How embedded education is disrupting fintech
--
You’ve probably heard before that the best thing to do with your extra money is to invest. And the stock market was built so that any average person could do just that. In fact, the New York Stock Exchange was originally just a group of merchants who met in person daily to buy and sell stocks and bonds. Over time, however, regulations were put in place that limited the type of people allowed to take part in the financial markets. A big reason was the level of financial literacy needed to handle sudden drops and crashes in the market.
Centuries later, the financial services industry has become much more accessible, but there are still many barriers to entry. While any investor can now trade shares of companies on stock exchanges or purchase ETFs, the complexities of the financial markets still remain a question mark for much of the general public.
A big incoming driver in financial accessibility, however, is the concept of embedded education. Embedded education is the practice of educating people by leveraging their encounters in delivery channels that exist primarily for non-educational purposes.
What exactly does this look like?
In a modern classroom, students spend the majority of their time memorizing notes and lecture content in preparation for exams. After taking the exams, they receive numeric grades, which quantify how well they understood the subject. But regardless of what their grades are, it can still be difficult to connect topics taught in a classroom to real life. With embedded education, learning first happens through experiences.
“The crucial task of education is to teach [people] how to learn. To lead them to want to learn. To nurture curiosity, to encourage wonder, and to instill confidence so that later on they’ll have the tools for finding answers to the many questions we don’t yet know how to ask.”
— Sal Khan, Khan Academy
Many companies have recognized this need to invest in their users’ education and are starting to adapt embedded education onto their platforms. Slack offers a suite of resources about how organization leaders can unlock productivity in their workflows or facilitate good communication among digital teams. Mirror invites users to join a Discord server where they can ask experts as well as other community members questions about creating and investing in NFTs.
Applying embedded education to fintech
Investing has long been reserved for the wealthy and educated. In fact, as of October 2021, the wealthiest 10% of American households owned 89% of all U.S. stocks. With recent innovation in fintech, however, financial services are becoming more readily available to the general public. As we gradually automate and replace work done by humans with technology, we’re also bringing down costs and enabling more widespread accessibility. Still, with more people opting into emerging digital investment platforms, we began to see a huge educational gap between investors who do well and investors who don’t.
As a result, fintech companies are using the embedding of public educational resources onto their platforms as an effective growth strategy. The most successful fintech companies know that the complex learning curve of finance is a huge pain point and barrier of entry for their users, and we’ve seen several iterations in the space so far with how they’re addressing that.
“Digital technology, I believe, is a great leveler, a great democratizer. Today it still is a world where large companies get easier finance and small companies don’t get easier finance, and the same thing with people, and I think that will change.”
— Mukesh Ambani, Reliance Industries
Embedded Education 1.0: Financial Services for the Average Consumer
In the earliest generation of fintech, robo-advisors disrupted the financial services industry. These are digital-first investment platforms with much lower fees and account opening balances than ever before, and they aim to replace human wealth managers. Anyone with an interest in investing can sign up and start growing any amount of money. They help the general public better understand their financial situations through individualized investment targets, risk tolerances, and portfolio diversification.
Companies such as Wealthfront, Betterment, and Ellevest dominate the robo-advisor space. Many built their missions around improving their users lives through financial literacy. For example, Wealthfront created a public blog where experts from their team share thoughts about their portfolio strategies and investing best practices. Educational content adds a layer of transparency with users, who can more easily learn about the company’s intentions and develop trust for the product.
As people begin realizing how easy it is to reach their financial goals, they become more invested into self learning. With digital advisors, however, users have relatively limited ability to experiment on their own. Their portfolios are automatically built for them based on their investment profiles; they can’t choose their own mutual funds, ETFs, or individual stocks and bonds. In this generation of fintech, users can conceptually learn about the game of investing, but they can’t really be players.
Embedded Education 2.0: DIY Investing Apps
In this generation of fintech, we see a rise of Do-It-Yourself (DIY) Investing apps. Typically, these platforms allow individual investors to join for free and build their own portfolios with complete autonomy. New features of these platforms include individual stocks and bonds, fractional shares, and categorical lists to sort through and discover new companies.
These apps rely more heavily on embedding education into their platforms than in Embedded Education 1.0. That’s because the product itself grows from helping its users grow as investors. As a result, we see many platforms offering investment research and analyses, so that users can guide their decisions with the knowledge of experts.
Public.com’s Educational Movement
One notable product in Embedded Education 2.0 is Public.com. Public.com is a community based stock and ETF trading app that aims to make the investing process easier through public discussions. Users can trade stocks and ETFs while consulting financial content creators and a social network.
Public.com leverages its community by encouraging users to help each other become better investors. Beginners benefit from growing through the community’s knowledge, while experts benefit from contributing content back to the community. Users’ education starts when they create an account — they instantly have access to hundreds of posts with valuable knowledge provided by other investors. They can justify every trade they make with research readily available on the app.
The greater autonomy that comes with DIY Investing apps inspires users to devote more thought into their investments. Because they now have a stake in their portfolio strategy, they’re more committed to learning how to continuously improve their position and be better investors. From Embedded Education 1.0 to Embedded Education 2.0, the thought pattern changed from “I should start investing my money now” to “I should learn how to make investing decisions”.
We believe a significant reason why many people do not invest is due to a lack of financial literacy, expensive financial products, and soaring share prices that can require people to invest $1,000 or more to purchase a single share of popular, high-performing stocks.
— Leif Abraham, Public.com
Embedded Education 3.0: Decentralized Finance, Crypto, and the Future
More recently, fintech has pivoted even farther into underserved markets. With decentralized finance (DeFi), people are cutting out financial intermediaries and replacing them with community-based blockchain technology. Transactions are no longer overseen by a centralized institution; instead, DeFi uses the blockchain to allow users direct transactions and more authority over their financial decision making. People can now experiment with advanced financial products and activities that weren’t readily available to them before — from leveraged trading to market making.
With DeFi, anyone in the world can lend, borrow, send, or trade blockchain-based assets using easily downloadable wallets without having to use a bank or broker.
— Marvin Ammori, a16z
The biggest differentiator of DeFi is its freedom and transparency. Anyone with access to the internet can trade on DeFi applications, all while holding complete control of their assets, and DeFi software is always open source. Additionally, users can collectively validate the system at any time using DeFi’s repo-like platforms, which allow users to engage in peer-to-peer, variable-dated, and secured-lending arrangements. With no authorities in place and even lower barriers of entry, DeFi brings even more opportunity for people to access financial goods, further equalizing the playing field. We may no longer see headlines like the sale of GameStop stocks being halted by centralized brokers to protect larger institutional investors.
To see what embedded education looks like in DeFi, we can take a look at bZx. bZx is a community-run DeFi lending platform built on top of Ethereum that allows people to lend and margin trade without third parties. The technology is designed so that people can continue building applications on top of each other to enable even more complex systems, allowing lenders, borrowers, and traders to interact with flexible, decentralized finance protocol.
With this technology comes many new, inexperienced crypto traders crowding the space. To help onboard these new users, bZx operates as a DAO, where contributors pool their resources to make collective decisions on the structure and direction of their investments. All major changes to the protocol made are governed by a community vote.
Similar to community Q&A on Stack Overflow and open source code on Github, bZx provides a variety of resources to help users self learn. Users can find detailed documentation on Gitbook about finance basics and how to use bZx products.
Author Nir Eyal’s Hook Model explains the psychological reasoning behind why providing these resources is strategic. After a user has been triggered into action and duly rewarded, the “investment phase” of a product occurs where the user is prompted to do work and starts inadvertently building commitment towards the product.
It is here that the user is prompted to put something of value back into the system, typically in the form of time, money, physical effort, social capital, or personal data.
— Nir Eyal, Author of Hooked
By being able to interact directly with other like-minded people experiencing the same product, users become more invested in the product and feel more comfortable taking greater risks, even if they’re unfamiliar with the space. This “learn as you go” model representing embedded education is much more obvious with DeFi, and it’s breaking the barriers of entry in finance.
The Impact of Embedded Education in DeFi
If we look at DeFi adoption today, we see that emerging economies have been investing in and holding crypto at a much higher rate than developed economies. Financial institutions have long failed emerging economies, with high inflation, interest rates and corrupt politics leaving people in poverty and debt. In fact, as of December 2021, Argentina’s annual inflation rate was at 51.2% and expected to continue accelerating. DeFi allows people in developing countries to get paid in crypto, which is backed by the US dollar and much more stable than their local currencies. As DeFi scales within this new, inexperienced group of people whose livelihoods could depend on it, the most important action item has become educating them on these new financial systems.
What’s next?
Education is powerful, and the intersection of education and fintech can be life changing. As the fintech space evolves, financial services will become more independent, opening up more doors for people who have historically been excluded from the space.
As a result, the most successful fintech companies will be those that recognize how much more valuable users are when they are properly educated through user experience. We can already see embedded education shifting the fintech landscape through events such as Robinhood’s acquisition of Say, a startup that aims to bridge communication between companies and their shareholders, as well as the rise of new DeFi protocols, which aim to serve people without access to bank accounts. We also see embedded education in fintech growing worldwide, with Bengaluru-based investing app Stack recently raising $4.5M in a seed round led by globally renown investors such as Y Combinator and Harvard Management.
More personally, financial accessibility is a space with which I deeply resonate. It’s fascinating how something as simple as embedding education into the investing experience can bring financial accessibility closer within the reach of people in need. I’m confident that as fintech continues to grow, we’ll move towards a more socially equitable economic landscape.