Three Observations from Beyond Good and One Ask: Contribute to a Purpose-Driven Fintech Business Revolution

If we ever needed it, the past 12 months have provided a stark reminder that good government, a functioning modern digital infrastructure, and a shared civic spirit matter in the face of pandemic challenge and economic adversity. In their new book, Beyond Good, financial industry observers Theo Lau and Brad Leimer make the case for another key ingredient for a better future:  Purpose-driven businesses, in particular as they leverage technology to tackle big issues and try new solutions.

Theo and Brad pack a lot of facts and examples into their ~200-page book as they describe the backdrop of seminal macro trends such aging societies, reduced social mobility, or rising inequality as well as the disruptive forces at work. They zero in on key elements of a changing financial industry structure driven, for example, by the possibilities of embedding finance into the big tech platforms that have become even more important to our daily lives during the pandemic or the centrality of data access and control in this new, brace world. And they lay out elements of a path forward towards better outcomes.

I admit to being partial to the messages. The authors interviewed us for their book, and they are kindly shining one of their “spotlights” on Flourish Ventures and the Fair Finance Principles that guide our work.  I was even more tickled by the many references throughout the book to the portfolio companies and eco-system partners we have backed across the globe. Steady is mentioned early on as an example of a U.S. startup that helps gig economy workers discover new earnings opportunities. ZestMoney in India is highlighted as an example of embedding alternative-data driven credit into e-commerce. U.S. challenger bank Chime and African crop insurer Pula are on the list of “empathy-driven business models.” FreshEBT, which helps U.S. food stamp recipients optimize their benefits, and environmentally sustainable finance champion Aspiration have other “spotlights” on them.

In recognition of the importance of understanding the broader eco-system and empirical learnings, the book plays back findings from our 2020 research on the impact of COVID-19 and subsequent economic lockdowns on gig economy workers around the globe. It revisits some of the lessons learned from research we did with Oliver Wyman on U.S. start-up revenue models that explicitly align business incentives with the financial health interests of their customers and it features the Financial Health Network that keeps an annual pulse on the state of financial well-being of U.S. families.

Beyond Good wants to be explicitly different from the usual business books. Its central objective is to inspire business leaders in the Gandhian spirit to “Be the Change That You Want to See.” While it recognizes the need for systems’ leadership, the call to action in the latter parts of the book aims at the “hearts and minds” of individual leaders in positions to make a difference.

As I think about a better future, there are additional, bigger-picture messages that deserve highlighting – and while they don’t focus on them, I suspect Theo and Brad would not disagree. These observations are rooted in the complex dynamics any system displays, and I’m simultaneously more cautious and more ambitious in my expectations here:

1. Even a far better, fairer retail financial system has limits when it comes to some of the big challenges of our time. Private-sector finance is a powerful tool. At the microeconomic level, it helps households and small businesses better manage cash flows, capture opportunities, and manage risks. At the macroeconomic level, it channels household savings to the most productive investment uses. However, it cannot solve on its own some of the big societal issues teed up in the book such as financial security in old age. I believe such issues require society-wide consensus and solidarity mechanisms, for example, a guaranteed basic pension income.
2. A fair retail financial system needs a broader set of aligned stakeholders beyond consumer-facing, purpose-driven businesses. Financial systems are regulated for good reasons. We want people to trust in fiat money. We don’t want the system to be used for nefarious purposes such as human trafficking. Some key system elements, such as know-your-customer requirements, would benefit from the public good of a unique, digital ID. Some system’s functions, such as real-time retail payment settlement, are arguably utilities with monopolistic tendencies and should be regulated as such. For broad-based system’s improvements, we need collective action, including digitally native public policies that protect consumers and promote innovation. While purpose is less tangible in these cases, we at Flourish have also made a series of investments in cloud-native, API-based B2B FinTech infrastructure because we believe that lowering overall system’s costs will ultimately benefit everyone.
3. We need thematic demonstration success at scale to change incumbent practices and industry structures. At Flourish, we love our individual, purpose-driven portfolio companies, and we want them to be wildly successful in their own right. Otherwise, they haven’t proven that different, better ways of doing business are feasible. For example, the challenger banks in our advanced economy portfolio mentioned in the book can provide low-cost or even free transaction accounts with no minimum-balance requirements or punitive overdraft fees because they are unencumbered by costly branch networks or legacy IT systems. Thematically, we hope that challenger banks in- and outside of our portfolio collectively become big enough to force incumbents to change their often-punitive fee practices. In our emerging market portfolio, the digital credit providers mentioned in the book often reach first-time borrowers that were previously excluded from the underdeveloped, local formal financial systems. We similarly hope that such innovations can collectively provide thematic demonstration success at such a scale that incumbents have to follow suit and deepen the financial system for all.

Theo and Brad used the last 12 months during the pandemic when they were grounded at home to pull together a book full of great facts and inspiring examples.  Now it’s our turn to work hard to make sure that their second edition in a few years can report plenty of progress.