Acquisition costs are (arguably) the main challenge fintech companies face when trying to scale their business.
Selling products directly to consumers is costly and antiquated, especially for early-stage startups. Which is why many of the newer entrants now choose to partner up with corporations, according to Schwark Satyavolu, general partner at Trinity Ventures.
“Employers are starting to become more vested in the financial wellness of their employees, more and more employers spend money to reduce the financial stress among employees, and thus increase productivity,” Satyavolu told Bank Innovation. “So, things like financial planning advice, or advice on how to leverage tax infrastructure; those financial services benefits are very much similar to life insurance or a 401k, which are already widely popular in companies.”
Fintechs are best-positioned to assist employers in providing those services, Satyavolu said, adding that it’s a win-win for both the fintechs and employers. “Startups will reduce their acquisition costs, using employers as their distribution channel, at the same time increasing consumer engagement.”
Many fintechs are already looking at sealing partnerships with employers. Some of the popular services — providing employees with emergency loans, instead of letting them resort to payday loans, as well as automatically allocating pre-tax funds for applicable payments (e.g. commuter benefits, or daycare payments).
Banks are already involved in the indirect infrastructure, offering company employees discounted various products, according to Satyavolu. “But we will see more interest from banks in the future, and more dynamic products,” he said. For now, fintechs have an opportunity to dominate the space, he added.
Satyavolu – a former Mastercard exec who also co-founded Yodlee – said that Trinity Ventures is working with “several fintechs,” which offer financial services to consumers through their employers.
Hip Money – a new PFM app by Hip Pocket – is one example. The app targets corporations, rather than FIs, according to Hip Pocket founder Mark Zmarzly.
“We are pursuing a B2B2C [business to business to consumer] model, where corporations pay for the app and distribute it to their employees,” Zmarzly said during a recent INV Unfiltered podcast. “We’ve already received interest from seven organizations that average to 150 employees per corporation. After meeting with us, employers can sign a contract in a day; with banks and credit unions that process could take longer than a year.”3 - Readers Like This Post