Since I started writing at Forbes, I’m unclear what to do with my “own” blog. So, for today, I’m reposting. If you have a better idea, let me know.
The week before last I attended a show-and-tell event for adults in the crevice of the financial industry that calls itself “fintech,” for financial technology. Naturally, the event is called Finovate, and the attendees are assumed to be finovators. Common knowledge suggests that financial innovation is generally bad news. While much of what I saw wasn’t particularly innovative, there were some exciting exceptions: ideas both innovative and to my eye not likely to cause a global financial crisis – perhaps even able to help us avoid the next one.
Of the 60-odd companies who presented their wares, the following struck me as big ideas that could change society for the better:
Kabbage provides much needed business finance to online merchants. They base their credit decision on instantly available business data and can complete approval and funding within minutes, not days or weeks. As our – and the world’s – economy continues to lag, any and all business financing is essential to reversing that trend. Kabbage is available to merchants who sell on eBay and Amazon only, but they’re giving credit in ways that are quick, convient and fair. If that’s not innovative in itself, they now include Facebook and Twitter activity in their underwriting on the theory that your online social engagement is predictive of your character (one of the three pillars of loan underwriting, along with capital and capacity). They call it “Social Klimbing.”
While everyone else pipe dreams about Near Field Communication and mobile based payments, Dynamics is leveraging the existing infrastructure of the magnetic strip: the millions of devices that read our credit and debit cards when we swipe them. They showed a solution that dynamically encodes the mag-stripe on a card only after you type in a code on the card. Another lets the user press a tiny button on the card that let’s you pay normally or from your accumulated rewards (see picture). These devices look exactly like credit cards, but bring intelligence, convenience and security to a ubiquitous payments network.
Finally, Plastyc, a company which provides a prepaid account to the un- and underbanked (full disclosure: in which my firm has invested) demonstrated their new savings features. While not the sexiest demo, the reasons this is innovative are many. First, people who are underbanked have few options for savings other than their mattress. Second, this savings account provides effectively a 6% annual yield! (My money market account pays just 30 basis points) Finally, the product encourages savings behavior by making it automatic and discouraging frivolous withdrawals. In a society with negative savings rates, getting some help changing our behavior is a very big deal.
Many other finovators – like Demyst.data, Google Advisor, Tandem Money, BillGuard, Betterment and Lighter Capital – deserve mention. While clearly much of the financial industry should not be allowed to play with matches, it is a mistake to rule out financial innovation that can be lasting, positive and scalable. In fact, it’s highly necessary.