The way consumers bank today is changing dramatically. Consumers are tired of high and hidden fees, bad service, a lack of up-to-date interfaces, security breaches, etc. from incumbents which has eroded trust and confidence in larger institutions. The needs of consumers have been increasingly digital and flexible, but incumbents haven’t been able to keep up. As a result, and although we were experiencing a transformational shift from offline to online banking over the last decade, COVID-19 accelerated the rate of change.
In a COVID-19 world, walking to the neighborhood bank branch is no longer a clear, safe or reliable option. People are discouraged from interacting with others outside of their social bubble, let alone touching currency used by strangers. It is this change in mindset that has further contributed to the market’s adoption of digital financial services.
The void left by incumbents has enabled startups to fill the gap. Thanks to products such as Venmo from PayPal and CashApp from Square and neobanks such as Chime, consumers haven’t missed a beat. Users can still deposit, withdraw and transfer money, link credit and debit cards to accounts, pay others and get paid (early!), among many other things, all digitally and reliably from the comfort of their smartphone. Although market uptake has accelerated and is reflected in the run up in valuations of public and private financial services companies, less than 10% of users consider an online bank to be their primary account which shows a lot of room for future growth.
We’re PropTech investors so what does this have to do with the built world? Although it’s early days, the rapid adoption of online financial services has proven that consumer needs can be met digitally, often times even more efficiently than offline. Given SMBs share some of the same needs and characteristics of consumers, it’s possible to draw parallels between the two and extrapolate the opportunity for PropTech startups to digitize specific financial services and meet the unique needs of a wide range of real estate stakeholders, such as, but certainly not limited to, property owners and managers, contractors and specialty technicians (electricians, roofers, plumbers, etc).
These stakeholders have traditionally managed cash flow from myriad receivables (rental payments, invoices, etc) and payables (ie purchase orders, salaries, etc) through a hodgepodge mixture of incumbent banks, offline pen, paper and Excel and/or disconnected software. As a result, digitally native financial services can provide a more tailored, central source of truth that not only improves business banking but also helps prepare taxes, builds credit and offers access to cheaper and more flexible capital options (a la Square Capital) more aligned with real estate customer goals and incentives.
Similar to digitally native and direct InsurTechs, it will be difficult to fully replace humans and is why it is likely digitally native banks will leverage omni-channel, hybrid approaches, at least to start. This way, neobanks can acquire and service customers either digitally or online – whichever channel the customer feels more comfortable with, whereby optimizing for cost structure and without sacrificing risk and long-term relationship building. At the end of the day, every customer wants to know that they will be taken care of and the human-to-human element still plays a big part in that.
Although the evolution of this space in PropTech is still in a nascent stage and it is yet to be determined in which form a digital bank will be created and which go-to-market strategy is most appropriate (FinTech vs SaaS or vice versa), entrepreneurs are starting to take notice. Zibo is one example of an exciting digitally native bank for SMB landlords so it will be fun to watch how this market develops in 2021. If you have any questions, think I missed anything or are building in this space, please reach out!