Aaron Harris, a partner at Y Combinator, has had a long history working within both finance and technology: He started his career on Wall Street, moved to a hedge fund, and then founded a startup called Tutorspree that built a market for tutoring. Now, through his work with fintech-focused startups in YC batches, he has a first-row seat to the challenges and opportunities associated with building in fintech.
Recently, the co-founder and CEO of Plaid, Zach Perret, sat down for a two-part interview with Aaron on the state of the industry. The following interview—which covers the future of financial services—has been edited for clarity and brevity.
ZP: You told me once that you don’t personally enjoy your interactions with most financial services companies. Why not?
AH: I think the general level of usability in technology across major financial service providers is pretty atrocious.
ZP: What do you mean by “major financial services provider”?
AH: A bank or credit card. They’re years behind where usable consumer finance is, so that’s pretty frustrating.
There is this holy grail out there, which is a good budgeting app. And it’s not that it’s good in terms of core usability, or that it looks nice, but it’s something that people actually want to use and will continue using. There’s this huge psychological gap in terms of what people say they want and what they’ll actually do. People just don’t want to use budgeting apps, because they don’t want to be told, “Hey, you spent too much money today.” But it would be incredibly helpful.
And I don’t know what the right mechanic is in terms of the social engineering necessary to get people to engage with a really good budgeting system on a regular basis. But I would love if someone actually built something that I wanted to use and that I actually engage with over time. I tried Mint for a while, I tried Microsoft Money back in the day, I’ve tried a bunch of different things and none of them really stick well. So I think that’s missing.
ZP: Maybe notifications? Overdraft protection? Have you seen anything close?
AH: I’ve seen a few of those, but the problem ends up being at what level of productivity does the app engage you, and does it actually change your behavior over time. I’ve seen some interesting takes on it, but nothing that I felt has actually hit an inflection point. And maybe it will only be obvious in hindsight.
I would also love a better system for interacting with whoever I have to deal with at the bank. For example, when you apply for a mortgage, it’s just this gigantic, terrible process that would be really nice to have made really, really simple.
Here’s something that would also be really cool: a better way to understand my taxes. Like a running tally, pulling in from payroll and elsewhere to see actually how much you owe on a running basis, why you owe that much, where it comes from. Understanding where that stuff comes from, if you want to try, is difficult. Even when you file your taxes yourself, you kind of understand it, but it’s just complicated, and you do it once a year, whereas taxes accrue 365 days a year. So having a running understanding of what your tax exposure looks like would be fascinating. I’ve never actually seen that anywhere.
ZP: Sounds like an infrastructure problem. So instead of creating that new mortgage application process, you just want Bank of America’s mortgage application process to get better.
AH: I think that’s actually the interim step. I think that there is a huge amount to be done to change the way that mortgages are issued on a deep level. But as a user, I don’t think that change will feel much different to me than a better interface. It’s a question of what’s going on behind that interface. You can have the best interface in the world, but if it still takes 30 days to get an answer on your mortgage application, that’s bad. So companies have to be built that can turn a mortgage application around quickly but still be good.
The thing that I actually do want someone to build, and I don’t know exactly what it looks like, is a better personal investing platform that doesn’t just recommend basically 60-40 stock/bonds. Rather, it manages your allocations a little bit and does tax-loss harvesting. I think that there are deeper questions about how people manage their wealth to accumulate wealth over the long run, which is just hard. The hardest part about it is people don’t want to think about it. That’s the power of something like Wealthfront or Betterment, because you just set it and, theoretically, forget it.
But that misses a lot of the things that happen over time. If the platform isn’t fully integrated with your taxes, you’re going to make allocations wrong. If it doesn’t know what you’re going to need to do for your mortgage over the long-term, it’s not going to account for your growing family, for this thing, for that thing.
Maybe it’s one service or multiple services, but I think it goes beyond what stocks and bonds to pick for a more realistic view of your financial life and wealth.
ZP: Any short advice for new entrepreneurs thinking about starting a fintech company, other than apply to YC?
AH: Apply to YC. That’s particularly true for financial services and fintech, as opposed to something like new consumer products. You need to understand what you’re doing. You need to understand the dynamics of the market you’re entering.
I’ve had a lot of conversations with people who say they’re building a fintech company, but after thinking about the problem for 10 minutes, I’m coming up with deeper insights than they are. That’s one of my tests for any kind of startup: Have they had deep thoughts? When it comes to fintech, the nuances are really important: the nuances of how a payments rail works, where it goes, and how it’s structured, the nuances of how insurance is actually built and how underwriting happens. You can’t wave those away and say you’ll figure them out later. You need to really get it before deciding to go for it.
The final question I’d ask is whether or not you’re actually solving a deep problem for a lot of people. Maybe this goes back to wealth management and budgeting. Often people target those things because they sound really good, but they haven’t really figured out whether those are important problems to solve and whether the solution they’re proposing is more than just a little bit different.
ZP: And if anyone will pay for it.
AH: And if anyone will pay for it. And at the end of the day, if you come up with a financial services thing, it probably should be making money, because it’s touching money.