NerdWallet CEO On How City Life Changes The Financial Goals Of Millennials
"NerdWallet has become a unique sort of startup success story: It’s both a credit card comparison platform and a media company that has produced more than 12,500 articles on personal finance. Last November, NerdWallet co-founder Tim Chen hired Tapan Bhat, a Realtor.com, Yahoo and Quicken alum, to be the company’s first Chief Product Officer.
Bhat was hired as part of the company’s effort to develop tools to help the site’s visitors “know what they don’t know,” according to Chen. In early October, Chen and Bhat visited the International Business Times offices to chat about financial privacy, the difference between the financial goals of urban and rural millennials, and what they wish they would have done differently with their money.
How did NerdWallet get started and how did the site break through the noise of the internet?
Tim Chen: Back in 2008, I was in New York working at a hedge fund, and I got fired right after Christmas Day. So I was just sitting around twiddling my thumbs, thinking about what to do with my life. And my sister calls me up and asks me: “Can you help me find a credit card?” I was like: “Sure. It will take two minutes, I’ll find some site that compares credit cards and I’ll tell you which one to get.”
But lo and behold, I found a bunch of marketing materials and no quality analysis at all. I was super pissed because I was like: “You can buy an airline ticket on Kayak and compare all the prices. Why can’t you do that with a credit card?”
Nerdwallet Co-founder and CEO Tim Chen. Photo: Nerdwallet
So I created a spreadsheet, I got just about all of the cards from the six biggest banks, which is just about all the cards out there, and I just made an Excel file and sent it to her. Then the lightbulb went off: I realized this would be a really helpful website.
I was convinced that this was a better mousetrap. But when I hit publish, no one showed up. And it was like the most depressing thing ever. What a lot of entrepreneurs assume incorrectly is that if you build a better mousetrap people will come via word of mouth. That’s the implicit assumption. It’s true in some markets maybe, but it's definitely not true in financial services.
I wanted to get people to show up without paying them to show up because then we could actually show them content that was helpful, or help answer their questions, without trying to sell them stuff. That proved to be a really indirect six-year detour, where we ended up building all these products that people wanted but nobody had any incentive to build. So, for example, a FAFSA guide to help you figure out how to apply for financial aid for college. Prepaid credit card comparison tool to help you figure out prepaid cards. None of these things paid us. We did article after article, research guide after research guide. And the interesting thing is the media started really appreciating what we were doing because it was helpful for their readers. And ultimately we built our brand that way. So six years later we got to a much bigger scale. There’s like a 100 million unique people that come to our site every year. We crossed $100 million in revenue.
Now we’re thinking hard about we solve even bigger problems. So the big remaining problem I see in the world of financial services is that money is super complicated and people have no idea what they don’t know. They don’t even know what questions to ask! So rich people hire these Cadillac financial advisers that spot everything they’re doing wrong. They’ll be like: “Go buy an umbrella insurance policy, it's super cheap, you might get sued if somebody slips in your backyard. Open this trust, you’ll save a bunch of money.”
But for most people there just isn’t that resource. You have people late on their mortgage payments that don’t know about home loan modifications that could save them from being foreclosed upon. And this is just a matter of not knowing what you don’t know. We’re thinking hard about how to solve that problem. That’s why we hired Tapan, and he’s taking a crack at that.
How do you do that? The Google search route makes sense when people have specific questions. But how do you start when people don’t even know what the question is?
Tapan Bhat: It’s not the easiest thing in the world to solve. That’s why no one’s done it. For us, it was about starting with the consumer and trying to figure out what consumers need. We spent hours and hours and hours going around the country, spending time in their homes, really understanding their financial situations. We did a bunch of surveys after that. Some really interesting things came out of that.
The first one was that 88 percent of people have financial goals, things that they want to accomplish. So, check. No problem there. They have some kind of plan, very vague maybe, but have some kind of plan to do it. The issue is that 71 percent of them feel that they may have made not-so-great financial decisions in trying to get there. So there’s this lack of confidence, in the sense of “Hey, have I done the right thing?” And then you look at millennials, that number is even higher — it’s at 83 percent. So it's a very high percentage of millennials.
What we realized is it's really important to help them find ways to accomplish their goals. And the goals can be as simple as helping them save for a pet, save for a vacation. Something really immediate, to much more long-term goals, like retirement. Most of the people we talked to, retirement was so far off.
Chen: “It’s never going to happen.” We heard that so many times.
Bhat: They don’t believe social security will be there for them. It’s like “Eh, let me focus on today, let me live my life.”
But behavioral research suggests if you help people solve short-term goals, you can then ladder them into more long-term goals. It sort of builds confidence. That’s some of the approaches we are taking and we are going to be exploring over the next several months: How do we help consumers meet short-term goals?
Nerdwallet Chief Product Officer Tapan Bhat. Photo: Nerdwallet
Financial stuff almost seems complicated on purpose. Because it's complicated, the authority gets an extra level of authority because it becomes: “Just trust me, I know this stuff, you don’t.” Obviously, there’s been efforts to bring transparency to some of this. But is there anything that’s still a black box for people? What do you see that’s the most opaque that you’d like to shine a light at?
Chen: There are some industries that are led by deception and big advertising budgets and stuff like that. But I actually think that's a smaller part. The bigger issue is people for the most part just don’t know what they don’t know. It's like no one is actually making money when somebody forgets to file for an earned income tax credit — well, maybe the government benefits a little bit — but no bank is making money off that, no consumer is benefiting off that. I think those are the biggest opportunities.
I mean one opaque area is auto insurance. They know that people don't call in and renegotiate. The United Kingdom, by the way, has very different behavior. The regulators in the U.K. have forced them to engage in much more transparent practices. But yeah, you’ll see people raising prices every year because they can and because they know you have it on auto pay and aren’t paying attention. I think things like that are maybe more at risk as millennials get smarter and integrate their money into something that watches their back.
If you have a product, you can usually compare that product to similar products other people have. Like, you can sort of immediately know if your friend gets better service than you if you're in the same place, and you have one bar and they have four. But your financial life is often private. You don’t really share it that much. I’m wondering how privacy and old notions of privacy around finances prevent people from say, seeing other outcomes and comparing information.
Bhat: It’s interesting. Look at Venmo, for example. In their feed, you have what your friends are paying for. I think there is a generational shift to some degree for what is acceptable and what's not. People in my generation wouldn't ever think of doing that (yes, I’m old). My 22-year-old niece wouldn't think twice about it. So I think a light is being shown on this. To some degree, I just think consumer behavior will encourage more transparency.
Chen: I do think it would be really cool if we get to a point where we’d be like: “I want to know what my neighbors are paying for Comcast. Because I’m pretty sure I’m overpaying.” I think things like that will become more possible on an itemized level as we sign up more people.
Speaking of generational differences, there are all these cliches about millennials. They don’t marry, they don’t have cars, etc. Of course, these are generalizations. But I’m wondering what has surprised you about the millennials who you’ve met and the financial questions they have?
Chen: That tour we did where we met 100 random people all over the country has really skewed my view on a few things. I was really surprised by the attitude towards retirement. We met this one young woman, she was making a pretty good income, she was living in Boston. I think she was making $80,000 to $90,000 doing sales at a tech company. She was literally like “none of my friends or I will ever retire. It’s just impossible given city life and all this stuff. And that’s okay, these are the other things I care about and focus on.” That to me was like “Wow, really?”
I heard that a lot on the coasts and in the cities, and then it was completely different when you go to Sacramento or Charlotte. People there are getting married and want to retire, and they’re millennials. There’s something about the cost of living that creates such deviation between these two groups of people.
Bhat: For example, conventional knowledge goes: “Home buying? Millennials don’t care about that.” They really do care about it. When you go outside the big urban metros it's like: “Oh, I’m saving money for a down payment and I’m living with my parents right now so I can save money and buy a place of my own with my boyfriend.” That kind of thing is a real goal that people have. It’s always fashionable to — I won’t say diminish — but to make fun of the aspirations of the next generation. The baby boomers did it to my generation, the Gen X people. Now it's like they are doing the same thing to the millennials.
But when you actually look at the core human aspirations of what they want to do with their lives, those really don't change that much. Now there’s a huge thing we see in the urban areas, where — to the points that Tim mentioned — the cost of living and certain dynamics change what's possible. But even then, everyone said millennials want to live in cities. Now they are starting to move out to the suburbs as they start having kids.
So when you tie all these data points together, you have a generation of a vast number of people who have huge financial aspirations that society needs to find a way of solving. I think that's where we come in.
Chen: One other thing I would note: Almost everyone I talked to over the age of 36 was like: “Nerd who? I would never connect my accounts — are you crazy?” The 22-year-olds were all like: “Yeah sure, take my social security number, I’ll totally hook up all my stuff.” And then there was some gradation in between. That one was really noticeable to me.
Bhat: These people grew up with being online all the time. They don’t know a world where they weren’t connected.
Chen: One thing that blows me away is, I’m 35, so on the end of the millennial spectrum. Five years after me, everyone went on a Yelp for professors and read reviews and choose professors based on that. That expectation and mindset are very illustrative of what they expect out of everything, whether its financial services or whatever else.
In terms of technology, is there anything on the horizon that makes you think, man, I can’t wait to get my hands on that? Like AI? Not to get too sci-fi here.
Bhat: I think what's on the horizon are systems that tap expert systems — more than AI — to help provide personalized information. People have applied that to trading stocks and index funds. Now robo-advisers are doing things like that. But how do you come up with rules and expert systems to help guide these?
Now, we’ve got opportunities: How do you transfer those to financial advice for everyday consumers? I think there’s going to be something there. I think we see voice as something that's going to be transformative to the industry. I don’t quite know how. You see Chase did something with Alexa. Right now these are science experiments. The question is how they end up. They have the potential to be transformative.
If you could go back to yourself at 20, what would you do different financially?
Chen: Oh man. For me, I would do low-cost index investing. I feel like at that time, I was just trying to gamble, trying to get rich — trading in and out. Ultimately, it's a zero-sum game with huge fees. I don't think in hindsight it was a very smart thing to do. But that was me. I guess everybody is different.
Bhat: I did something like that. But I always maxed out my 401(k) though. (Laughs).
How do you feel about cryptocurrency as an investment?
Chen: Well, I’ll start off by saying I am not an expert. This is a personal opinion. But I just feel that when Chinese grandmas are using leverage to buy something because they think the value of it will go up, and there’s no fundamental underlying value, that’s a bad sign.
I read this book a while ago about all the historical bubbles that have ever happened, and there are a couple common attributes. One is that people think that the people who are investing in that asset class are geniuses. The second is that retail investors start using leverage to buy that asset class. I think this has signs of both of those. But then again, it's a self-fulfilling prophecy. Gold is the same way, gold has no intrinsic value, gold is purely based on what people are willing to pay for it. And cryptocurrency has a lot of similar characteristics. There’s a finite amount — it can be traded. I guess that’s about it. But who knows? I wouldn’t be betting my own money on it going up though.
This interview has been edited for length and clarity."
