Wealth management tools are a dime a dozen these days coming in all shapes and sizes offering various bells and whistles to help users to make personal finances easy. Yet in so many ways many of these offerings have missed something very core and fundamental to making these apps worth their while to a majority of potential users in the US.
What you need to realize is that almost 50% of Americans don’t have $400 in savings to cover an emergency expense. That’s an immensely telling story and one that has been a bit overlooked by most other offerings to date.
As Derek Bennewies and his team at Contrast see it most offerings have been built for the power user, for the individual who already knows how to manage their finances and is really just looking for the right tools to make that process easier. But most Americans need help with something much more simplistic than managing various financial accounts and investing tools.
At the core they need to learn how to save. They don’t need fancy bells and whistles, they just need help learning to save by spending less. That is where Contrast comes into play with a truly unique offering that is worth learning more about. Derek and I had an awesome conversation about personal finances, building product at Cogo Labs and finding a way to generate revenue and user traction with an intriguing new offering. Check out our discussion below…
CL: Derek, you have been a part of Cogo Labs for the last few years. Can you tell me a bit about that experience and what has led you to found Contrast, at Cogo Labs?
DB: I have been with Cogo for a couple of years now. At Cogo the model is you come and work here on an internal marketing data research project and if things are going well, you then look to spin off your own business.
Dave Blundin, the founder of Cogo Labs, and highly successful serial entrepreneur pointed us in the direction of building a robo-advisor service (e.g. Wealthfront, Betterment, etc.) because he was seeing a lot of movement in that space and a lot of larger institutions snapping up robo-advisors or forming strategic partnerships. So we spent some time looking around and were able to analyze with our data tools how current companies are getting traffic and how people behave on their sites.
CL: To date, what has that process looked like, and how are things going?
DB: At Cogo, you often start out as an aggregator, where you take some of the incubator’s specialized marketing and data assets and begin marketing to targeted individuals around a certain product or service with the approach of saying, “We will help you find the best of x,y, or z.”
In our case we began by aggregating ads for online wealth managers, the play being that you find individuals with a bit more money that will want a referral to a financial advisors that we can charge for the introduction.
This allowed us to test whether or not there was demand for a service that made finding a financial advisor more efficient. What we learned in the process was that unlike other Cogo businesses such as EverQuote (they help you buy car insurance), most people aren't actively looking for a financial advisor. It's not really a burning need for most people. So we started experimenting with other things such as connecting people through to advisors that could answer questions for them and hopefully generate a lead. As we continued with this, and looked at competing offerings from Investopedia and NerdWallet, we began to realize that the advisors didn't really have the right context to answer questions online without more information. We got a couple of advisors and they were finding it hard to give reasonable answers to these questions as well.
CL: It sounds like Cogo is enabling you to really experiment and go through various iterations to pinpoint the market need. So what pain point have you now identified as a core market opportunity?
DB: What we really learned from this iteration is that there are a lot of people that aren’t at the stage where they are ready to pursue a financial advisor or even invest. First we need to solve the basics for our customers before they can even get to the point of needing a financial advisor. Which boils down to a very simple question:
"Are you spending more or less than you make?”
If you can fix that, then all this other stuff is going to come naturally. That's really how we started changing directions from being just this aggregator to actually offering a consumer product that helps people to manage their spending.
Though a lot of these offerings like Acorns are great because they get you saving they don’t solve for the bigger issue, which is can you get your spending down? By me taking money and putting it into a savings account, I'm not addressing the spending problem. Especially if you're spending on a credit card and I'm taking money out of your checking account, there's this big disconnect there. You may not actually make any better financial decisions. Changing spending habits is probably a harder problem but in the long term, it's the only one that matters. That's how we ended up on the budgeting side of things with our first product.
CL: For those that don’t know can you define SmartSavings as a product?
Our product vision is to enable you to sign up, connect your bank accounts, and then we will tell you how much you can spend every week. That's it. Just one number. Spend less than this number, you're fine. Oh, you want to save for a vacation? We'll automatically change your budget so that you'll have enough money for your vacation whenever you want to go on vacation. Stay within that one number every week and you will save what you need.
There are plenty of tools for creating budgets and they do very well but they're very heavy duty tools. That's great for the power users that love to manage their personal finances, but there are plenty of people who are not nearly as sophisticated. Our mission is to make this process as simple as possible for the non-power user that is looking to budget.
CL: As traction builds for SmartSavings, who appears to be the core consumer?
DB: Right now we market against some of the internal databases that Cogo has. Our users tend to skew a little bit lower in terms of socio-economics, which makes sense. I think we're really going to be going after the people who haven't done this before. I think people coming right out of college who are living on their own for the first time, having to pay rent for the first time, that's a good place to help people because there's just not a lot of education in financial literacy.
One thing we're thinking about a little bit but it definitely has a whole host of other challenges with it, is actually going even further down into the high school market. You know, where people might be getting their first summer job and dealing with their money for the very first time. I think that's probably a longer term play, but an intriguing idea. Financial literacy education is just not there so we're picking up people who have to manage their own money for the first time.
CL: Is SmartSavings only one of many products to come for Contrast or is the plan to fully invest behind this one product?
DB: It depends a little bit on the metrics that we get. In the long run the goal is to make it as easy as possible for people to be able to make good financial decisions.
We'll build anything that can address that need and also be a reasonable business as well. I think things like, automatically opening savings accounts and moving money in there, I think that's great and that's something that we'd like to get to. I think automatically paying down debt and automating everything that can be automated for the user is something that we would love to get to but again, we think the most basic thing is just get your spending down first so let's tackle that and then let's add on all these other features afterwards. Perhaps that opens up a freemium offering, but time will tell.
CL: I couldn’t agree more with the principal behind the approach. Oftentimes I feel there are too many financial management products that are ultimately just serving users with more debt, when they should be teaching users the fundamentals of saving. What is your view on that?
DB: I completely agree with you. It does come down to you needing to spend less than you can make. If you're not willing to fix that, then you're just serving them into more debt.
That is not to say you can’t suggest better financial products to an individual to better align their needs with their financial products. For instance, if I see you have money in checking with almost zero interest I can suggest you put it into a higher interest bearing account. In that case it is justifiably better for users.
And if you have credit card debt that you're trying to pay off with other credit cards, it probably makes sense to consolidate that or at the very least, let's get you into a lower APR credit card instead. There are opportunities to give people better financial products without coming across as predatory.
CL: One area that I'm really interested in is open API's, and the idea of a bank-as-a-platform. How are API's enabling Contrast to be able to provide a comprehensive financial management service?
DB: Absolutely, APIs are what enable us to provide account aggregation to our users so we can see their whole financial picture in one place. We can also analyze the data to help make the best decision for our users utilizing big data APIs that allow us to analyze purchase and spending data.
This way, there's no work for our users. Anytime you make a purchase we're going to see it and apply it to your budget right away. These APIs are really enabling us to fulfill our mission of providing as simple an experience as possible.
CL: Do you have a vision of what a bank-as-a-platform would look like? I envision a portal where you can see and interact with your investments, your bank accounts, your credit cards, your mortgage and whatever else related to your financial situation all in one place?
DB: I think it would be really cool to get to that sort of place where the user has everything in one spot and you'd go down the path of automatically opening up savings accounts and things like that for the user.
It remains to be seen whether we want to make that our specialty. I think there will be a ton of value in just helping people get started in their financial journey. And then as they start to figure things out we may pass them onto the next level of financial management, which would involve a financial advisors or something along those lines.
With the heightened competition in the robo-advisor space right now I can see us focusing in and picking up the younger consumers that the big players don’t have their eye on right now. In that way we can carve out our niche as the beginner tier of wealth management tools. There's still a ton of opportunity in this space, with half the population having less than $400 in savings to their name. By no means is it a small market opportunity.
CL: Do you have plans to roll out a mobile app to grow user acquisition?
DB: We'll get there eventually. For us it's been faster to develop and iterate on mobile web. App distribution is not a game that we've mastered yet so our approach has been to start with what we know, and what we’re good at and we'll get to the mobile app down the road once we iron out all the kinks.
CL: At what point do you think running on your own revenue won’t be enough to really enable the business to grow most efficiently, and at that time will you raise capital?
DB: Cogo really enables you to get to a point of being revenue generating very early on in the process and capital efficient as well. If you look at companies like EverQuote, they started raising last year but that's five years into their growth and they're already over a hundred employees and a hundred million of revenue. There are strategic reasons for raising capital at that point to enable them to keep growing and that would probably be the model that we try to take as long as possible.
And we are fortunate in that we can stay within the incubator for a while to make sure that we're set up correctly, and have a business that creates money for us so we don't have to pursue that big fundraise.
CL: What are the resources and benefits that Cogo provides you with as an entrepreneur to be able to grow Contrast in a low-risk setting?
DB: Yeah, as an entrepreneur a lot. Until you spin out, you're a Cogo employee getting paid a salary so there’s a huge reduction in risk. Cogo has invested millions of dollars and many years in all sorts of engineering infrastructure, so that allows us to work through paid and unpaid marketing channels very, very easily.
There are a lot of centralized tools for doing analysis, sharing data, reporting, things like that. There are a lot of interesting engineering resources that mean we can get up and running with two or three people with very little effort. We don't have to build all that infrastructure from the ground up. That is huge in being able to build and scale a business with much lower upfront capital.
CL: Lastly, Cogo also partners and works with Vestigo Ventures, the latest Fintech VC focused fund in Boston. What value-add are they able to provide the Contrast team?
DB: They are really helpful as advisors for us. We talk to them every few weeks, and provide them with an update on where we are. It’s helpful to get their feedback and hear about what they are seeing in the market, and what types of investment they're making. They round out the resources here at Cogo, because we have tons of tech marketing and data knowledge at Cogo, but we don’t necessarily have tons of Fintech knowledge or deep industry roots. Ian and his Vestigo team bring deep networks and knowledge throughout the financial services industry and that is really exciting.
The Minute Rundown with Derek Bennewies
CL: If you could provide one tip for someone considering starting up, what would it be and why?
DB: Don't be afraid of trying something that doesn't look like you're long term goal on day one or that's kind of different than your long term goals on day one. That's a lesson that we get a lot at Cogo. If you look at the early days of TripAdvisor, they were basically a wall of ads. People could leave reviews but you couldn't actually view any. It was just advertising and it looks totally different than it does today.
They wanted to get where they are today and it's a fantastic product today but they were not afraid to, say, "Okay let's figure out the monetization side of things" and from there they invented the actual product. Don't be afraid to head off in a direction that eventually you're going to tack back to where you want to be in the long-run.
CL: What's one thing you miss about living in Canada now that you've been living in Boston for a few years?
DB: Well, the Canadian ex-pat community is great down here. The tech community is great down here too, so I don't feel like I’m missing a lot compared to being in Toronto. Of course, there are a few little things. People seem to care less about hockey in general, which is a little disappointing, but at least your sports teams are really good – you’re spoiled compared to Toronto!
And Fahrenheit, I can't deal with Fahrenheit. I've switched to miles, pounds, that's all good, but I still think in Celsius.
CL: If you could mirror yourself after one founder who would it be and why?
DB: I had the opportunity to meet Michael Katchen, the CEO of Wealthsimple, and I was really impressed. Wealthsimple is a robo-advisor headquartered in Canada, but now building a presence in the US. He’s playing the long game, not looking for the quick exit to a bank, but thinking about what his company looks like in 15 years. And he’s not afraid to do things that cut against the normal startup grain – he’s found great pockets of users and strategic value by running TV ads in select markets, and he’s opted for patient capital from a single strategic investor rather than loading up on VC funding and being pushed for the big exit, fast.
Don’t look now, but Cogo Labs, Contrast and Vestigo Ventures in Cambridge are quietly building a formidable force in the financial services sector with the tools and technology to identify and pursue solutions to some of the most intriguing problems in finance.
Derek’s humble Canadian nature shows through in his product, one that doesn’t try to be more than it has to be. He keeps it simple because that’s what the user demands. He keeps it focused so he can build it efficiently instead of losing billions like some organizations do in this day and age.
Humble, conservative and responsible product that is offering to enable users to do the same in their own finances is a story that is easy to get behind. I look forward to watching the progress of the Contrast team at Cogo, and be sure to check out their first product here.