--:-- Lauren Murrow: It's back to school season, and as always, the topic of student loans and education funding is top of mind. Beyond the policy debates, though, where can technology be specifically useful to help students and young people navigate some of their first big financial decisions? In this episode from October 2020, Amira Yayawi, the founder and CEO of Moss, a platform that helps students with their banking needs, like getting financial aid for college, joins A16Z general partner Anish Acharya, A16Z partner Seema Anvil, and host Lauren Murrow to discuss fintech for Gen Z and millennials. They dig into some of the issues around student loans today, the underserved banking needs of this group, and how fintech can help younger consumers get set up for a better financial future.
--:-- Lauren Murrow: Hi, and welcome to the A16Z podcast. I'm Lauren Murrow. Millennials and Gen Z have been hard hit by the one-two punch of the 2008 and 2020 financial crises. That experience has radically shaped their approach to finances and their mindset around credit and debt. This episode explores how fintech founders are now designing products tailored to the financial challenges of that younger generation, from managing and avoiding student loans, to building credit, to saving and budgeting apps.
--:-- Lauren Murrow: Historically, students have largely been overlooked by traditional banks, for reasons we'll get into. Due to a combination of economic forces, predatory lending practices, and uninformed decisions, millennials have more outstanding student loans and owe more money than any prior generation. According to a poll conducted this month by the data intelligence company Morning Consult, just 46% of millennials believe their student debt was worth attending college. My guest, Amira Yawi, wants to change that. She's the founder and CEO of Moss, a platform that allows students to apply for every government college financial aid program with a single application.
--:-- Lauren Murrow: In this episode, Amira joins A16Z fintech partners Anisha Charya and Seema Amble to discuss how fintech can cut through bureaucracy, downsize student debt, and optimize and ultimately automate consumers' financial futures from an early age. Please note that none of the following should be taken as investment advice. See a16z.com slash disclosures for more information. The first voice you'll hear is Amira, followed by Seema, then Anish.
--:-- Amira Yayawi: We decided to tackle the problem of paying for college and more importantly, accessing higher education. So we think that money should not be the reason you decide to go or not. We want to make it free and we want to make it accessible and we're hacking the system to make it that way.
--:-- Lauren Murrow: In that financial aid is such a maze and such an obvious pain point. Why haven't others come in and tried to compete on that front?
--:-- Amira Yayawi: Helping students go to college without debt is not a new idea. But honestly, the major reason is no one really wanted to build it. Most of those who built solutions either went to college with scholarships or were able to pay for it or didn't go. And when you didn't feel the pain, it's hard to want to solve it. So a lot of noisy people in Silicon Valley, they would tell you, okay, the college degree is not necessary. But then you look at their LinkedIn profile and they all went to Stanford. So a thing that you see, especially in Silicon Valley, is that those who are in Thai college, they think if you can afford it, you go, but the rest of the population doesn't need it. But that's a big misunderstanding of why people go to college and why people need an education.
--:-- Amira Yayawi: The second thing is millennial FinTech was a lot about lending. And that was at the time how companies like SoFi and others were created, which is loan providers are horrible. So we are going to be better loan providers and millennials really loved it. But today, if you talk to Gen Z, it's like, why should I pay that much? Why should I screw up my future with a $150K loan?
--:-- Lauren Murrow: I think what we also see is that students and parents alike don't really know how complicated the process of finding funding is until they actually get to that point. Navigating the FAFSA process, as well as the private loan process, people don't know where to turn, what to apply for, even differences between a federal loan and a private loan. And that process is unnecessarily complicated if we're trying to get people educated.
--:-- Amira Yayawi: Absolutely. The number one reason why people don't access their rights in the world is bureaucracy. You have to spend your day on government websites with 1998 designs and no API and PDFs and horrible bureaucratic stuff.
--:-- Lauren Murrow: We talked about how companies like SoFi targeted students with lending, but I want to know why traditionally banks haven't courted students in the past. Why haven't they specifically designed tools for this demographic?
--:-- Amira Yayawi: I think that they did for a little while. I signed up for a credit card in university and I got a t-shirt. And I think there was a lot of that credit card marketing happening in college campuses. And that, of course, was outlawed under Dodd-Frank because what they realized was, hey, your quote unquote free t-shirt actually costs like $500 of credit card interest. And once that went away, banks really didn't have a way to make money off of students. And because they've traditionally been so short-term oriented, they pulled out of the market altogether. And I think the other point too is they're losing that touchpoint on the student's edge. So before the banks were getting subsidized by the government to provide student loans and that got removed in 2010, the federal family educational loan program ended. And so we've seen the government providing an increasing share of the student loan market.
--:-- Lauren Murrow: How big is this market? Amira, do you have a sense of scale?
--:-- Amira Yayawi: So the U.S. government gives around $1 trillion a year of aid. But in the student's financial aid part alone, the total amount is $135 billion. And these $135 billion are cut into very small checks. It's just an infinite number of applications.
--:-- Lauren Murrow: I feel like the magic of this country is that it's so loosely coordinated that all of the best ideas just sort of through market forces percolate to the top. But anytime you have to do something that's highly coordinated, like let's find one way to access all of these programs, it's enormously challenging. And look, the same things happened with COVID, right? Like the countries that were able to create an enormously coordinated response have been really successful and the countries that are intentionally very fragmented have been less successful.
--:-- Amira Yayawi: Absolutely. And if you think about financial aid, it's the same thing. Why does a student need to spend every weekend filing forms and entering their name 15 times, assuming that someone should deserve the right to have a higher education should not depend on how good you are at filling out stupid forms. And that's the absurdity of it.
--:-- Lauren Murrow: I think part of it is changing of consumer expectations. This generation has embraced mobile banking and fintech in a way that previous generations did not. And they grew up in the wake of the last financial crisis. So perhaps they don have the same unwavering trust and institutions as their parents did. They're often more leery of debt and credit as we see younger consumers preferring debit to credit cards. And they grew up with the internet. So all this seems to set the stage for the rise of fintech serving this particular market.
--:-- Amira Yayawi: How do you expect the most educated, the most intelligent, but also the most cynical generation to just trust without facts. So there is an incredible, beautiful change in consumer behavior, which is probably the biggest bullshit detector of all consumers. So if you are trying to trick the user in some flow or some ad, that just doesn't work anymore.
--:-- Lauren Murrow: I think you're touching on a really important point, which is trust and transparency, which we're seeing not only in student lending startups, but in the new generation of consumer fintech startups overall, which is millennials, Gen Z, really need to believe that your financial institutions are on your side and trying to help you navigate this rather than all the gotchas and fees and fines to make money off of you.
--:-- Amira Yayawi: I think another interesting point is we live in a generally high trust society where people are willing to try new things. And if you go to many other countries in the world, you know, India is one that Seema and I have studied. For example, it's not a high trust society, which is why you see these massive conglomerates. They do like 25 different things. You know, they make cars and sell cement and they offer financing. If you look at how trust is changing, though, trust is actually eroding in institutions and legacy providers of financial services and trust in software and technology startups is really increasing. So I think it's the best time to be building a company like this.
--:-- Lauren Murrow: What are the specific consumer expectations that we're seeing out of the younger generation? And how do you see fintech companies addressing that in product?
--:-- Amira Yayawi: I think that the old model of, hey, here's a free T-shirt. if you take my credit card, you know, the bank's focus on owning a transaction is kind of going out the window. I'm glad that you brought up SoFi because I think that SoFi, you know, while they did a lot of interesting things, they brought the old mentality of treating every opportunity to interact with students as a transaction. And there's only so far you can get in arbitraging the loan APRs that are being given to students that went to Harvard and Stanford. And I think We've seen the results of that. They built a big company but have struggled to build additional financial services because giving someone a better loan is great, but probably not enough to have a lifelong relationship with them. So I think that the expectation now is to have a deeper, more meaningful relationship.
--:-- Amira Yayawi: And look, I think consumers understand that companies have to make money, which is why, you know, models like subscription or even just charging consumers directly make a ton more sense because consumers are actually smart, smarter than maybe we've given them credit for in the past. So I think there's a higher expectation for the longevity of the relationship. There's a higher expectation of the value that's delivered, but there's also a higher willingness to pay, all of which are really good news for startups.
--:-- Amira Yayawi: I also think if you build trust early on with the student, that can go a long way. The process of paying for college, navigating FAFSA and scholarships and grants was not always seen as a business. The whole student loan process was really seen as being more on the non-for-profit side rather than the profit side. And to Anisha's point earlier, personal loans and credit cards for students were really just thought of as, okay, well, it's something that a big top 10 bank would end up offering on campus or a local credit union would offer, rather than being an opportunity. And now FinTech has the opportunity to weave something that was traditionally not-for-profit and create a real product around it and improve the student's experience, not just from a financial perspective.
--:-- Amira Yayawi: And that really presents an interesting proposition in the sense that if you help students find money to pay for college, you can probably build a longer relationship with them over time and offer more financial services. But you've unlocked something that they would have an incredible amount of pain getting to themselves. And I think there is also a behavior that is very different, which is usually companies try to win more than their user, right? And most is the opposite. Actually, the user wins more than the company. And that is a different way of thinking. And I think that is also what is hard to understand from the bank that just wants to win more than you.
--:-- Amira Yayawi: I mean, I've been with bankers in the room when I explain what I do. And I remember one banker who looked at me and said, economically, it doesn't make sense. And I'm like, it actually makes total sense. The bank of the future will be a bank that is able to transform $1,000 into $5,000 because the 1.2% gain is not interesting for this generation. It's also interesting because banks' whole business has always been two things, taking deposits and making loans. So even if you assume that they were able to do this, it would just be very unusual for them to do it because it's not their business. Because their mindset is how do I create a transactional account or financial product and sell it to you rather than how do I actually build a tool or a product or a service that is actually solving the pain point first rather than being around the dollars and cents.
--:-- Lauren Murrow: And now, of course, there's a slew of fintech companies that are specifically targeting students. They're tackling student debt, how to manage it, and more recently, how to avoid it. We're seeing more around savings, particularly saving for tuition. There's budgeting apps targeted to students, helping them establish credit early. And then, of course, there's lending apps with terms specifically tailored to students.
--:-- Amira Yayawi: One point I want to go back to is the importance of building that customer relationship early. I think more fintech companies are recognizing that. And so we're seeing companies like Greenlight or GoHenry or Step. that are encouraging kids and high schoolers to start saving early.
--:-- Lauren Murrow: Can we talk a bit about that trend?
--:-- Amira Yayawi: I think that navigating the long-term relationship is a real thing. You don't ever want students or individuals to feel like they're in the kiddie pool of financial services. And when you graduate from college, a lot of things in your life change. You want to start being an adult. And I think you have to design the product as well as the brand to be one that actually can have that longevity. You don't want it to feel like, hey, this is a constraint my parents put on me versus, hey, this is something that's actually going to enable me for the future.
--:-- Amira Yayawi: I actually think that if you are thinking about keeping a long-term relationship, starting too early is not the solution. I think you should start the first year of adulthood. And I think getting people early means just getting them at the like critical juncture, which is when people are applying for college, they're taking that critical step of managing their own financial independence. And so I think this is a really interesting time to build trust when they relied on probably their parents and they taking control of that.
--:-- Lauren Murrow: And the data backs that up that a little less than half of college students were having any credit cards. And among those, about 60% got their first card when they were around 18 or younger, which suggests that many of them are starting their credit card experiences around the same time that they transitioned into higher education. But we're also seeing increased parental dependence. As of July, 52% of 18 to 29-year-olds were living at home with their parents, according to the Pew Research Center. That's a rate higher than the Great Depression. In addition, six in 10 adults are relying on financial help from their parents. How does that impact the theory that companies should be trying to reach out to these consumers and capture them at this transition moment, when in fact many of them are perhaps not reaching that transition moment at the same point that past generations did?
--:-- Amira Yayawi: I think one thing to point out here is that even if you applied for all the federal loans and scholarships available to you, there's a good chance that you won't get the full amount and there'll still be a gap. And you'll have to fund that gap, usually through a private loan, usually go through a bank, for example, to get it. But that requires a cosigner. Who's the cosigner going to be on that loan? Probably your parents. And so you end up falling back on your parents, if you can, in many situations, and the cost of living is going up. And so I think that's part of the reason that you see them still reliant on their parents. In many other countries, kids depend on their parents for a longer period of time. So I think that if it leads to a better long-term financial outlook for the individuals, then it's not necessarily a bad thing.
--:-- Amira Yayawi: What I think is going to happen is that they will be more responsible financially, just because financial decisions are not made alone. Actually, the fact that a lot of those young adults now live with their parents, I think will be very interesting in terms of how their financials will go in the future. I think Gen Z is going to surprise many, many, many people with how little credit they will be using in the future. I think they've seen their parents crushed by debt. They are super aware about the consumerism and all of that. While I think that you're right, there may be less of a functional need to get credit. I do think that it's an important sort of emotional and psychological milestone to start to establish that credit.
--:-- Amira Yayawi: Look, while I think they may take less credit, I still think that they'll probably participate in the system by establishing credit, at least in a lightweight way. And I think establishing credit isn't just about like, OK, now I have a credit score that's in the prime segment and now I can take on more debt, but also preserving optionality, which I think isn't something that you totally understand when you're 18. So, you know, you need to build a credit score if you one day want to buy a home and maybe Gen Z doesn't, but you have that optionality to do so or for an auto loan or any of these big purchases that a lot of times when you're 18, you're not really thinking about.
--:-- Amira Yayawi: And we're seeing on the product side, a number of products that are helping students think about how to build credit, because I think that's not something that students think about. Things like the account I've had open the longest is actually what's driving my credit score. And how do you build a good credit score? And so these are all things that you have to learn, which is an opportunity for FinTech.
--:-- Lauren Murrow: I like that you brought up that idea of financial responsibility. There are many fintech companies that are designing budgeting apps specifically with this in mind for students, which are offering things like ways to track their spending or setting goals and challenges and sometimes peer comparisons on spending habits that are anonymized. So it's interesting to see for those that perhaps don't have that parental backstop.
--:-- Amira Yayawi: It's funny, we've talked a lot about this. I think to some extent, yes, budgeting is important, but it feels like a much bigger lever is ensuring that students are getting access to every single dollar of financial aid that's available to them. I think we should actually focus on bigger ways and bigger moves to actually assist these people. If the existing budgeting apps are insufficient and you want to think bigger, where are those areas that you see opportunity?
--:-- Amira Yayawi: I'll give you one point that's really piqued my interest. Just as 20 years ago, Blogger and other technologies sort of made every individual into a publisher. Perhaps what's happening today is that every individual is becoming an investor. And look, I think that the next generation is much more savvy and is going to participate in investing at a higher rate. And I think instead of talking about controlling costs, let's talk about increasing quote-unquote revenue. And there's a lot of ways to do that that I think are interesting.
--:-- Amira Yayawi: Yeah, I think there's still a lot more to be done on the employment side. That's a great point, Seema, in that rising college seniors are now facing the worst job market in modern history. Traditionally, that was like, oh, I'm going to go work in the library or the coffee shop. Now I've seen an explosion of online tutoring, for example, in COVID. I think we've seen a lot of platforms pop up, but I don't know if they've necessarily really connected with students specifically. And to Nisha's point, it's a lot around, like, how do you increase the amount of revenue for the student in addition to the loans so that they can sort of become more entrepreneurial?
--:-- Amira Yayawi: I think you're also seeing a change in how education is being offered, especially in COVID, where kids aren't able to actually go to school in many cases. But it'll be interesting to see what traditional education looks like and also the necessity to pay for traditional education versus am I going to go through a coding boot camp or what we would call vocational training traditionally, but really skills-based. And I think alongside of that, we're also seeing things like ISAs pop up. And ISA is an income sharing agreement. Essentially, the student borrows money from the institution to fund their education. In exchange, they pay a percentage of their salary over time after graduation, and it's up to a certain cap. So if you end up making a lot of money at the scale of it.
--:-- Amira Yayawi: I think the important point though here is it's a false dichotomy to say, hey, either you deserve to go to college or you don't and you should go to coding bootcamp. I think consumer choice has to be the number one consideration. And I do think there'll be a barbelling that happens, which is there'll be a bunch of students that want the brand or the experience of going to a Stanford, Harvard, and they'll do that. There'll be a bunch of students who want either the life experience of going to a small liberal arts college or perhaps the sort of vocational training of going to something that's much more coding boot camp oriented. And I think the schools in the middle are going to be the ones that struggle because consumer preference is going to clarify around choosing those options.
--:-- Amira Yayawi: I agree. The other thing that I think is interesting is how has leverage changed over human history? You know, the most historical model of exerting leverage was through labor, like having a lot of people working for you. The second was through capital, which is the quote unquote, rich get richer. And I think the new model for leverage is software. You know, perhaps in the last generation, you could only own an investment property if you had achieved a certain degree of wealth. But now with the fractionalization of things like investing in real estate, almost anyone can participate in the economics of an investment property. So I'm really bullish on software, making things that were previously only available to people that had a lot of capital available to all people. And that's why I think the mentality of hustle culture and everyone's a founder and all of that is a hugely positive thing and very trend aligned with what's happening in technology.
--:-- Lauren Murrow: Thank you all for joining us on the A16Z podcast. Thank you, Amira. Thank you, Seema. It was great to join you guys. Thank you so much.
