If it sounds too good to be true…
It probably is!
This post is about bringing a healthy dose of skepticism into the euphoria of fin tech sales and product assertions (though it could apply to any sales pitch).
What sounds too good to be true (to me 😏)
- 100% payment success rate
- No KYC / minimal KYC needed
- Strong in regulated markets, but no licenses — services are “not regulated”
- No chargeback/dispute liabilty
- BEST user conversion
- Funds landing in your local bank account, anywhere in the world
- We’re better than any provider that has ever existed in all of payments history of mankind (exaggerated)
While some parts might stand up to some scrutiny, my alarm bells start to ring when I hear them?
Why are the above too good to be true? Because all these statements forget three points
1/ Trade offs are necessary and inevitable
2/ The regulatory buck stops somewhere
3/ Solving hard challenges is what creates value
1/ Trade offs are necessary and inevitable
- Friction (KYC, boxes to fill in, creating an account, 2FA, SMS authentications etc) are the fences a business put ups to weed out fradulent consumers.
- It’s a tricky balance — businesses don’t want to turn away real, actual customers who got daunted by all the friction. Legacy providers might put an unnecessary amount of friction and not updated tech systems, which has created worst consumer experiences and excluded different demographics.
- But some friction is healthy (keep out the worst of the fraudsters), just as how some fraud is healthy (painful, but if fraud was 0 it could imply that the rules are too strict and possibly turning away good customers).
- There’s no point trumpeting how much volume you processed, if most of the volume was fraudulent volume and then you had to pay fees / fines on that.
- So the trade offs are — have more friction to get less fraud, or have more fraud but have fantastic conversion numbers. It’s definitely a tightrope.
2/ The regulatory buck has to stop somewhere
Someone is ultimately responsible especially in a highly regulated industry like financial services. You can break things in ads, you cannot break things in finance. Especially in highly regulated markets for payments (see left hand side), it will be incredible if the buck of licensing and consumer protection doesn’t stop. Companies may say the licensing responsibilities belong to their partners, and they’re not operating licensed activities, but tell that to the regulator when they reach out for questions.
3/ Solving hard challenges is what creates value
If it were so easy to move money all around the world, verify customers in any country instantly, collect restricted currencies and bring them offshore, payout to indivduals wherever they are at — well then customers wouldn’t need your service and want to pay premium for it. Why would you be better than any and every other company that existed in this space? What’s the step change difference that creates that remarkable gap? Step changes take time to build (if not some other company could also have done it?).
A healthy dose of skepticism
Higher success rates, removing unnecessary KYC, gaining regulatory and partner trust (and so being able to do more to reduce friction), fighting fraud smarter, are all things that companies and industries are all getting better at. It’s amazing and exciting to see all the progress.
However, it’s not perfect, and it’s definitely not easy. Hence, it’s always worth digging deeper onto how things are done and pressure test every claim.
