Girls! Girls! You’re Both Pretty!
Happy Monday, Fintech Fans!
Last week, OpenAI released a new product called ChatGPT Agent. As the name suggests, it’s essentially a general-purpose AI agent designed to assist users in accomplishing complex, multi-step tasks.
What was interesting to me about the launch was this tweet from Sam Altman, which basically said, “This tool is very powerful. We know bad guys are going to find ways to exploit it and hurt our users. However, we’re not sure exactly how, so rather than wait, we’re going to release it and watch how our customers use it and how the bad guys attack them, and then we’ll update it accordingly.”
Remarkably honest. And so incredibly not how responsible companies in financial services launch products that they should teach it as a case study in fintech product management school.
I could also argue that it’s a bad way for AI companies — which describe their products as the most important inventions in human history — to launch products, but I don’t want to step too far outside my lane.
Anyway, fintech! Let’s fintech!
- Alex
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Blackboard (1877) by Winslow Homer.
3 FINTECH NEWS STORIES
#1: Girls! Girls! You’re Both Pretty!Copy anchor linkCopied
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Bill Pulte, Director of the Federal Housing Finance Agency and Twitter power user, has been ramping up the competition between FICO and VantageScore (which is owned by the three credit bureaus), and things are getting a little tense:
In the email issued July 15, the FHFA said "The Enterprises are moving forward with an interim phase in this initiative, in which they will permit lenders to deliver mortgage loans using a credit score generated by either the Classic FICO model or the VantageScore 4.0 model."
While not mentioning the newest FICO algorithm, in an accompanying FAQ, the regulator added "FICO 10T, which was validated and approved for use by the Enterprises alongside VantageScore 4.0 in 2022, remains an approved credit score model and is planned for future use by the Enterprises. Until then, lenders may choose between Classic FICO or VantageScore 4.0 for loans sold to the Enterprises."
The delay has concerned FICO, which this week released a white paper that declares the 10T model decisively outperforms VantageScore 4.0. It also claimed the rival score minimally is better than Classic FICO.
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Originally, the FHFA planned a full transition to requiring both VantageScore 4.0 and FICO 10T scores for all loans (a "multi-score" requirement), alongside a shift from tri-merge credit reports (pulling data from all three major credit bureaus) to bi-merge reports (using only two bureaus). This was intended to start in late 2025.
However, following feedback from the mortgage industry and a change in leadership at the FHFA, the agency made two changes.
First, it backed away from the bi-merge transition, opting instead to maintain the tri-merge requirement. Second, it moved to an interim "lender choice" phase, allowing lenders to select either Classic FICO or VantageScore 4.0 for each loan sold to the GSEs, without mandating both or requiring significant new infrastructure changes.
The big question is why the FHFA is (for the moment) pitting VantageScore 4.0 against FICO Classic.
I haven’t been able to get a clear answer yet.
The GSEs publish extensive historical datasets when migrating to new scoring models. This enables lenders, investors, and other stakeholders to refine their underwriting models, make informed pricing adjustments, and conduct thorough risk assessments. I’ve heard that Vantage released this dataset for 4.0 last year, but FICO still hasn’t for 10T. This may be the reason for the delay in making 10T (which was validated and approved by the FHFA in 20222, alongside VantageScore 4.0) available.
Whatever the reason, the current state of affairs is disadvantageous to FICO.
FICO Classic was released in 2005. VantageScore 4.0 was released in 2017. FICO 10T was released in 2020. FICO and Vantage have been busy over the last week or so arguing about which score beats which score and by how much.
I’m not a data scientist, so I can’t say for sure, but logic suggests that FICO Classic (the oldest score) probably underperforms VantageScore 4.0 (as Vantage claims) and FICO 10T (the newest score) probably outperforms VantageScore 4.0 (as FICO claims).
If that’s true, FICO has a problem. It’s going to be pitting its 20-year-old score (which it has been aggressively raising the price of) against a competitive score that’s both cheaper and more predictive.
Ruh-roh.
#2: PFM for RetireesCopy anchor linkCopied
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A B2C fintech company raised some money:
Retirable, a startup providing retirement planning to everyday retirees, raised $10 million in Series A funding, CEO Tyler End tells Axios exclusively.
Retirable pairs each client with a salaried fiduciary adviser, leveraging automation to handle investment management and income strategies.
Clients receive distributions through a Retirable-managed checking account and debit card, which functions as a monthly "salary," helping retirees stick to their spending plans and avoid costly mistakes.
The platform also supports Social Security timing, Roth conversions and tax optimization, all wrapped into a personalized plan built around each retiree's income needs.
The company generates most of its revenue from asset-based fees, charging a percentage of client assets under management.
It earns additional income from referrals to insurance and health care-related financial products as it expands into holistic retirement support.
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OK, so … I love this.
Here’s the part that jumped out to me:
Clients receive distributions through a Retirable-managed checking account and debit card, which functions as a monthly "salary," helping retirees stick to their spending plans and avoid costly mistakes.
I don’t know why it never occurred to me, but it’s obvious once you realize it: retirees face a very important and very specific set of financial management challenges, and, as far as I know, there aren’t any well-designed PFM solutions focused on retirees.
I mean, think about it. Retirees have diverse but limited income streams. They likely have ambitious, long-held plans for how they want to spend their time and money. They are prime targets for scammers and fraudsters. And they are more likely to incur significant, unexpected expenses (often medical expenses).
Why has no one built the perfect PFM for retirees?
There has been some great work done in the financial safety space (e.g., Carefull), and if you’re wealthy enough when you retire, you can afford to hire a financial advisor. However, as the Axios article notes, “traditional wealth managers typically have account minimums of $500,000 or more, excluding millions of middle-class retirees.”
To be honest, I’m not even really sure you need the human financial advisors that Retirable is bringing to the table. That’s nice to have, and perhaps still necessary given that today’s retirees are not digital natives.
However, in the not-too-distant future, it will probably make more sense to focus on purpose-built digital financial management tools for retirees.
#3: HAP > HEICopy anchor linkCopied
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A proptech provider focused on the home equity space raised some capital:
Bonus Homes, a home equity sharing startup that pitches itself as an alternative to selling, raised $15.5 million in seed funding, Axios has learned.
Unlike better-known financial instruments, such as HELOCs, Bonus Homes has created a structure that can cash out the homeowners’ equity and does not require a monthly repayment, per its site.
Rather than exit the home via traditional sale, homeowners working with Bonus collect the equity from the current price, while retaining an ownership stake in the underlying property.
Under the Bonus agreement, homeowners retain rights up to 35% of any property value appreciation, while Bonus will collect 65% of future appreciation, per the site. Bonus bears the maintenance costs and has the right to rent the property to generate a regular stream of income.
The title remains in the homeowner's name, and they can sell between five and 30 years after striking the deal with Bonus.
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This is similar to Home Equity Investments (HEIs) offered by providers like Hometap and Point. I’m not a huge fan of HEIs (as I have written about previously), but I like this model — what Bonus Homes calls a Home Appreciation Partnership or HAP — better.
HEIs are minority investments in a homeowner’s equity (they typically offer 10% - 20% of the home’s value in exchange for sharing 20% - 50% of future appreciation). The homeowner gets to stay in the home and can use the cash for whatever they want, but they typically have to either sell the home or buy out the HEI provider after a set period of time (e.g., 10 years).
Put simply, HEIs are essentially just an alternative to a traditional home equity loan. Instead of paying interest, the homeowner pays in the form of future appreciation. This makes for an attractive pitch to homeowners (No monthly payments! No interest!), but it’s always struck me as mildly predatory. After all, home equity loans already exist, and the truism “debt is cheaper than equity” is a truism for a reason.
By contrast, imagine that you want to move out of your house and get access to a chunk of cash (say, for a down payment for a new house), but you are hesitant to do so because you don’t want to give up all of the future appreciation gains on your current house.
What do you do?
In theory, you could take out a home equity loan on your existing home, move out, and rent it to help you pay the mortgage and the payments on the home equity loan. That would be the optimal solution, but it’s expensive (two loan payments) and it’s a lot of work (trust me, managing a rental is not for the faint of heart).
Or, you could enter into a HAP. Assuming you qualify (Bonus Homes is available in 14 states and 25 cities, for eligible homes), you get 100% of your home’s current equity. You move out, and Bonus Homes rents the home and handles the maintenance. And after five years, you can choose to sell it at any time within the next 25 years, with Bonus Homes receiving a majority of the appreciation (usually 65%) and the homeowner receiving the remainder.
Even though the homeowner is giving up a larger chunk of future appreciation, I think the problem being solved by a HAP (relocating while retaining equity and not needing to manage a rental) is more painful and difficult to solve than the problem being solved by HEIs (leveraging home equity to get liquidity).
I would imagine that the market for HAPs is smaller than the market for HEIs, but it strikes me as a better and more valuable solution.
2 READING RECOMMENDATIONS
#1: The Approach Banks Actually Respect (by Pam Kaur, Fintech With Heart) 📚Copy anchor linkCopied
I absolutely love discovering new fintech newsletters. It actually happens more than you would think. The amount of quality writing and analysis in our industry is just ridiculous.
Fintech With Heart is great. Worth subscribing to. I particularly enjoyed this post on how fintech companies can better pitch their products to banks.
#2: Why VC and software have PE envy (by Matt Brown) 📚Copy anchor linkCopied
Typically smart stuff from Matt, on a topic that I have been thinking about a lot lately.
1 QUESTION FROM THE FINTECH TAKES NETWORK
There are a TON of interesting questions being asked in the Fintech Takes Network. I’ll share one question, sourced from the Network, each week. However, if you’d like to join the conversation, please apply to join the Fintech Takes Network.
Why has there been so little innovation for rental car companies?
This question comes directly from a member of the Network, and I think it’s a wonderful one. The rental car experience is horrific, even if you’re a well-established member of the company’s loyalty program. Much of the process of renting a car revolves around ID verification and payments, two areas that we’ve innovated on quite a bit in fintech over the last few decades.
Why hasn’t this experience been fixed yet? Where’s Toast for rental car companies?
If you have any thoughts on this question, reply to this email or DM me in the Fintech Takes Network!
INPUT REQUESTED!
I’m working with Dilly Labs and the wise and powerful Tom Johnson on a little research project and I am looking for folks who work at a consumer lending company (bank, credit union, non-bank lenders, etc.) and who have experience buying/implementing/working with credit decision engines to fill out a quick survey.
Credit Decision Engine Vendor Survey
I promise it won’t take long! And it will be extremely helpful! So …
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(Editor’s Note — If you work at a technology company that sells a credit decision engine, feel free to pass the link to the survey on to your clients. That’s perfectly fine. However, if you attempt to fill out the survey yourself, a terrible curse will befall you and your company. This isn’t a joke. The curse is real.)
Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
