This is the third interview in The Braintrust series, where we find leaders in the FinTech and bank disrupting space and have them share their expertise with our members.
For the past half century, big banks have been stuffing more and more financial services under one roof. But over the last decade, a dozen billion-dollar FinTech startups have entered the space by simply doing one of those services better than the banks: commission-free trading, cross-border payments, student-loan refinancing, etc.
Kristen Anderson, one of the clearest-eyed thinkers in the FinTech space, views things differently than many others. She started Catch, a personal-benefits platform, to bundle taxes, retirement, time off, health insurance, and student loan refinancing in one place. While many in the FinTech space are trying to make a billion dollars by disrupting a slice of the market, she’s building a platform that can simplify and bundle many aspects of a person’s financial life. Think of it as Gusto for a person. She believes the next decade of FinTech will be remembered as The Rebundling.
We wanted to talk with Anderson because she has a knack for being blunt when it comes to the financial startup space. She’s an antidote to the BS in FinTech. She didn’t disappoint.
Unifimoney: Why is it important to you to cut through the hyperbole in the FinTech space?
Kristen Anderson: In the last decade, we’ve seen a lot of focus on the quick wins. I call them the lenders and spenders. A lot of the growth in FinTech has been around leveraging the fact that our economy is very short term and fairly weak. I know that a lot of people say, ‘The economy isn’t weak! Look at the jobs numbers. Look at all that.’ But if you look at the micro-family level, there’s a lot of volatility. There’s no asset building. There’s a lot of fragility. People don’t have anything saved for the future, let alone retirement, let alone catastrophic emergencies.
Call it megatrends around millennials not wanting to own things, but I don’t actually blame millennials for that. I think it’s part of a broader emphasis on the short term over the long term.
I’ve seen FinTech raise hundreds of millions dollars on this idea that people want things faster, sooner, for free basically. There’s a lot of FinTech companies who’ve made their mark by offering referral programs that aren’t sustainable, subsidizing their customers with VC money, or saying that they’ve found product-market fit on the idea, for example, that you can give someone their paycheck two days sooner. Okay, sure, people want that. Do people want more money sooner? Yes, always. But that’s not innovation and that’s really not driving our economy forward at the macro scale
For me, I really want to get outside of that world of just ‘Can we offer people cheap credit? Fast credit? Instant credit?’ Those sorts of things are a sickness of our society and not someone that I want to be building.
The things that I talk about are the importance of asset building, the importance of preparing, through volatility, for the future. And by the way, I think it’s super easy to be profitable in that space. But I don’t think that FinTech has matured to a point that they realize not just the ability to profit in that space, but also the long-term socioeconomic stability that comes from those sectors being very healthy.
Unifimoney: On Medium, you explained your company Catch as “Gusto for a person.” You guys offer a complex product that competes in a few different important spaces. What are the advantages and disadvantages of bundling multiple services into one product?
Anderson: The biggest advantage is that the platform is the value prop. One of the things that people are seeking is everything in one place. It’s the contrarian view that we took to a lot of VCs: ‘Trust us, we need to raise all this money. Not because we want to squander it, but because we’re trying to build a platform. We’re trying to build three regulated verticals at once, because the interplay of how those work together, that’s the value prop.’
We offer retirement. We’re registered investment investors. We open IRAs. Our retirement product is functional, but it’s still in its MVP stage. We don’t compete with Betterment. But guess what? We have people liquidating their Betterment accounts and moving their money to Catch, because they want their retirement in the same place as their tax withholding and the same place as their health insurance. That’s the value.
So, that’s the advantage of approaching something from a platform bundle type approach. Things can work together in an intelligent way. When you come to Catch and say, ‘Hey, I just moved.’ We can say, ‘Great. Here’s how that affects your tax withholdings. Your taxes should now be this instead of that. Oh, would you like us to file a change in circumstance for your health insurance.’ All of that can happen at once. That’s the value.
The challenge is, for one, capital. It’s a capital-intensive business to try and build all of those things at once, so we need investors who are bought into the vision and who are bought into the long term. This is not something that’s gonna be profitable in twelve months. I would love to say that, but we’re not. This is a long-term investment in the belief that the entire industry is gonna change.
The other big challenge is communicating the value proposition in a very simple and concise way. I’m very good at storytelling to the investor class. I understand our vision. I understand our product. I understand where we’re going and why it’s valuable. But when you’ve got 7 seconds to convince someone to use your product, it’s a lot harder to give them the entire history from World War II to why benefits are gonna change in the next 50 years. They don’t care. That’s not how people make decisions. So, it’s tricky when I talk to a consumer. Do I just say, ‘Hey, tax withholding’ or ‘Hey, health insurance’ or ‘Hey, all of those things’? It’s hard to synthesize and hard to make pithy.
Unifimoney: Part of the reason we built Unifimoney is because we believe in helping members more efficiently create a financial stack. There are great options in the FinTech space, but they each bite off a small sector of the things a traditional does. In the same way Unifimoney is trying to bundle the best aspects of the different FinTech offerings, Catch has created its own sort of bundle. How important will that kind of mutli-faceted FinTech service become in the next five years?
Anderson: The last ten years were an unbundling. The banks owned all this crap and there were 97 different tabs of things you could do. And then there were companies that were launched that took on one tab at a time. Billion dollar companies that came out of just doing one thing. I think we got a lot of innovation out of that because we didn’t have the labor and the overhead, but my personal opinion is that the next decade of FinTech is around the reconsolidation: the bringing together of multiple features in one place.
The big thing that investors will always ask is ‘Why can’t the big banks do this?’ There’s a lot of reasons, but one reason is that they’ve built their entire infrastructure from technology to compliance to HR to management around specific P&Ls. ‘You run our mortgage product. You run our 401K product. You run our banking product.’ And they all have these different little pieces that they’re trying to optimize for. So, everything is structured around a P&L which is obviously not how consumers’ lives are structured. And the infrastructure that they’ve built around that is not flexible. It is strong in a lot of ways, but it’s not very flexible. So, I think the next decade is really about FinTech coming together with more agility to respond to consumer changes.
An example of why we think Catch is part of that vision is that: let’s say you have a baby. What happens when you have a baby? You stop sleeping is number one. [laughs] But there are all these things that you need to do in your financial life as soon as you have a child and you don’t really want to go to a lot of different places. So, you come into Catch and we say, ‘Great. We’re gonna put that person as a dependent so your tax withholding is gonna change automatically, because with one dependent, you don’t have to withhold quite as much money. We will put that person as a beneficiary on your retirement account. Their name’s now on there, so if something happens to you, they get all the money in your retirement account. We will add that person to your health insurance. We’ll file it directly with the carrier so that your child has health insurance.’ We’ll also make a recommendation and say, ‘You probably want life insurance now. Now, someone’s relying on you.’ So we can do all of that in one spot. That’s the value of the rebundling. The facility with which financial services can work together is something that consumers will opt in for. They will look for partners they can trust to help provide that value to them.
Unifimoney: Tell me about the differences between customer wants and outcomes.
Anderson: Related to what I was saying about short-term vs. long-term, if you ask people if they want free money, they’ll say yes. That’s kind of a gimme. If you give something to people for free, they are happy about it. Everybody wants that. But building a sustainable business is different than giving people things for free. We want to change the conversation from lending and spending to asset building and long-term financial health.
For example, there’s a focus on fast, cheap, instant credit — I say “cheap” in quotes because if you look at the interest rate on some of this short-term lending, it’s still very high. It’s modern-day payday lending. It’s just an evolution of payday lending. And those people will say there’s a market for that and I don’t disagree — but it’s not something I want to build and it’s also not something the entire industry should chase after. I think customers want that because they’re financially vulnerable and emergency happens and they need $500 right now. But changing outcomes is more about the question of: what if they had some buffer of savings so they didn’t need the $500 loan and they could actually use their own capital.
I’ll give you a really quick story: we had a user who owns a photography business in rural Alabama with his wife. They do photography of weddings and children and just really beautiful work. He sent a message and said, ‘I used Catch for tax withholding for the entire last year and when I went through and did my taxes, I found that we got some deductions I didn’t know about, so we had some extra money left over. And with that, we were able to build our studio.’ And he sent some pictures. And he’s like, ‘Guess what? If we didn’t have that money, we would’ve taken out a loan. Our business is debt-free because we used your product.’ That’s the sort of thing where I’m like, ‘Wow! They were actually able to build something from nothing because they have savings.’ Now that they don’t have to take on debt, they don’t have to take on a loan. They’ve changed their outcome.