Confessions of a fintech VC: No one is using fintech outside Venmo

After a brief face-off between two worlds – slow, old financial institutions and fast, young technology startups – it seems peace has been restored between the two.

Legacy financial firms and financial technology startups aren’t competing for the same customers anymore, instead they’re working together. Fintech couldnt have come this far without its venture capital firms, which have been funding most of the innovation in the space before banks and private equity firms got in and started throwing in some of their capital. But today many parts of the fintech ecosystem are saturated and riding parallel hype cycles. Plus, these companies aren’t really taking off. And now that they’ve redefined their relationship with banks, startups have even more support to refocus on building solid products and developing customer trust.

In this installment of Confessions, in which we trade anonymity in exchange for honesty, we talked to a fintech venture capitalist who has worked with banks and payments companies for more than 10 years.

Chatbots were very exciting to you early on. Today that market seems kind of crowded and very noisy. Has it changed your position on them?
Consumers aren’t downloading apps they’re spending their time in messaging. The platform widely varies based on geography. People in Japan use Line; in China, WeChat; in Europe, Whatsapp; here, Facebook Messenger. Chatbots are overhyped in the Silicon Valley sense. A lot of Silicon Valley investors in fintech startups are really not experts on how the financial system works. In fintech you’re going to have a startups that do X, Y and Z, come out and go direct to consumer, and for each time they do that the banks respond with an internal homegrown version of that product.

How do you measure the potential of a young but established startup?
The thing you want to ask in fintech is how many fintech companies have gotten over a million users? That’s the elephant in the room. For all the money, all the hype, all the headlines… What are your friends actually using and doing differently that’s fintech? Direct to consumer fintech ideas outside of Venmo haven’t been blockbuster hits. Those second, third and fourth spots are what consumers at least find very interesting. But by and large all these ideas being talked about, I don’t see people using them.

But you keep investing, that’s your job. What keeps you on your toes?
I’m actually becoming much more bullish on fintech as time goes on. It was a copped industry – just three or four years ago, everyone in fintech knew each other and that was how small credit was, that’s how small payments was. Now if I go to Money 2020 I’m there for half an hour and I don’t know one person. That to me is a really strong sign for the industry.

How has fintech evolved for you?
Fintech is a ridiculous title because you’re taking one little word and including 30 industries. Chatbots, messenger and mobile first trading – that’s about five percent of the industry. Wells Fargo is pretty much a fintech company if you think about it because what are they? Ledgers, a set of accounts, databases, a website, apps. Fintech is just true financial services in the modern world… not just kitschy little cute products being built.

So legacy institutions have already “won”?
Now Citi has a whole fintech division and Goldman Sachs is building their own products. [Fintech] is actually happening, it’s just going to be a little different, it’ll be about working with financial institutions instead of disrupting them – because of the regulatory complexity of this whole thing. No one’s going to give you finance to be a bank.

There are half dozen companies right now in the running to be a really big business, a big brand, a household name. They have a lot of capital, they’re building brands, each of them are leading with what they think will be a product with a hook – mobile first trading, student loans. Once they get you with that hook, then they can offer you a whole suite of financial services.

Are startups just waiting to be acquired by banks then?
You’re going to have students that want to bank with SoFi and consumers who want Robin Hood accounts so they can buy shares of, say, Snapchat. I think you’ll have people that say: This is my life savings, this is my livelihood, I’m not kicking around and playing games with a company that’s a year old – I’m gonna have Citi hold on to my money.

Consumers want choice and people’s relationship with their own money is incredibly emotional. If my grandfather worked at General Motors and I inherited General Motors stock, I have sentimental value to this stock. It’s completely irrational and silly, but people are like that. Very smart people are like that. They’ll do an electronic check deposit from an app but won’t deposit it into an ATM because they don’t trust it because no one is around.

We spend so much time talking about technology and the future. You say fintech is now, but consumers don’t feel that.
Financial literacy is so big relative to people’s understanding of what’s safe and what’s not. Take Visa and Citi and JPMorgan and look how much money they pump into branding and marketing so people think they’re safe. There will always be that group of people that will want to bank with a bank. It will be table stakes that banks will have to offer modern products the same way they had to do debit cards, ATM acceptance, electronic check cash. Same goes for insurance. There’ll be people that want to get an insurance policy with Lemonade and people doubtful it’ll be around in 15 years when they need it.

It’s not like sending an email instead of a regular letter. The consequences are serious. Over time, the fintech companies will continue to chip away market share but that’s when Lemonade’s name is in the same breath as State Farm, but it’ll take some money to get there.

How Kasisto avoids the financial chatbot fatigue

There’s an entire financial chatbot ecosystem emerging in the artificial intelligence space.

Chatbots, designed to simulate conversations with human users, have existed for a long time. Now, with so many millennial consumers who prefer digital interactions for accessing and managing their financial services, chatbot popularity has erupted.

Kasisto, which calls its MyKAI chatbot a “Siri for financial services,” is one of the most well-funded, having just closed a $9.2 million Series A round in January. It gives consumers a conversational platform over which they can ask about their bank account activity and allows them to link their Venmo or Facebook Messenger accounts to make payments initiated through KAI. It also works with banks to allow them to create their own conversational experiences with customers. The company was part of the inaugural class of Wells Fargo’s accelerator program and was originally a spin-off venture of SRI International. Incidentally, Siri was too before it was acquired by Apple in 2010.

Digiday spoke with Dror Oren, cofounder and VP of product at Kasisto, about how it separates itself from chatbot hype, how it’s adapted to technology changes in banking, the company’s long and short term goals.

How do you avoid bot fatigue?
The way we view ourselves isn’t as a bot company. We’re a conversational AI platform. We enable conversations on different channels, which can be chatbots on messaging but can also be conversations on mobile applications, on the web, through Alexa – we’re across channels.

The second difference is that we’re a platform. Yes, we have our own MyKAI bot but we really enable banks to build their own bots.

The third thing is, not all bots are created equal. There are dumb bots and smart bots. It’s easy to build a bot that demos well, it’s hard to build a bot that answers the questions you want and can deploy in an enterprise environment where you can train, retrain, scale, add more capabilities and have it run in a banking environment.

How has Kasisto’s vision of itself changed since 2013 given how much fintech and banking have changed in that time?
The value proposition around conversation for finance and redefining the way people interact with banks has been a consistent focus from the very beginning. When we were raising money, no one believed conversation would be the modality people interact with. Now we don’t need to convince people about conversation, but the conversation is a little different. Voice had higher appeal back in the day; we see it less today. Now the focus seems to be more on written conversation — messaging and chat interactions.

We’re also seeing an extension of use cases. It used to be about proving the ROI — how you justify the deployment of these systems. Now it’s about customer support messaging and banks are looking at more opportunities to extend their reach.

Won’t voice make a comeback?
We don’t see much demand coming from the market. One exception would be Alexa and the success of Echo. We’re piloting an integration with them so we know there are interesting use cases there. I don’t think standalone speech solutions add much value to your bank applications but adding a conversational element to devices that already do speech is probably something we’ll see develop.

It seems like every fintech company is touting an AI component now.
Yes, AI has become a buzzword. It’s everywhere but not clear where and in what contexts. We’re using AI in training our models, training a system that doesn’t already know the banking system. We’re also using it in run time; you ask a question to the bot and the system decides what the right answer is, what the “intent” is, what it is you’re really trying to do when you ask “how much have I spent on Uber between March and August?”

What is the future of MyKAI?
In the next couple years, we will see live deployments with banks solving simple but real problems around customer support, helping you understand your transactions, personal finance management; but also actual actions, like making payments, asking about reducing a fee, buying overdraft protection. Every bank and company will find their own valuable use cases and will double down on those. We’re lucky to be live early in the process because we already have a lot of data to help us look at what people are asking for and doubling down on those things.

How much does customer trust or distrust play into the evolution of the chatbot ecosystem?
There’s no real reason when you apply for loan or mortgage you’d wouldn’t want to with a bot. It’s only a matter of filling out a bunch of forms but right now people don’t do it. As time goes by we’ll see trust move to virtual conversations and away from live conversations.

And channel maturation?
We think a conversation can be cross-channel and blur the lines of how you think of the channel. If a user is going to a bank’s website on their mobile is that the mobile channel or the web? At the end of the day the consumers don’t care [about the channel]. They want a consistent experience across all the touchpoints.

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