Over the last decade, Fintech has undergone a significant transformation and period of growth, marked by the digitization and democratization of access to financial services to more Americans. To gain insights into what the future holds, we spoke with Ben Borodach, the co-founder and CEO of april, an AI-powered tax fintech company.
As we look ahead, the industry is poised for a shift towards consolidation, achieved through mergers and partnerships. This consolidation can benefit customers by potentially offering a more unified view and streamlined management of their financial landscape.
Achieving this synergy demands a novel kind of collaboration, where traditional banks’ reliability and trust merge with the innovation and user-centricity of fintech companies. This blend is set to bridge service gaps and enhance the overall banking experience – as a result, we can expect customers to potentially benefit from a comprehensive suite of integrated financial services at their fingertips, tailored to meet their needs with unparalleled precision and efficiency.
Ben Borodach brings to the table a rich background in financial services, cybersecurity, and technology. His experience includes providing strategic advice to some of the largest banks and insurance companies in the U.S., equipping him with a profound understanding and a forward-looking view on the convergence of traditional finance and fintech innovations.
Our conversation with Ben is shared below.
Crowdfund Insider: The role banks play in the lives of their consumers has shifted over the past few years. What is it that consumers have come to expect?
Ben Borodach: The banking relationship has historically been quite personal – in the past, those relationships were built in person at the branch. As consumers have shifted more and more to digital, building personalization into how banks service customers has become challenging. The needs will vary from individual to individual from 401K planning, checking, deposits, tax filings, or even credit-building options. Being able to serve up the right product at the right time for a customer relies on knowing what’s happening in that’s customers’ lives.
Right now, the banks are mostly in the dark – they may know your address, phone number, and they probably have some data from your transactions, but they probably don’t know if you’ve had a baby or are considering buying a home. Consumers have turned to finding the right point solution for their needs in these big financial moments, oftentimes starting new relationships with fintechs designed for people like them rather than purchasing more products at their banks, which are seen as less personal and personalized.
Crowdfund Insider: What changes in fintech M&A activity are you anticipating in the second half of this year, and why are partnerships also an important step from the perspective of M&A?
Ben Borodach: Low-interest rates in recent years have created an environment of readily available, cheap capital, leading to a proliferation of fintech startups each targeting specific niches within the financial services sector. As the availability of capital continues to remain tight in the coming year, banks are poised to seize opportunities to acquire fintechs that complement their ecosystems and expand their customer bases. Such acquisitions, often made at bargain prices, allow banks not only to absorb new customer segments but also to integrate advanced technological capabilities.
An illustrative example is JP Morgan Chase, the world’s largest bank by market capitalization, which has acquired over 30 fintech companies since 2021. These acquisitions are far from trivial; they underscore a strategic response to market demands and an intent to consolidate the sector to enhance the bank’s offerings. This trend towards mergers and acquisitions (M&A) is expected to continue, enabling banks to meet evolving consumer expectations in banking through enriched technological integration and expanded services.
Crowdfund Insider: How does M&A solve the problem of personalized financial services?
Ben Borodach: In short, simply adding more services or customers to your ecosystem does not solve this issue of building lasting, personalized multi-product relationships with your customers. In the short term, this M&A activity is going to create more complexity than it will solve. Data sharing between services needs an orchestration layer to seamlessly move a customer from product to product with minimal effort, and servicing a new customer base through an acquisition could lead to some difficult prioritization decisions.
Crowdfund Insider: So then, how does tax fit into all of this?
Ben Borodach: Tax happens to be the one time a year that every American is required to bring their disparate financial data into a single view. It’s mandated by the government, and the onus is on the taxpayer to find and download all the forms from the various fintechs and banks they have relationships with to collate them onto a single platform.
Now, today, most Americans are still doing this activity outside of the platforms they use to transact – meaning all of this data is being gathered in yet ANOTHER platform specific to tax filing, where the exercise doesn’t really benefit the taxpayer in any way (other than not getting in trouble with the IRS).
We saw this as a fundamental problem to solve – taxes shouldn’t be on an island. We’ve built an embedded model, where fintechs and banks can integrate tax filing into their platform. The benefit is twofold – the taxpayer can import existing data from a platform they use, saving time and reducing the need to download and upload forms, and the financial services app can better service that customer with a holistic financial view. It can help them build a more effective and reliable orchestration layer that allows them to fulfill the promise of hyper-personalized financial services.
Crowdfund Insider Do you think this embedded model is something we’ll start to see in other areas?
Ben Borodach: I think the business model of B2C fintech is being critically eyed by investors – the customer acquisition costs are too high for new entrants in this economic climate. Building products that enhance existing B2C fintech ecosystems by helping fuel lower CAC, increase customer LTV, and grow AUM/deposits will be what investors see as viable in this market.
We don’t need more fintech apps, we need fewer, better apps that do more for their customers. We’re getting interest in the market from big banks, legacy payroll providers, HR tech companies, and a plethora of fintechs and neobanks. It’s heartening to see this confluence happening – as it’s really putting the customer back at the center of service design.
