From Robinhood to Credit Karma to Venmo, apps that allow users to keep track of every penny are becoming crucial during these tough financial times. And many might also see an opportunity to strike gold by starting one of these businesses for themselves. The apps are so easy to use; how hard can it be to build?

Very hard, it turns out. Alex Cohen, co-founder of finance app Birch, wrote out a long Twitter thread last week laying out the lessons he learned and struggles he went through in building a personal finance startup. Acquired by Even Financial in 2018 shortly after an $18.8 million funding round, Birch is, by all accounts, a success story. But that success came at the cost of solving a wall of incredibly complex issues. So how should an entrepreneur look to overcome these challenges? Summarily, Cohen writes at the end of his thread:

So let’s break down why exactly Cohen says you shouldn’t wade into the personal finance business.

A Mess of Numbers

Imagine a game of Telephone, except there are five, hundred-person telephone “lines” which all feed into you, and your job is to combine the messages into one coherent sentence. That’s essentially what you’re dealing with when it comes to personal finance. Unless you yourself want to be a bank, you’re going to be working with a lot of different banks which all have their own schedules, policies and practices. 

Don’t think Bank of America and Citi are going to come together and develop industry best practices for little old you - this is now your problem and you’ve got to figure it out. And quickly, too, because users want instant gratification and results from their services, a desire which can go to unfortunate extremes. When you’re handling someone’s money, your service is as much about their peace of mind as it is responsiveness. That better be one solid phone line.

Too Many Cooks

The simple fact is that there are just too many personal finance businesses competing for attention. Giants like Venmo or Robinhood market themselves aggressively and have the cash to throw their weight around. With brand recognition as strong as theirs and marketing dollars that probably rival the value of your entire business, you’re going to have a very hard time acquiring new customers.

So anyone trying to wade their way into the world of personal finance is barrelling headlong into a three-way storm. Just offering a consistent service is a challenge, and that service may not make money, which means you won’t be able to attract new customers.

Cash Poor

The drive to start a business usually boils down to one thing: making money. But even that simple proposition becomes complex when dealing with personal finance, as Cohen lays out. How do you charge a customer when all the messaging around your service involves saving them money? How do you get a bank’s attention as a fledgling startup that can’t offer them the hefty platter of customers they want? 

A few different apps have handled it in different ways. Credit Karma receives a fee every time a customer uses a service or product that Credit Karma recommends to them. Venmo charges small amounts per transaction. Trading apps like Acorns and Robinhood have worked out a system called order flow which allows users to engage with the app at little to no cost.

But even these solutions were often the best choices of a handful of bad ones. These days, if you’re building a finance startup (or any startup, really), what’s going to net you investment and money in the long run is not so much your service, but rather a significant proprietary technology. That’s not an easy thing to whip up. 

Of course, building technology isn’t your only option. Cohen cites Yodlee and Plaid as two businesses that can make your communications with banks much easier - and they’ve certainly reaped the benefits of the growing financial tech scene. Yodlee's headcount has staid relatively stable since FinTech took off in earnest, but Plaid's seen explosive growth over the last year, nearly doubling in size since March 2019. But their services are pricey. “I guarantee you’ll consider building vs buying at some point early on,” Cohen writes. But if you don’t have the cash to throw at an expensive API, then you’re up the creek. Besides, what’s the point of the whole operation if you’re not building something proprietary?

So as tempting as the financial tech gold rush may be, take your advice from someone as experienced in the field as Cohen is.

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