Hi everyone!

The last time I updated my substack was when I had just joined a new up and coming company called Ramp as their founding head of growth a few years ago - apologies for the lack of updates! A few months later, the covid pandemic hit and everything changed literally overnight. My goal over all those years was to start my own company - it just happened that whenever I would explore a space I was interested in, I ended up finding a set of founders that I was more excited about joining and supporting (Plaid, Ramp, Alloy, etc).

So TLDR - I ended up starting a venture firm that continues to do just that with my co-founder Mahdi! My goal is to invest in a few companies a year and partner closely with our early stage founders (typically seed or seed+!). I’m a generalist investor, but usually spend most of my time in regulated industries such as financial services + healthcare, vertical applications, GTM software, and all things B2B!

But let’s get into back into fintech :)

We recently spent a weekend with our friend Emily Man at Primary to do a bit of a look back on fintech and a look forward on areas that we’re excited about!

Financial services are entering into a new era defined by AI + further regulation. Large banks and FI’s are as powerful as ever, best in class scaled fintech companies are continuing to compound efficiently, fintech valuations have normalized, and the tectonic shift of AI is bringing about massive step changes in efficiency. 

It’s clear that the coming decade of innovation in fintech will be underpinned by a few core themes, including:

• Gradual (and then sudden) adoption of AI as companies start to realize actual operational gains 

• Increasing digitalization of legacy financial services outside of core banking: accounting, capital markets, commercial banking, asset management, insurance, and more

• Increased demand for novel identity and fraud products in an era where we can no longer trust our eyes and ears

• Increased regulatory scrutiny and actions across banking and fintech 

• New real time payment rail adoption, whether through stablecoins, RTS, FedNow, etc. 

But first, a lookback

Fintech in the US has been through a wild ride over the past decade. In 2012, fintech was a bit of a sleepy industry, with just over $2B of deployed venture capital. The space proceeded to explode over the next ten years, with a peak of $90B+ deployed in 2021 as Covid dramatically accelerated digital adoption across consumers and companies while ZIRP + stimulus capital added more fuel to the fire. 2022 and 2023 saw a rapid pull back from fintech as interest rates, inflation, regulatory landscape, and multiple compression all hit the industry hard, with $62 billion deployed in 2022 and just $35B deployed in 2023 – what we’ve termed as a fintech cold snap. 

The 2010s era of fintech was around the great platform shift to digital – first mobile / tablets then APIs and embedded brought products closer to the point of transaction with an intuitive user experience –  fundamentally changing the entry point of users interacting with financial services. This was empowered by infrastructure that allowed up and coming startups to compete for mind share (and dollars) amongst consumers and SMBs. As those companies have reached maturity (and lofty valuation expectations), they’ve increasingly started to rebundle and bolt on additional SKUs. 

The 2020s era of fintech has been defined by the confluence of external black swan events, a swing in internal momentum and funding from underdog to hype and back to underdog again, and transformations across payments, regulation, and AI.

Over just the last 3 years, we saw one black swan event after another including: 

• Covid 19 pandemic 

• Wirecard scandal 

• Gamestop short squeeze + rise of wall street bets 

• Archegos Capital Management collapse

• Crypto volatility and crashes (Terra, FTX) 

• Bank crisis after bank crisis (SVB and First Republic Bank)

• Regulators cracking down on fintech / bank partnerships (Synapse)

• Rapid inflation + supply chain shocks 

• Dramatic interest rate increase

As we exit the fintech funding cold snap heading into 2025, we wanted to highlight a few of the areas that we’re excited about and where we are actively looking for startups to back!

Peering into the present and what the next decade will look like

Bank Infrastructure + Software 

The pandemic dramatically accelerated the need for digital adoption across the banking landscape, from small community banks and credit unions all the way up to large bulge brackets. The ongoing labor challenges and high operating costs driven by regulatory oversight have driven the step change in demand for technology products and solutions.

As a result, banks have also now become an incredibly lucrative customer base for start-ups to sell into. Sales cycles are still long and difficult, but gone are the days where banks would only buy software from the IBMs, Fiservs, and Oracles of the world.

“Efficient” is probably the last word that anyone would use to describe the tech and operations at any bank regardless of size. Advancements in agentic technology have now created an opportunity to streamline and automate the work done by armies of operations and support teams. 

In particular, we’re excited about opportunities including: 

• Codegen for core modernization: The biggest ongoing technical risk to our financial systems today remains that most systems are heavily reliant on outdated systems, largely written in COBOL, a dying programming language. As codegen tools mature, can they finally start to tackle the root of the problem: reducing friction on the path toward new cores and off mainframes? 

• Modern payments infrastructure for banks: Consumers and businesses now expect money to move faster and settle instantly, but existing infrastructure can’t keep up.

• Verticalized loan-origination systems (LOS) for specialized bank lenders: There are opportunities to help banks and non-bank lenders modernize the systems of records that power their lending operations and deliver better customer experiences across mortgage, business loans, personal loans, and more. 

• Bank-facing governance, risk, and compliance (GRC) software: Strict and industry-specific regulatory requirements and the need for strong internal controls creates an opportunity for an Auditboard like solution that is purpose-built for banking.  

• Treasury management solutions for banks: The volatility in bank balance sheets is only going to become more acute and visibility into current positions as well as the ability to scenario plan against potential shocks is limited today. There is a need for new software as well as new deposit and/or lending marketplaces that help improve bank resilience. 

• Next gen RPA – agentic workflow products for deposit operations: Too many processes are still manually managed today – check processing, lockbox operations, wire approvals + fraud detection, and account closures to name a few. Agentic workflows can tackle these inefficiencies.

• Verticalized ITSM for IT ticketing and auto-remediation: A single employee password change or internal help desk need involving another department (IT, legal, customer support, etc.) can become an agent of chaos. The opportunity to build an agentic central ticketing system that connects to all internal documents and departments and can auto-remediate questions based on company-specific policies is upon us.

Risk / Fraud / Compliance

AI and compliance has become a hot spot area for early stage fintech investors given the amount of regulatory scrutiny being levied towards banks and fintech alike. We’re excited to find founders that are looking to automate more of the tasks across risk and compliance with a mix of AI + human in the loop services as well as teams using LLMs in unique ways to detect and deter new AI powered fraud vectors. Examples include: 

• Solutions tackling first party fraud: As money movement and account opening friction goes to zero, the first party fraud problem (i.e. using your own identity to commit fraud) is skyrocketing across disputes/chargebacks, ACH fraud, and more. Solutions tackling first party fraud (and dare we say… maybe even a consortium?) are more needed than ever.

• Financial crime “pentesting” / “redteaming” and posture management: There’s an opportunity for an AI platform for red team financial crime + dark web fraud vectors that is constantly testing financial institutions for gaps and improving the posture / configuration of their customers automatically to reduce the risk of fraud and fines while also increasing security for those who are the most vulnerable.

• Next gen RPA – agentic workflows / business process offshoring (BPO) for back office operations: So much of the work done by risk/compliance departments today is outsourced overseas because it requires repetitive manual intervention (e.g. AML reviews, sanctions checks, escheatment, call center verification). This is a space ripe for agentic workflows to automate.

• Anti-money laundering (AML) software designed for a real time world: SWIFT alone processes 45M transactions a day. As borders continue to fade away on the global stage and money starts to move around the world in real time, the old ways of doing AML can’t keep up.

Insurance + Wealth Management (RIAs)

These industries, although massive, are still defined by a value chain full of pens, paper, and data transmitted in archaic ways. They are ripe to be transformed by AI, which can empower the incumbents and reduce the challenges in finding skilled and willing talent. LLMs provide a unique modality across text analysis, summarization, voice, and more that can drive true ROI for industries that have historically been reluctant to adopt software or are suffering from point solution fatigue. AI based solutions can meet users where they are while adding significant leverage. 

Areas where we’re interested in injecting AI include: 

• Producer management software (for both insurance and RIAs): The atomic unit for how insurance is sold is through agents – their commissions are a cross-functional, multi-party jigsaw puzzle of reconciliations and data across distributors’ and insurance carriers’ systems. This is both a CRM and accounting ERP and one that yearns for change.

• Insurance and RIA compliance software: Given the underlying regulated nature of insurance and asset management – similar to healthcare providers – it requires every worker to be licensed and approved by states and at the national level, which is fundamental to driving revenue. We’re incredibly excited for tooling that helps manage licensing that empowers agents and advisors across the US, Europe, and internationally.

• Next generation of underwriting: Commercial underwriting is challenged by the morass of admin expenses (40% of a typical policy may go to admin expenses), which affects the pace of underwriting (revenue), operational and manual workflows (costs), and underwriting profitability (profitability per policy). We’re excited to rebuild the entire value chain including submission, intake, underwriting, clearing, triage, and broker management.

• Third party administrators: TPAs are the operational backbone of health insurance and employee benefits, managing complex claims, compliance, and administrative services between insurers, employers, and policyholders. As the linchpin in benefits delivery, TPAs orchestrate in a high-stakes environment of data management, regulatory adherence, and client service. With the increasing demands for transparency, efficiency, and digital transformation, this space is primed for technology that can empower administrators to streamline processes and enhance user experience on a global scale across claim disputes, denials management, and more. 

Tech-Enabled Services / Vertical BPO-in-a-Box

GenAI is opening up the ability for companies to “sell work” instead of software and creating leverage for traditionally human-led services industries. Across the financial services ecosystem there are whole industries that are poised to shift dramatically from human to human + software. The result: services that look and feel much the same but are faster, cheaper, higher quality, and higher margin. The ideal model can guarantee 80%–95% accuracy to customers, reducing costs by 80% and keeping humans in the loop for the final manual checks. Companies from EvenUp to ScaleAI are variations of this model already.

A couple areas we’re excited about include:  

• SMB tax return software: A one-click tax return type solution that enables SMB business returns for solopreneurs to brick and mortar businesses.

• Legal: Vertical legal solutions from employment, to personal injury, to contract review that provide the full workflow output while keeping a trusted human in the loop that empower either SMB legal teams or companies that are looking to reduce their legal spend

• Audit: Auditing services are a painful, expensive necessary evil for many companies past a certain size and represent a $50B market in the US alone. We’re looking for agentic platforms that enable end to end audit workflows 

• BPO for banking / insurance: AI products that can fully replace BPOs targeting deposit operations, loan operations, call centers, customer support, compliance, fraud ops, and more. 

Capital Markets

In the last decade, we saw a wave of innovation in capital markets focused on enabling retail investor access to different types of products (e.g. digital fee-free trading, alternative investments, fractional shares). As institutional and retail capital continues to flow into different segments of the capital markets, the back office infrastructure to support this growth has remained woefully behind. 

We’re looking for companies that are tackling pain points in the plumbing of our financial markets including:  

• Back-office trade operations: Post-trade operations from clearing, settlement, and reconciliation across many asset classes are still handled manually today. All markets (equity, fixed income, FX) are increasingly trending to T+0 (i.e. same day) settlement. This shift will require automated software solutions to handle the operations typically done manually today.    

• Transfer agents: Transfer agents are record keepers for publicly traded companies and the market is effectively a duopoly today. Insiders have had little incentive to innovate – is this a wedge to a broader suite of back office software for large public companies?

• New securities lending infrastructure: Securities lending allows a security holder to temporarily “rent out” their holdings to a borrower (typically a hedge fund that is looking to short the stock). There are $34T of lendable securities today and more institutional investors are looking to come to the lending markets to optimize returns. This creates a window for a new automated marketplace or exchange to emerge. 

• Private markets software: There is $15T of AUM in the private markets growing 15% yoy. Managing this on the back end is an army of finance and ops folks using spreadsheets – limiting the growth aspirations of GPs. We need better systems of record, portfolio management, reporting, and admin software to enable the next era of private market growth. 

Payments… and Crypto!

The payments pie continues to grow rapidly with no end in sight. Many venture-backed giants, including Stripe, Adyen, and Wise, have already emerged in the category, capitalizing on the rise of ecommerce and digital activity. As the way money moves continues to evolve both in terms of frequency (e.g. subscription, usage-based) and complexity (e.g. cross-border, real-time), we believe there are opportunities for tailored solutions that address these including:   

• Payments for professional services (e.g. next-Gen Affinipay): professional services firms like lawyers, accountants, architecture/design, and consulting have specialized needs in the way they manage billing and payments with clients. This market is currently dominated by clunky old school players and as software increasingly looks and feels like services (e.g. AI Agents that “sell work”) the payments infrastructure will also need to be upgraded. 

• Stablecoin infrastructure and B2B use cases: As the global correspondent banking network continues to shrink, stablecoin-based infrastructure can have the added benefits of instant settlement/reconciliation and lower costs to move money internationally. We believe we’re still in the early days of stablecoin adoption and, in particular, are excited about infrastructure providers that enable true b2b payment use cases. 

• Agentic payments / defi: Just a few months ago, we witnessed the first ever AI to AI crypto transaction. We believe the next generation of defi + crypto will push the boundaries of agentic payment infrastructure and we’re excited to meet founders that are building at that intersection with the mindset of also bridging the gap to fiat infrastructure in the future.

• Healthcare payments: Medical practitioners, particularly smaller, independent providers struggle to manage the complex web that is collecting payments from patients and (where applicable) payors. There are still unmet needs for revenue cycle management (RCM) solutions for the long tail. 

• Top-of wallet / card management: The average consumer has ~4 active credit cards. As payments for goods and services increasingly move behind the scenes (a la Uber), merchants and consumers alike need ways to help them update old / outdated stored payment information and optimize card usage.

If you’re building in one of these spaces — we’d love to hear from you! Get in touch with us here.

I’m a bit selfishly taking over my own newsletter to share a bit more about where I landed post Plaid :). About a month ago, I joined a company called Ramp as Head of Growth and I’m super excited to be able to finally publicly share what we’ve been up to! TLDR - Ramp is the first corporate card that helps companies reduce their burn. Our algorithms analyze card usage to identify overspending, better understand what things should cost (and when companies are overpaying), and simplify acting on opportunities to reallocate funds to better use. We combine this with a no-gimmicks 1.5% cashback program on all spend, robust accounting integrations, and expense features that actually work.

As to how I landed at Ramp, it was honestly thanks to a bit serendipity! Around October 2019, I started to think about what would life post Plaid would potentially look like. Around the same time, Olivia over at Bain Capital Ventures cold reached out via LinkedIn to grab coffee and learn more about what I’ve been up to at Plaid. She’s built out an amazing network of potential founders here in NYC and I ended up meeting another investor through Olivia that intro’ed me to Eric, the CEO and co-founder at Ramp. (Honestly, everyone at Bain Capital Ventures was super helpful in my journey including Matt, Merritt, Ashley, and everyone else!) Four days after meeting Eric, I had met his co-founders Karim + Zach as well as the rest of the team and decided to accept an offer.

But why now? Isn’t the space crowded? etc etc

The card industry has historically put up many barriers to innovation including:

Misaligned incentives: The brightest minds at card companies both new and old are optimizing “points programs” — with the fundamental aim to increase perceived value to customers while decreasing cost and redemption.

Antiquated infrastructure: Underlying payment processing infrastructure makes it nearly impossible to build intelligence on top of the card-authorization layer. This means that it takes years to build features which act on top of transaction data in real time, leading to a focus on personalized marketing not actually smart cards.

Immense barriers to entry: Historically, building a corporate card business took immense capital and existing distribution, as well as specialized knowledge and connections.

That being said, in just the past decade we’ve been able to witness the power of platforms and their ability to catalyze new market entrants (shoutout to my fav Plaid obviously). There’s also been a new wave of fintech talent that have successfully built and scaled products at both old and new companies. When I met the Ramp team and learned more about the product vision, I realized that I was witnessing something super interesting in fintech and I quickly wanted to be a part of it.

Ramp is in the business of helping other businesses be more efficient, and we’re not just about re-inventing banking products. I saw this firsthand at Plaid where as we started to grow and scale, our finance teams were also trying to regain control of our spend - the team here is equipping companies with a second CFO completely focused on reducing burn.

There’s some more news y’all can read about in the press (fortune, techcrunch, BI, etc), but thanks again for reading this far and feel free to share, sign-up, or apply for a job 🙃. I promise for some hopefully more interesting analysis in the future too now that I’m on the other side building on top of fintech infrastructure!

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 :)

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 :).

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 -

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…

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.

Naturally, this got me thinking more about co-branded cards and exploring what are the primary business drivers. It turns out the numbers are pretty eye opening. For example, United Airlines - “in the year ended December 31, 2018, 2017 and 2016, the Company recognized, in Other operating revenue, $2.0 billion, $1.8 billion and $1.7 billion, respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our Chase co-brand agreement.” It turns out, a big drivers for airline company profit comes not from selling tickets, but rather co-brand credit cards.

But Charley you may ask, how do companies make money in a co-brand relationship? I decided to spend most of my flight back from SF doing some more research and breaking it down into 5 main revenue drivers for most co-brand programs for card issuers (like Chase or Amex) and co-brand partners.

1) Signup Payouts

Whenever someone signups for a United MileaguePlus card with a flight attendant, United gets a healthy signup bounty from Chase, which probably explains why announcements have become so prevalent.

2) Fee Rebates

For every credit card swipe, the merchant typically has to pay interchange on that transaction with a large portion flowing to the card issuer. However, whenever someone spends with a co-brand card at the partner (for example, using Citi’s Costo card at Costo), the issuer [Citi] will issue a fee rebate for “on-us” transactions, thereby enabling the parnter [Costco] to capture a greater share of the transaction as revenue! This often leads to co-brand partners creating unique incentives to encourage more spend since they make more money off those transactions.

3) Revenue Sharing

This is where things start to get really interesting in my opinion - a lot of co-brand card deals have a rev share agreement where if the card-owner spends at other merchants, incurs interest, fees, etc a portion of that revenue will be sent to the co-brand partner! This aligns incentives for both the issuer + co-brand partner to encourage spending for all transactions, not just at the partner.

4) Advertising + Data Sharing

This is a bit indirect, but companies do put a significant dollar value on being able to advertise each other’s products and share user data between the issuer + partner. The partner also often gets aggregated data from the issuer for marketing + demographic insights and behaviors.

5) Selling Miles

Finally, this is a bit unique to travel cards (still figuring out if hotel cobranded cards work like this too…) but airlines such as United will establish a significant contract to sell MileagePlus miles to its co-branded credit card partner, Chase. This ends up being a huge other revenue line item for United from Chase! In United’s 10k, they identified the following significant revenue elements around their co-brand partnership: the air transportation element represented by the value of the mile; use of the United brand and access to MileagePlus member lists; advertising; and other travel related benefits. 

I’m really curious if there are interesting co-brand opportunities for a lot of the new fintech credit cards that are starting to hit the market. Co-brand partners have also gotten a ton of market power over the past few years and have been able to dictate the terms from the issuer - case in point, Amex losing Costco to Citi which was a huuuge deal. It’ll be interesting to see if there will continue to be other big moves with several of the big co-brand card agreements coming up!

For some more fund co-brand readings, see below.

https://fin.plaid.com/articles/what-are-co-branded-credit-cards

https://www.bloomberg.com/news/articles/2015-04-17/costco-seen-paying-almost-zero-to-accept-cards-in-citigroup-deal

https://viewfromthewing.boardingarea.com/2015/04/18/how-much-citibank-and-visa-actually-overpaid-to-win-the-costco-business-away-from-amex/

https://www.bloomberg.com/features/2015-how-amex-lost-costco/

https://www.travelweekly.com/Travel-News/Airline-News/Airlines-credit-cards-in-arms-race-to-profits

https://ir.americanexpress.com/AsReportedViewer/Index?KeyFile=27932563&Page=asreported

https://thefinancebuff.com/anatomy-co-branded-credit-card.html

The So What

2019 looks to be shaping up to be a very interesting year for fintech - particularly in regards to “neobanks” which got me thinking, what the heck is a neobank anyways? Well thankfully there’s already a wikipedia page with an attempt at a definition: “a type of direct bank that is 100% digital and reaches customers on mobile apps and personal computer platforms only.”

In 2018 - 2019, we’ve seen some big ‘unicorn’ valuations for a variety of neobanks in the US + abroad including Chime, Revolut, N26, and most recently Monzo (“rumored”). So what’s the big deal? I thought a quick comparison between Chime vs Chase could be interesting…

Chime

Founded in 2013 by Chris Britt and Ryan King, launched in 2014. On Sept 2017, announced their $18MM series B with 500,000 bank accounts opened and expecting to reach $1B in transaction volume by the end of the year.

Less than a year later on June 2018, Chime announced their $70MM series Cwith a $500MM valuation with over 1MM+ opened accounts, adding >100k new bank accounts / month, $4.5B in transaction volume, and saving accounts holding about $150 million (implying an average of $150 / account) - all with just an 80 person headcount.

Less than a year later on March 2019, Chime announced their $200MM series D with a $1.5B valuation with over 3MM opened accounts, adding 200k new accounts / month - all with just a 120 person headcount.

CAC and LTV strategy aside, Chime has been able to quickly acquire users with a highly effective, lean, technology enabled team and that rate continues to accelerate. The longer term bet is that as their users continue to engage with Chime and move from underbanked, they’ll continue to transact using the debit card on larger transactions (interchange revenue), deposits under management will continue to increase (deposit revenue), and Chime will continue to offer other financial products (fee based revenue).

Chase

One of my other favorite things to do (sorta joking but not really…) is reading through investor day presentations by large FIs to get a sense of what their strategies are. Banks are unique in that because they’re so large, their development + product strategies are typically set years in advance so what’s generally stated to Wall Street gives a glimpse into the next few years’ priorities.

Chase’s investor day presentation had some really fun stats, including…

Scale

Chase banks 62mm households and 4mm SMBs, which represents ~50% of US households. Out of their total consumer base, 22mm are active on mobile (active being defined as users of all mobile platforms who have logged in within the past 90 days, which is also a very interesting way to define that KPI…). This gives Chase the largest active mobile customer base amongst US banks as well as the fastest-growing mobile banking customer base. Chase has also been #1 in new primary bank relationships in 2018 with 9% of the retail deposit market share, and has issued over 99MM debit and credit accounts.

In regards to digital channels, Chase has opened 1.5MM deposit accounts since Feb 2018 to Feb 2019 and the average deposit across all consumer accounts is $527.

TLDR

While Chase’s Community and Corporate Banking division does have a much larger and more sophisticated business with credit cards, home lending, etc - it’s still really quite impressive to see what growth a tech-first neobank such as Chime can accomplish with 120 people vs Chase at 140,000 people. There are obviously nuances and lots of questions still to be answered about long term viability and whether the growth rate is sustainable, but increasingly so it does feel as though large banks are realizing that all of these upstarts could actually affect the bottom line and the need to focus on product quality is all the more important - and makes these unicorn valuations seem a little less out there :).

Chase Key Business Drivers

Deposit growth rate at 6% CAGR

Focus on mobile engagement

Happy 2019 everyone! Put some quick thoughts below on what's top of mind for me on fintech as we head into the new year.

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.

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

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

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...

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!!

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.

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...)

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.

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

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.

I thought it would be interesting to take a look back on what I wrote about in 2017, and see which ones were on the mark and which ones were way off. In the meantime, please send me any thoughts you have on where fintech may go in 2019 via Twitter, email, or even snail mail. I'll publish as many takes as possible (let me know if you want it to be anonymous) as well as my own :).

Review of 2018 thoughts:

1) The cryptocurrency market will collide with regulation - and I wouldn’t be surprised if it came through an enforcement or criminal action. The amount of wealth creation combined with a lack of KYC/AML on a lot of random exchanges is a bad mix.

Yup, this one was easy to see, also a bit amusing to see who got caught up.

2) I have no clue where crypto prices are going to go - that being said, I would be surprised if the largest coins (bitcoin, ether, etc) went up 100x again, but would not be surprised if they went up 10x or went down 100x. “Investing” in crypto is 100% speculation and no one can deny it’s a bubble, the question is when will that bubble pop. Might take several years…

Bitcoin was 16k a year ago! Now sitting around $3k in what seems to be a very long bear market. In retrospect this one was pretty easy, just a bet for continued volatility vs stability.

3) Increased M&A and investment activity from large financial institutions - I think we’ll start to see a lot more M&A and investment opportunities from large banks. Over the past 3-4 years, almost every large bank has built out a dedicated “fintech” function as it relates to product, strategy, and investing. I think 2018 is when a lot of these groups start to crank on opportunities.

Yup, Goldman led the way with their acquisitions of Clarity Money + Final. I actually expected more acquisitions from other bulge brackets, but their strategy has seem to be to build in house - for example see Chase's Finn and YouInvest platforms.

4) Increased VC activity in B2B - The largest VC firms seem a bit tapped out as it relates to consumer fintech (or have existing portfolio companies), and the focus for 2018 looks like it’s going to shift towards B2B / infrastructure plays.

Waiting for some 2018 fintech reports on this one, but seems generally true...

5) Growth areas - I expect a lot more companies to get funding in the insurance, tax, crypto infrastructure, B2B payments, SME Lending, and security spaces.

TBD, still doing some more research on this one.

6) AI is overhyped - AI seems to be the new blockchain. Reminds me of the “explosion” of big data in financial institutions a few years ago. I find that most fintech AI companies are not doing anything extremely novel, the key is the data not the algorithms. That being said, I think we’ll see a lot more application for helping humans process and understand output, so more of an “augmenting AI” play here.

AI as core to the product vs AI as a service seems to have won out here IMO.

7) Voice is not the new blockchain…yet - I don’t think 2018 will be the breakout year for voice. Voice is super frustrating unless it’s 99.999% accurate (a totally made up stat by me) and I don’t see a killer use case for my finances yet. I’d still rather click through (intelligent and contexual) options rather than have a dynamic free form with my voice when interacting with my finances.

I think this is still true.

8) More awareness and ownership by the consumer of their data - I think there will be a shift in how data is monetized in the ecosystem. Historically, financial data was shared, broadcasted, bought, and sold across the industry without much consumer interaction (i.e. credit scores). However, consumers have become increasingly aware of the effect this black box data sharing has on their lives. I expect to see a lot more dialogue with banks, consumers, media, and regulators on this topic.

Yup. Didn't see Cambridge Analytics + Facebook coming along, but that certainly brought broader data sharing privacy and data monetization into the forefront.

9) Continued convergence to full stack fintech - I wouldn’t be surprised if there’s a big acquisition or merger between two “larger” consumer fintech entities with different products and different consumer profiles to go more full stack + diversify revenue. I also expect companies to offer new secondary products that follow their user base (e.g. Robinhood launching crypto trading, Coinbase launching a ratings desk, etc)

Everyone seems to be launching a debit card + checking account nowadays! Not as much in regards to large consumer fintech mergers quite yet, but there were a lot of smaller acquisitions throughout the space. (e.g. Coinbase acquiring Earn.com, Credit Karma acquiring Noddle + Approved + Penny). B2B saw some more activity such as Square acquiring Weebly for 365M as well as Zesty, Stripe acquiring Index, Birch by Even Financial, etc.

10) A lot more consumer fintech companies focused on specific communities - There are ton more APIs + developer platforms in market that are making it easier to create a financial product from scratch. This starts to open up more typically underserved markets (sub-prime, thin file, minority cohorts, etc) and I think we’ll see more “niche” plays in consumer fintech to try and gain initial traction.

Will need to take a closer look here :)

11) Amazon and Paypal are the companies to watch - Ahh yes, the common “watch out for the large companies” making moves towards banking. That being said, I think Amazon will continue to offer new financial products for SMB’s while PayPal will continue to make in-roads with consumer wallet share, maybe even a mobile bank?

Paypal acquired Hyperwallet for $400M and iZettle for $2.2B; I actually think that Square might have had just as big of a year too in regards to product development + releases.

The recent market movements got me thinking about some of the headwinds that consumer financial technology might face in the next couple of quarters. Thanks to a influx of financial infrastructure products, it’s become increasingly easier for later stage fintech companies to launch adjacent financial products. The two newest product trends seem to be launching a debit card + checking account with platforms such Cambre (see Stash, Empower, SoFi, MoneyLion etc) as well as offering card-linked offers with platforms like Empyr.

There’s been an increased focus on monetization and the classic consumer finance monetization model is still building up and leveraging a balance sheet (i.e. get deposits and lend it out). Everything starts to look like a bank! That being said, it’s easy to lend out money in a low-interest rate environment + bull market; what happens when the market turns?

I happened to sit next to the Current.com team on the plane ride to Money 2020 (if you’re in Vegas, hit me up!) and we spent a few minutes chatting about what’s next for fintech, which led to Stuart pointing me to some interesting data points released by the Fed around credit card charge off.

Post financial crisis, most of the largest banks in the US have been chasing prime consumers with generous incentives while leaving sub-prime customers to smaller banks + fintechs. One main value proposition by many fintech companies are their unique data sets and proprietary underwriting models, but the big question still remains - how will these models perform in a market correction event? We’ve also started to see smaller banks enter the market via fintech partnerships, even acting as the core underwriting bank in some cases (such as Elevate’s Elastic product being underwritten by Republic Bank).

At some point, a certain amount of additional risk has to be taken to underwrite a subprime customer at a competitive rate -> which leads to the real test of who really knows their customer best? There are already some indicators that this might not be sustainable. According to the Fed, amongst commercial banks outside of the top 100, the credit card charge off rate has spiked to 7.78% - equivalent to the charge off rate during the financial crisis for these institutions. I’m optimistic that a market correction will force new product innovation across fintech and unlock new consumers, but for now we all just wait and see…

Hi everyone! It’s been an extremely hectic last month and I fully expect that to continue since (drumroll please…) I just moved to NYC! Excited to continue to learn more about the fintech scene in NYC as well as meet a bunch of people, please shoot me an email if you would be down to grab a coffee :).

I often get asked the question -“what’s been the most interesting recent development in fintech”. Recently, my answer has actually been banks! When I was in the payments strategy group a few years ago at JPMorgan, I managed to build my niche in the organization by spending most of my time researching emerging products. Companies like Venmo, Robinhood, Coinbase, etc were barely on anyone’s radar, so I was allowed to drive a more “niche” strategy vertical. Over time, I became increasingly frustrated with the lack of pace in regards to execution - the vast majority of product initiatives continued to live in a deck on a shelf vs being tested in the hands of consumers.

That being said, over the past 3-4 years there’s been an explosion of interest into fintech from large financial institutions (don’t get me started about blockchain…). During 2015-2017 it seemed as though every bank was announcing some sort of fintech (or blockchain) strategy group, followed by a strategic investment arm that was also typically launched in conjunction with a “new” digital product innovation group. A lot of buzz, a few partnerships + acquisitions, but no real products.

This year, this has started to shift with several of the largest banks finally launching fintech products: Chase’s Finn (which I just recently signed up for…and that process is a whole other post), Citi's new mobile app , Ally's Invest, etc. Large financial institutions have slowly been making the hard transition from just selling financial services to offering digital products.

I associate brands such as Chime, Robinhood and Coinbase as companies that ship new digital products that happen to deliver financial services. On the other hand, I associate brands such as Chase, Wells Fargo, and Citi as financial services institutions that view digital product as a channel. One huge advantage that fintech startups have over large FI’s is the fact that the vast majority of successful fintechs were product driven from the very beginning. The product is the business rather than just being a means to an end. It’ll be interesting to see if the banks will be able to make switch effectively or if they even need to…

I'm back! Apologies for missing a few weeks of the newsletter, I've been traveling for the past few weeks, spending some time in Paris, Toronto, and New York. I promise I'm back on schedule again :).

2018 seems to be the year for everyone launching full-service digital banking. I wrote earlier this year about the fact that various consumer fintech applications are starting to re-bundle and converge in regards to the product offerings available. Whether it's SoFi getting into the savings game, Robinhood offering crypto + looking at other financial products, Venmo + Square offering debit cards, etc everyone is really starting to build out their brands + vision around financial services.

And let's not count out the banks! In just the past couple of weeks, Chase (finally) decided to roll out their millennial focused digital bank account, while Citi also just announced a new digital wealth management offering. I would argue that these product roll outs could potentially one of the most "disruptive" products we've seen from these two financial institutions.

At a very basic level, a truly digital, branch-less bank account offers the ability to open a bank account...online. While this may sound like a feature that should have been offered years ago, the amount of work it takes for a bank to change and shift their entire back office to support must have been tremendous. It also opens up a huge new channel for digital acquisition via app store discovery, targeting advertising, re-targeting, etc.

That being said, it also requires a very completely different skillset + technology base. I wouldn't be surprise if the banks start to acquire some fintech teams with deep industry expertise in order to further jumpstart these programs. Meanwhile, it will be super interesting to see how all the various neo-bank consumer fintech applications respond with these new, large entrants.

It’s a common refrain that if it wasn’t for VC funding growth at all costs, apps such as Robinhood or Acorns would not be able to sustain their commission models. But when you dig a little bit deeper into exactly how brokerage firms really make money, I believe that premise starts to fall apart.

I recently spent a few hours going through E-Trade’s 10k to get a better understanding of their business model, and found something that was surprising to me - trade commissions only makes up ~18% of total net revenue. E-trade’s revenue concentration looks just like a traditional retail deposit-taking bank. E-Trade holds a significant amount of customer cash and deposits on it's balance sheet, and like a bank tries to generate a return on these assets that is higher than the interest rate it pays.

E-trade's net revenue is generated primarily from net interest income, commissions and fees and service charges. Net interest income is largely impacted by the size of its balance sheet, balance sheet mix, and average yields on assets and liabilities. By the end of 2017, E-Trade had $42.7B in consumer deposits, representing 76% of total liability on their balance sheet. Out of 2017's $2.4B in rev, $1.48B was net interest income (over 60%).

E-trade's market cap is currently trading at a $16.42B. When put into that light, Robinhood’s $5b valuation doesn’t seem so crazy - giving up commission fee revenue looks much more like customer acquisition cost. They've experience a massive amount of explosive growth (<4MM brokerage accounts which is already more than E-Trade). I also wouldn't be surprised if future products will be focused around growing customer deposits + offering banking services.

Platforms such as Acorns and Robinhood are also experimenting with a variety of new revenue streams. I would imagine if they ever went public, the road show KPIs for health of the business would be different from what E-Trade tracks. I pulled down a list below of what’s important to E-Trade, and it’s a pretty stark different from the numbers that a company such as Acorns reports publicly.

I believe that 2018 and 2019 will see an increasingly convergence of larger scale fintech applications competing for customer deposits. It will be interesting to see how fintech upstarts compete with larger financial institutions (oh hi Marcus) in the product arena...

Notes:
2017 eTrade revenue -
$2.4 B in total net revenue
$1.485 B in net interest income
$441 mm in commissions (interesting that commission revenue decreased from 2016 even as DARTs increased...)
3.6 MM brokerage accounts
2016 eTrade revenue:
$1.9B in total net revenue
$1.23B in net interest income
$442 mm in commissions
3.5 MM brokerage accounts

E-Trade KPIs

• Daily Average Revenue Trade (DART): predominant driver of commissions revenue, the average trades per day that generate commissions or fees.

• Derivative DARTs: key driver of commissions revenue, is the daily average number of options and futures trades

• Average commission per trade: indicator of changes in customer mix, product mix, and product pricing.

• Net new brokerage accounts: indicator of ability to attract and retain brokerage customers

• Customer margin balances: key driver of net interest income, represents credit extended to customers to finance their purchases of securities by borrowing against securities they own

• Customer assets: indicator of the value of relationship with the customer

• Brokerage related cash: indicator of the level of engagement with brokerage customers and is a key driver of net interest income as well as fees and service charges revenue

• Net new brokerage assets: indicator of the use of products and services by new and existing brokerage customers

If any of my readers read my post last week, then Square's announcement of a full-stack product aimed at full-service restaurants shouldn't have been a surprise :). I fully expect to see Square continue to expand their products into a more full stack approach verticals including restaurants, small businesses, franchises, and more. Wouldn't be surprised to see other payment processors (and financial institutions) do something similar, particularly those with POS hardward or software in market.

Keeping this weeks blurb short, a lot of the articles this week are paywalled but in case you don't have a subscription, just add outline.com/ in front of the URL.

Square recently announced their acquisition of Weebly, a website creation platform, for around $365MM. The Weebly acquisition seems to demonstrate a focus on international expansion and longtail e-commerce, which also increasingly puts Square in competition from a processing perspective with offerings from PayPal, Stripe, and Shopify.

Meanwhile, just last month Square also announced their acquisition of Zesty, a corporate catering startup. (Side note, both Weebly and Zesty were Y-Combinator companies although that's probably more of a reflection of YC's increasingly larger reach in startup investing than anything else.) The Zesty acquisition was messaged as a method to increase Caviar's corporate ordering business as Square continues to push into the restaurant vertical.

The money to be made in payment processing isn't in the processing itself, but rather the service layer that one can build on top to charge a premium. For example, Stripe layering on fraud tools (w/ Radar) + business intelligence (w/ Sigma) + billing to justify charging significantly above interchange. Square helping brick and motor companies easily accept payments in store (via dongle or with their own POS), offer rewards, schedule appointments, and now launch online. What's next, shipping fulfillment? Delivery via Caviar for physical goods? The era of the full-stack processor is upon us, which also makes Amazon an very interesting entrant into the market.

I was chatting with a founder of a fintech company last week in New York and one of their comments really stuck out to me. "Financial services is the only space I know where as a client, I literally have to spend a huge amount of time to convince vendors that I want to pay and use their services." Vendors and companies within financial services have historically been able to protect their revenue due to how difficult it is to rip out a financial provider as well as the dearth of selection. Nevertheless, we're starting to see a shift across enterprise technology where increasingly buyers have more complete information, and the buying decision is less around who you know versus actually creating value. Over the past few years, a new financial stack is starting to slowly emerge for building new products in fintech (often powered by APIs), and I think it's only a matter of time before large incumbents will be forced to be more transparent in regards to pricing, process, and integration effort.

It was just announced today that Goldman Sachs closed their acquisition of Clarity Money, one of the leading PFMs in the market. Rumors have the acquisition amount at ~$100MM, which at 1MM+ users equates to $100/mobile user (#fastmaths). If you had told me two years ago that Goldman would have a fully functional online-only depository product, a lending platform that’s competitive with any fintech loan, and a mobile-first PFM by 2018, I would have scoffed and said that there’s no way a bank could move that “quickly”. Yet through a series of partnerships, investments, and acquisitions, Goldman Sachs has positioned itself as the digital leader for consumer finance amongst all the bulge bracket banks. I expect a ton more acquisition activity in the next 2-3 years by the Citi’s, Chase’s, Bank of America’s of the world in order to be able to keep up. I think the most ironic aspect of this situation is that most of the larger banks were so worried about being disrupted from fintech startups, that many of them were caught by surprise by how quickly GS moved into the space.

Anyways, on to the articles and apologies for missing the last couple weeks, I’m currently typing this out while on a flight out to NYC to go to various events as part of Empire Fintech’s Conference (p.s. hit me up if you want to grab coffee during the week).

Happy Tuesday from Toronto! The last couple of weeks have been a bit of a whirlwind due to a lot of traveling (including Vegas for an entire week and NYC later this week), so unfortunately I didn't have time to send out the weekly newsletter. If anyone wants to grab coffee this week in NYC, shoot me a tweet.

Ryan Calbeck, CEO of CircleUp, recently tweeted some thoughts around Wealthfront and robo-advisers, questioning the long term strategy on how companies such as Wealthfront or Betterment can continue to compete in the space. In the thread, Ryan highlights Robinhood as having a unique business moat of free brokerage trades, which incumbents will be slow to adopt because they're dependent on fees as revenue.

In my opinion, I view that as more of a unique acquisition strategy rather than a moat. When Wealthfront and Betterment came on the scene, the value proposition was low-fee wealth management services powered by technology that significantly undercut older-school providers in the market. Once the business model was somewhat proven, Schwab launched Intelligent Portfolios and in less than 2 months had more assets under management than Wealthfront and Betterment combined.

As various fintech companies start to mature their business models and prove out acquisition strategies, it will be interesting to see how larger financial institutions compete. One common acquisition strategy has been to give away a huge amount of value for free to acquire users, and then offer other products that generate revenue, with some technology spread throughout to lower the cost-basis across all products (free and revenue generating). Examples including Credit Karma giving personal credit scores & monitoring for free to monetize with financial offers/lead gen, Wave offering full stack financial software to SMBs for free to monetize via payments and payroll, Robinhood giving away brokerage fees and monetizing via premium subscriptions/services, etc.

My hunch is that paid customer acquisition has become increasingly expensive, as more and more vc-backed fintech companies compete for the same keywords and consumer demographics. As a result, I think there's been a bit of a shift where money that would have historically been allocated for digital acquisition is being diverted over to product development instead. The key question is really what's more important when it comes to "fin-tech" - the financial aspect or the technology aspect. If it's a financial/business moat, I believe that large financial institutions will be able to compete quickly once the business model has been proven, given that FI's have the unique advantage of consumer brand recognition + distribution.

If the financial/business moat is backed by real tech, whether in completely novel product offerings or being able to drastically reduce cost, that's a much more powerful value proposition and thus a more unbreachable moat.