AI transcript
The content here is for informational purposes only, should not be taken as legal business
tax or investment advice or be used to evaluate any investment or security and is not directed
at any investors or potential investors in any A16Z fund. For more details, please see
A16Z.com/disclosures. Hi, and welcome to the A16Z podcast. I’m Lauren Murrow, and today
we’re talking about when fintech meets social. It’s a trend that’s evident on both ends
of the spectrum, whether that’s people divulging their crushing levels of debt on Instagram
and Twitter or bragging about their credit scores and stock trades. In this hallway-style
conversation with fintech general partner Anish Acharya and Darcy Kulikin, a partner on the
consumer tech team, we discuss why this holy grail of social plus fintech is both so challenging
and potentially so rewarding. We’ll cover which products and companies are taking advantage
of it, how it’s being driven by various subcultures online, and why this shift is happening now,
which is where this conversation begins. The first voice you’ll hear is Anish, followed
by Darcy. So the fact that people are actually talking
publicly about their debt is a new behavior. In the past, spending was public, but debt
was private. And for the first time, debt is starting to become a public conversation.
What’s new is that this generation is living in a completely different socioeconomic context.
That’s not flighty millennials and zoomers or whatever. That’s a completely different
financial world that they’re growing up in, and that’s driving a different set of conversations.
You see certain categories that people are now talking about that they didn’t talk about
before. Salary is something that a certain generation is much more comfortable talking
about. Student debt is a category that people are much more comfortable talking about. Trading
is a category that people are much more comfortable talking about. Across the spectrum, you see
sharing on social of financial stuff going up. You see it on Twitter, you see it on Facebook,
you see it in blogs. There’s a bunch of pockets.
Why do you think this shift is happening? I think it’s driven by a few factors. One
is generational. Every generation’s relationship with sharing and every generation’s relationship
with money is different. So what boomers did versus what Gen X did versus what millennials
do versus what Gen Z does is different. And I think you see this macro trend around increasing
sharing. And that’s driven by historical changes. That’s driven by the financial crisis.
Exactly. They have to take nontraditional paths to achieve financial progress and dreams.
For a long, long time, buying a home was not only the American dream, but something you
achieved through the traditional financial system. So everyone had a mortgage. Today
mortgages are less accessible than they’ve ever been. Will you talk to your peer set
about how am I ever going to buy a home? And that’s really the catalyst behind many of
these things. And I think you see that also with the massive
increase in student debt over the last 10, 15 years. It’s reaching unsustainable levels
and that’s forcing a conversation. And then that breaks down the stigma about talking
about student debt. And then once you break the stigma, then it’s like, hold on and everything
comes flooding to the forefront. We’ve talked about how money is inherently
private. Do you not think that that is becoming less so? There’s a generational piece of it.
Then yes, we’re sharing more of our lives in general. And then there’s a political angle
to it, this idea of radical transparency to affect change. So that’s why we’re posting
more about student debt, about medical debt, about our salaries.
Usually there is a long-term trend line towards sharing more rather than sharing less. But
you see it happening at the category level and to a certain extent at the subculture
level. So take student debt as one category. When people start talking about it, then everybody
feels empowered to talk about it. And I think you need catalysts for walls to come down around
certain categories like the student debt crisis, a financial crisis. There’s a lot of external
events that have led to some of these things come down, but it’s happening inch by inch
and category by category. And the question is, what pieces are going mainstream?
I think the hacker mindset has pushed outside of software and into finance. There is always
a small number of people who are excited about hacking their money, but now that’s becoming
a more mainstream concept. So the idea of being someone who arbitrages rewards across
credit cards used to be a pretty niche edge thing. And now more and more people are doing
it to the point where a lot of card companies are having to pull rewards back because there’s
a points guy and a million other sites that tells you how to actually hack the system.
And credit scores are very similar. It’s not a destiny. It’s a game, or it’s at least closer
to a game than a destiny. And more people are talking about the ways that you play it.
When I say it’s a game, I say that in a hopeful way, but not in a dismissive way in terms of
the importance of it.
It also goes to what are the things people like to do on social? And three of the core
functions are bragging, complaining, and rubbernecking. And I just think you’ve seen where social and
finance intersect, kind of coalescing around those three use cases as well.
At the end of the day, social and finance, a lot of it is just content, and it’s content
that’s anchored around some financial transaction, but it’s still just content. And so the usual
rules of social apply. Another way to think about it is, when you’re building something
in social plus finance, you have an interaction layer, and you have a transaction layer. And
the interaction layer is built around the emotional and cognitive pieces. And that is
content creation, that is messaging, that is all these social things that we see pop
up that appeal to these cognitive and emotional levers. And then you have a transactional
layer, which is whatever your actual financial transaction is. And that’s generally much
more of a functional use case. The magic in social plus finance happens when the transactional
piece and the interactive piece are mutually reinforcing, and that’s where the flywheel
on social plus finance really starts to spin aggressively.
Can you give me some examples of particular products in which you’ve seen this magic happen?
The easiest example is probably Venmo back in the day, where you had messaging apps,
money transfer apps like PayPal existed, and Chat existed, but the idea that you could
attach your transaction to an emoji just made the transaction easier, it made the emoji
more fun, it made the whole thing more self-reinforcing. It’s a really challenging problem to be able
to do that, but when you do do it, it’s magic.
I actually think that those products are fascinating. I still like to scroll through the global
feed on Venmo, which now is capped at the last 50 transactions, but it’s just so fascinating
to see all of these people all over the country sending each other money. There’s something
that is just vicariously thrilling about it, and because money does touch all of us, and
it’s so private, and the products that can start to invert that, I think they just touch
a nerve in an interesting way. And by the way, it doesn’t have to only be online. So there’s
a couple of interesting offline examples, SoFi, which is really in the business of refinancing
mispriced student debt, built this whole community of Henry’s, high earning, not rich yet, did
a ton of parties and events, and made it feel special to be a SoFi member, and really they
were a lender. So I think they’ve actually, at least in the early days, had a lot of success
combining the two. I imagine it’s less successful as Capital One is now opening coffee shops
where you can hang out and get coffee and do your banking, I guess, and it’s easy to
dismiss that as clumsy, but I do think that they’re trying to touch the same nerve.
There’s also this long legacy of companies starting out at the nexus of social and fintech,
and then eventually moving one way or the other generally towards the fintech transactional
layer. So a lot of people who can build either features or community in the early days and
really use it as a way to bootstrap their product, but then over time it migrates more
towards a transactional fintech product rather than a truly social product as well.
What are some of those examples?
SoFi is a great example. It’s functionally a lender, which is not a multiplayer social
game, but they were able to build this early community, which is able to get them a lot
of traction. You look at Wealthfront. Before it transitioned into Wealthfront, I think it
started as Ka-ching, which was a social fintech product. If you look Robinhood originally,
it was a much more social product, then became a much more transactional product. Prosper
started as a much more social product, and then became more of a peer-to-peer lending
platform. A lot of these things start social and are able to bootstrap in their early days
off of some of those networks. Then you end up at a decision point where you try to thread
this needle and continue down the social plus finance angle, or do you move into a more
single-player fintech product? I think a lot of the more successful fintech companies have
started social, but then eventually transitioned.
Why are they making that transition?
It’s hard.
Well, let’s talk about it. What is so hard about social fintech?
The most direct manifestation of social plus fintech is we have messaging, plus we have
payments or some other shared accounts, shared ledgers, some other joint accounts, et cetera.
I think that is very difficult for a number of reasons because money is so private. People
are less likely to send invites to each other and bootstrap a social product in the way
that you would bootstrap other social products.
I think there’s a lot of other examples, though, where the experience may not directly represent
social plus money, but it very much plays to that. I think the example Darcy brought up
is great, which is Robinhood. There’s been a ton of talk about how Robinhood is doomed
because others have cut fees and adopted their business model, but in truth, Robinhood is
a game, and it’s a game that people like to talk about. It works because it feels like
adulting when you actually have a stock portfolio, not because active trading is something that’s
smart for almost anyone to do. I really see it as addressing a different consumer need
than Schwab is addressing, and it’s really not threatened as much by players like Schwab.
That’s an example where the fintech product is addressing a social consumer need, but
at first blush, it may not appear to be the combination of social plus money.
Some of these products are really tapping into the trend for its gamification. Do you
think more products will go that route and design around that impulse that we have?
I think the thing you will likely see is that these social plus fintech products will actually
come much more from the consumer side of things. I think there’s some things like Robinhood
where you are able to build both fintech and community, and it comes from the fintech side
of things. Another encouraging angle to it is the things that are coming from the social
side. Whether it’s a bunch of the chat apps that now have wallets and payments installed
in them, or even something as weird as Fortnite, which is technically a game, but they have
V-Bucks, and they have these economies built into them. It’ll be fascinating to see what
happens with those types of products, because that could be the actual place where we see
social plus money take off.
I do think, by the way, there’s been a bunch of past attempts, which maybe seem naive at
the time, but now just seemed like bad timing. Blippi is a famous example of this where it
tweeted everything that you bought, linked your credit card, and every time you swiped
it, it tweeted. Okay, there’s obvious reasons why that might not be a good idea, and yet
I think the fact that…
It’s too soon.
Hey, look, the fact that Dave Ramsey exists, and people are talking about debt and spending,
and there’s the nugget of truth in all these things. As Mark says, it’s rarely that the
idea is wrong. It’s usually that the timing is.
One of the interesting things about this category of company is that if you just take a step
back and you’re looking for a broader consumer trends, you can often look at little emergent
behaviors that are happening somewhere on the internet and try to figure out, is that
going to actually go into the mainstream at some point?
One of the interesting and challenging things about social plus fintech is that so much
of it is driven by norms, so much of it is driven around what’s taboo and what’s stigmatized,
and that actually exists at the subculture level. You can grow up in the same town at
the same age, and if you grow up on one side of town, your norms around money and sharing
are very different from the person on the other side of town.
That leads to a lot of very distinct subcultures within different pockets on the internet.
One of the more entertaining one is All Street Bets on Reddit, where people are posting some
mix of fake and real trades and explosions and everything like that, and so then you
can look at these things and say, “Oh, here’s this crazy emergent behavior that’s happening.
I think this is going to go mainstream.” In some cases, it will, or in some cases, it
is just part of that subculture because the norms and taboos will never translate into
the mainstream, but when those stigmas fall, then everything happens and everybody runs
for the entrance at that point.
Yeah, it is interesting. If you think about crypto, so this crypto as a computing platform,
which is how we talk about it a lot internally, but then there’s also the sort of socio-political,
perhaps anarchist thread of crypto. I think the historical example of that was mostly
gold, though at the end is taboo.
Nobody was screencapping their Boolean collection and sharing it on Twitter.
Well, depending on what Facebook group you’re in. I think, again, there is a past precedent,
but you’re right. There’s a functional aspect of hedging against things that may go badly
wrong in the future, and then there’s a cognitive, emotional, socio-political to your point, Lauren.
Crypto is fascinating because it’s a subculture that has a totally different relationship with
transparency and anonymity and all of these different dimensions and just changing the
form factor of value from a dollar to some sort of token has freed an entire segment
of people to talk about it and have a different relationship with it. It’s one of the most
entertaining parts of social is what’s happening in crypto. Again, the concept of crypto versus
concept of money created a psychological shift in some people that then made the norms around
it much different.
So, you’re saying there are these subgroups, little niche categories, but it’s difficult
to build a business around them until they reach that tipping point?
I actually think you can build great businesses around some of these subcultures. There’s
a lot of these quote-unquote niche, but they can be massive niches, right? Like Wall Street
Bets has like 800,000 members.
People always want to talk about how they’re making money. It’s having debt that’s always
been private. So, the hardest problem in terms of social and money is having people talk
about their debt, which is why people don’t want to have a relationship with their lender
or talk in too much detail about certainly their credit card debt because they feel bad
about it. They feel like it reflects poorly on them. Now, it’s just checking Insta right
now and there’s 675,000 posts for #debtfreejourney. This has become a public conversation and a
lot of it is happening on Instagram and I think that’s the hardest problem, the hardest
segment to actually unlock. So, I actually think we’re pretty far ahead right now.
Well, and to your point, Wall Street Bets is not just about, “I made a bunch of money.
It’s also people posting, “Shit, I just lost a bunch of money.”
Though, the subtext is, “Look at all the swagger I’ve got. I can lose all this money and it’s
all good.”
Yeah.
Not always.
Fair. Where this gets a lot more interesting is looking beyond social media and social
networks and starting to talk about how this stuff drives an emergence that are products
and how products are designed. Lauren and I both talked about this, which is the concept
that as a product, you can create value in a functional way, which is, “Hey, my credit
score was X and now it’s X plus Y.” You can create value in a cognitive way, which is,
“Hey, I now better understand my credit score,” or you can create value in an emotional way,
which is, “I feel better about my credit score and my financial situation.” Historically,
most products have been designed with a complete focus on the functional and now we’re seeing
the next generation of not just fintech but consumer products think more about cognitive
and emotional.
There’s also more offline examples than we’re all typically aware of. So, one I learned
about over the last few years is called RASCAS, which is Rotating Savings and Credit Associations,
which are these offline communities that are managed in mostly immigrant communities managed
by an individual where everyone contributes, let’s say, $1,000 a month. And then each month,
if there are 10 members, one member receives $10,000. And typically, these are folks in
your community. You might meet them at church and it’s really hard to save $10,000. It’s
a lot easier to contribute $1,000 a month. And then when you receive the lump sum, there’s
always some big thing you want to do with the $10,000. There’s tons of examples of these
micro communities has not yet successfully been brought online. So, not everything is
sort of starting from zero when it comes to digital products.
And those ones are interesting because there’s a different iteration of those in every single
culture and every single country. And it is this robust offline behavior. And the question
is how do you bring it online and how do you bring it online in a way that is culturally
specific enough that it reflects the norms of that culture but also in a way that’s scalable?
So there’s the example of Rosca’s in a lot of communities all over the world. And then
I think if you look at the flip of that, what’s the extreme San Francisco version, it’s a
lot of people here do things like invest in restaurants. Why would you ever invest in
a restaurant? You’re probably not going to get your money back. There’s no liquidity.
At best, it’s sort of like cool to tell your friends maybe that you’re an investor there.
Maybe you skip a sort of reservation. It goes to emotional versus transactional.
Totally.
It’s not a transactional piece. It’s the emotion of the finance.
Exactly. But the proof point of actually investing in something versus just frequenting something
is very different. People want to participate. They want to express these preferences and
money is the strongest way to do so.
Well, and another example of something that’s inherently social. You’re investing in something
that then has a built-in social network in the investment.
There’s also this amazing trend around fractional ownership. So there’s a category of companies
that includes Rally Road and Otis and Mythic. They will take some asset, be it a classic
car, be it some culturally significant item, be it a magic card, be it a case of wine.
There’s a different version of all of this. And they will take that asset and they’ll
functionally securitize it. And then you, as a user, can purchase shares of that asset.
And then in some cases, depending on the kind of investment that you make, you get certain
levels of access or swag or other things that are associated with ownership.
So on the one hand, you actually have a piece of equity, a share in something that is theoretically
valuable because it’s actually a hard asset that has value. On the other side, you have
the status of owner within this piece that is of value in a more emotional sense, which
you’re investing in cultural pieces, which may or may not be a good financial investment
but from emotional cognitive side can be really, really rewarding. So I think that’s another
version where this idea of social plus fintech is taking off.
I love this example. You know, we’ve talked about this internally as perhaps a future
of museums and I think that vision is really interesting and it’s a much more emotional
than rational.
What’s the potential there? Are there areas where you see opportunity in some of these
niche groups?
I think social and finance is like the Holy Grail, right? The social version of most products
is the best version of most products. Engagement is higher, retention is higher, customer acquisition
costs go down. All these things that most consumer fintech companies struggle with are
solved by building the social product. It’s the extent that you can get something that
threads that needle between social and fintech. It’s amazing. It’s magical. It’s this incredible
thing that happens when it actually happens. It’s really hard to do, but when it does happen,
it’s phenomenal.
I think the biggest opportunity comes from finding the emergent behavior within niche
groups at the social level, at the community level, and then figuring out how fintech or
transactional layers into or on top of that. The saying is every company is eventually going
to become a fintech company, and I think that is probably the direction in which it goes
and which you have weird social behavior that has some ability to layer transaction inside
of it, and then that’s how social plus money takes off.
In my mind, the most direct way to start seeing this play out is just having more fintech products
address emotional needs as well as functional and cognitive needs. There’s some fintech products
like Joy, an app where you rate every transaction on how it made you feel. The goal of the game,
of course, is to only spend money on things that make you feel good, which is interesting.
I think that’s a product that’s completely designed around a set of emotional needs with
perhaps a set of functional outcomes as a happy side effect. I think there’s probably
a middle ground where a lot of products that are focused on helping you buy your first
home or reduce your debt or invest in stocks can actually start to design for these emotional
needs when it comes to money. That’s how we actually start to see this achieve scale.
Are there companies right now that you see making strides in that direction?
I think an example of a company that’s really gotten this right is Credit Karma, and granted
I was at Credit Karma. But if you look at the tone of the emails, if you look at the
ads that are on TV, if you look at the way the product is positioned, it plays as much
to curiosity and taking some of the heaviness out of credit. I think that’s been a really
successful strategy for them. I think this is a company that’s gotten it right when it
comes to how you talk to your customer about these otherwise really heavy things.
As people share more, it becomes less intimidating.
Or if you can see yourself relative to other people, that’s the other way that Credit Karma
works. It’s like, I know where I stand relative to other people, and maybe it makes me stressed
or maybe it makes me feel more comfortable, but at least there’s some level of transparency.
Right. There’s some freedom in that transparency that perhaps is driving customer acquisition.
That’s right. In terms of the products that have not worked, I think the product category
that hasn’t really seen success is personal financial management tools. There’s two reasons.
The first is that there’s a very small number of people who are super excited about budgeting
and trying every budgeting app, which is why when a lot of these products launch, they
get great growth in their first 18 to 24 months. You can get a couple of million users who
are really engaged. That’s not actually representative of the wider market where most people hate
budgeting. It’s not just because it’s a pain to keep a budget. It’s because it’s mostly
bad news. I look at a lot of these PFM and budgeting apps like calorie counting apps.
Just mostly makes you feel bad, and it’s easier to uninstall the app than it is to actually
stick with the budget or the diet. I think that’s a great example of a product category
that despite the fact that there’s real functional value there, it hasn’t taken off because it
didn’t address the emotional challenge that the consumer is facing.
I think another category that has not worked super well is ones that are designed to be
social but only transactional. I think there’s been this long history of people trying to
get people to be more public about what their portfolio is, and then other people can invest
based off of that portfolio, and it benefits the portfolio manager who’s sharing it. That’s
one where it is almost purely transactional relationship with purely financial incentives.
I think there’s been a lot of attempts at that. As far as I’m aware, none of them have
really taken off, but I think that’s another category where when you just stick within one
kind of bucket just within the transactional side, it’s really hard to layer social into
that.
So if we agree that social meets Vintec is really hard to do, but I’ve also heard you
both say it is the holy grail. Why is that? What makes it so powerful if we can get there?
I think first of all, if you just look at it, the most narrow lens is just from a core
business perspective. Stickiness, cross-out, acquisition, all of these things that are
super hard problems for most Vintec companies become dramatically easier if there’s a strong
social layer. So that’s the most narrow lens. And then I think the broadest lens is just
ending this dynamic where we’re alone together. Everyone’s in a dark room feeling bad about
their money with everyone else in that same dark room, and I think if you can turn the
light on, then all of a sudden, it is an opportunity to uplift everyone a little bit and normalize
the situation that folks are in. I think that with, especially we talked about both the
good side of Insta, but Insta is also a very public place to talk about your spending,
and I think that that drives a perverse set of expectations around what’s normal, and
we should try to change that.
Yes. There’s multiple levels to why social plus money is this holy grail. Another lens
is it broadens the solution space within which, as a founder, you can operate because now you’re
not just on the transactional level or you’re not just on the emotional and cognitive level,
you’re now across all three. If you actually have financial or social plus Vintec or whatever
it is, so you can now design things that have some combination of those three levers, which,
if you’re competing against a purely transactional thing or you’re competing against a purely
emotional thing, you now just have more factors that you can operate across. The flip side
to that is it’s combinatorially more complicated to do, but if you do do it, you’re in a class
of your own.
Thank you for joining us on the A16Z podcast.
Thanks, Lauren.
Thanks, Darcy.
Thanks, Anish.
Cheers.
[BLANK_AUDIO]
tax or investment advice or be used to evaluate any investment or security and is not directed
at any investors or potential investors in any A16Z fund. For more details, please see
A16Z.com/disclosures. Hi, and welcome to the A16Z podcast. I’m Lauren Murrow, and today
we’re talking about when fintech meets social. It’s a trend that’s evident on both ends
of the spectrum, whether that’s people divulging their crushing levels of debt on Instagram
and Twitter or bragging about their credit scores and stock trades. In this hallway-style
conversation with fintech general partner Anish Acharya and Darcy Kulikin, a partner on the
consumer tech team, we discuss why this holy grail of social plus fintech is both so challenging
and potentially so rewarding. We’ll cover which products and companies are taking advantage
of it, how it’s being driven by various subcultures online, and why this shift is happening now,
which is where this conversation begins. The first voice you’ll hear is Anish, followed
by Darcy. So the fact that people are actually talking
publicly about their debt is a new behavior. In the past, spending was public, but debt
was private. And for the first time, debt is starting to become a public conversation.
What’s new is that this generation is living in a completely different socioeconomic context.
That’s not flighty millennials and zoomers or whatever. That’s a completely different
financial world that they’re growing up in, and that’s driving a different set of conversations.
You see certain categories that people are now talking about that they didn’t talk about
before. Salary is something that a certain generation is much more comfortable talking
about. Student debt is a category that people are much more comfortable talking about. Trading
is a category that people are much more comfortable talking about. Across the spectrum, you see
sharing on social of financial stuff going up. You see it on Twitter, you see it on Facebook,
you see it in blogs. There’s a bunch of pockets.
Why do you think this shift is happening? I think it’s driven by a few factors. One
is generational. Every generation’s relationship with sharing and every generation’s relationship
with money is different. So what boomers did versus what Gen X did versus what millennials
do versus what Gen Z does is different. And I think you see this macro trend around increasing
sharing. And that’s driven by historical changes. That’s driven by the financial crisis.
Exactly. They have to take nontraditional paths to achieve financial progress and dreams.
For a long, long time, buying a home was not only the American dream, but something you
achieved through the traditional financial system. So everyone had a mortgage. Today
mortgages are less accessible than they’ve ever been. Will you talk to your peer set
about how am I ever going to buy a home? And that’s really the catalyst behind many of
these things. And I think you see that also with the massive
increase in student debt over the last 10, 15 years. It’s reaching unsustainable levels
and that’s forcing a conversation. And then that breaks down the stigma about talking
about student debt. And then once you break the stigma, then it’s like, hold on and everything
comes flooding to the forefront. We’ve talked about how money is inherently
private. Do you not think that that is becoming less so? There’s a generational piece of it.
Then yes, we’re sharing more of our lives in general. And then there’s a political angle
to it, this idea of radical transparency to affect change. So that’s why we’re posting
more about student debt, about medical debt, about our salaries.
Usually there is a long-term trend line towards sharing more rather than sharing less. But
you see it happening at the category level and to a certain extent at the subculture
level. So take student debt as one category. When people start talking about it, then everybody
feels empowered to talk about it. And I think you need catalysts for walls to come down around
certain categories like the student debt crisis, a financial crisis. There’s a lot of external
events that have led to some of these things come down, but it’s happening inch by inch
and category by category. And the question is, what pieces are going mainstream?
I think the hacker mindset has pushed outside of software and into finance. There is always
a small number of people who are excited about hacking their money, but now that’s becoming
a more mainstream concept. So the idea of being someone who arbitrages rewards across
credit cards used to be a pretty niche edge thing. And now more and more people are doing
it to the point where a lot of card companies are having to pull rewards back because there’s
a points guy and a million other sites that tells you how to actually hack the system.
And credit scores are very similar. It’s not a destiny. It’s a game, or it’s at least closer
to a game than a destiny. And more people are talking about the ways that you play it.
When I say it’s a game, I say that in a hopeful way, but not in a dismissive way in terms of
the importance of it.
It also goes to what are the things people like to do on social? And three of the core
functions are bragging, complaining, and rubbernecking. And I just think you’ve seen where social and
finance intersect, kind of coalescing around those three use cases as well.
At the end of the day, social and finance, a lot of it is just content, and it’s content
that’s anchored around some financial transaction, but it’s still just content. And so the usual
rules of social apply. Another way to think about it is, when you’re building something
in social plus finance, you have an interaction layer, and you have a transaction layer. And
the interaction layer is built around the emotional and cognitive pieces. And that is
content creation, that is messaging, that is all these social things that we see pop
up that appeal to these cognitive and emotional levers. And then you have a transactional
layer, which is whatever your actual financial transaction is. And that’s generally much
more of a functional use case. The magic in social plus finance happens when the transactional
piece and the interactive piece are mutually reinforcing, and that’s where the flywheel
on social plus finance really starts to spin aggressively.
Can you give me some examples of particular products in which you’ve seen this magic happen?
The easiest example is probably Venmo back in the day, where you had messaging apps,
money transfer apps like PayPal existed, and Chat existed, but the idea that you could
attach your transaction to an emoji just made the transaction easier, it made the emoji
more fun, it made the whole thing more self-reinforcing. It’s a really challenging problem to be able
to do that, but when you do do it, it’s magic.
I actually think that those products are fascinating. I still like to scroll through the global
feed on Venmo, which now is capped at the last 50 transactions, but it’s just so fascinating
to see all of these people all over the country sending each other money. There’s something
that is just vicariously thrilling about it, and because money does touch all of us, and
it’s so private, and the products that can start to invert that, I think they just touch
a nerve in an interesting way. And by the way, it doesn’t have to only be online. So there’s
a couple of interesting offline examples, SoFi, which is really in the business of refinancing
mispriced student debt, built this whole community of Henry’s, high earning, not rich yet, did
a ton of parties and events, and made it feel special to be a SoFi member, and really they
were a lender. So I think they’ve actually, at least in the early days, had a lot of success
combining the two. I imagine it’s less successful as Capital One is now opening coffee shops
where you can hang out and get coffee and do your banking, I guess, and it’s easy to
dismiss that as clumsy, but I do think that they’re trying to touch the same nerve.
There’s also this long legacy of companies starting out at the nexus of social and fintech,
and then eventually moving one way or the other generally towards the fintech transactional
layer. So a lot of people who can build either features or community in the early days and
really use it as a way to bootstrap their product, but then over time it migrates more
towards a transactional fintech product rather than a truly social product as well.
What are some of those examples?
SoFi is a great example. It’s functionally a lender, which is not a multiplayer social
game, but they were able to build this early community, which is able to get them a lot
of traction. You look at Wealthfront. Before it transitioned into Wealthfront, I think it
started as Ka-ching, which was a social fintech product. If you look Robinhood originally,
it was a much more social product, then became a much more transactional product. Prosper
started as a much more social product, and then became more of a peer-to-peer lending
platform. A lot of these things start social and are able to bootstrap in their early days
off of some of those networks. Then you end up at a decision point where you try to thread
this needle and continue down the social plus finance angle, or do you move into a more
single-player fintech product? I think a lot of the more successful fintech companies have
started social, but then eventually transitioned.
Why are they making that transition?
It’s hard.
Well, let’s talk about it. What is so hard about social fintech?
The most direct manifestation of social plus fintech is we have messaging, plus we have
payments or some other shared accounts, shared ledgers, some other joint accounts, et cetera.
I think that is very difficult for a number of reasons because money is so private. People
are less likely to send invites to each other and bootstrap a social product in the way
that you would bootstrap other social products.
I think there’s a lot of other examples, though, where the experience may not directly represent
social plus money, but it very much plays to that. I think the example Darcy brought up
is great, which is Robinhood. There’s been a ton of talk about how Robinhood is doomed
because others have cut fees and adopted their business model, but in truth, Robinhood is
a game, and it’s a game that people like to talk about. It works because it feels like
adulting when you actually have a stock portfolio, not because active trading is something that’s
smart for almost anyone to do. I really see it as addressing a different consumer need
than Schwab is addressing, and it’s really not threatened as much by players like Schwab.
That’s an example where the fintech product is addressing a social consumer need, but
at first blush, it may not appear to be the combination of social plus money.
Some of these products are really tapping into the trend for its gamification. Do you
think more products will go that route and design around that impulse that we have?
I think the thing you will likely see is that these social plus fintech products will actually
come much more from the consumer side of things. I think there’s some things like Robinhood
where you are able to build both fintech and community, and it comes from the fintech side
of things. Another encouraging angle to it is the things that are coming from the social
side. Whether it’s a bunch of the chat apps that now have wallets and payments installed
in them, or even something as weird as Fortnite, which is technically a game, but they have
V-Bucks, and they have these economies built into them. It’ll be fascinating to see what
happens with those types of products, because that could be the actual place where we see
social plus money take off.
I do think, by the way, there’s been a bunch of past attempts, which maybe seem naive at
the time, but now just seemed like bad timing. Blippi is a famous example of this where it
tweeted everything that you bought, linked your credit card, and every time you swiped
it, it tweeted. Okay, there’s obvious reasons why that might not be a good idea, and yet
I think the fact that…
It’s too soon.
Hey, look, the fact that Dave Ramsey exists, and people are talking about debt and spending,
and there’s the nugget of truth in all these things. As Mark says, it’s rarely that the
idea is wrong. It’s usually that the timing is.
One of the interesting things about this category of company is that if you just take a step
back and you’re looking for a broader consumer trends, you can often look at little emergent
behaviors that are happening somewhere on the internet and try to figure out, is that
going to actually go into the mainstream at some point?
One of the interesting and challenging things about social plus fintech is that so much
of it is driven by norms, so much of it is driven around what’s taboo and what’s stigmatized,
and that actually exists at the subculture level. You can grow up in the same town at
the same age, and if you grow up on one side of town, your norms around money and sharing
are very different from the person on the other side of town.
That leads to a lot of very distinct subcultures within different pockets on the internet.
One of the more entertaining one is All Street Bets on Reddit, where people are posting some
mix of fake and real trades and explosions and everything like that, and so then you
can look at these things and say, “Oh, here’s this crazy emergent behavior that’s happening.
I think this is going to go mainstream.” In some cases, it will, or in some cases, it
is just part of that subculture because the norms and taboos will never translate into
the mainstream, but when those stigmas fall, then everything happens and everybody runs
for the entrance at that point.
Yeah, it is interesting. If you think about crypto, so this crypto as a computing platform,
which is how we talk about it a lot internally, but then there’s also the sort of socio-political,
perhaps anarchist thread of crypto. I think the historical example of that was mostly
gold, though at the end is taboo.
Nobody was screencapping their Boolean collection and sharing it on Twitter.
Well, depending on what Facebook group you’re in. I think, again, there is a past precedent,
but you’re right. There’s a functional aspect of hedging against things that may go badly
wrong in the future, and then there’s a cognitive, emotional, socio-political to your point, Lauren.
Crypto is fascinating because it’s a subculture that has a totally different relationship with
transparency and anonymity and all of these different dimensions and just changing the
form factor of value from a dollar to some sort of token has freed an entire segment
of people to talk about it and have a different relationship with it. It’s one of the most
entertaining parts of social is what’s happening in crypto. Again, the concept of crypto versus
concept of money created a psychological shift in some people that then made the norms around
it much different.
So, you’re saying there are these subgroups, little niche categories, but it’s difficult
to build a business around them until they reach that tipping point?
I actually think you can build great businesses around some of these subcultures. There’s
a lot of these quote-unquote niche, but they can be massive niches, right? Like Wall Street
Bets has like 800,000 members.
People always want to talk about how they’re making money. It’s having debt that’s always
been private. So, the hardest problem in terms of social and money is having people talk
about their debt, which is why people don’t want to have a relationship with their lender
or talk in too much detail about certainly their credit card debt because they feel bad
about it. They feel like it reflects poorly on them. Now, it’s just checking Insta right
now and there’s 675,000 posts for #debtfreejourney. This has become a public conversation and a
lot of it is happening on Instagram and I think that’s the hardest problem, the hardest
segment to actually unlock. So, I actually think we’re pretty far ahead right now.
Well, and to your point, Wall Street Bets is not just about, “I made a bunch of money.
It’s also people posting, “Shit, I just lost a bunch of money.”
Though, the subtext is, “Look at all the swagger I’ve got. I can lose all this money and it’s
all good.”
Yeah.
Not always.
Fair. Where this gets a lot more interesting is looking beyond social media and social
networks and starting to talk about how this stuff drives an emergence that are products
and how products are designed. Lauren and I both talked about this, which is the concept
that as a product, you can create value in a functional way, which is, “Hey, my credit
score was X and now it’s X plus Y.” You can create value in a cognitive way, which is,
“Hey, I now better understand my credit score,” or you can create value in an emotional way,
which is, “I feel better about my credit score and my financial situation.” Historically,
most products have been designed with a complete focus on the functional and now we’re seeing
the next generation of not just fintech but consumer products think more about cognitive
and emotional.
There’s also more offline examples than we’re all typically aware of. So, one I learned
about over the last few years is called RASCAS, which is Rotating Savings and Credit Associations,
which are these offline communities that are managed in mostly immigrant communities managed
by an individual where everyone contributes, let’s say, $1,000 a month. And then each month,
if there are 10 members, one member receives $10,000. And typically, these are folks in
your community. You might meet them at church and it’s really hard to save $10,000. It’s
a lot easier to contribute $1,000 a month. And then when you receive the lump sum, there’s
always some big thing you want to do with the $10,000. There’s tons of examples of these
micro communities has not yet successfully been brought online. So, not everything is
sort of starting from zero when it comes to digital products.
And those ones are interesting because there’s a different iteration of those in every single
culture and every single country. And it is this robust offline behavior. And the question
is how do you bring it online and how do you bring it online in a way that is culturally
specific enough that it reflects the norms of that culture but also in a way that’s scalable?
So there’s the example of Rosca’s in a lot of communities all over the world. And then
I think if you look at the flip of that, what’s the extreme San Francisco version, it’s a
lot of people here do things like invest in restaurants. Why would you ever invest in
a restaurant? You’re probably not going to get your money back. There’s no liquidity.
At best, it’s sort of like cool to tell your friends maybe that you’re an investor there.
Maybe you skip a sort of reservation. It goes to emotional versus transactional.
Totally.
It’s not a transactional piece. It’s the emotion of the finance.
Exactly. But the proof point of actually investing in something versus just frequenting something
is very different. People want to participate. They want to express these preferences and
money is the strongest way to do so.
Well, and another example of something that’s inherently social. You’re investing in something
that then has a built-in social network in the investment.
There’s also this amazing trend around fractional ownership. So there’s a category of companies
that includes Rally Road and Otis and Mythic. They will take some asset, be it a classic
car, be it some culturally significant item, be it a magic card, be it a case of wine.
There’s a different version of all of this. And they will take that asset and they’ll
functionally securitize it. And then you, as a user, can purchase shares of that asset.
And then in some cases, depending on the kind of investment that you make, you get certain
levels of access or swag or other things that are associated with ownership.
So on the one hand, you actually have a piece of equity, a share in something that is theoretically
valuable because it’s actually a hard asset that has value. On the other side, you have
the status of owner within this piece that is of value in a more emotional sense, which
you’re investing in cultural pieces, which may or may not be a good financial investment
but from emotional cognitive side can be really, really rewarding. So I think that’s another
version where this idea of social plus fintech is taking off.
I love this example. You know, we’ve talked about this internally as perhaps a future
of museums and I think that vision is really interesting and it’s a much more emotional
than rational.
What’s the potential there? Are there areas where you see opportunity in some of these
niche groups?
I think social and finance is like the Holy Grail, right? The social version of most products
is the best version of most products. Engagement is higher, retention is higher, customer acquisition
costs go down. All these things that most consumer fintech companies struggle with are
solved by building the social product. It’s the extent that you can get something that
threads that needle between social and fintech. It’s amazing. It’s magical. It’s this incredible
thing that happens when it actually happens. It’s really hard to do, but when it does happen,
it’s phenomenal.
I think the biggest opportunity comes from finding the emergent behavior within niche
groups at the social level, at the community level, and then figuring out how fintech or
transactional layers into or on top of that. The saying is every company is eventually going
to become a fintech company, and I think that is probably the direction in which it goes
and which you have weird social behavior that has some ability to layer transaction inside
of it, and then that’s how social plus money takes off.
In my mind, the most direct way to start seeing this play out is just having more fintech products
address emotional needs as well as functional and cognitive needs. There’s some fintech products
like Joy, an app where you rate every transaction on how it made you feel. The goal of the game,
of course, is to only spend money on things that make you feel good, which is interesting.
I think that’s a product that’s completely designed around a set of emotional needs with
perhaps a set of functional outcomes as a happy side effect. I think there’s probably
a middle ground where a lot of products that are focused on helping you buy your first
home or reduce your debt or invest in stocks can actually start to design for these emotional
needs when it comes to money. That’s how we actually start to see this achieve scale.
Are there companies right now that you see making strides in that direction?
I think an example of a company that’s really gotten this right is Credit Karma, and granted
I was at Credit Karma. But if you look at the tone of the emails, if you look at the
ads that are on TV, if you look at the way the product is positioned, it plays as much
to curiosity and taking some of the heaviness out of credit. I think that’s been a really
successful strategy for them. I think this is a company that’s gotten it right when it
comes to how you talk to your customer about these otherwise really heavy things.
As people share more, it becomes less intimidating.
Or if you can see yourself relative to other people, that’s the other way that Credit Karma
works. It’s like, I know where I stand relative to other people, and maybe it makes me stressed
or maybe it makes me feel more comfortable, but at least there’s some level of transparency.
Right. There’s some freedom in that transparency that perhaps is driving customer acquisition.
That’s right. In terms of the products that have not worked, I think the product category
that hasn’t really seen success is personal financial management tools. There’s two reasons.
The first is that there’s a very small number of people who are super excited about budgeting
and trying every budgeting app, which is why when a lot of these products launch, they
get great growth in their first 18 to 24 months. You can get a couple of million users who
are really engaged. That’s not actually representative of the wider market where most people hate
budgeting. It’s not just because it’s a pain to keep a budget. It’s because it’s mostly
bad news. I look at a lot of these PFM and budgeting apps like calorie counting apps.
Just mostly makes you feel bad, and it’s easier to uninstall the app than it is to actually
stick with the budget or the diet. I think that’s a great example of a product category
that despite the fact that there’s real functional value there, it hasn’t taken off because it
didn’t address the emotional challenge that the consumer is facing.
I think another category that has not worked super well is ones that are designed to be
social but only transactional. I think there’s been this long history of people trying to
get people to be more public about what their portfolio is, and then other people can invest
based off of that portfolio, and it benefits the portfolio manager who’s sharing it. That’s
one where it is almost purely transactional relationship with purely financial incentives.
I think there’s been a lot of attempts at that. As far as I’m aware, none of them have
really taken off, but I think that’s another category where when you just stick within one
kind of bucket just within the transactional side, it’s really hard to layer social into
that.
So if we agree that social meets Vintec is really hard to do, but I’ve also heard you
both say it is the holy grail. Why is that? What makes it so powerful if we can get there?
I think first of all, if you just look at it, the most narrow lens is just from a core
business perspective. Stickiness, cross-out, acquisition, all of these things that are
super hard problems for most Vintec companies become dramatically easier if there’s a strong
social layer. So that’s the most narrow lens. And then I think the broadest lens is just
ending this dynamic where we’re alone together. Everyone’s in a dark room feeling bad about
their money with everyone else in that same dark room, and I think if you can turn the
light on, then all of a sudden, it is an opportunity to uplift everyone a little bit and normalize
the situation that folks are in. I think that with, especially we talked about both the
good side of Insta, but Insta is also a very public place to talk about your spending,
and I think that that drives a perverse set of expectations around what’s normal, and
we should try to change that.
Yes. There’s multiple levels to why social plus money is this holy grail. Another lens
is it broadens the solution space within which, as a founder, you can operate because now you’re
not just on the transactional level or you’re not just on the emotional and cognitive level,
you’re now across all three. If you actually have financial or social plus Vintec or whatever
it is, so you can now design things that have some combination of those three levers, which,
if you’re competing against a purely transactional thing or you’re competing against a purely
emotional thing, you now just have more factors that you can operate across. The flip side
to that is it’s combinatorially more complicated to do, but if you do do it, you’re in a class
of your own.
Thank you for joining us on the A16Z podcast.
Thanks, Lauren.
Thanks, Darcy.
Thanks, Anish.
Cheers.
[BLANK_AUDIO]
The last financial crisis prompted many consumers to reassess their banking expectations—none more so than millennials and Gen-Z-ers. While revealing one’s financial information was once considered taboo, now consumers are more apt than ever to openly discuss money and debt on online platforms. It’s a trend that’s evident on both ends of the spectrum, whether that’s people divulging their crushing levels of debt on Twitter and Instagram (#debtfreejourney), bragging about their credit scores, or bemoaning their latest stock trades. And the repercussions extend far beyond social media.
In this conversation with fintech general partner Anish Acharya (a former product manager at Credit Karma), consumer tech partner D’Arcy Coolican (a social+ fintech founder himself), and host Lauren Murrow, we discuss why the “holy grail” of social plus fintech is both so challenging and, potentially, so rewarding. We cover which products and companies are taking advantage of it (some in rather novel ways), how it’s being driven by various subcultures online, and why this shift is happening now.
