shifts and legislative changes (he gives the example of how the JOBS Act of 2012 opened up the crowd sourced funding industry) can create many new direct connections between financial service providers and consumers.
The lesson for mainstream banks like American Express is that you don’t need to always acquire the customer directly to deliver a service or own the customer. The Uberization of Undeserved Financial Services is more than just creating a digital neo-bank and new brand like a Moven or BankSimple to acquire millennials. It is really about companies like Inskit and Lendkey. These companies fit two of the criteria for Uberization. First, they are building SAAS platforms and are using big-data analytics to create new credit scoring models and complete lending solutions that lets financial institutions and even individual investors to lend to a market segment. Second, rather than trying to acquire the customer directly, they rely on channels that already own the customer relationship. These channels include storefront and online retailers, community banks and even check cashers to deliver offer credit solutions when the customer needs it the most.