Everything banks think they know about risk is wrong

The pandemic proved banks need to rethink their methods and start using real-time data to avoid lending mistakes in turbulent times

After the last financial crisis, many people lost trust in the institutions that had failed them. This helped give rise to the booming fintech scene today, according to Jay Reinemann, a partner at venture capital firm Propel: those who felt let down by the traditional financial industry started to look for different products and services.

Reinemann says a good fintech founder creates a business to solve a problem, not to simply make money. That could be preventing customers from being punished with fees when they go into overdraft, or finding a way to better inform them on the financial services they sign up for. Reinemann believes a good fintech founder must solve a real problem if they expect to create value that someone will pay for, and payment or value is of course required to be a successful entrepreneur. "As a VC, we must believe the entrepreneur will be very successful at creating value," he says.

He looks for entrepreneurs who can identify where traditional business models have failed customers. Good fintech startups, he says, should give users an incentive to do the right thing in a way that benefits both the customer and the startup – by convincing people to save more money or get better insurance, for example. Building trust is imperative.

Finally, anyone looking to start a successful fintech company has to expect some risk, and must be patient. “Unfortunately, in financial services, as a startup you don't necessarily know how well you're doing until your customers have to start paying you back the loans,” he says.

What characteristics do you look for in a founder?

Tenacity. The startup business is extremely difficult. As a founder, sometimes you're all by yourself. You're alone building a company at the top, you're the boss and you don't necessarily know the answers.

How have things changed in the startup ecosystem since 2010?

It's a lot cheaper to build a startup because of all the services that are out there from a technology perspective – cloud services and AI services. Unfortunately, the price of human talent has gone up dramatically.