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What architecture might tell us about the future of finance

There are over 60 million people in the UK. Nearly all of us bank with just 5 banks.

Banks aren’t short on customers. For all the negativity on banks the simple fact is we don’t move our money. Money is important to us. We like to feel it is safe, and somehow it feels safer to stick with the devil you know. 

Finance is and always will be about trust. 

Because our bank has been there since before we were born we expect it to still be there tomorrow. Why do we feel like this?

Again, it’s all about money. Banks spend a lot of money making you feel you can trust them to keep your money safe.

Before you have even stepped into a bank powerful forces are at work. Banks are risk managers and as such are designed inside and outside to enforce a sense of stability. Externally, banks tend to look similar - their architectural styles follow certain patterns.  Quickly click on this link to some images of banks and you may notice two recurring themes: clean geometric proportions and classical architecture. The shape of the building is supposed to give a sense of security and the style is supposed to link it to the past, to prove they have stood the test of time.

Here are two of my favorites: 

Edinburgh Savings Bank on Hanover Street, Edinburgh by Thomas Cecil Howitt

National Farmers Bank in Owatanna by America’s grandfather of modern architecture, Louis Sullivan.

Architecture is a language that conveys what the patron of the building is trying to say about themselves.

We fear uncertainty, not least financial uncertainty so we crave stability. These are not cheap buildings - a lot of money has been spent by their patrons to make us subconsciously feel that our money is safe. It’s slightly ironic that we pay for the lavishness - our money could be better spent but we simply would not trust something that looks cheap because subconsiously we would not think they were good with money.

What does this mean for startups?
It means you are competing against some very deep-rooted psychology.

If you’re competing for someone’s money it doesn’t just mean you are competing against people with extremely deep pockets, it also means you are competing against fundamental human desires for security and stability.

This is big!

Unless you’ve got something game-changingly different (see last post) people are unlikely to switch. Sure you’ll get the early adopters but you need the masses.

I work in crowdfunding where we ‘democratize finance’ by opening up investment opportunities that were previously only accessible to high net worths and institutional investors to everyone. Suddenly you can get a better risk-adjusted return than anything comparable from traditional institutions - according to the efficient-market hypothesis investors should be banging on our door.

You are still competing for people’s money. This is money they only have a limited amount of. They have to decide whether to keep it in their current bank or investments where it may not have had the same returns but it has generally been fine all their lives. Loss aversion is a very powerful thing - we fear loss more than we yearn for gains, again an evolutionary heuristic. But on top of this the competition, the traditional instutions have very deep pockets to play to your subconscious fears through advertising. In the world of finance, because you are competing for the same thing (people’s money), the customer acquistion cost is heading towards parity regardless of the product. This means very few startups will be able to survive the danger zone - the period of time taken to find their market fit before their funding rounds out.

My final thought is on regulation - good news for existing business, terrible for startups. 

The regulators don’t want customers to switch easily. They want people to be aware of the risks, that’s their responsibility. So they need to interject themselves into the customer experience. 

They do this by controlling the customer journey from the marketing to the point of sale.

The marketing can not be explicit, e.g. BUY THIS, and the customer journey is deliberately stopped at various points so that customers can agree they understand the risks involved. This might mean a simple box to tick, but it could be a questionnaire or worse asking for you to physically send something like proof of ID. All this hammers the conversion rates which in economic terms means the customer acquisition cost goes up and you have to spend an exponentially large amount on your biggest expense - marketing. Marketing we know is already tough because of people’s tendency to stick with what they know.

It’s good to see such an enormous amount of activity in the fintech space and some great talent developing innovative products, but it's tough out there. There will be casualties...

….It’s the age old saying...
You need money to make money.
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