Yesterday Bad. Today Good!

Please don’t laugh at me. I’m about to share an embarrassing secret and would like to do so without the fear of judgment or ridicule. Want to know my secret?

I have a long and sad history of trying to solve problems with the wrong technology.

And guess what happened each and every time? I failed just about as badly as is humanly possible. Crash and burn doesn’t even begin to describe these disasters.

For instance, let’s go back to 1995 when I was working on the Account Management team at Capital One. My mission in life at that time was to dream up products, services and programs that would improve the profitability of our existing credit card portfolio. I worked on everything from Credit Limit Increase programs to Collections strategies and overall did a decent job.

One day I had a killer idea: What if we built functionality that allowed customers to pay their recurring bills using their credit cards? Utility bills, rent, lawn services, etc. We’d pay them all. We’d make their Capital One credit card more useful which would theoretically drive up utilization, improve satisfaction and drive down attrition. I smelled profit!

This was a time before the internet was a real thing to most people. It was a time before online account servicing existed in any form or fashion. It was a time before moving money was easy. And this is precisely why I thought it was a good idea. Nobody was doing it so we should!

So what did I do? I cobbled together a hacked together version of the service with the help of one of my co-workers (thanks Kathy!). Here’s how it worked:

Customers would register their bills by calling a number and interacting with an interactive voice response unit (an IVR). They had an option to enter a new biller as well as an option to edit or delete an old biller. They could set a bill up as a recurring payment for a fixed amount on a fixed schedule or store the biller’s name and address and their account number in the system and then each month call in and enter the desired payment amount.

Once the customer was set up, every time a bill approached its due date we’d manually print an envelope and stuff it with a buck slip with the relevant payment information and a physical check for the payment amount. To ensure the bills were paid on time, we’d mail our checks 3-5 days in advance of the bill’s due date depending on when the weekend fell. Simple!

And since we didn’t know how much people would be willing to pay for the service or what the effect would be on important drivers like utilization and attrition, we decided to test a variety of price points from $1 a bill to free.

Guess what happened? It was a colossal disaster on every dimension.

First, customers were very price sensitive with the only real response coming from the “free” test cells. This didn’t kill the program outright but it was discouraging.

Second, the initial setup of a recurring bill using a phone as an input device didn’t work. Numbers weren’t difficult to enter using the phone but biller names and addresses were. So we basically ended up using the IVR as a recording device and then had someone manually transcribe the information into our system. Guess what our error rate was? Guess how many times we had to call customers back to clarify the billing information? Guess how many customer complaints we had?

Third, there was no easy way to inform a customer that a bill had been processed. Guess how many customers cared about this? Guess how many called to check on the status of their bills?

The result: We created an operationally intensive service that customers weren’t willing to pay for. To make matters worse, our complaint volume spiked (which is never a good thing). And to add insult to injury, we significantly increased the attrition rate among customers that tried the service.

Kathy and I tried to fix the program for a few months but eventually dug a big hole and buried it.

Fast forward to today and the majority of US consumers use one or more electronic bill payment services and many consumers are more than willing to pay a fee to have a bill paid using their credit card (i.e. – taxes). What changed? Technology.

We now have the right input devices (keyboards and smart phones) and the right interfaces (web portals and apps) and the right back-end infrastructure (electronic movement of money). This combination works brilliantly while the 1995 version of the service failed. Technology made the difference.

And this theme is precisely why I’m so excited about our recent investment in Current. For those of you not familiar with the company, Current offers a debit card for teenagers that’s nested under a parent’s core checking account. The product is chock full of functionality that includes various buckets to store money (spend, save and give), monitoring and controls around spending, and features that allow parents to administer allowance and track chores. It really is a fantastic product and if you have teenage kids you should check it out (www.current.com).

Would it surprise you to know that a platform was created by Visa to address this need almost two decades ago (Visa Buxx) and it’s barely used today? Would it surprise you to know that Current’s version of the same product is literally flying off the shelves?

How’s this for product/market fit: Current sat down with a room of parents and a full 75% ended up purchasing the product afterwards.  And as for the teenage children of these same parents, 100% of them wanted the card!

The difference?  Technology.

The problem has been around for decades but the right technological solution only emerged recently. Smart phones plus e-commerce is a recipe for success while desktop plus physical retailers makes for a clunky solution. Guess the average age that a teenager gets their first smart phone? Around 12. Guess where they like to spend money? Online.

Compare this to two decades ago and it’s a completely different story. Where was the majority of money spent? Physical retail stores. This meant that money was only useful in the context of mobility. Until semi-independence came with a driver’s license (at the age of 16 or 17), kids relied on their parents to unlock the value of money. Allowance only mattered in the context of “when can you take me to the mall” so being a few days late didn’t matter much. And while it was inconvenient, if parents didn’t have cash in their wallets they could swing by an ATM on the way to carting their kids to the mall. The system was clunky but it worked.

The right technological solution applied to the right problem at the right time is a thing of beauty and can ultimately be the catalyst for creating a very large company. Will Current onboard a few hundred thousand customers? No doubt. Will they onboard a million customers? It’s definitely possible. At the very least it will be a fun one to be part of. Let the accounts continue to fly off the shelf!

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Down the Rabbit Hole

As a longtime fan of Alice and her Adventures in Wonderland, I can’t help but draw upon the well-known imagery from time to time.  And it just so happens that I find it appropriate to use for this post so feel free to smile like the Cheshire Cat and read on.

At QED, we pride ourselves on being operators disguised as investors with a keen focus on the FinTech sector.  From time-to-time we’ve found great businesses outside of FinTech that we thought we could guide, and (surprisingly) the entrepreneurs behind these companies seem to be happy with the advice and hands-on help we’ve provided.  Our experiences at building/managing businesses combined with our collective skills that range from customer origination to data analytics to managing complex, annuity oriented businesses have proven to be valuable to our non-FinTech companies.

So while it would be easy to stick to what we know best by taking the “blue pill”, we’ve gained the confidence that branching out into new sectors ripe for disruption was worth considering.  The result?  We’ve taken the “red pill” and started to learn as much as we can about two new verticals that are tangential to the FinTech space.  And what we’ve found is that the more we learn the more we like what we see.  It feels like we’re about to head down the rabbit hole which is scary and exiting at the same time.

MatrixBluePillRedPill

The first?  Insurance Tech.  It didn’t take much digging for the QED team to come to believe that the Insurance sector is ripe for innovation much like the banking side of FinTech was ten years ago.  You can check out an interview with my partner Caribou Honig on this topic here.

Insurance stats

And to do our part catalyzing the innovation, we’re pleased to be founding sponsors of an upcoming conference, www.InsureTechConnect.com.  It’s designed to bring together entrepreneurs, investors, and leaders from the industry incumbents.  I’ve procured discounted admission, $200 below the early-bird pricing, for the first twenty FinTech Junkie readers who register through this link.  Questions or sponsorship inquiries can be sent to Caribou Honig at: caribou@qedinvestors.com.

InsureTech Connect

The second?  I’m going to leave that for another post with additional detail. Those of you who know me probably can guess what my “second addiction” has become, but rest assured that my core focus is still and will always be the FinTech space.  But, once an addict always an addict….so stay tuned.