Signals: Why is there so much idea recycling in fintech?

Once or twice a quarter, for the last half-decade, I’ve opened my inbox to the same email: “I’d like you to invest in my new app, a financial advisor that will put people’s money on autopilot.”

This email has come from 50 or so different people, working on 50 or so different solutions. There are many variations on the theme. Sometimes it’s called a ‘financial health’ or ‘literacy’ app, sometimes it’s a budgeting tool, sometimes it’s an AI financial advisor, sometimes it’s a ‘wealth management autopilot’, etc.

The basic product construct boils down to a few key ingredients:

In theory, this is a great product!

I would love to go through life knowing that my money is being managed for me, and occasionally gleaning insights from my financial habits that help me get smarter about money management.

So why are 4 or 5 new companies started every year trying to do some version of this?

In fintech, the answer is frequently this: The obvious product ideas haven’t worked yet because there are deeper problems to be solved first.

That reality helps explain why, in the last decade of fintech, many of the biggest outcomes have been from infrastructure providers like Plaid or Stripe. Why so many ‘obvious’ ideas are tried over and over again. And why we still don’t have the killer personal finance app. 

Idea recycling is endemic throughout fintech. People try to build the same products over and over, year after year. That doesn’t mean that the product ideas are bad! Eventually, someone will build something that has failed many times before in the right way, at the right time, with the right team, and the right market, and it will finally work.

But to build the breakout version of the product that finally works, you have to study the history of the product and understand why it didn’t work before.

Failing to do that is one of the most common failure modes in fintech.

Blockchain Capital recently wrote a “where is my flying car” blog post on fintech that starts off, “We should be disappointed by the lackluster pace of innovation in finance over the past 15 years.” If you just look at financial services from the consumer angle, they have a point. The basic acts of borrowing, lending, saving, spending, and investing are not so fundamentally different now than they were 10, 20, or 30 years ago – the primary innovation is that they’ve moved online. Similarly: To the average driver, a car today is not so fundamentally different from a car in the 1950s.

But if you look under the hood, a lot about cars has changed. And so has a lot about financial services. Online payment processing, cross-border money movement, fraud mitigation, ID verification, account onboarding, virtual card management… a lot of the back-end of financial services has changed materially in the last decade.

But this is because many founders who are new to fintech follow the same trajectory:

Step 1

Step 2

Step 3

Step 4

Wonder why a consumer fintech product doesn’t exist.

Try to build that product.

Realize there is a deeper underlying structural issue.

Move down the stack and build an infrastructure product to alleviate that issue.

That is how you get large infrastructure successes in fintech like Marqeta, Stripe, Plaid, Unit, Galileo, Onfido, Thought Machine, Nium, Alloy, Socure, CurrencyCloud, Pismo, and others. If these companies are doing their job right, consumers will almost never hear of them.

But founders who are new to fintech always start by tackling the obvious idea (Step 1), and then – if they have the tenacity, pluck, and insight to do so – end up moving to the non-obvious idea (Step 4). That is why you get so many recycled ideas every year in fintech:

The Blockchain Capital team aren’t the only ones frustrated by this; even long-time fintech founders and investors have noticed that a lot of ideas in fintech get tried over and over:

The example we started with, PFMs (personal financial management apps), is probably the most glaring example of idea recycling in fintech. There is a long list of companies that have tried to build the all-in-one dashboard to let you manage your money (or manage your money for you):

2004: Jesse Mecham, an accounting master’s degree student, creates You Need a Budget (YNAB). The early product looks mostly like a spreadsheet.

2006: PFM Mint.com is founded and launches to the public in 2007.

2009: Financial services giant Intuit acquires Mint.

2011: Wealthfront is founded as a roboadvisor, later trademarks the term “self-driving money” as it grows into becoming the all-in-one financial dashboard.

2013: Spendee, “a personal finance app that helps people keep track of their budget and finance,” launches.

2018: Open banking platform Finicity launches Mvelopes a “personal finance management platform [...] to drastically improve money habits,” is later acquired by Mastercard, and sells the PFM to EveryDollar.

2020: Financial management app Charlie launches.

2019: The original head of product for Mint launches Monarch Money (the only PFM that I actually use)*, a new app aiming to succeed where Mint failed. (The same year, another founder launches Copilot.)

2021: After difficulties scaling, Charlie is acquired by neobank Chime.

2022: A new PFM, Arta, launches to create a “digital family office for the world.”

2023: Intuit decides to shutter Mint, transferring the data to Credit Karma’s financial dashboard. 

Twenty years in, it’s still not clear that any one company has built the killer personal finance app. And this theme is not isolated to PFMs: Anything from generic ideas– like factoring and invoice financing – to exotic ideas– like income-sharing agreements for pro athletes – has been tried repeatedly over the last decade.

This is not to say that the ideas will never work! Eventually, at the right time, with the right team, and the right market, a founder will build a version of the product that works.

Just look at Affirm and Klarna as examples: Consumer credit and point-of-sale purchase lending had both existed for decades (including from fintechs like PayPal!) before the buy-now-pay-later platforms were created.

But these companies figured out a nuanced way to underwrite customers painlessly in digital checkout flows, and a commercial agreement (merchant discount rates) that allowed them to offer consumer credit without charging an APR, and the product took off.

So if idea recycling is a frequent failure-mode in fintech, how can new founders avoid it?

At this point, you may be thinking that the takeaway from this writeup is: Don’t recycle ideas or try to tackle problems that have been attempted but remain unsolved. Not at all! As the airplane example shows, eventually, someone will discover the right solution, but to do that, they need to first understand why all the previous solutions failed.

As an investor, I still read product and business pitches when the idea has been recycled from year to year, but the first thing I look for is a writeup or a slide detailing:

If a new founding team doesn’t show awareness of the history of a product idea, 99% of the time I do not dig in further.

The obvious ideas in fintech are valuable, but extremely difficult to solve. Fintech as a space is crowded with Chesterton’s Fence-type outcomes: There is probably a good reason that something is set up the way it is, or that an obvious problem has not yet been solved, and until you understand why the status quo exists, you shouldn’t try to solve the problem.

I don’t want to encourage founders to research the history of the products they’re trying to build just to placate investors. In fact, a great rule of thumb for founders is to never change your product orientation just because of an investor’s suggestion. Investors rarely have the depth of familiarity with the product you’re building to have nuanced feedback, and they should be learning about products from the founders they back, not teaching them.

Rather, the reason I ask founders to have both (1) an understanding and (2) an opinion on why past versions of their product have failed is because those are the two most important prerequisites to building a version that works.

Once you launch publicly, your team will frequently be dealing with requests, bugs, and exceptions from live customers on your platform. Take time to enjoy the time – and the lack of expenses and deadlines – that you have when you’re still pre-launch. During that time, you can put together reams of research: Investigating the past versions of PFMs that did and didn’t work, talking to former customers of those products about their experiences, talking to former founders and PMs, talking to your current customers (or people on your waitlist)....

There is no such thing as the ‘right’ product in tech – only the right features for the right users at the right time. And no amount of research will definitively lead you to the end-all-be-all product. But by beginning with what hasn’t worked, you can start saying “No’ to different versions in a way that gets you closer to the “Yes’ version.

PostScript When it comes to the Steps 1-4 of fintech ideas that I outlined: Moving from the obvious problem to the more structural underlying problem in fintech, I believe that over the next decade, we’ll see the trend reverse. Enough digitally-native fintech infrastructure has been built now that founders will increasingly be able to ‘ladder up’ the stack and actually start building products that solve those Step 1 problems. I think we’ll see another explosion of consumer fintech in the next decade, now that we have so many infrastructure providers, and I’m excited to be a part of it.

* I am a small angel investor in Monarch.