By Ahon Sarkar, General Manager, Helix
The other day I heard a story that perfectly illustrates one of the main problems with our current finance system: lack of context. A middle-aged woman was buying $8 worth of lightbulbs at Home Depot when the cashier gave her the spiel about signing up for a Home Depot credit card. The woman, who had excellent credit and rarely applies for new cards, took pity on the cashier, signed up for the card, and charged the lightbulbs.
Six months later she decided to buy a new house, was approved for the purchase, and started packing. But a week before the closing, she got a call from her long-time lender saying they were rescinding her loan. It turned out she had forgotten to pay that $8 Home Depot credit card bill and, because six months had passed, her credit score had dropped by 40 points. She didn’t get her loan, and she lost the house.
An outstanding $8 charge shouldn’t be able to ruin someone’s credit or sink a multi-six-figure deal, but that’s how the system works. It happens all the time, and requires a new approach
What if the lender considered what it knew about the woman (that she pays thousands of dollars on time every month), or even simply considered the context of that particular situation? What if the woman were viewed as an individual rather than a number? In short, what if we made finance more human, bringing both empathy and personalization to the industry?
I believe technology can address the three main challenges to making finance human: the one-size-fits-all approach, failure to consider context, and lack of accessibility.
Walk into any of the major FIs to open an account and you’ll be put into either the silver or gold categories — the main determinant being how much money you have. The problem with this model is that it assumes everyone in one of the two categories has the same needs, which is illogical. Most banks drive the majority of revenue from lending, so consumer banking tends to be a means to an end, a ‘cost of deposits’. In contrast, successful tech companies start with the user’s needs and goals first, and focus on providing a personalized experience.
We can take that same design ethos and bring it into banking, giving companies the tools to customize every facet of their product and integrate it into their existing ecosystem. Our newest offering, Helix, gives clients the building blocks of banking — accounts, cards, payments, data and controls, admin tools, and monetization solutions — to make it easy to embed personalized financial experiences. By offering business model flexibility combined with granular risk management and better bank collaboration, Helix optimizes the economic model of scalable, embedded banking for any innovative brands.
If you look at Q2’s customer base today, including marquee clients such as Acorns, Betterment, Credit Karma, Empower, Gusto and M1, they are solving different problems for different demographics, and we’re going from one-size-fits-all to differentiated products built around people.
When you open Netflix for the first time and start watching, you know what Netflix does? It learns. It learns that you like comedy and documentaries. So the next time you log onto Netflix, you’ll primarily be served up comedy and documentaries or shown messaging that leverages that language, even for other types of shows. That’s the category you fall into. But even within that category, Netflix will personalize the experience even further based on what else it knows about you — it uses context.
So, you’ll see different suggestions than others in your viewing demographic. And because you’re getting something that reflects what you’re interested in, you’re more likely to keep using Netflix. One reason companies like Netflix, TikTok, Facebook, Apple and Google are so successful is because they consider the context.
Unfortunately, the modern finance industry doesn’t do that. When you log in to your account, regardless of your specific needs, your banking product is going to stay the same. The only thing that would trigger a change at a major bank is if you made so much money you could move from the silver to the gold category. Your bank will try to sell you on the gold account because you have $50,000 or $100,000 in your account, but beyond that, none of the context matters. Which brings us back to our one-size-fits-all problem.
By giving companies individual-level controls across every facet of the financial ecosystem, from limits to features, we move away from this world of limited options. Now we have the ability to bring you in with lower limits and limited features to mitigate risk, but as you start to make transactions and as the company starts to trust you, it can increase your limits based on what it’s learned about you. For the company, that means better risk-weighted decisions. It uses context to determine risk and uses that risk threshold to determine what features to give you.
For you the individual, it means solutions that actually solve your problems, but it also means a progression, and this matters. The sunk cost fallacy says the more time, energy, and effort you put into something, the less willing you are to leave it. Well, if I left my bank today and I came back tomorrow, I would still get the same product I have today. But if I’ve spent a year or 10 years building up context with my bank and they unlock new features, higher limits, and new benefits because they trust me, I’m not leaving.
Context drives that progression and creates a better alignment of the products to the user — which makes the sunk cost fallacy more likely to apply. And as even more companies begin to offer financial services in the coming years, engagement and stickiness will become the most important metrics to success.
One of the reasons that many traditional FIs offer one-size-fits-all solutions is that they’re still using 30-year-old legacy technology that wasn’t built to differentiate customers. (Consider that in 1980 it cost about $40,000 to store 1 gigabyte of data; today the cost is about 3 cents).
Thanks to platforms like Helix there’s an incentive for companies to build these products, which have traditionally been unprofitable for most banks. There’s now an opportunity to create an assortment of different products that help create a world in which everyone — regardless of how much money they have or what their background is — will get access to financial services and bank accounts and will be a part of a financial system.
Helix’s cloud architecture allows it to operate at much a lower cost-basis than traditional cores, lowering the cost of serving user accounts and enabling companies to design products around customers that may have been underserved by traditional banking products. By evolving the business model to help make it profitable to serve lower income users, Helix has created an incentive for innovative companies to build banking solutions around users that have been historically underserved by traditional financial products.
Ultimately, finance is just a tool. Nobody wants a financial product — people want to buy a car, send their kid to college, or buy a house — the product is just a means to an end.
And, you know what? Those ends are what make us uniquely human.