The ‘Holy Grail’ of Social + Fintech

Social Strikes Back is a series exploring the next generation of social networks and how they’re shaping the future of consumer tech. See more at a16z.com/social-strikes-back.

The intersection of social and finance—as well as shifting attitudes around what we share about money online—have given way to an ambitious new wave of financial products.

While revealing one’s financial information was once considered taboo, now people are more apt than ever to openly discuss money online, particularly Gen Z and millennials. That’s evident on both ends of the spectrum, whether people are bemoaning their crushing levels of student debt on Twitter and Instagram or bragging about their latest stock trades on WallStreetBets. The repercussions extend far beyond social media, fueling a wave of new social-fintech products like Public, Commonstock, and Doji, among others.

In this conversation between fintech partner Anish Acharya, formerly a product manager at Credit Karma, consumer partner D’Arcy Coolican (who himself is a former founder in this space), and host Lauren Murrow, we discuss why the “holy grail” of social plus finance is both so challenging and, potentially, so rewarding.

This episode was originally released last year and been resurfaced as part of Social Strikes Back, a16z’s new series exploring the many ways social networks are shaping the future of consumer tech.

Transcript:

Anish: 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. 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.

D’Arcy: You see it across all of the platforms, but 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 are a bunch of pockets.

Lauren: Why do you think this shift is happening?

D’Arcy: I think it’s driven by a few factors. One is generational, so 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 increased sharing.

Lauren: And that’s driven by historical changes, that’s driven by the financial crisis.

Anish: Yes, 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?” That’s really the catalyst behind many of these things.

D’Arcy: 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 that breaks down the stigma around talking about student debt. Once you break the stigma, then it’s like, hold on, and everything comes flooding to the forefront.

Lauren: We’ve talked about how money is inherently private. Do you not think that that is becoming less so? There’s the 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.

D’Arcy: Definitely 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 leve. Let’s take student debt as like one category. When people start talking about it, then everybody feels empowered to talk about it, right?

I think you need catalysts for walls to come down around certain categories, like the student debt crisis, the financial crisis, there’s a lot of external events that have led to some of these things coming down. But it’s happening inch by inch and category by category. The question is: what pieces are going mainstream?

Anish: I think the hacker mindset has pushed outside of software and into finance. There was always a small number of people who were 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 Points Guy and a million other sites that tell you how to 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, not in a dismissive way, in terms of the importance of it.

D’Arcy: What are the things people like to do on social? Three of the core functions are bragging, complaining, and rubbernecking. And I think you’ve seen that where social and finance intersect, they’re coalescing around those three use cases as well. At the end of the day, social and finance, a lot of it is just content. It’s content that’s anchored around some financial transaction, but it’s still just content, 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—that is content creation, that is messaging, that is all these social things that we see pop up—they appeal to these cognitive and emotional levers. And then you have a transactional layer, which is whatever your actual financial transaction is. 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. That’s where the flywheel on social plus finance really starts to spin aggressively.

Lauren: Can you give me some examples of particular products in which you’ve seen this magic happen?

D’Arcy: The easiest example is probably Venmo back in the day. You had messaging apps and money transfer apps like PayPal that 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 it, it’s magic.

Anish: I actually think that those products are fascinating. I still like to scroll through the global feed on Venmo, which now is capped, I think, 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, the products that can start to invert that touch a nerve in an interesting way.

By the way, it doesn’t have to only be online—there are a couple of interesting offline examples. SoFi, which is really in the business of refinancing mispriced student debt, built this whole community of HENRYs—High Earning Not Rich Yet. They 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 at least in the early days, they’ve had a lot of success combining the two. I imagine what’s less successful is, you know, Capital One opening coffee shops where you can hang out and get coffee and do your banking. It’s easy to dismiss that as clumsy, but I do think that they’re trying to touch the same nerve.

D’Arcy: 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 build either social features or community in the early days and really use it as a way to bootstrap their product, but then over time they migrate more towards a transactional fintech product, rather than a truly social product.

Lauren: What are some of those examples?

D’Arcy: SoFi is a great example of that. It’s functionally a lender, which is not a multiplayer social game, but they were able to build this early community which was able to get them a lot of traction. You look at like Wealthfront. Before it transitioned into Wealthfront, I think it started as KaChing, which was a social fintech product. If you look at Robinhood, originally it was a much more social product, then became a much more transactional product. Prosper started out as a much more social product, then became more of a peer-to-peer lending platform.

So 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 this social plus finance angle, or do you move into a more single-player fintech product? And I think a lot of the more successful fintech companies started social, but then eventually transitioned.

Lauren: Why are they making that transition?

D’Arcy: It’s hard.

Lauren: Well, let’s talk about it. What’s so hard about social plus fintech?

Anish: The most direct manifestation of social plus fintech is: we have messaging, plus we have payments or some other shared accounts, shared ledgers, joint accounts, etc. 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 are a lot of other examples, though, where the experience may not directly represent social plus money, but it very much plays to that. So I think the example D’Arcy 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. So 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. So 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.

Lauren: And some of these products are really tapping into the trend towards gamification. Do you think more products will go that route and design around that impulse?

D’Arcy: I think the thing you will likely see is that social plus fintech products will actually come much more from the consumer side of things. There are some things like Robinhood, where you’re able to build a fintech and community and it comes from the fintech side of things. Another encouraging angle is the things that are coming from the social sites, 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 economies built into them. It’ll be fascinating to see what happens with those types of products, because that could be the place where we see social plus money take off.

Anish: I do think, by the way, there have been a bunch of past attempts which maybe seemed naive at the time, but now just seem like bad timing. So Blippy is a famous example of this, where it tweeted everything that you bought. You’d link your credit card and every time you swiped it, it tweeted. Okay, like there’s obvious reasons why that might not be a good idea. And yet I think you’re like the fact that…

Lauren: Just too soon.

Anish: …that Dave Ramsey exists and people are talking about debt and spending, you know, there’s the nugget of truth in all of these things. And as Marc says, it’s rarely that the idea is wrong, it’s usually that the timing is.

D’Arcy: One of the interesting things about this category of companies is that if you just take a step back and you’re looking for broader consumer trends, you can often look to 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 like 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 grew up on one side of town, your norms around money and sharing are very different from the person on the other side of town. And so that leads to a lot of very distinct subcultures within different pockets on the internet. One of the more entertaining one is WallStreetBets 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 gonna go mainstream.” In some cases it will, or in some cases it’s just part of that subculture, because the norms and taboos will never translate into the mainstream. But when those stigmas fall then, you know, everything happens and everybody runs for the entrance at that point.

Anish: It is interesting, you know, if you think about crypto. So there’s 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, and I think the historical example of that was mostly gold. You know, though at the end of…

D’Arcy: But nobody was, like, screenshotting their Boolean collection and sharing it on Twitter.

Anish: Well, depending on what Facebook group you were in. So 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 the cognitive-emotional and sociopolitical, to your point, Lauren.

D’Arcy: Crypto’s fascinating because it’s a subculture that has a totally different relationship with transparency and anonymity and all of these different dimensions. 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, what’s happening in crypto. And again, the concept of crypto versus the concept of money created a psychological shift in some people that then made the norms around it much different.

Lauren: 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.

D’Arcy: I actually think you can build great businesses around some of these subcultures. There’s a lot of this “niche,” but they can be massive niches, right? Like, WallStreetBets has something like 800,000 members.

Anish: 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 their credit card debt. They feel bad about it, they feel like it reflects poorly on them. I was just checking Instagram 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. I think that’s the hardest problem, the hardest segment to actually unlock. So I actually think we’re pretty far ahead right now.

Lauren: Well, and to your point, WallStreetBets is not just about, “I made a bunch of money,” it’s also people posting, “Shit, I just lost a bunch of money.”

Anish: Though the subtext is: look at all the swagger I’ve got, I can lose all this money and it’s all good, you know.

Lauren: Not always.

Anish: 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 emergent set of products and how products are designed. Lauren and I have 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, not just in fintech, but in consumer products that think more about the cognitive and emotional.

There are also more offline examples than we’re all typically aware of. So one I learned about over the last few years is called ROSCAs, Rotating Savings and Credit Associations, which are these offline communities, mostly immigrant communities, that are managed by an individual. 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. 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 are tons of examples of these micro-communities that have not yet successfully been brought online. So, you know, not everything is starting from zero when it comes to digital products.

D’Arcy: And those are interesting because there is a different iteration in every single culture and every single country.

Anish: That’s right.

D’Arcy: 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?

Anish: So there’s the example of ROSCAs 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? 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 and there’s no liquidity. At best, it’s sort of cool to tell your friends maybe that you’re an investor there. Maybe you skip a reservation.

D’Arcy: It goes to your emotional versus transactional. It’s not a transactional piece, it’s the emotional piece, right?

Anish: 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.

Lauren: Well, and another example of something that’s inherently social—you’re investing in something that is then has a built-in social network.

Anish: Exactly.

D’Arcy: There’s also this amazing trend around fractional ownership. There’s a category of companies that includes Rally Rd., and Otis, and Mythic. They will take some asset—be it a classic car, be it a culturally significant item, be it a Magic card, be it a case of wine—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 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 a hard asset that has value. On the other side, you have this status of owner within this piece that is of value in a more emotional sense. You’re investing in cultural pieces, which may or may not be a good financial investment. But from an emotional/cognitive side it can be really, really rewarding. So I think that’s another version where this idea of social plus fintech is taking off.

Anish: I love this example. And, you know, we’ve talked about this internally as perhaps the future of museums. I think that vision is really interesting, and it’s much more emotional than rational.

Lauren: What’s the potential there? Are there areas where you see opportunity in some of these niche groups?

D’Arcy: 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. To the extent that you can get something that threads that needle between social and fintech, it’s amazing, it’s magical, it’s incredible 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 a transaction 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 it goes, in which you have a weird social behavior that has some ability to layer a transaction inside of it. That’s how social plus money takes off.

Anish: 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 are some fintech products like Joy, which is 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 kind of interesting. So 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. And that’s how we actually start to see this achieve scale.

Lauren: Are there companies right now that you see making strides in that direction?

Anish: I mean, 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 one’s curiosity and to taking some of the heaviness out of credit. And I think that’s been a really successful strategy for them. So 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.

Lauren: And as people share more, it becomes less intimidating

D’Arcy: 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.

Lauren: Right. There’s some freedom in that transparency that perhaps is driving customer acquisition.

Anish: 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. And it’s not just because it’s a pain to keep a budget, it’s because it’s mostly bad news.

So I look at a lot of these PFM and budgeting apps like calorie counting apps, they mostly make you feel bad and it’s easier to uninstall the app than it is to actually stick with the budget or the diet. So 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.

D’Arcy: I think another category that has not worked super well is products that are designed to be social, but only transactional. So 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’s an almost purely transactional relationship with purely financial incentives. And 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 bucket, within the transactional side, it’s really hard to layer social into that.

Lauren: So we agree that social meets fintech is really hard to do. But I’ve also heard you both say it’s the holy grail. Why is that? What makes it so powerful, if we can get there?

Anish: I think if you just look at the most narrow lens, from a core business perspective— stickiness, cross-sell, acquisition—all of these things that are super hard problems for most fintech 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 ending this dynamic where we’re alone together. You know, 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, all of a sudden it is an opportunity to uplift everyone a little bit and normalize the situation that folks are in. We talked about the good side of Instagam but Insta is also a very public place to talk about your spending. And I think that drives a sort of perverse set of expectations around what’s normal, and we should try to change that

D’Arcy: Yes, there are multiple levels to why social plus money is this holy grail. Another lens is it broadens the solution space a founder can operate within, 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 social plus finance or social plus fintech or whatever it is. So you can now design things that have some combination of those three levers. 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 of that is it’s combinatorially more complicated to do. But if you do it, you’re in a class of your own.

Lauren: Thank you for joining us on the a16z Podcast.

Anish: Thanks, Lauren. Thanks, D’Arcy.

D’Arcy: Thanks, Anish.

Anish: Cheers.

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