Productizing Bureaucracy
Fintech as the frontend for reducing administrative burden and improving access to services.
One of the starkest contrasts in user experience for both individuals and businesses is the difference between engaging with products where every click and interaction has been iterated upon and engineered with user experience in mind, and engaging with services that are clearly legacy systems and/or involve a complex web of forms and processes. While the products of a large number of software and internet companies fall in the former category, many public sector services unfortunately fall into the latter category. Importantly, this disparity in user experience across domains or categories of services is precisely part of why this poor user experience is a necessary problem to address. The kinds of services that involve poor or difficult to navigate user experiences are often also those that are more essential, more consequential, and tend to be used most by the least advantaged. Prominent examples include social safety net benefits and various other kinds of public sector payments to individuals and businesses (for instance, the last-mile delivery of the largest stimulus package in history to businesses through the SBA, as detailed in this a16z post). These services also tend to be in more regulated spaces or involve protracted reasons leading to the status quo, and as such can often deter or make difficult the creation of new, more streamlined systems that make the services more readily accessible.
Why does poor user experience when navigating bureaucracies and public services matter? Beyond the general unpleasantness and frustration that comes with attempting to navigate a difficult-to-understand process, there are very real effects when it comes to outcomes of these programs. One effect is observed in completion rates in the access procedures for these programs. For instance, Michigan’s public benefits application process previously involved 40+ pages and was on average 72% complete when turned in. A redesign of this form involving more than halving its length saw the forms being turned in on average 94% complete. The relationship between completion and form complexity observed here underscores how ease of navigating a bureaucracy could affect the effectiveness of program delivery, by most metrics one would use to assess program effectiveness e.g. processing times, completion rates among eligible recipients, number of interactions necessary between program administrators and recipients, etc. An even more dire consequence of bureaucratic complexity is that eligible recipients, who these are intended to assist, do not take up the benefits of these programs at all, as complexity can obscure eligibility requirements and hinder awareness of programs among eligible recipients. For instance, the EITC - as the country’s largest means tested cash benefit program - has an estimated 25% incomplete rate, and a study found meaningful increases in take rates by making program information more available via mailings to eligible individuals, and an even further increase in take rates by reducing the informational complexity of such mailings.
Furthermore, bureaucratic complexity affects not only program effectiveness on the user/recipient side, but also the costs of administering such a program - which, in the case of public programs, often translates to taxpayer costs. For instance, with the simplification of the Michigan benefits forms described above, the time taken to process individual cases has also been reduced by 42 percent, increasing administrative capacity. Consider also that each of these programs have opportunity costs, and that dollars and minutes spent on ineffectively administering one program not only reduce the utility of that program, but also resources that could be dedicated to pursuing other public interests.
In order to understand how to build better user experiences around bureaucratic complexities, we need to understand how bureaucratic systems comes to be, beginning with an understanding of administrative burden.
What Is Administrative Burden?
In their 2018 book of the same name, Pamela Herd and Donald P. Moynihan describe administrative burdens as phenomena like bureaucracy, confusing paperwork, and complex regulations in the interactions of citizens with government programs. They describe a number of administrative burdens that can limit access to and effectiveness of public programs and civic participation. Notably, they argue that administrative burden is not something that simply emerges, but rather created as the result of intentional policy choices. It can, however, also be reduced as a matter of policy choice, as with automatic enrollment for Social Security.
Administrative burden as a problem to solve is far more common than one might think in the ideation phase of startups. Taking a broad understanding of administrative burden across different domains, many products and services that various companies have built or are building can be understood as addressing a particular kind of administrative burden (just think about how often the word ‘byzantine’ appears when startups pitch the problem they are trying to solve).
It’s important here to distinguish between formal bureaucracy, in a more narrow understanding of the concept as relevant to administrative burden in government, and bureaucratic systems in general. There are certainly plenty of complex, bureaucratic systems not directly related to public programs or government interaction, and plenty of companies working on minimizing bureaucratic friction in these systems. Examples include compliance functions in a variety of domains, which startups like Vanta or VGS aim to help companies handle, as well as a number of companies enabling the simplification of some complex business process or product component as-a-service. As a matter of focus, however, I’ll limit the scope of discussion here to products addressing administrative burden and bureaucracy in the more narrow understanding of these concepts as relating to the delivery of government programs and services.
Fintech Productizing Bureaucracy
Let’s take a look at some companies building products that reduce bureaucratic friction and administrative burden - companies that are ‘productizing bureaucracy’. In particular, I’ll focus on fintech companies that reduce the friction for end-users (both individuals and businesses) to interact with services delivered through bureaucratic systems.
Why focus on fintech products in particular? Stated simply, fintech is both the domain and feature set that is both most common across products reducing administrative burden and complexity, such that most companies that would fall under this category are either commonly understood to be fintech companies or fintech-adjacent. More fundamentally, much of fintech (ex-infrastructure) can generally be understood as a front-end for traditional financial services and, increasingly, DeFi use cases; the positioning of these products as a front-end experience lends itself well to tackling the problems of poor UX due to complex processes.
Finally, fintech companies have an advantage in simplifying bureaucratic processes due to compounding advantages stemming from the data moats these companies acquire. As many of the most bureaucratically complex processes are, to some degree, financial in nature, the inputs to these processes are often related to an end-user’s financial data; fintech products that engage directly with these users are often able to most directly help with additional services in navigating these systems and processes.
Some examples of domains where fintech and fintech-adjacent startups are exhibiting this behavior of simplifying bureaucratic processes:
Business Taxes
One of the more commonly seen instances of startups productizing bureaucracy in recent years is segment-specific tax solutions, particularly for underserved businesses. Some examples include:
Mainstreet - finding tax credits for startups by plugging into payroll data and simplifying the tax-credit process.
neo.tax - speeding up the process for startups to access R&D tax credits.
Anrok - tax solution for SaaS businesses.
These solutions are simplifying a bureaucratic system for businesses that existing solutions did not serve well (namely startups and subscription software businesses). In terms of the model of productizing bureaucracy, they are solving two different components of the problem. First, they are solving a data and information availability problem - by plugging in directly to payroll, billing, or other financial software for businesses, these products are making it easier to match this data on the disparate pieces of information around these various credits and processes. Secondly, they are solving the problem of time-consuming and complex procedures by productizing the processes for business to engage with these programs.
Going forward, one could imagine additional products and services for adjacent processes being stacked on top of the data foundation built by these companies. Other possibilities include these products being embedded as features within other financial products for businesses, as well as consumer equivalents of these solutions for specific customer segments.
Safety Net Benefits
To introduce the concept of productizing bureaucracy, I used the example of accessing benefits. Propel is probably the most notable example of a startup working in this space - by improving the UX of safety net benefits through products like Providers (fka FreshEBT). What is most notable about Propel’s approach is the bundling of access to these benefits programs is that it bundles the software layer for interacting with these benefits with more conventional mobile financial services (checking accounts, etc.). I believe that as this concept of ‘productizing bureaucracy’ develops in more forms, they will be built on top of, or in conjunction with, the traditional financial services stack.
Fintech as a Distribution Solution for Government
In 2020, multiple large fintech companies, namely PayPal, Intuit, and Square, participated in the distribution efforts for the SBA’s Paycheck Protection Program for small business relief. This distribution highlights another way for fintech to help streamline these programs and services - as a distribution solution, assisted by the data and reach fintech companies have with their customers. Whereas the products discussed previously help streamline the process of applying for or accessing programs (e.g. customer → program), fintech as a distribution solution completes the loop by assisting in the process of distributing the benefits of the programs themselves (program → customer), in this case forgivable loans. An interesting angle to view the productization of bureaucracy is how companies approach handling both parts of this loop - making both application and distribution a better experience. These a16z posts (1, 2) explore the concept of fintech as distribution in greater depth.
Some additional considerations to note around productizing bureaucracy: while products like the ones discussed above get us a significant amount of the way towards making these complex programs more accessible, they do not eliminate all of the problems around individuals and businesses accessing all the programs and services they should have access to. For instance, this study on the use of assisted preparation methods (APMs) for tax filing in the context of take-up rates for the EITC notes that while these solutions make take-up much more likely, efforts need to focus on encouraging eligible individuals to file using an APM in the first place. As such, the ‘product’ piece of productizing bureaucracy is only one piece of the puzzle, and it’s important to not underemphasize efforts to drive usage, particularly as many of these products will be new and unfamiliar to their end users.
One final thing to note about the growth of products that absorb some of the administrative burden in these processes is that it can be viewed is as an unbundling of policy-making and policy implementation. This unbundling is somewhat related to the privatization of government trend (which I’ve written about here), as well as the broader concept of public-private partnerships.
These companies that productize administrative burden are, in some ways, unbundling the overall process of how public programs are brought into reality. The process of designing these programs remains, as always, in the public sector, but these companies are unbundling part of the implementation and ‘customer experience’ components of these programs. As such, they are able to focus on providing an excellent experience for the end user that, hopefully, increases program access.
Areas to Consider
There are a number of areas where programs and systems are particularly bureaucratic, that have yet to see notable product solutions emerge. Many of these are fintech-adjacent, and could represent problem spaces for the right fintech company to develop additional products around. Two spaces that are interesting to think about are:
Occupational licensing. The systems of occupational licensing for professions that require it are often incredibly complex and, as such, can represent a considerable expense. With an increasing amount of attention in fintech being directed towards financial services for solopreneurs, freelancers, and specific types of professions (e.g. Collective, Found, Oxygen, Lili, GlossGenius, etc.), one could imagine that services to help with the process and expense of navigating the occupational licensing system.
Immigration. There are a number of fintech companies focusing on serving immigrants, such as Simba, Remitly, Wise, Stilt, Nova Credit, Majority, and others. While these companies aim to address particular parts of financial services that immigrants are underserved by, one could also imagine that there is an opportunity for these types of companies to help their customers navigate other parts of the notoriously complicated immigration system. Indeed, some startups, such as Welcome Technologies and Boundless, are working in that particular space. There is thus an opportunity to vertically integrate many of the financial and financial-adjacent solutions for this demographic.
Productizing bureaucracy is not so much a particular domain as it is a theme across a number of fintech and fintech-adjacent companies and problem spaces. As the adage goes, everything becomes fintech - and as everything becomes fintech, there is an opportunity for fintech to help individuals and businesses navigate complicated processes that, while not necessarily considered a financial service today, fintech companies are well positioned to help with given their data moats, customer relationships, and track record of massively improving user experience. Ultimately, the promise and hope of this type of product is that it can allow these services to become more accessible to all.