The Future of Financial Services
The world in which we’re currently living has never before seen consumer behavior change so quickly. We expect to continue to see these seismic changes over the next decade. At M13, we invest in companies that are building defensible businesses around emerging consumer behaviors in the essential areas of consumer’s daily lives: food, healthcare, entertainment, and financial services.
For our 2020 Summer Series “Future Perfect” conversations, we’ve brought together founding leaders who have shaped and are shaping current and future generations of great businesses. Together, we seek to further understand how today’s health and economic crises are accelerating behaviors and white spaces for new necessities, innovations, and investments.
As technology advances and the world continues to move towards digital mediums, legacy banking environments are becoming increasingly obsolete. Before the global pandemic, the U.S. was heading towards a cashless economy, and this has only been further accelerated once walking into a bank branch and using cash for transactions was deemed a health risk. We’re also experiencing a variety of emerging technologies that are enabling real-time digital payments and new forms of currency. M13 Managing Partner Karl Alomar sits down with three leaders in financial services to discuss The Future of Financial Services; specifically, what’s broken with legacy banking institutions, why we need disruptive solutions, and what the future holds for democratizing financial services. This conversation features insights from:
Elizabeth Stark, Founder and CEO of M13 portfolio company Lightning Labs, the market leader of the Lightning Network, a second-layer protocol that enables users to send and receive money more efficiently to bridge the world of open-source software and the next generation of Bitcoin financial software.
Sheena Allen, Founder and CEO of CapWay, creating financial opportunities for the unbanked and underbanked by bridging the gap to today's cashless economy, providing the tools, access, and opportunity needed for financial health and generational wealth.
Travis Holoway, Founder and CEO of SoLo Funds, the leading alternative financial solution providing the fastest loan option to borrowers and options for lenders to obtain significant value. SoLo Funds launched as a unique and proprietary lending marketplace and has since grown to a multifaceted advanced community banking solution powered by individual capital and enabled by insurance, banking products, and dynamic A.I. underwriting.
What is broken about legacy banking options, and why do we need disruptive solutions?
- Our legacy systems have not adapted to the new world we inhabit and lack innovative solutions that are customized to our financial needs.
- Millennials and Gen Z do not walk into bank branches; they want to access financial services from the convenience of our phones.
- Legacy banking options do not accommodate those who live in urban areas or banking deserts, where tech-driven solutions are a must.
- There’s a lack of trust in traditional institutions, particularly for millennials and Gen Z. It’s likely that they keep larger sums of money in their Venmo accounts than in checking or savings accounts. This is partially due to having grown up with the Internet and witnessing legacy institutions crumble in the 2008 financial crisis.
I know people who have a few thousand dollars in their Venmo account, but they don't have much in their traditional bank account. There’s a very different way we're functioning and evolving in the world today from a financial perspective. - Travis Holoway
As a digitally-native currency, Bitcoin is helping drive this revolutionary change to the financial environment. What is the ultimate goal as it relates to Bitcoin?
- As a decentralized network that anyone can build on top of, Bitcoin is about democratization. Just as the Internet has democratized the ability to access information, Bitcoin has a similar purpose as it relates to currency.
- Lightning Labs is interested in heightening ease and access to sending money overseas. Our current system doesn’t allow us to pay certain communities (Venezuela and the Philippines, for example) in U.S. dollars.
- Ultimately, Bitcoin provides the flexibility to build new use cases, just like the Internet has. The higher purpose is to rethink the entire system. Although the digitally-native landscape is a bit of a wild west, the benefit is equal access.
Bitcoin is, at its core, digital money. The idea that money can be natively digital makes sense to the generations who grew up with the Internet. These generations also saw financial institutions crumble in 2008, so there’s a lack of trust towards legacy institutions. This is what drives us to alternative solutions. - Elizabeth Stark
Speaking of access, why is it important to think about the power of the transaction and the power of liquidity as living in the hands of the community?
- Legacy banks don’t provide $100 loans to single mothers who need to pay their utility bills or $200 loans to college students who need textbooks. For the 78% of US workers living paycheck to paycheck, not having immediate access to incremental funds often forces them to take loans from family or friends (which puts a strain on personal relationships) or payday loans that average 400% APR.
- There is a significant amount of capital already in our communities. There’s a significant number of people looking to deploy that capital to earn returns and have a social impact, especially when millions of people are unemployed.
- This is why we need to be able to empower lenders to have more flexibility over the terms of the loan and how much is borrowed. We need to empower borrowers to create their own terms, who gets funded, and when. This helps protect borrowers from predatory lending tactics and keeps personal relationships intact.
Without question, we're going to be moving away from the way that things have been done in traditional banking. And we're going to rely more on the community and building those connections through technology. - Sheena Allen
What other trends or innovative solutions can we expect in the future?
- With digitally-native solutions (like Bitcoin) becoming more available, combined with broader improvements to technology and infrastructure, we’ll continue to trend towards a cashless economy and demand for tech-enabled services.
- There will be an increased focus on relying on the community to create liquidity in our markets, particularly as employment rates suffer during and after COVID-19.
- A number of trends will continue to accelerate Bitcoin’s adoption rate, specifically the ability for Bitcoin users to back up their funds (providing an increased sense of security, which is crucial during a financial crisis) and its endless use cases.