From payment portals to investment tools, the financial sector has long been a target for disruption-minded tech entrepreneurs. In response, established industry players have been taking on massive digital transformation projects, adopting virtual tools and workflows that allow them the same agility as their challengers. Those forces — tech disruption and digital transformation — are revving up even more during the COVID-19 pandemic, which at least one industry watcher says will be remembered as “The Great Accelerator.”
Here, we take a look at the Bay Area-based tech businesses that are ushering this new wave of innovation to users across the economy, from the home offices of financial managers to the back pockets of wage earners.
The pay-what-you can business model is gaining steam
The company: Earnin says it offers a fairer alternative to payday lenders by using location tracking technology and bank account integration to log a user’s daily work hours, and then paying them for what they earned. The idea is to put money in their pocket right away, without having to wait two weeks for the next paycheck and potentially falling victim to credit card interest and late fees.
Explain the trend: Financial instability was a massive problem in the United States even before the economic fallout from COVID-19. According to MarketWatch, Americans paid more than $100 billion in credit card interest in 2017 alone — and much of that debt was carried by those least able to afford it. For its services, Earnin doesn’t charge any mandatory fees or interest, but merely asks users to pay what they can, when they can.
It’s rare for a company to tackle social change while also solving financial challenges.”
Quotable quote: “Earnin is a champion for everyday Americans,” said Alex Rampell, a general partner at Andreessen Horowitz who participated in the company’s $125 million Series C in 2018. “It’s rare for a company to tackle social change while also solving financial challenges, but Earnin’s advocacy and unwavering drive to redefine the banking system is what sets them apart.”
Lenders look beyond the credit score
The company: The credit score — a powerful number determined by largely unknown data points — has long been ripe for disruption, and Earnest wants to be the company to do it. To do this, the company offers an alternative assessment program for student loan applicants.
Explain: While the credit score is a useful metric to help lenders assess a potential client’s ability to repay, it is a frustrating barrier for many. It’s never clear what transactions actually affect one’s credit score, and accessing it in the first place can be a bureaucratic nightmare. In its mission to help more people access credit based on metrics outside the credit score, Earnest has chosen to zoom in on student loans. The company offers rate estimates without impacting the score, and can consolidate disparate loans into a single payment.
As we head into the fall semester and watch students navigate an entirely new reality amid the pandemic, our work is more important than ever before.”
Quotable quote: “We’ve refinanced over $10.5 billion for 126,000 individuals and are proud that we expanded into the private student loan space last year to help students finance their education,” CEO Susan Ehrlich said in a statement to Built In SF. “As we head into the fall semester and watch students navigate an entirely new reality amid the pandemic, our work is more important than ever before. For example, we encourage students to make payments while they’re in school — paying even $25 per month dramatically reduces their total cost of education. We’ve seen 95 percent of Earnest’s clients selected to make some payments while in school save on interest.”
A more consumer-friendly form of financial guidance
The company: NerdWallet is a kind of modern directory for financial services, providing users with guides to financial products like mortgages and credit cards as well educational content on saving and investing. The company’s app tracks spending and net worth, and offers ways to optimize personal financial habits.
Explain: 2020 has seen the United States’ first real economic crisis in more than a decade. Between layoffs, stock market volatility and vanishing interest rates, many members of a generation that became independent adults after the 2008 recession are looking for help navigating troubled economic waters for the first time. In this atmosphere, NerdWallet says it has seen an unprecedented surge in demand for its services, with users looking for tools to compare prices, interest rates and investment vehicles to help stabilize personal finances.
There has never been a better time to expand the reach of our financial guidance and grow our business.”
Quotable quote: “For the past few years, we’ve seen significant growth in the number of consumers coming to NerdWallet for financial guidance,” Co-founder and CEO Tim Chen said in a press release announcing the company’s August acquisition of a U.K. price comparison tool. “There has never been a better time to expand the reach of our financial guidance and grow our business.”
Payment fraud no longer requires a Whack-A-Mole approach
The company: Adyen provides an all-encompassing payment platform for businesses large and small, with end-to-end infrastructure connecting directly to Visa, Mastercard and portals across web, mobile and in-store facilities. The company serves the likes of Uber, Facebook, Spotify and L’Oréal.
Explain: As a payment processor for globe-spanning businesses, Adyen is well-versed in the latest methods of payment fraud. In a September blog post, the company outlined a number of tactics that are popular right now, including “testing” stolen cards to see if they’re active before selling the details on the dark web, building fraudulent websites to impersonate brands and steal shoppers’ personal information and falsely claiming a shopper’s legitimate refund. To combat these, Adyen’s risk management software leverages economy-spanning datasets to understand the full lifecycle of legitimate shoppers (and recognize fraudulent activity), blocks actors associated with fraud and has the ability to integrate industry-specific data points to offer additional context around a transaction.
In isolation, a payment is just a bunch of numbers; an amount, a card number and security code.”
Quotable quote: “In isolation, a payment is just a bunch of numbers; an amount, a card number and security code,” the company wrote. “So with this limited information, it can be difficult to determine what’s suspected fraud, what’s definitely fraudulent, or even what’s a legitimate request. It’s only when zooming out to look at a payment's wider attributes that we can start to add context to a payment.”
Risk management platforms solve third-party risks
The company: San Mateo-based Coupa Software builds cloud-based software that helps enterprises save money, collecting expenses and invoices from across an organization into one place. Users gain handy financial intelligence from the resulting datasets, all of which helps to optimize overall spending.
Explain: A Deloitte study into third-party risk management among enterprises this year found that while many businesses had been focused on data privacy and cybersecurity, the pandemic has exposed gaping gaps in those policies. For example, many organizations have struggled to source parts from reliable suppliers, and this general neglect of factors like continuity among third-party partners has put businesses in a tight spot. In a blog post exploring this phenomenon, Third-Party Risk Management and Compliance leader Brian Shaw explains that acquiring and centralizing reliable data is the first step to finding hidden issues in any supply chain. The idea, he writes, is to plug so-called “extended enterprise risk management” practices into all facets of a business, a concept helpfully facilitated by Coupa’s cross-functional dashboards.
With the right data, visibility and control mechanisms in place... a company gains access to real-time knowledge of what is happening on the ground and enables rapid corrective actions.”
Quotable quote: “To ensure third-party risk management is not ineffectively managed in a silo, responsive organizations have developed new executive dashboards for C-level and Board-level leadership to support dialogue and communication on third-party risks, impact, and response. This also requires access to organized, integrated, cross-functional data, including external sources of data,” Shaw writes. “With the right data, visibility and control mechanisms in place — an integrated holistic third-party risk management framework — a company gains access to real-time knowledge of what is happening on the ground and enables rapid corrective actions.”
Specialized digital workflows have come to finance
The company: Symphony has built a communication platform designed for the specific needs of the finance industry. The software includes conventional voice, video conferencing and encrypted chat capabilities, along with file exchange, trade flow automation and a number of modular apps for maximum customizability.
Explain: One of the trends Symphony Founder and CEO David Gurle has seen during 2020 is an acceleration in the ongoing digital transformation of large financial firms. Banks were already under pressure to cut costs, consolidate operations, navigate an ever-changing regulatory landscape and boost investments in tech infrastructure. One of the most obvious drivers of this latest necessity-driven wave of innovation is the need for remote collaboration. For its part, Symphony saw a 40 percent spike in usage during the first quarter of 2020.
This current crisis will inevitably bring an even bigger sea of change to the financial sector, and with it enormous potential.”
Quotable quote: “9/11 reinforced the concept of disaster recovery, and the 2008 financial crisis introduced subsequent new regulations, of course,” Gurle wrote in an April blog post. “This current crisis will inevitably bring an even bigger sea of change to the financial sector, and with it enormous potential.”
