They popped up like fungus in a marsh. One online personal finance management application after another opened its virtual doors in the mid 2000s, just as the financial calamity hit and as consumers began looking for alternatives to Bank Everywhere.
Revolution Money, Mint.com, BillMonk, PayPal, Buxfer, expensr, Cake Financial, Geezeo, Thrive, Jwaala, PearBudget, GreenSherpa — essentially they all play in similar spaces: online personal finance.
Wesabe was one of the first, coming online in 2005, beating Mint to the starting line. Today Wesabe beat Mint again, to the dead pool of failed startups. That a site focused on personal financial management ran out of money has its own unique irony.
Any regular reader of Bank Innovation will agree that Wesabe’s failure is no surprise. The threshold for success in online PFM is so high — in the consumer space, a successful PFM will need tens of millions of customers, not millions to be able to morph into a true financial services provider — that the odds of coming through are incredibly low. In fact, in 2008 I began working on a startup myself. We were far along in the process, with angel investors lined up, but I pulled the plug even before the startup. I knew it was a bad bet.
Wesabe was a bad bet for its investors, O’Reilly AlphaTech Ventures and Union Square Ventures, who together invested $4.7 million in Wesabe. But it was not the only bad bet out there. Geezeo has already migrated away from a consumer-centric business model. Yodlee’s core business is serving other banks, not consumers through its PFM.
All this points to the core dilemma when trying to innovate in banking. Banking may be about the software, but it is also about money, and the massive pools of capital controlled by the nation’s largest banks impedes innovation by the likes of Wesabe simply because the Wesabes can’t reach critical mass. We at Bank Innovation pine for enlightened advancement in banking. The truth is, however, most of that advancement will come from hybrid efforts that encompass startups and established financial services firms. That’s why Mint sold to Intuit. Going at it alone would have left it in Wesabe’s lots, and no entrepreneur wants that.
More coverage of Wesabe’s demise:
Bryan (Link, in this case, but thanks to everyone for their comments),
That’s a whole other post! My apologies for not touching on it.
The truth is I actually think Wesabe had the potential for a meaningful revenue model without a reliance on ads or a transition to institutional sales. Lead gen could be a solid contributor, as it is for LendingTree and the like, but there are other revenue opportunities which could be even more meaningful, if the venture can inject itself into the transactional stream (think PayPal), and I think that should be possible for a PFM — eventually. And that is the key. Migrating into the transaction stream is quite a feat and requires tremendous critical mass. Even Mint wasn’t there yet when it was on its own (although it is with the Intuit hookup because of the sheer numbers within the Intuit system, both on the consumer side and on the bank side). Getting paid to facilitate payments, purchase investments, fees related to inter-financial-institution transactions, the sales of financial services goods like checks, and even perhaps referral services, which go beyond lead gen are all possible revenue sources for a robust PFM, in addition to traditional lead gen. If you can reach a critical mass of users, however. Here’s why:
* With a critical mass of users, user-to-user transactions will have real worth to the client base (again, PayPal is the example here); and
* With a critical mass of users, banks will be forced to compensate for access to the indigenous PFM platform.
Possible? Yes. Likely? No, as Wesabe will verify. I never said the PFM business was easy.