After many years of watching and managing changing companies, I have a few thoughts on the financial services market. You may find it a helpful framework, or you may have other perspectives to share. Email me (mcasady@vestigoventures.com) with your thoughts.

Cost-based change — In my experience, most change is brought about by new entrants or existing ones driving lower costs to specific target markets. Large pension plans used to pay ten basis points for custody of assets decades ago. In a few years, it dropped to zero as long as the custody bank kept the securities lending revenue. Technology allowed much of the cost savings that drove this price push.

ETFs are easy examples of cost-based change in money management. Today, ETFs use the same product-money management to get returns in almost any category of the market (e.g., growth-oriented large market cap stocks) but they are now at a materially lower cost.

Robo advisors fit this same model. With the same product-asset allocation at lower costs, robos are making investing more accessible than ever. Before robos, investors paid about 1%, but most robo's, even if they are tied to human advisors, are now a third of this cost, if not lower.

Strategy-based change — A new way of doing things in a market is rare in my experience. Using assets differently like Uber or AirBNB are truly new strategies. Platform based solutions that live in the day-to-day lives of consumers, like a payment system such as Venmo, accomplish this nicely.

In my opinion,  real-life, strategic-based change has yet to be created in FinTech. I believe the evolution of robos and the IoT (Internet of Things) will likely lead to a strategic example. I recently saw a case in the healthcare industry where case managers gather information from their patients on a daily basis to drive to better health outcomes.

For FinTech, I see the use of technology and intelligence to help an early saver behave differently while they are actively shopping. When this early saver is physically in the store we can change behaviors by reminding them of the need to avoid overspending. This is a strategic approach that presents a way to be in the life of an emerging saver on a day-to-day basis.

Power shift change — In the course of markets driven by oversupply or driven by pricing power, the winners in a market change fundamentally. This is an example of the trend we saw in the movement of pricing power from money managers to distributors of mutual funds when I joined LPL Financial over a decade ago. These waves are sometimes subtle and take quite some time to become recognized in markets.

Crisis-based change — A problem occurs in the business or with a leader that leads to a need for change. This type of change tends to be idiosyncratic for the most part. But, in recent history, regulators have moved whole industries to a crisis (or at least poor returns) in favor of other business models in that industry.

Success-based change — My favorite form of change is when a company or industry is so successful that the business must change rapidly because of its growth. Part of it is a need for new skill sets for the team running the business or a need for subject matter experts to join an industry. We are certainly seeing this happening for many industries needing to add BI and AI skilled engineers and managers to their core capabilities.

This framework helps me sort through what is happening now in FinTech. Vestigo will look diligently at any form of change to spot opportunity.

Mark Casady
General Partner Vestigo Ventures