WORKWEEK

Last week when we wrote about rebundling, we talked about some companies that have built strong businesses with that strategy. One example is M1 Finance—an app that started out in wealth management that now offers a more complete suite of financial products. I was lucky enough to email Brian Barnes a few questions about M1 Finance’s strategy around rebundling and advice for operators thinking about it. 

M1 Finance has quietly become a behemoth fintech company—scaling to $4.5 billion in AUM, raising 4 funding rounds in 13 months and is currently valued at $1.5 billion. By offering a comprehensive product, M1 Finance can offer users better terms and simpler functionality. CEO Brian Barnes also recently bought a small bank in Minnesota, with plans for M1 Finance to integrate those capabilities too. 

1. Strategically, was rebundling something that M1 always wanted to pursue or was it more opportunistic after analyzing the fintech ecosystem?

Offering a comprehensive financial platform was always part of the plan. At the end of the day, people need to manage their money or their finances, and it’d be far simpler if they were able to do it within one platform versus across many different providers. Checking accounts and brokerage accounts are different due to laws and regulations, not because of customer demand saying they want separate accounts for different financial purposes. We set off to build a service that managed all of your money needs in a holistic, personalized, and modern fashion.

We couldn’t build everything simultaneously, so had to do it in stages, going from Invest to Borrow to Spend. Our focus is not simply offering many products, but offering a platform where the products work better together because they’re under one umbrella and something you couldn’t replicate with a host of point solutions.

2. M1 seems to always have a holistic approach and from Day 1 seemed to be focused on rebundling financial services. How was this a benefit to the company?

Most others have a cross-sell approach where they have one shining star and try to sell a different product with the hope that customers will use it simply due to brand affinity. We do not believe brand affinity is enough and it’s not too difficult for a person to build a suite of best-in-class point solutions. Instead, we believe that each product needs to enhance the other so that the whole is greater than the sum of the parts. Thinking this way from the start caused us to be more focused on interplay between different products rather than feeling like discrete products that simply have the same logo in the top corner of the app.

3. M1 already does so much for users—how does the company think about product expansion from here? How do you all pick what services to focus on next?

Many people have complex finances, needing a range of products across banking, brokerage, insurance, tax, planning, and more. We want to offer holistic and personalized financial services to meet every one of our customer’s financial needs. We want to meet a certain depth of functionality in a domain before we move on to additional breadth. Anytime we add something, we focus heavily on how it seamlessly integrates with all the other products to make the platform value stronger.

4. Are there any advantages around rebundling? In theory you can offer cheaper pricing across a suite of products, but does the data collected from one product help fuel decision making for others?

Yes, there are plenty of benefits. We’re able to price on the relationship basis, meaning we can have lower fees or offer higher rewards than a company where their entire economics are determined by one product. Then, we can optimize someone’s entire finances because we have a holistic picture. We can use their banking data to help them save or invest more or better underwrite their debt. If they invest for free on the platform, we can use those assets to collateralize a low cost line of credit for cheap access to liquidity. These are things financial firms cannot do if a person’s finances are scattered across multiple institutions. The user gets a lower cost, easier to use, and more powerful financial suite.

5. So many fintech companies and startups, from PayPal to newer entrants, are talking about becoming a financial super app. What does that mean to M1 and what advantages does M1 have over others in the space looking to become a “super app?”

The demographic we serve and our approach is different. Most others are bolting together a suite of basic financial services and trying to get anybody and everybody. We’re going after people with six- and seven-figures and trying to digitize the private bank experience. These people have complex financial situations and would benefit from holistic and personalized financial services. But, they still do not have the assets that a private bank requires. We believe by digitizing the services we can offer the same benefit at a fraction of the cost and open it up to more people.

6. Both fintech and crypto operators now are thinking heavily about rebundling services for their own products—what advice do you have for builders thinking through this process right now?

It’s important to think about how each addition enhances all existing functionality. That’s how the value of the platform grows.