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Amy Errett is a partner with venture capital and private equity firm Maveron LLC.

Every 20 years or so, the financial services industry experiences a wave of consumer innovation, such as when companies like E-Trade and Intuit changed the landscape by empowering consumers a couple of decades ago.

Now there is reason to believe the next wave is about to hit.

A host of changes and factors have created a “perfect storm” that I believe will lead to massive consumer innovation in the financial services sector over the next two years. Here are some of the changes that have created great opportunities for new companies, technologies and entrepreneurial creativity:

  • Consumer financial data is now web-enabled if consumers want it be. Years ago, back office legacy systems created massive technology barriers.
  • Consumers are used to seeing their information and having access to it. Their web savvy nature has shifted tremendously as well.
  • A pervasive “dislike” of large financial services providers (banks and brokerage) has developed among consumers. Consumers are starting to understand how much money they are being charged by these institutions—and they won’t stand for it much longer. (Consider the irony of the good credit customers who pay full credit card balances monthly and get charged a fee for it! Are you kidding?)
  • Growth of debit cards in dollar amount and number of transactions is booming.
  • Consumers are value focused; they are watching their money and want providers who are focused on them, not themselves. This is a generational shift that we see to be long lasting, not just a short-term recessionary mindset.
  • No one knows or cares if financial institutions have a physical presence. The FDIC is important, but not whether there is a branch. Ask yourself: when is last time you were in a branch?
  • Large existing financial institutions are not focused on innovation online but rather survival. They have such an expensive brick and mortar infrastructure to defend and maintain that focusing on Web 3.0 is not high on their radar screen.

The proof of whether these “new companies” are real is evident. Green Dot, Netspend and Higher One are examples of new models emerging in financial services. My firm, Maveron, is closely examining opportunities in the space and recently invested in a company called Kwedit.

The notion of focusing on “underbanked” consumers through prepaid debit cards and college students as interesting demographics for massive growth is innovative. The idea didn’t come from traditional “bankers,” but rather from entrepreneurs who identified massive consumer opportunities. There will be more of that and it will happen quickly.

An open question will be how the VC world will respond to this. Many of these startups will require larger amounts of capital due to the large marketing dollars required to acquire customers. However the size of the prize is vast and growing and I predict there will be some massive winners in this space. This is a “go big or go home” arena.

When you add up all of these factors and you think about how many smart people are creating brilliant things in garages, the time has clearly come for some really fantastic new financial services businesses to emerge. Finding those businesses that merge together the right set of online consumer marketing skills, financial services backgrounds and great technology will be the key for opportunistic investors.

Errett is a partner with Maveron LLC, a venture capital and private equity firm co-founded by Starbucks CEO and chairman Howard Schultz. Before Maveron, she founded and ran The Spectrem Group, a worldwide strategic consulting, information, and M&A advisory firm, which she later sold to an IPG subsidiary, NFO Worldwide in 1996. After the sale, she joined the senior management team at E*Trade where she ran a $200 million business that included their business-to-business stock option division, and launched a successful asset-based products and investment management services division.


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