Over the last decade, fintech has evolved from a label for plucky startups into a sustained movement that has disrupted the traditionally stodgy financial services industry. Much has been written about the success of fintech and how this wave of technological innovation has changed consumers’ lives.
But lost in all of the celebration of success and the billions of dollars in venture capital funding are the ideas that did not succeed. Over the last decade, many once-promising innovations failed and did not live up to expectations. It is important to not just celebrate success but also to learn the lessons from failure.
It is worth first defining how we are categorizing “failure.” This article is not focused on highlighting the demise of individual high-profile fintech startups that never justified their lofty valuations. Nor are we reviewing the various failed initiatives undertaken by large corporations, such as BloombergBlack or UBS’ SmarthWealth.
Rather, this piece will focus on fintech ideas that received some degree of initial hype and momentum, but ultimately did not live up to their promise. We will look at ideas that failed to go mainstream and change financial services in the way the founders originally intended.
Algorithm-based buy/sell/hold advice for investment portfolios
Fintech must remember that the average consumer doesn’t like thinking about money and often wants someone else to take care of it.
Several firms that would eventually be dubbed “robo advisors” started life as a fintech company that offered algorithm-based buy, sell and hold advice for a user’s investment portfolio. Customers would enter their usernames and passwords for their financial accounts, and these services would give holistic and specific advice for every single holding (e.g., sell this stock and buy this ETF instead).
This technology would help consumers improve their investment portfolios across all of their accounts irrespective of which institution it was held at. Below is a picture of what this looked like.
The technology was very impressive, but the idea did not go mainstream. Within a few years, the firms that offered this service (such as Financial Guard, FutureAdvisor, Jemstep and SigFig) had all pivoted to a different business model. According to Simon Roy, the former CEO of Jemstep, “the cost for no-brand startups to acquire customers who were both wealthy enough and willing to trade their own portfolios using our service was too high. We couldn’t find enough to make the economics work, and like everyone else, we pivoted.”
Why did the established giants of financial services not give their clients direct access to this technology? Since so many of the large firms offer their own proprietary mutual funds and ETFs, which an independent buy/sell/hold advice engine might recommend selling, the established industry was not interested in offering customers a service that could direct money away from the firm.
Thus, in 2023, the average online investment tool falls well short of services that were available a decade ago.
Peer-to-peer (P2P) lending and insurance
In the 2010s, P2P lending and insurance startups received significant attention. Firms like Lending Club and Prosper in the lending space, and Lemonade and Friendsurance in the insurance space, launched their businesses with a focus on the P2P model. This model promised a better experience and deal than receiving a loan or an insurance policy from a faceless corporation.