Last week we saw why financial technology (fintech) startups have gained so much traction over the past several years, especially with millennials. Banking blue-blood Wells Fargo was taken to task for fraud committed on literally millions of accounts. Meanwhile, Venmo was the bell of the ball for allowing a college student to receive donations to his beer money fund from “concerned citizens” across the nation.
The scandal at Wells Fargo led to the firing of more than 5,300 employees (approximately one percent of the work force) for creating more than two million phony accounts (1.5 million deposit accounts and more than 500,000 credit card accounts). It all culminated in $185 million in fines levied by the Consumer Financial Protection Bureau, days of bad headlines and a major corporate decision to get rid of sales targets that may have triggered branch employees to create fake accounts in order to keep their jobs or earn bonuses.
But, it isn’t over. Regulators are seething and Wells Fargo’s issues are not going to go away, especially when the executive in charge of the unit that created the phony accounts reportedly received a $125 million payout when she left the bank.
Compare the trial and tribulations of Wells Fargo with the week that financial tech startup Venmo just had. Thanks to an “entrepreneurial” student at the University of Tennessee-Virginia Tech game, Venmo received publicity every marketer could only dream about. Holding a sign with his Venmo ID and imploring his mom for beer money, Sam Crowder received hundreds of donations, topping his Venmo beer account with more than $2,500.
During the same week that a trusted bank with a century of good will failed its customers, it says something that people are totally comfortable posting their Venmo ID on national television or using Venmo to pay a total stranger money. Do they feel fully comfortable with Venmo’s security? Are they naïve? Do they just not care? Such use of Venmo must elate and fear company executives at the same time.
What does the tale of two sides (old school vs. startup) of the financial services landscape tell us? Financial regulations are not necessary to impose on fintech because they obviously don’t stop abuse? Fintech is just one major disaster away from absorbing fines that cannot be absorbed?
I’m not sure that I know the answer to those questions right now but I’d love to spend more time researching it. Mom, can you Venmo me some money to help fund this initiative?