Traction Podcast
00:45:07 · Lobo, Lobo
[00:45:07] S0: And then you're like Trust. Trust. Exactly. And trust is [00:45:11] S2: a cornerstone of all relationships. I've had experiences with Bank of America or even Wells Fargo. We have lots and lots of money in there, company money, and you email them and it goes in a black hole for days, and then you have no other option but to make an appointment and show up there. You email someone like Morgan Stanley, and it's done. A wire even, oh, don't even go in the app and load a wire. We'll send it for you. Just send us the details. And what I think now is with AI agents, every bank has the opportunity to replace that best in class customer experience that a Morgan Stanley can do for probably 5% of America, and bring it to everyone else. Because there's no reason to not respond. And you can load the best templates and do this work and just deliver customers the outcome. So I think there's huge opportunity. A lot of the times people said banking needs to be disrupted. Banking is just a database for money. Can it store your money? And more importantly, can it grow your money? If you know the best in class behaviors that lead to the best in class outcomes, I think now AI agents have the opportunity to democratize that to the Luddite banks. I totally agree.
00:46:24 · Roy Luo
[00:46:24] S1: I think you're really getting on to something which is fundamentally what drives my thinking when it comes to fintech. Financial products, there's been some innovation, but financial products in and of itself aren't really innovating. Storage of money is still storage of money. Deposits are deposits. Credit is credit. Have there been fancy instruments, CDSs, swaps, all that? Yes. There's been some innovation in the world of financial products. But for the bulk of our economy, payments are still payments. Deposits are still deposits. And so what really is the innovation when it comes to neobanks or these new PSPs? And, again, to our earlier point, it's how... In the old days, it was how software is changing how these products are delivered, how they're manufactured, and the cost of delivery, and the impact and the user experience. And now it's how AI is transforming all that as well. And so at the end of the day, you care about storing your money somewhere, making sure it's safe, and that's generating you a return. And there's apps and now website portals, and you may have an adviser. You can talk on the phone. You can text. And you're doing all that, but you're still investing in stocks, bonds, or whatever at the end of the day. Now, if you have AI to just even improve the way you interact, the way you monitor, or how you're recommending investment decisions, for example, things like that, there was a whole world of the bot trading category. That was the first generation of what we're moving towards in terms of more AI and more intelligence around asset allocation and around how to even interact with your wealth. These are all transformational aspects, and the same theme is at the end of the day, it's still just investing in the stock market, but the way you get from point a to point b is being completely changed through both software and AI. And I think that is a core theme, and I totally agree with you in terms of how we're seeing the world.
00:48:22 · Lobo
[00:48:22] S2: I think everyone I've seen, right, they talk about technology as a way to sell something. Unfortunately, customers want outcomes, and not many people realize that. And they currently receive that outcome through a certain experience. Let's call it a combination of workflows. You just have to realize that if I want this customer to get x outcome in record time, what would I have to do? And just imagine, I'm gonna throw people, products, process, everything at it. And when you have this super awesome customer experience, which is I email my bank to send a wire. Within thirty minutes, the wire is loaded, I get a push notification, I review, I hit send. That is the experience, let's say. I wanna know my portfolio performance and I can't figure it out with the app. The ideal thing is the app explains it. But I literally emailed somebody and they sent me a report, they explained what's happening. Basically, how much runway do you have? How much do nothing runway you have? How are you doing well year to date? And how they're going to balance, or even if it's needed? If people can get back to you, let's just imagine, you throw people a process, technology, all of that, and they get back to you in record time, then now you can deploy an agent to do that, right? And leave it for last mile review. It's just a lot of banks and like governments, they have been built on this culture of move slow, file patents, and then do nothing. Right? Pontification. Because you... In larger companies, you're paid on the number of right decisions you make, and failure is a PowerPoint presentation on why it wasn't my fault. And in startups, you're paid on the number of decisions you make and failure is like a rite of passage. I think there's this opportunity for both to meet as AI agents to take over. I'm super, super bullish. In terms of embedded finance, it was a big trend. Does it still have legs, or is there something new on the horizon?
00:50:37 · Roy Luo
[00:50:37] S1: I still believe in embedded finance. I think the trend that you might be referring to, there were a bunch of businesses that were built on a mission of scaled embedded finance, but in a box, and you can kind of power that. But I think the idea around putting it all into a single package and not providing choice to your customers, that isn't a thesis that I would say has really panned out in the masses. There's definitely pockets of success and value there. But the philosophy and the idea of embedded finance is absolutely still real, and I would say it will continue to be that way. It's existed for the past many decades, and it will continue to exist. Along that theme around how ultimately every company is a fintech company, even at Iconiq, we have so many vertical software businesses that have focused more on core system of record or core workflow orchestration for different end markets, whether it be in construction or investment in Procore or in field services management, like our investment in service tank. But once you've actually tapped the core workflow, then you can start layering in financial services offerings and financial services products. And that is what we're seeing across all sorts of different businesses. A lot of vertical, a lot of horizontal as well. And that's effectively embedding finance in core software products that we are actually offering and put AI on top of it or layer into your product. And so, yes, the... That was the long way of saying, I think embedded finance is absolutely critical today because it is a fundamental, I think, way that financial products are being brought to customers. And whether or not the category of embedded finance in a box, I think, is real or not. I think that there was a lot of hype around it. I don't think it's played out in the way that a lot of folks thought it would play out, but I think it's playing out in a different way. And a lot of people are looking to best of breed solutions at building their different products and finding different ways to actually offer those financial services products. But it's still happening, and there's a lot of demand for it.
00:52:42 · Lobo, Roy Luo
[00:52:42] S2: Honey was a one such product. Right? Would you say Honey was embedded finance? [00:52:46] S1: Yeah, I would say in a way. And again, these categories have different nomenclature and different definitions of [00:52:51] S2: their own as well. In rapid fire, then as we close out, embedded finance product that you believed in that didn't work out, and it doesn't matter whether you invested in it or not, and one that you really think is doing well?
00:53:09 · Roy Luo
[00:53:09] S1: It's a great question. I think the story is a little too early to play out, but I think some of these businesses that are offering effectively payment processing, card issuing, and all these fintech capabilities in a box to vertical software businesses, for example, they haven't gotten the same traction, I would say, as they were hoping to get. There have been pockets of value here and there, a little bit of purchasing here and there, but at the end of the day, the market for them isn't maybe as big as they would have thought. And so there's a few of those that kind of, I thought, emerged in, call it, that COVID time frame that saw some really good initial traction. And a combination of financial regulation, but also just the macro environment that they're in, it hasn't played out in the same way that I think one would have expected. I also think that there are businesses out there that have actually seen, like, a lot of really great success, but we see the ebbs and flows of businesses at the end of the day. We've... Or we were big investors in Marqeta, for example, once a podcast or infrastructure provider. I think, obviously, it's seen better days more recently from a trading perspective, but we were big believers in the vision and and the founding team and everything like that. And I think it really had a huge impact in the industry. As time goes on, like, there's some cyclicality. There's changes in cycles of talent and innovation, but the idea is very much relevant. Galileo was a great business and actually got acquired actually by SoFi. But there's a lot of these, I would say, infrastructure businesses that are really powering like the fintechs of today that are incredibly successful, incredibly important for the market that... Markets that we're seeing today. And we'll see how it all goes, but I believe it's really a good indicator that there's a sustaining and durable demand curve for these products.