Free financial services from fintech startups are bait, and customers should not fall for it
09-Aug-2022 •Dhirendra Kumar
A few years ago, for a while, there was a trend of describing tech startups as 'Uber for X', for many different values of X. Of course, this was back in the day when Uber was considered a great startup rather than the abject failure that it turned out to be. Airbnb is 'Uber for hotels'. Someone is 'Uber for doctors'. There are many 'Uber for tutors' outfits in India, although the number will soon be much smaller. Someone is trying out an 'Uber for trucks', and someone else is doing 'Uber for personal trainers'. I think there's someone who runs what an 'Uber for everything is'. And so on.
Another strange coinage of the tech startup world is fintech. The situation with 'fintech' is somewhat similar but even more ridiculous than Uber for X. That's because, as far as I can figure out, 'fintech' seems to define itself as 'X on an app'. So you sell insurance on an app? You're fintech. I can do stock trading on your app? You're fintech. You can show me my credit card bill on an app? You're fintech. I can pay someone on your app? You're fintech. I can trade a fictional currency on your app? You're fintech.
Sometimes you don't even need an app; just a website is enough. It's like saying that a business using computers is 'tech'. In the year 2022, this is a ridiculously low bar to clear. I do not know any financial service provider who does not have an online interface and, in almost all cases, an app. Remarkably, the online capabilities are commoditised. Some web interfaces and apps have a few more features, more or less, and some are more or less prone to occasional glitches, but basically, they are all the same. This sameness and commodification show that this is a mature activity where the differentiators are the core service, not the tech. At this point, fintech innovation is quite dead or exists only to try to get investments rather than delivering something for the customer.
However, the real problem lies elsewhere from the customers' point of view. There are far too many fintech businesses whose customers are not their customers. Huh, you must be saying. You are probably aware of this idea in some form or the other or have at least suspected it. If you are not paying, you are not the customer - you are the product. The new crop of purportedly free financial services is also like that.
If you are not explicitly paying for financial advice, then you are not the customer - you are the product, and the real business is to supply you to whoever is willing to pay for you. It sounds harsh and a little too blunt, but this is the absolute truth I have understood over long years of observing business. Moreover, this is not a fundamentally new thing either. Just google the phrase 'Where are the Customers' Yachts?' You'll come across a book written in 1955 (67 years ago!) considered a classic about the financial services business. You can guess from the title what the book is about.
The thing about fintech is the massive scale and the range of activities this approach to business has engulfed.
Business models based on acquiring and exploiting customer data - as almost this new fintech lot are planning to do - are inherently unstable for customers and everyone else. The only stable service providers will be those with business models that give customers something they want, and the business gets paid directly. This idea is that we will give something for free, take losses and then capture customer info. Then we'll use that for something different that has proven impossible to implement effectively. In the process, we have an industry in crisis and customers not getting served in any way.