Fintech takes finance Beyond Good
“Beyond Good” by Theodora Lau and Bradley Leimer argues for fintech’s social power to transform finance.
Theodora Lau and Bradley Leimer open Beyond Good by stating: “This is not intended to be a regular business book.” That is the book’s strength and its weakness.
Let’s start with the strengths. The book’s full title is Beyond Good: How Technology is Leading a Purpose-Driven Business Revolution. The authors’ thesis is that tech, especially fintech, is creating a new structure of incentives that make addressing global inequalities a good business model.
Beyond Good is a counterargument to the prevailing belief that a company’s sole mission is to maximize shareholder value. It reads as a running battle against famous business books that evangelize the shareholder’s centrality, notably Good to Great, by Jim Collins and Zero to One by Peter Thiel.
This makes Lau and Leimer anti-Silicon Valley revolutionaries, but from within: they are extolling fintech models that turn the V.C.-led Valley model, which seeks to create unassailable monopolies, inside out. It is part of a trend that is gaining steam in the U.S. (and has always been strong in Europe) that says companies should work for stakeholders, and for a purpose beyond just profits.
The authors clearly outline the negative impact of capitalism’s winner-take-all ethos and economics. Neither Silicon Valley nor Wall Street has an answer for existential crises such as rapidly aging populations and environmental degradation. Women’s inequality, reduced social mobility and the shift of stable employment to gig jobs are often exacerbated by Big Tech.
Even fintech has contributed to these ills: although fintech has done an amazing job of giving the unbanked or underserved access to basic financial services, it has also accelerated other inequalities.
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From M-Pesa and Alibaba making it easy to serve poor or remote people through the mobile phone, to supapps like Grab and WeChat bringing micro-lending and micro-insurance to mom-and-pop merchants, fintech models are designed to be inclusive.
But the authors note: “Merely having a relationship with a financial institution, or a means to store and move money, does not automatically alleviate poverty or reduce inequality – identifying what consumers need and what they can do with this access to banking services is where the real impact is.”
This means banks should be looking at “financial health” as their metric for serving consumers, including whether their lending activities serve the local community, not just drive the bank’s revenues. The authors want to see banks regulated or rewarded on how well they address social diseases like poverty and hunger.
The good news is that a lot of this is already happening as finance undergoes digital transformation. Lau and Leimer want to see more digitizing identity and access (such as India’s Aadhaar and UPI), digitizing government and agricultural payments, digitizing P2P payments for consumers and businesses, and digitized remittances.
The trick is how to make private enterprises agree. The authors say that a healthy community is key to long-term prosperity. This is true. The hollowing out of the American middle class is a big reason why large American multinationals increasingly invest in serving Asian consumers instead.
But what is true in the long run is not true for today, or the next bonus season. This is where Beyond Good runs out of road.
First, there are founders and senior executives who build social purpose into their businesses – which is terrific. They are, however, in the minority. People begin with good intentions but the demands of our financialized world tend to prevail. Fund managers are many steps removed from the companies they analyze. Private companies are driven relentlessly by V.C. milestones to reach the next level of valuation. Few businesses interact with finance on the grounds of their actual mission.
Beyond Good doesn’t have anything to say to this. To be fair, no one has come up with a counter to the shareholder-maximalist argument that doesn’t ultimately require government intervention. Capitalism is based on Adam Smith’s invisible hand, in which many selfish decisions end up creating broadly beneficial outcomes. It’s fair to ask if the bargain is still a good one, but it’s probably asking too much for private interests to accept reduced profits to meet a social goal. They’d get crushed.
The authors point out many companies, mostly in fintech, that have been created to address gaps in equality and other shortcomings. These are great! But we’ve seen this with Big Tech: wasn’t it Google that, for a time, made “Don’t be evil” its mission statement? How long did that last?
In fintech, for every Ant or PayPal, Wealthfront or Affirm, there are tech companies of dubious merit. Is Robinhood’s zero-commission trading app “democratizing finance”, or is it an easy way for people to blow their COVID relief check on memestock punts? Is the next buy-now, pay-later lending app really helping people save, or is it just removing the thought process from buying non-essentials, and trapping people in new revolver loans? And we haven’t even talked about crypto.
The authors recognize the problem. What matters is not whether startups are disrupting incumbent banks: “The real question is, is the value that these companies deliver that much better? Are their business models that much more transparent?”
Good questions for an industry increasingly driven by artificial intelligence analyzing reams of big data, in which correlations rule but individual circumstances – and your personal data – may not be properly accounted for.
The authors ask some other relevant questions, like why fintechs aren’t popping up to address the looming demographic crisis. In both the West and the East – everywhere bar Africa – we face a surge of elderly people, many of whom will need intensive, human care. How does fintech help us grow a healthy “silver” economy and support gig healthcare workers, without this turning dystopian?
The ESG movement is the biggest attempt in the financial services industry to address community needs. Beyond Good is curiously mute on this topic, perhaps because it’s a top-down, Davos-people type of movement, rather than a bottom-up tech disruption play. But it would be worth asking what ESG mandates are accomplishing, and what dos and don’ts tech disrupters can draw from them.
Beyond Good is a thoughtful and useful book. Its most interesting idea is that fintech’s incentives can be socially useful as well as profitable. There are lessons here that could be better understood by industry organizations, CEOs, founders, and by regulators.
Too often, though, the book falls back on “leaders should” or “banks should” – exhortations to do good, rather than practical advice on how to navigate the hungry demands of Wall Street analysts (who do, in the end, sorta-kinda represent pensioners). When the authors say this is not the usual sort of business book, perhaps it should be.
Beyond Good finally goes back to calls to imbue young people with ethics. Yeah, sure, but is this really the issue? Most recent grads are idealists, entering the workforce with a desire to do good (or at least to exact some kind of “work-life balance”). They have ethics. What they don’t have is the ability to always live by them once they enter the corporate machinery.
All of which is to say that getting beyond good will require a heavy dollop of government changes to tax, spending, investment, and regulation. Leaving it just to technology will reinforce rather than disrupt the maximalization of shareholder value in business.