This King Midas of Finance Says the 'Game Is Rigged'
WHY YOU SHOULD CARE
Because more than 100 million people annually turn to his company for financial advice.
By Poornima Apte
I catch Tim Chen, the 35-year-old founder and CEO of NerdWallet, on the morning after the Oscars. Did he watch? “No, I was too busy binge-watching Dirty Money,” he replies. I am not sure what that is. “It’s this really cool eight-part documentary series. There’s an episode about payday lending, the emissions scandal, price gouging by Valeant Pharmaceuticals, it’s all really neat,” Chen gushes.
That dizzy, all-consuming, geeky love of all things finance fuels Chen’s latest endeavor, NerdWallet, a company offering tools and advice to more than 100 million annual customers with questions about choosing the right credit card, paying off a mortgage, getting out of debt and more.
Credit a special confluence of events for NerdWallet’s genesis: In December 2008, at the height of the Great Recession, Chen was laid off from a hedge fund job at JAT Capital. Nearly half his friends had also been let go, so he knew it would be a while before he found a new job. Chen remembers hanging out at Dave & Buster’s, which offered half-price games on Wednesdays, and thinking about next steps. When his sister Kim called asking for credit card advice — as an American launching a business in Australia, the foreign transaction fees were killing her — he was happy to help.
The game is completely rigged. That’s why financial advisers exist for the wealthy.
After all, Chen had plenty of time on his hands; besides, he figured he would compare the handful of major credit cards and that would be that. But the research floored him. He found thousands of credit cards on the U.S. market alone and picking the right one was not easy. Figuring out the best match — for Kim it was a Capital One card with no transaction fees — would lay the foundation for NerdWallet.
The domain name attests to Chen’s status as a self-described “lifelong nerd.” Equally important it was affordable, so Chen set up the site to offer credit card advice to the lay consumer. “I learned how to code, I maintained a blog, wrote all my own content, I did almost every role for the company for two years,” he says. “When you are small, you have an advantage in that you can target the specific niches that the bigger companies can’t target.” And that’s precisely what Chen went after. His expert content, gleaned from five years on Wall Street, and friendly advice started ascending the ranks on Google. Today, nine years since launch, NerdWallet has grown to a staff of about 400 in its San Francisco office and offers custom advice well beyond credit cards, including taxes, loans, investing, retirement — pretty much every financial decision you’ve ever made, or should be making.
When NerdWallet was ready to double in size — from a one-person to a two-person operation — Jake Gibson stepped in as co-founder. Gibson, now an angel investor in the Bay Area, served as chief operating officer from 2010 to 2014. He has known Chen since they were in eighth grade and has fond memories of doing “typical teenager stuff” together. Illegal fireworks might have figured in there somewhere, Gibson says, laughing.
Born in Houston, Chen moved with his family to Atlanta when he was 10. He attended Stanford as an undergraduate and studied economics, a subject he describes as “the physics of human behavior.
One of Chen’s many strengths, Gibson says, is his ability to take the long view: “We used to joke that he was King Midas because everything he touched turned to gold. In reality, he saw investment opportunities in companies and knew which questions to ask much better than other people.” Early on, when NerdWallet’s only marketing channel was SEO on Google, Chen could easily have reverse-engineered the algorithms so NerdWallet would rank high on search engines and therefore be more easily found, but he didn’t. Instead he invested in a robust product. “Tim decided we weren’t gonna play that game. That was a short-term game,” Gibson explains. “You might win a battle here and there, but you’re gonna lose the war.”
NerdWallet might be winning the war, in an especially crowded marketplace, but J.R. Duren, a personal finance analyst at HighYa, a consumer-facing website, takes issue with the positioning of online companies like NerdWallet as the good guys fighting the big bad banks. “They present themselves in their copy and design as somebody who’s different than the big evil institutions that took your money during the financial crisis, but they do have something to gain from you signing up for their product,” says Duren. NerdWallet’s primary source of revenue is from third-party affiliate commissions, from credit card suggestions, for example. Duren recommends hiring an independent financial adviser instead to avoid any potential conflict of interest.
Chen points out that NerdWallet is fanatical about maintaining a strict firewall between editorial, the touch point of the brand, and the business department. And, he adds, most financial advisers will only look at high net worth individuals, not those with $1,000 in savings. For advisers to make a commission of around 1 percent, playing with small change doesn’t make sense. “The game is completely rigged,” he says. “That’s why financial advisers exist for the wealthy.”
Chen’s goal is to democratize the system and level the playing field for everyone. His next geek move? Helping users get a handle on improving financial health. Instead of a piecemeal approach that informs users about credit scores or the right credit card to use, he envisions feeding them ideas for how to build credit, save money on bills, ditch debt. All noble, if rose-tinted, goals that will likely test his nerd powers to the limit.
Three Questions for Tim Chen
OZY: What was your last impulse purchase?
Chen: I am really bad about ordering books on Amazon. Someone will be telling me about a book and I will have purchased the book before they even finish their sentence.
OZY: What book have you really liked?
Chen: I just finished Bad Paper, it’s such a crazy book. I’ve been reading a ton about the collection industry.
OZY: When was the last time you had buyer’s remorse?
Chen: When I realized I was paying a 1 percent annual management fee on my 401(k) when I was at JAT.
- Poornima Apte, OZY Author Contact Poornima Apte