I served with a board member a few years back who said something that I’m reminded of on a regular basis.
Never underestimate the power of the default setting.
What he meant by that wasn’t always user-centric. At least I don’t think so.
This is an interesting statement when put into the context of how powerful default providers are in new FinTech software.
When you’re using a FinTech product whether it be Dwolla, or Paypal, or Betterment, or, or, or… You’re using the company’s default providers as much as you are the company’s product.
That’s no different than when you buy an iPhone and you’re using glass from a supplier. It’s just a lot harder to see the different parts in software.
Some questions one could ask about providers when signing up for a FinTech service could be:
- Who is doing the CIP verification work?
- What bank does the company originate through?
- What bank are the funds held at?
- How does the service manage AML?
- What type(s) of database(s) does the company use?
- What DNS provider does the company use?
Some of this will be found in the terms of service or privacy policy but much of it is hidden behind a bunch of decisions end users rarely see.
Some of it can be found by looking at source code and or looking at the response in an API header. Some of it can’t be.
Here is a friendly example:
What database(s) companies use is always evolving. At some point you’re going to be using an application that uses a blockchain as a database and that’s because the developer who built it decided to use a blockchain because it solved a problem for them. That database type probably isn’t known to end customers.
Here is a strange example:
Let’s say a company selects a AML monitoring provider. You see, most companies should have AML providers if for no other reason for external attestation of internal processes. It’s just part of the world we live in. That provider probably isn’t known to end customers.
Here is another example:
When you sign up for new services you get the selected, and ideal, financial institution with the service you’re using. The default banks(s) probably are known to end customers and are actually driving a lot more innovation than they get credit for.
FinTech companies have banks as part of their default settings. Thus, the users of those systems are using the bank(s) behind each company in tandem.
Banks have already figured this out and better bank providers are emerging quickly. This creates a potential windfall for banks doing digital origination through new channels and providing better API based banking platforms.
As a result, developers are actually distributing bank accounts inside of great software at a fraction of a cost the traditional retail+advertising+branch model does and they’re doing it quickly all over the world. They’re doing it with default banks built into their software and customers who adopt the best technology end up with bank accounts underpinning that tech.
Banks are banking (I couldn’t help it) on the power of default in these new software applications and the bank’s ubiquitous presence in these services should tell us all something about not only how important they are in the matter but how seriously they are taking the opportunity to earn market share.
As the quote above should make clear, Jeff said it more eloquently than I.