Disruptors have chased banks for years with the promise of easier and more social payments and other services, but only recently have they started wielding a weapon that should have incumbents worried, says investor Adam Dell.
"There's information that 'wants' to get out there," said Dell, whose new company, financial management provider Clarity Money, formally debuted this week. Dell has been active in startup technology for several years, investing in OpenTable, Ingeni, Greenplum and HotJobs. He also started MessageOne, which was acquired by Dell Computer (Adam's brother is Dell Computer founder Michael Dell); and Buzzsaw, which was acquired by Autodesk.
The big change in the technology and VC environment is the quick uptake of artificial intelligence, machine learning and other technologies that improve the speed in which data can be collected, analyzed and acted upon, Dell said.
While traditional banks and larger retailers are kicking the tires on AI for tasks like wealth management and back office operations, they aren't yet bold enough to put this technology in front of consumers, Dell contends.
"If you look at the behavior of big banks, there isn't any sign of any them sharing real information with the market," Dell said. "I think that is your answer as to whether these companies should be concerned."
Clarity has developed software that analyzes a user's spending and payment habits, then seeks a "better" option to either make recurring payments less expensive, choose a card with lower fees, or spot ways to save money through changing habits, Dell said. As is the case with AI, the more the software is used,the better it should work for a particular user.
In this scenario, the consumer has better and more detailed information when shopping for a financial product such as a credit card, savings account, debit card or branded card, and can approach companies with a level of intelligence that is closer to the intelligence that the larger companies have for marketing and cross selling, Dell said.
AI investments have grown explosively over the past three years, and payment companies and merchants have more actively pursued ways to apply the technology. Dell said it's the next big thing for investors, as the technology can give companies across payments and financial services an edge, since it improves the information tied to customer engagement.
"There is a pent up, latent demand among consumers for something that's significantly different than what they have gotten from the traditional financial institutions that are out there," Dell said. "I think we're at the tip of the iceberg. There is a tremendous power that can come from transparency."
The growth of AI also means the types of payment startups receiving investment will also change, as more digital payment products focus on information, data analysis and customer engagement, Dell said.
"There's more complex tasks like negotiating recurring bills, and giving consumers a clear understanding of their credit score and where there's value to be had. Now you have to be proactive to go onto sites like Credit Karma and figure out your information," Dell said, adding his eventual goal for Clarity is to compete with wealth management incumbents, expanding beyond bill payment and card account savings to providing data for stock market, 401K and 529 college plans. "Financial health is not a one-time thing. The more you make payments, the more you can find opportunities to improve on that."
Managing financial lives will become a very important application of machine learning, said Tim Sloane, vice president of payments innovation and director of the emerging technologies advisory service at Mercator, who notes that it can be challenging to use the technology to monitor spending, savings and investments at the same.
"All of this must be put into the perspective of the individual or family, which is harder and will require data from multiple sources," Sloane said.