The consumer finance and real estate Fall conference circuit has begun, and I’ve bristled a few times hearing big firms get on stages and talk about how they’re going to take over because “you must have scale.”
So far the fintech and real estate disruption narrative skews toward giant companies taking most like Amazon, Spotify, and Uber have done in other industries (consolidation). But there are tons of small companies disrupting all parts of the lending and real estate ecosystem (fragmentation).
There will be some consolidation in lending because scale does help lower rates for consumers. But scale doesn’t always foster smart local service, so the market will remain more fragmented than some people think. Why? Because many new fintech software companies power innovation for lenders and enable fragmentation. They let smaller lenders acquire customers then nurture, service, and close them just as smoothly as the big firms. So price matters for consumers, but service can win as long as price gaps aren’t drastic.
This fragmentation enabled by technology is even more prevalent in real estate brokerage. The top real estate VCs I talk to believe real estate brokerage is being dismantled and rebuilt right before our eyes. This is because there is a lot more independence among real estate agents. Real estate agents 1099 rather than W2 employees so their entrepreneurial DNA makes it much harder to shoehorn them into big companies—especially when they have access to all the same innovation as big firms through the software startups.
Bezos is right that scale is required to do certain big things like build planes and iPhones, but this isn’t always true in consumer lending and it’s even less often true in real estate.
Fragmentation and consolidation aren’t mutually exclusive, but the storytellers backing either concept like to pretend it’s one or the other. It’s not. Especially in markets as massive and technical as lending and housing. There’s plenty of room for both. This is capitalism 101.