All The Fintech - 1.6.20 - 2020 US Fintech "Predictions"

Happy 2020 everyone~ As usual, I’m on a plane to SF but this time with some news of my own to break - the next two weeks are going to be last weeks at Plaid! I’m starting a new gig in New York (still in fintech of course) and will have more to share once I start in a few weeks :)

In other news I also just got back from Thailand and in addition to waking up at the oddest hours thanks to jetlag, have also been some time in the past few days thinking about what might be ahead of all of us in fintech in the US. I’ll try and push myself to give some more hot takes, but I also believe that truly monumental change takes time - especially in financial services. Most of my “predictions” tend to be extrapolations of existing trends that I’ve observed but I’m hoping some of these will be interesting nonetheless. Please send me any thoughts, comments, and feedback as I'm always interested in adding more data points! 

US Fintech in 2020

  1. Embedded fintech expands with more financial products for businesses launched by tech companies - Amazon being the first tech company to announce a business banking account

    Matt Harris at Bain Capital Ventures has been blogging about embedded fintech + fintech as the fourth platform for a while, with fintech joining internet, cloud and mobile as part of the modern technology business stack. I very much believe in this thesis and wanted to add my own spin - I think 2020 onwards will see a significantly more activity for fintech products focused on businesses launched by tech companies. While consumer finance has seen a ton of activity, the SMB market has historically been less efficiently served. In just the past couple of years, we’ve seen a few companies focused on specific niches + products within the SMB market - BankNovo, Mercury, BlueVine, Clearbanc to name a few. We’ve also seen larger fintech companies launch distinct product lines aka capital is so hot right now (Stripe Capital, Toast Capital, Square Capital, Shopify Capital…I can go on). While Amazon shut down plans for a consumer bank account, my bet would be that they go into business bank accounts first

    I believe that more tech companies will focus on launching embedded financial products for businesses due to the revenue opportunity, platform loyalty upside, and regulatory climate (collecting data on businesses is more palatable vs collecting consumer data). I’ve even personally invested in a company that’s reducing the barriers to entry for embedded financial products (Unit) and I’m super excited to see them launch this year, so more to come…

  2. More fintech infrastructure launches in 2020 - particularly around lending activities

    A bit of superset of the above, but I also believe that we’ll see a lot more fintech infrastructure companies launch in 2020 due to a few headwinds - On the supply side, in addition to net new B2B infrastructure companies, we’ll see more earlier stage consumer fintech companies hit an acquisition wall and pivoting towards B2B. On the demand side, growth stage fintech companies will be increasingly focused on unit economics and wanting to increase LTV vs growth at all costs- as a result they will need more infrastructure to quickly launch + test new financial product lines.

    I’d expect to see more infrastructure on rewards, issuance, underwriting, servicing, brokerage, and many more…

  3. More banking fees moving to $0 over 2020 - my vote would be someone like Wells Fargo in their efforts to rebuild consumer trust

    The attack on brokerage fees happened gradually, then suddenly and I believe other consumer banking fees are finally under similar attack. Brokerages such as eTrade and Robinhood showed that net interest revenue + low/zero fees potentially result in a more aligned + efficient business model (I wrote about this previously here). The average fee for ATM withdrawals and overdraft “protection” has continued to increase year over year, and the revenue collected by large banks has also continued to grow -

    Large banks reported charging consumers $11.45 billion in overdraft and NSF fees in 2017, up $10 million from the 2016 total and up 2% from 2015. Nine billion dollars of this amount was earned by the 20 banks that charged the highest volume of fees. More than one of the top 10 largest banks still engage in each of the following abusive practices: charging sustained/extended overdraft fees in addition to per-transaction overdraft fees; artificially changing the order of debit transactions in order to trigger more overdraft fees; and allowing five or more overdraft fees to be charged per day to customers.

    More and more fintech companies have launched features to directly attack this line of revenue - whether it be Dave, Brigit, Chime’s SpotMe, Varo, etc and they’ve been able to gain a non-trival amount of scale as a result too. Free overdraft protection is starting to become the norm and I would challenge a large FI to truly deliver something innovative by matching this feature for their consumers.

  4. Increased consolidation in consumer fintech driven not by large FI’s, but rather large fintech companies - Chime, Stripe, or Robinhood acquire 3 or more companies between the three of them.

    In my opinion, getting to scale as a consumer fintech company is harder than ever before. While it’s still takes a very non-trivial amount of effort to launch, say a neobank, there is increasingly more infrastructure, playbooks, and expertise easily available vs years past. Many VC's all have their own bets in the market and these bets have also increasingly become more competitive with each other as companies move from a monoline product offering. In terms of the largest FI’s, it seems that Marcus and Paypal are going to be the most acquisitive going into 2020 but I believe we won’t any of the other largest banks execute large M&A opportunities of fintech startups - it seems that most are trying to compete via “new” products + relying on distribution. Instead, I think we’ll see more M&A activity driven by large fintech companies with large warchests available for disposal - looking to acquire companies for new customer segments, product lines, or just pure talent. If I had to make a guess on which companies - I wouldn’t be surprised if Chime, Stripe, and Robinhood made a few more acquisitions in 2020 for all the reasons above.

  5. Increased focus around data access from large corporates + media - but no direct regulation in 2020

    I expect more pressure on financial institutions, credit reporting agencies, and other financial services companies around their philosophy on user data + ownership. Open banking + data access is now top of mind for pretty much any consumer banking executive and state+federal regulators (although the election will slow this down). That being said, I still think it’s very early days for consumer awareness as much as the media wants to make a case that consumers don’t trust tech companies.

  6. Rewards and points will be the consumer mousetrap for 2020

    2019 saw the rise of the debit card + checking account as the acquisition mousetrap of choice (and access to interchange revenue). I believe that rewards and points will be the consumer mousetrap for 2020 - companies like Point have started to show early promise, jumpstarting their rewards programs off balance sheet with the goal of forming direct relationships. Meanwhile, PayPal’s major acquisition of Honey has driven a ton of renewed interest in the rewards/card linked offers market - companies like Drop, Rakuten, Dosh, etc are going to be very interesting to watch. I would expect more and more partnerships and integrations to offer more value add to consumers.

  7. Auto + student debt will see a lot of funding activity

    I think the election is going to put auto and student debt back into focus which I’m hopeful will result in more startup activity! There just seems to be a lot of low hanging fruit and I wouldn’t be surprised to see some interesting M&A and partnership opportunities in these spaces by large fintech companies to jumpstart their product offerings.

  8. Rebuilding of financial products driven by autonomous finances + product discovery

    The past decade has seen a cambrian explosion of consumer fintech companies and the sheer number of applications is starting to become a bit overwhelming. As a result, in 2020 across consumer fintech I think we’ll start to see more discovery and autonomous finance focused products that sit on top of existing fintech products vs creating their own. There are some early companies in the space including Astra and Copilot (disclosure: also a very small investor in Copilot) as well as larger established players such as Nerdwallet and Credit Karma. Even is also an interesting disaggregated play for discovery and I’m curious to see what verticals they expand into. Best in class fintech companies will leverage partnerships to be able to expand their own product coverage and try to provide other non-competitive offerings to consumers - aggregation is step 1, actually building out infrastructure to automatically move money efficiently a big step 2.

That’s all I’ve got for now, let me know what you think :)

All The Fintech - 1.3.20 - Lookback on 2019 fintech "predictions"

Happy new year everyone! I just got back from a two week vacation in Thailand and am currently in a somewhat delirious, jetlagged state, so what better time than now to look back on my 2019 fintech calls :). I’m also planning on sending a follow-up newsletter in the next few days for 2020 “predictions” so look forward to that 🙌.

Without further ado…

1) Neobanks - Gradually, then suddenly

  • Neobanks started to get some more mainstream attention in 2018, and I believe that in 2019 companies such as Chime, Acorns, MoneyLion, Empower, Aspiration, etc will continue to scale.

  • By the end of 2019, large FI's will be caught by surprise at the amount of scale that these neobanks will achieve and will start thinking about M&A for user, product, and talent acquisition.

Mixed result I think - the largest neobanks continued to scale whereas those with less scale started to hit some growth limits. For example, Chime was rumored to be raising at a $5B+ valuation with over 5MM customers after just raising a $200MM round in March 2019 valuing the company at $1.5B. However other neobanks with lesser scale started to see some growth concerns - I thought this would lead to more M&A opportunities but hasn’t quite been the case.

2) Global competition heats up

  • Related to thought number one, 2019 will see later stage fintech companies compete on a global stage

  • UK + EU based companies such as Revolut, Monzo, N26, and EToro have all announced plans to launch in the US

  • Meanwhile US based companies such as Robinhood, Coinbase, Acorns have already launched small beachheads in countries such as Australia + UK

  • A lot of these companies have requisite amount of significant capital to launch internationally and scale quickly, will be particularly interesting to see how it affects the US neobank market

True, but a bit obvious in retrospect and it’s taking a bit longer than I expected to get to launch. N26, Monzo, and Revolut all have their US product live in various states from an open beta (Monzo), to waitlist (Revolut), to full subway ad launch (N26) - however it took the better part of a year+ to get to this state! More and more companies are also announcing international launches - Robinhood started their UK waitlist in November, Gemini continued to expand out in Europe, Coinbase expanding out more products across Europe, and many more.

3) Bitcoin price remains (relatively) constant

  • ¯\_(ツ)_/¯ seems as though most retail investors have been burned, so at this point it's mostly hodler or institutional investors

  • would not be surprised if we still see more massive rises + dips driven by algo's chasing signal

Mixed? Bitcoin Dec 2019 - $3,900. Bitcoin July 2019 - $12,500. Bitcoin Jan 2020 - $7,200. Still ¯\_(ツ)_/¯, not making anymore Bitcoin predictions…

4) Enterprise blockchain still isn't really a thing

  • I've blogged about this before, but I'm still super bearish on "enterprise blockchain" - I have yet to see a great use case that's actually easily implementable by a large enterprise

  • Getting an enterprise to buy and deploy a simple database is hard enough...

Still think this is true, debate me please.

5) AI moves into overhyped enterprise technology

  • Honestly more of a personal wish due to a lot of personal experiences this year with my banks...

  • The point isn't to completely automate personal banking, the point is make it easier for consumers to get their needs met in a de-risked manner

  • When it's something that should take 1-2 minutes, give me an AI but if it's something more involved, please stop making me click through 500 options, that's not using AI!!

Still think this is true.

6) Beginnings of a new credit model

  • A ton of companies are starting to investigate / build really interesting new credit models based off data separate from a pure credit score.

  • Companies to look at include Square, Petal, Brigit, Dave, Even, Earnin, Credit Karma, etc

  • I find CK to be really interesting as they've been able to use their scale to convince large US lenders to share underwriting models...

  • (Slowly) moving away from a delayed, pull based model to a real time, consumer-consent push model.

True. More capital products were launched for businesses this year including Toast Capital, Stripe Capital, etc. Meanwhile, consumer underwriting got a big lift from the regulators in Dec 2019 - U.S. federal banking regulators issued an interagency statement supporting the evaluation of alternative data when assessing consumers’ creditworthiness and recognized that the use of alternative data may improve the speed and accuracy of credit decisions. Big step forward for the use of alternative signal + more real time data to determine true ability to pay.

7) Winter is (finally) coming? Raise up.

  • Growth stage companies will continue to raise "mega-rounds" and stay private longer

  • I actually think this is not a bad outcome, allows fintech companies to focus more on long term value creation vs chasing endless growth (although of course they will still need to grow...)

True - a lot of large fundraises in 2019 and no new fintech companies signaling to go public any time soon. Fintech companies like Stripe, Robinhood, SoFi, Chime, MoneyLion, etc all raised large rounds in 2019.

8) Larger tech companies offering more "fintech" products

  • Everything is fintech if you look closely. I don't expect large tech companies to be launching competing fintech products any time soon, but increasingly they are starting to offer more products that look like fintech.

  • Examples include Uber Cash, Amazon Pay + Cash + Lending, Facebook's stablecoin for WhatApp India, etc

  • Privacy topics from 2018 will prevent many of these companies from launching new finance products quickly - public fintech companies to watch IMO are Amazon, Square, PayPal, and FiServ.

True. Facebook tried to launch Libra (and failed for now due to regulator concerns), Google announced that they’re testing banking accounts, Uber launched Uber Money, etc. Square continues to be my favorite public fintech company to follow - Square Cash continues to just crush all the metrics…

9) M&A activity driven by banking core providers

  • Hot take - I think we'll see FiServ ($29B market cap) acquire a "newer-age" banking core provider like a Q2 holdings ($2B market cap), or a large bank acquiring a smaller core banking provider to jumpstart a new application

Mixed result. Got the company right, but the price and acquired company totally wrong. Fiserv acquired FirstData in 2019 in a $22B all stock deal…

10) All of the large fintech unicorns stay private

  • Pretty self explanatory - it seems as though most unicorn fintech companies still have a healthy amount of funding (at least off the number of ads that I see still...), so no need to IPO for 2019

  • Unicorn companies will find other ways to provide liquidity to employees while still staying private ala Uber's secondary offerings, etc.

True! Carta posted an interested take on secondary liquidity as a employee benefit which is really fascinating - starting to see more companies do this as companies stay private longer.

Overall, I think I did pretty well! That being said, I also think that my “predictions” weren’t super crazy and a bit obvious - but it may also be due to hindset so you tell me :).

All The Fintech - 10.10.19 - The start of the midgame for fintech companies

This year has been really interesting as I believe we’re starting to see the mid-game strategy of several fintech companies making their moves from mono-line product offerings to try and become end to end platforms with a variety of new product offerings. The typical high growth playbook in fintech has been identifying a differentiated product wedge, acquiring as much scale (aka user whether they be business or consumers) as quickly + efficiently as possible, and investing into newer product offerings to cross-sell. The tech multiple assumption built into these companies is partially built on the belief that they’ll be able to retain the users they’ve acquired with the initial product and convince those users to run a majority of their financial lives on the platform.

In just the past week, we’ve seen Brex launch their B2B cash account, Robinhood re-announce their high yield checking + debit product, and Credit Karma launch a high-yield savings account. In the past quarter, Stripe publicly launched their corporate and capital program, Betterment announced their high yield savings (Wealthfront did so already in Feb), and Sofi even forayed into crypto trading. In my opinion, the key difference between a true platform company vs a company with multiple products is the ability to leverage a single view of the customer to offer differentiated and unified product experiences vs silo’ed data views of the customer for each individual product offering. Each product should also contribute meaningful + high signal data back to the platform, thus creating a product feedback loop as well as platform lock-in.

For example in Brex’s case, the cash account allows them to expand their addressable market outside of companies they currently know how to underwrite for revolving credit to any business that needs a bank account - this also unlocks additional revenue streams such as durbin-exempt interchange + other financing options (Brex Capital anyone?), with the end goal of becoming the end to end platform to run a business on top of. For Robinhood, a cash management account encourages users to keep funds in the platform which ideally leads to more trade volume, more premium subscriptions, and that sweet interchange + net interest income revenue. Interestingly enough, the fee landscape in consumer brokerage is also finally shifting with 6 of the largest brokerages announcing in the past two weeks that they’re now offering zero-commision online trades, wiping a combined $20B in market cap.

Time will tell as to which initial product wedge brings in the ideal, lasting customer and which companies can successfully build out a growth platform - in B2B there’s been success in building out platforms with companies like Square (initial wedge: payment processing + merchant underwriting), Shopify (initial wedge: online storefronts), and even Wave which H&R Block picked up this year (accounting). On the consumer side, it’s still early days of the mid-game :).

On the enterprise side, there’s also been a movement of financial institutions trying to move to a platform approach driven by technology rather than a sales team. My favorite early barometer to test for data silos with any financial application is simply going through onboarding for one product (e.g. savings) and then opening another product a few days later (e.g. brokerage) to see how many data points are repeated - more often than not I have to completely re-onboard. “Disruption” of financial services can perhaps be distilled down to - can emerging fintech companies use technology to create a full-service, platform business for their users faster than large incumbents refactoring/rebuilding silo’ed products, users, and data? The honest answer is probably involves some winners and losers (and partnerships) on both sides and I’m excited to see it play out as a consumer!

Related reads:

CB Insights has a fun read on fintech startups and where they got their initial users

Brendan Dickinson distilling his framework on fintech companies -

Recently, I’ve begun to think of fintech within a new framework: financial platforms, financial product manufacturers and financial infrastructure providers. Financial platforms earn a customer’s trust by solving an immediate pain point and leveraging that position to take over more of their financial life. Financial product manufacturers create and distribute new (or traditionally offline) financial products. Financial infrastructure companies build the connective tissue of a modern financial ecosystem.

Some (somewhat accurate) information on the Durbin Amendment -

All The Fintech - 8.18.19 - Apple Card playing the long game

Hi everyone! If the format looks new, it’s because I recently moved over to Substack as I was having issues with my previous newsletter app, so here’s to hoping that VC money gets put to good use :)

In other news, I finally got an invitation to apply for the Apple Card and wanted to put some quick thoughts on paper, especially as I’ve been reading a lot of other interesting takes.

Quick thoughts:

1) Mobile only signup flow - This is the first time I’ve been able to apply for a name brand credit card via mobile end to end and although the internet apparently wasn’t too impressed, I actually think Apple + Goldman have set a new standard for mobile onboarding for a financial product. Some things I noticed during the onboarding flow - no need for full social security, just a confirmation of last 4; dynamic KYC depending upon what information they were able to pull (e.g. not all users needed to take a picture of a physical ID); name, address, email already pre-filled from iCloud account; instant underwriting + provisioning of a virtual card in minutes.

2) First class mobile experience - To my knowledge, there’s actually no web interface for the card so the only way to manage payments are via the wallet or over phone if necessary. This is super interesting - a truly mobile first / only approach towards financial services. This fits into Apple’s strategy to continue to push adoption of mobile payments, but will be curious to see if Apple does end up releasing web features - maybe something built into Safari? They’re also real subtle on trying to make the Apple Card your default payment mechanism with specific call to actions + making their wallet experience first class vs everyone else. Apple + GS have built a first class product experience combing hardware, software, and plastic (I guess metal now) and I think there’s significant demand for this, particularly with subprime / near prime financial products.

3) Apple Card is to Apple as Amazon Prime is to Amazon - I don’t expect the card to be meaningful in regards to revenue for Apple for many years, rather it’s all about lock-in into the ecosystem. If users adopt the Apple Card as their primary payment mechanism, it makes it literally impossible to switch from an iPhone to any other mobile device. I wouldn’t be surprised to see a lot more tech companies attempt to accelerate their payments / fintech strategy as a result - everything becomes payments with a large number of users, unique platform, and long enough time horizon.

4) It’s not about the rewards - I’ve read a ton of tweets stating how the card isn’t that great since the cashback doesn’t compare with cards like the Chase Sapphire Reserve, Amex Platinum, etc. I think this misses the point - I would have been extremely surprised if Apple + GS immediately came out with an aggressive cashback mechanism out of the gate especially since almost everyone is eligible for the card. Cards with 2% cash back and above tend to be for people with good credit - cards such as Citi Cashback, CapOne Savor, etc all generally require a credit score of ~700+. The Apple Card has an extremely wide band of credit that they’re accepting - subprime, near prime, and prime all with different credit limits + APRs.

Since they’ve already removed most of the fees that subprime cards often view as profit centers, Apple + Goldman probably already has significant exposure trying to making profit off interchange + interest vs balancing default rates across such a wide spectrum. I wouldn’t be surprised to see the rewards structure change over a longer time for different demographics once GS is able to build out their risk curve. The first card I was ever able to get was a Discover Charge card since I had no credit history and that came with 1) no cash back, 2) a poor product experience (I still don’t get what I should be generally paying…), 3) low merchant acceptance - the Apple Card is 100x superior to anything being offered in that space.

5) Low acquisition cost - There have been some articles that state that the CAC is ~$350 per card and to be honest, I would question that data point. Apple + GS don’t need to do any direct mail, online advertising, etc - all they need to do is send a notification via your Wallet. There’s never been a financial product that has had the ability to get such wide distribution on day 1 and that’s what makes the card extremely exciting. The ability to own the experience end to end with such scale is very interesting…

6) Instant cash back moving liability off balance sheet faster - Unclaimed rewards are increasingly becoming a cause of concern for large credit card programs. For example, JPMorgan’s credit-card holders had accrued $5.8 billion in rewards they had not yet redeemed as of Q3 2018 and a lot of this is due to the product experience (as well as users stashing points for different experiences). By keeping the cash back experience simple and instant, there’s almost no reason to hoard points on the Apple Card - it’ll be interesting if there will be more tie-ins to Apple Cash to try and drive further usage of Apple’s P2P payments too.

Anyways, let me know what y’all think - if I’m totally off base, other viewpoints I missed, etc - keep the feedback coming! And look forward to the next one where I attempt to go deeper on Strong Customer Authentication aka the reason why processors and merchants are stressing out over in Europe…

All The Fintech - 8.5.19 - RBS "Free" Fintech Cash Money

Hi everyone! A couple of weeks ago, I had the chance to meet a bunch of people and companies in the UK (thanks to everyone that made connections over Twitter too) and I learned quite a bit about how different the fintech landscape is compared to the US. One of the more amusing discoveries was regulatory related - after commenting at a happy hour that there were a ton of London Tube and bus advertisements from fintech companies focused on the SME space, I learned about RBS' Remedies Fund competition that just recently closed (link).

TLDR - As part of conditions attached to the £45bn government bailout of the Royal Bank of Scotland during the 2008 crisis, RBS initially attempted to sell and spin off a portion of its SME banking business. However, plans soon fell through and an alternative agreement was put into place where RBS would contribute £775m into an Remedies Fund that would be administered by a body that's independent from the government and RBS. £425m were given out as award to help challenger banks developer their own offerings while the other £350m was put into an incentivized switching scheme to try and get up to 200k RBS business clients to switch their accounts.

On 2.2.19 - it was announced that Metro Bank, Starling, and Clearbank won the initial first three grants (£120m, £100m ,£60m respectively) while the rest of the funds were dolled out in themed pools to variety of fintech companies, with the final pool prize winners to be announced on August 19th. For all intents and purposes, these prizes represent effectively "free cash" as their is no equity or repayment terms associated (to my knowledge).

Regulators in the UK and EU seem very much incentivized to increase competition in financial services, but it seems a bit similar to the US where while they're not afraid to jump in and shake things up, details on exact technical execution start to get a bit fuzzier when deadlines approach. Putting Brexit aside, when it comes to building across the EU + UK, each market is extremely different across a wide variety of factors and does require somewhat localized approaches to each. Nevertheless, this does imply that there's ample opportunity for companies that can figure out how to effectively navigate through each market and create seamless, unified experiences, particular for B2B.

In other news - I'll probably be moving my newsletter over to substack in the next few weeks in an attempt to pressure myself to blog a bit more :) - look out in your inbox for a new one soon! I'll leave you all with a great tweet on fintech by A16Z's newest partner below.

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