The case for building hyper-niche lending products

Backdrop: How social channels match content to users

I write about a topic 99.999% of people don’t care about.

And yet, it’s worth my time to maintain an active LinkedIn feed, a Podcast, and this Newsletter.

That (small amount) of attention is powering relationships, networking, and ultimately business for my consulting/agency business.

Gary Vaynerchuk describes what’s happening on LinkedIn as the Tiktokification of social media.

Platforms like TikTok, Facebook, Instagram, LinkedIn and others have figured out how to distribute content based on WHAT people care about, not based on WHO they follow.

That means it’s game on for niche-creators.

Anyone with niche content that helps a small audience can build free distribution for their products and services.

The social media networks love it because they can serve highly relevant content for every person in their network, no matter how eclectic or rare their interests. That keeps eyeballs on their platforms. And that keeps advertiser marketing dollars rolling in.

The key ingredients that make this happen:

1. At scale audiences — this gives niche creators an incentive to create content to attract attention from the consumers in the platform.

2. Niche creators, at scale — without them, the platforms wouldn’t have content that’s hyper-relevant to each user. Without niche content, LinkedIn would feel like CNBC + resumes and messaging.

3. Matching algorithms — without sophistication in the matching between audiences and content (machine learning + AI), audiences wouldn’t get the most useful content, and creators wouldn’t get their content in front of their ICPs. Both sides would eventually give up.

The upshot of all of this?

A 2024 creator on LinkedIn with no resources, no connections, and no history of success can get a content piece in front of a billionaire angel investor who may decide to put $50MM into their next venture. And, that nobody creator might get more attention from VCs than entrepreneurs with much deeper pockets and traditional media connections.

That nobody creator didn’t have much of a chance against the deep-pocketed, well-connected entrepreneur even 15 years ago.

But, social media is a playing-field leveler, and the best content will win. Period.

The stage is set for hyper-niche financial services products

The same thing is about to happen in financial services. But, most don’t know it yet.

Let’s look at a platform like Credit Karma.

They have 130MM+ members, and they understand their users deeply.

Supriya Gupta, VP and GM of Product at Credit Karma, describes how Karma’s data is powering personalized recommendations for financial products in a recent interview with The AI In Business Podcast. “We’ve built on that trust throughout the years with not just credit scores, but also information about your car, your home…” (Source)

Going beyond recommendations, Karma is looking to automate personal finance decisions based on what they know.

Gupta describes it as “Autonomous finance is about figuring out what’s best for you with the least amount of work possible.” (Source)

Earlier, we described the 3 ingredients niche content needs to thrive on a platform: Large audiences, niche creators at scale, and matching algorithms that can connect users to the most relevant content.

Credit Karma has 2 of those 3 ingredients in place right now — at scale audiences and the matching algorithms.

But, it’s missing the niche creators, at scale.

You know that’s true simply by looking at their product inventory.

There’s 331 cards listed publicly on Credit Karma’s website.

Those 331 cards need to serve all 130MM users on Credit Karma’s platform.

The scale of Karma’s data and supply of card products means their matches are probably industry-leading.

But, it’s hard to consider them super-personalized.

Here’s how to see it:

If we divided 130MM members by 331 (the number of card product options), we get ~393,000. That means for each product on the platform, on average, there is a group of 393,000 members for which that product is the best match for their needs. And, since many of these products are very similar (e.g. 1.5% cash back products), the recommendations are less personalized than these numbers suggest.

Lenders build generic products intended to serve large swaths of consumers.

Those products were designed decades before at-scale platforms that can make 1-to-1 recommendations (like Credit Karma) existed.

Because they had to distribute their products in mass media channels without granular segmentation, product design was generic for broad appeal (e.g. 1.5% cash back on all categories).

That’s starting to change.

Now we’re seeing cards for kids and teenagers. For homeowners. For car owners. For international students.

Fintech players are moving the ball forward.

But, I don’t see enough lenders serving the hyper-niches in the same way content creators serve hyper-niches on LinkedIn.

Where are the lenders creating the card for the single mom with two kids under 7?

How about the card for the retired couple living on social security who travel to visit their grandchildren?

The number of possible niche segments and products is staggering.

And, as ecosystems like Credit Karma evolve, it makes sense that niche products will not only compete with the mass-appeal cards, they’ll actually win the consumer’s attention in many cases.

When 10,000+ niche card products are available on Credit Karma, how often will Karma recommend the plain vanilla 1.5% cash back card? Karma is bound to find a more relevant, more personalized option for each user. And, that is likely to increase the odds of conversion, which drives revenue growth for their business.

The platforms that nail relevance will win.

And the platforms with the most variety of products to choose from will stack the deck in their favor.

We’re still in the early days of the Copernican Revolution

Why build hyper-niche lending products?

You’re betting that the mega-platforms like Credit Karma will figure out to how connect hyper-niche products with consumers, making them commercially viable when previously distribution would have been too costly.

Furthermore, you’re betting that over time, the majority of product distribution from mega-platforms will migrate towards hyper-niche offerings, because they stand to drive better conversion rates.

In the popular paper - The Copernican Revolution in Banking - Frank Rotman made the following observation:

Rotman predicted 4 types of players would emerge from this macro trend (bullets below quoted from Rotman’s paper):

1. Transactional Banks manufacture white-label versions of specific products and services

2. Genpop Banks serve the general population with a broad suite of products

3. Vertical Banks serve specific segments vs. the general population

4. Non-Bank players will be able to distribute Banking products manufactured by the Transactional Banks

Using Rotman’s language, the big banks are the Genpop Banks, some fintechs are starting to occupy the Vertical Banks category, and Credit Karma is one of the largest Non-Bank players that can distribute products to its massive base of engaged consumers.

To emphasize the point I’m making in this article — that hyper-niche products will grow and disrupt many Genpop Banks — Rotman says:

Closing Thoughts

The TL;DR:

• We have platforms (like Credit Karma) with a massive audience, granular data on personal finances, and the strategic imperative to build personalized, 1-to-1 recommendations for their users

• Platforms like these present an opportunity for niche-lenders to distribute products efficiently, enabling the disruption Rotman predicts in his Copernican Revolution paper

• Despite the opportunity, we don’t observe this happening yet. Credit Karma’s credit card marketplace has 331 products to serve 130MM+ members, and many of those products have similar value propositions for mass audiences

Lenders — there’s a huge opportunity to build niche products that modern Non-Bank players can distribute. In the next 10 years, I expect we’ll see marketplaces like Credit Karma significantly expand their product catalogs as fintech players start to act on this opportunity.

The stage is set for lenders to distribute hyper-niche products efficiently.

The next question?

Will lenders be able to create & manage these products with unit economics (cost structures) that make sense? 

With an opportunity this large, it’s only a matter of time before someone figures it out.

P.S: If you’re building a hyper-niche product and aren’t sure how to approach your marketing/distribution strategy, let’s chat.