Uber and Apple are just the start, and eventually every company will want to be a fintech. An Andreessen Horowitz general partner explains why.
- Anish Acharya, a general partner at Silicon Valley venture-capital firm Andreessen Horowitz, sees innovations coming not just from payments companies, but from unexpected players in the fintech space.
- "Payments by its very nature is transactional. It's facilitating a transaction," Acharya said. "One of the big things I'm seeing is the transition from owning a transaction to owning a relationship."
- Lending is one way for payments companies to get more of a hold on customers, he said.
- We spoke to investors at Andreessen Horowitz, Bain Capital Ventures, Citi Ventures, and Insight Partners about where they see the next innovations and opportunities in payments tech.
- Click here to see what other VCs are looking out for in the payments space.
Anish Acharya, a general partner at Andreessen Horowitz, sees innovations coming not just from payments companies, but from unexpected players in the fintech space.
The Silicon Valley venture capital firm is well-known for its early investments in companies like Facebook and Lyft. In the payments space, it has backed startups including Dwolla and fast-growing cross-border player TransferWise.
Acharya spent his career in and around fintech. He left Google in 2014 to start mobile notifications startup Snowball, which was acquired by Credit Karma. He worked at Credit Karma in product management before joining Andreessen Horowitz in August as a general partner focused on fintech investing.
Here are the trends Acharya is watching in payments and fintech, and where he thinks opportunity are in the years to come.
Consumer brands turning into fintechs
"Every company is becoming a fintech company," Acharya told Business Insider. "Emblematic of this is Uber Money."
For Acharya, payments innovations are coming not just from payments companies, but from unexpected players in the fintech space.
"What you're seeing with Uber is the potential for the fintech aspect of their business to be as big and potentially much more interesting than the ride-share business," Acharya said. Uber provides instant payments to its drivers, and with Uber Money, will now offer a digital wallet and debit card.
Since going public in May, Uber has struggled to turn a profit. Its core ride-sharing business is unprofitable, but chief executive Dara Khosrowshahi has forecast adjusted-EBITDA profitability in 2021.
"I think for brands that consumers have deep trust for, they're willing to stretch and potentially engage with their financial services products, even though it may seem a little strange," said Acharya.
"I think the drivers actually have a reasonable degree of trust with Uber because of how they get paid and they're willing to also stretch and allow for Uber to be their financial services provider," said Acharya.
Though Uber's financial ambitions extend past its driver base, that's where the Uber Money roll out will start.
Big tech companies that are entering the fintech realm need to ensure their customers are willing to see them as financial providers.
Apple and its partner bank Goldman Sachs have recently faced scrutiny over its credit approval algorithms, when a viral tweet accused the Apple Card providers of giving women lower credit limits than men. Goldman Sachs makes the credit decisions on Apple's credit card applications, the card bears Apple's name. In response, Goldman announced that it would let customers appeal their credit limits.
A recent McKinsey report found that two in three consumers would trust Amazon to handle their finances. Google recently announced its ambitions to launch a debit card in 2020 in partnership with Citibank and the Stanford Federal Credit Union.
As big tech continues to blur the lines with fintech, Acharya stressed the importance of consumer trust if they want to get products off the ground.
Read more: Retail banks could see big tech move in on their turf. Here's what they need to do to stay ahead.
Payments companies using data to underwrite loans
"Payments by its very nature is transactional. It's facilitating a transaction. I think one of the big things I'm seeing is the transition from owning a transaction to owning a relationship," said Acharya.
"I think there is going to be margin pressure on those transactions so long as they're undifferentiated," he said. Acharya referenced Square, explaining that first, it built a customer base through its payments platform and point-of-sale hardware.
"The second act will be building a broader set of services that are contextual to a relationship instead of a transaction that's solely defined by speed and cost," said Acharya.
Lending is one way for payments companies to expand their customer relationships.
"If you actually understand how transactions are flowing through the system, then you have potentially unfair advantage when it comes to underwriting," said Acharya. Though, there are two kinds of lending to consider, he said.
There's factoring, which is where a loan is based on pending invoices, or cash that a company will receive at a future date. Then, there's lending in the traditional sense, where creditworthiness is assessed on more than future income.
"What you're seeing is a lot of payments companies, because of this data advantage around underwriting, are starting to move into factoring. Less of them are providing the more traditional sort of loan," Acharya said.
Small business lender Kabbage, which offers businesses traditional loans, recently announced a push into payments, and payments companies like Stripe and Square have launched their own lending arms. BlueVine offers small businesses both invoice factoring and revolving lines of credit. The lender recently launched a digital bank for businesses.