If you’ve spent some time around the Canaan Fintech team, you’ve undoubtedly heard us talk about a new industry trend: these days, it seems all big brands are becoming fintechs. In other words, we’re seeing many large companies that have built captive and engaged audiences decide to offer financial products to further engage and monetize their customers. Examples of companies that have offered financial products that were not core to their business include Amazon, Shopify, Square and Uber. We’re seeing this landscape of companies expanding at an even more rapid clip as barriers to launching new financial products are lowered. Even more interesting is that we’re seeing earlier stage companies bolt on these fintech products earlier in their lifecycles.
We hosted two of those companies at our recent Fintech Central event at Lending Club in San Francisco. The panel included Henrique Dubugras the CEO and Founder of Brex, and Kurt Rathmann, the CEO and Founder of ScaleFactor. Brex offers credit cards and expense management software to their customers, and one of its superpowers is that it has receipt-level data, which is incredibly valuable and brings its fintech product (credit card) and SaaS product (expense management) together. ScaleFactor offers an SMB operating system and its superpower is that it brings multiple products and datastreams together into one platform to create a much more intelligent and unified product experience for its customers – bookkeeping, bill pay, invoicing, tax, payroll and cash vision.
When I asked each of them about the future of the interaction between SaaS and Fintech they explained that historically, software has been built outside of financial products, when really it needs to be built inside of financial products, and that is exactly what they are doing.
Kurt and Henrique went deep on how they think about building new products, building a solid customer base and the timeless question of partner versus build. Here are some key takeaways from our conversation:
How do you decide when it’s time to offer a new product to your customer base?
- When thinking about the customer base, ask yourself: who does the new product apply to? 100% of the base? 20% of the base? How is our base changing moving forward? Can we generate revenue from it?
- Products that have a recurring user base are easier to cross-sell. A loan product is hard to cross-sell.
- As you think about building your company to set up for high cross-sell, build products that will get you the most users and not necessarily extend your LTV immediately out of the gate. Market share > short-term LTV.
Partner or Build?
- NIH – “not invented here” strategy. Try to build something yourself if it makes both products better – your core product and the new one that you’re contemplating building.
- Ask yourself, what’s important to the core product and core customer experience?
- If you go the partner route, look for a partner that upholds the customer experience the same way you do.
- You need to be honest with yourself in terms of where you’re headed on the roadmap.
The founders also talked at length about building financial products with their own proprietary data exhaust. Both made it clear that competing with banks on the same underwriting data is a losing proposition, but with unique data, you may have a very strong business. In Brex’s case, one example of that is their receipt data, banks do not have this. On the ScaleFactor side, Kurt talked about their unique platform bringing in accounting, HR, payments and payroll data.
We covered a whole lot more in the conversation which you can catch in its entirety in the link below. And yes, we talked about billboards…
Thank you again to Kurt and Henrique for joining us for Fintech Central.