Dear FinTech: COVID-19 is a Call to Solve the Big Problems

MIKE MA
April 5, 2020

It has been heartening to see how industries have banded together to help fight the economic effects of the current COVID-19 pandemic, especially those companies in FinTech. Good deeds can be found across the industry with firms offering their existing services for free, including our own FinTech portfolio companies, Destiny and SteadiPay.

While these short-term acts are positive and well-intentioned, at Nex Cubed we believe the long-term financial problems magnified by COVID-19 will remain devastating for many Americans. What’s more, we knew about them all along — the pandemic has only brought them front and center. Here are just a few problems that existed before COVID-19, and they are likely to grow: retirees are still unprepared for retirement, underbanking won’t go away, predatory home lending is alive and well, credit card debt continues to increase in a near-zero interest world, and the racial wealth gap isn’t going anywhere for a long time.

Why do these ills continue to exist? Well, the booming economy could have been in part to blame. With markets roaring and deal flow abundant, who wants to be the wet blanket and stop the party? Traditional financial institutions were making money, so many FinTech startups built their businesses by automating or improving those legacy businesses. 

This model let the good times roll until the brink of this pandemic. Bank stocks hit 52-week highs and FinTech unicorns seemed abundant, even as COVID-19 had already ravaged China, Italy, and Spain, and had just landed here in the US. To illustrate how tightly many held on to this optimism, Fortune published a piece, “Fintech companies have been on a tear lately” on March 2, 2020, when over 3,000 COVID-19 deaths had already been reported.

Having just launched our FinTech Accelerator here on the East Coast, Nex Cubed remains bullish on FinTech despite the downturn of public markets, but we have to change mindsets. We are looking for leaders who want to solve really big problems. COVID-19 is providing a magnifying glass on some new big ideas, and we think we should focus on them and bring them to light.

Here are five ideas that we have been discussing internally and are sharing them for discussion with our extended network. 

1. Predictive, AI/ML Financial Advice – Most FinTech advice relies on form-based human guesses about a person’s situation or history, applies another one-size-fits-all macro model, and then reacts. What if we built a data-driven financial advice model based on transaction-level data that anticipates or predicts situations and different scenarios?

2. Design for the Base of the PyramidMost financial service products today are designed for the aspirationally affluent, college-educated, white-collar knowledge worker. As startups without legacy infrastructure or business models, we should be able to distribute technology efficiently through large populations. If we can thrive in those tough markets, we will design better financial services through all social strata.

3. Crypto for Aunt Milda If we can build better bridges between crypto and fiat currency, the world can become better capitalized across generations and geographies. Said another way, we need to simplify the crypto offering so my Aunt Milda understands how crypto can help her buy a dozen eggs, or better yet, save for retirement.

4. Networks are the New Household – So much of financial services is based on the view that “household” is solely the nuclear family. With student debt rising and the elderly living longer, we need to retool our financial services away from this rigid ideal. We need flexible interoperability of financial instruments to cater to multi-generational households, close friends, domestic partners, co-ops, and others.

5. “HealthFinTech” – Nex Cubed has both a FinTech Accelerator and a vibrant Digital Healthcare Accelerator. While they are currently separate, we anticipate seeing an emerging hybrid area of startups that blend both areas of our expertise — an area with an internal working name of “HealthFinTech.” Why? We are living longer, per capita medical costs have increased ~40% in the last decade, and they show no signs of slowing down. We need robust, predictive tools that can integrate data from a number of medical sources for ourselves and our networks to ensure that our loved ones can live full, healthy lives. This will require synthesizing the very best thinking in both Digital Health and FinTech.

We are not naive enough to believe that this is an exhaustive or original list, nor do we believe that all ills can be solved by FinTech alone. Many political, regulatory, and social challenges are equally daunting. They existed before COVID-19 and will likely continue long after. 

However,  at Nex Cubed we think COVID-19 has provided a chance for us to change our thinking as a FinTech community. We are excited about FinTech not just in spite of, but because of, the challenges that COVID-19 is presenting us. 

For us to thrive past this time, let’s take the big problems head-on with the next generation of FinTech companies answering the call.

Mike Ma is Managing Director of FinTech at Nex Cubed.

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