Fintech 🧠 Food - Amex & Apple? Tokenization and Threads.

Plus, Chime & Paypal now open more checking accounts than the major banks

Hey everyone 👋, thanks for coming back to Brainfood, where I take the week's biggest events and try to get under the skin of what's happening in Fintech. If you're reading this and haven't signed up, join the 31,853 others by clicking below, and to the regular readers, thank you. 🙏

Hey Fintech Nerds 👋

How was your week? Did you post on threads yet?

My quick take. Incredible adoption in a short space of time. It feels like early Twitter. The nerds are jumping in, the humor is self-referential with a twist of irony, and there's a vibe. 

Will it last? Will it algo prioritize memes like Instagram, or will it become the default place for breaking news and big ideas? Will it be an interest graph?

I hope so, and I hope it becomes federated like Bluesky or Mastodon.

Also - it doesn't let me embed threads on substack yet. So you'll have to follow @sytaylor on threads to catch my "Top 5 ways threads changes Fintech🧵"

The world is becoming more fragmented. 

Ron Shevlin's Forbes piece this week noted that Fintech companies open more checking accounts than traditional banks in the US (covered in 👀 Things to Know this week). 

Cost is the key focus.

The WSJ is reporting Goldman wants to offload Apple Card to AMEX (covered in 👀 Things to Know this week).

But we're on the cusp of a genuine platform shift in finance.

Tokenization.

It won't happen fast, but it will happen.

That's this week's 📣 Rant

Here's this week's Brainfood in summary

📣 Rant: Tokens and The Future of Assets

💸 4 Fintech Companies:

  1. Collectiv - Group payments app (UK)

  2. Translucent - The CFO super app

  3. Bits of Stock - Fractional stock as consumer loyalty

  4. Boodil - The open banking checkout with loyalty baked in 

👀 Things to Know:

📚 Good Read:

Weekly Rant 📣

Tokens and The Future of Assets

Have you used Apple Pay or a similar service?

If so, you're using a "token."

Digital wallets like Apple Pay take a physical card and "tokenize" that card. From there, a representation of your card lives on your mobile device and allows you to pay for things as if you had the physical card present. The card could be at home, at the office, or on the moon; it doesn't matter. The payment still works, so long as you have the right device with the right token.

Last year, Visa issued 4 billion "network tokens." There are more network tokens in circulation than physical cards.

When buying online or in-store "tokens," replace the 16-digit long card number to securely transmit your card information. 

Tokenization substitutes sensitive information (like the 16-digit number) for something less sensitive, like a reference number that maps back to the original identifier (the 16-digit card number).

This is about to happen to all assets.

Everywhere.

All at once.

(Ok, not all at once, but over the next decade with increasing regularity).

What is tokenization?

It takes an asset, usually recorded as paper or an electronic ledger entry, and turns that record into a token. It also automates the rules of interacting with that asset, and the transactions become programmable.

The term "tokenization" is a glow-up.

It's a catch-all term for 100s of nuanced approaches. It's a buzzword that has replaced "digital asset" or distributed ledger technology among TradFi bankers. It's where web3 meets the "real economy" in the middle and disrupts it from the inside.

It's all of those things. Complex and yet remarkably simple.

Put down your skepticism about "web3" for a moment. I know it's non-consensus to be talking about and excited about tokens, digital assets, or, dare I say it, "web3".

I get it. Scar tissue from lost investment, the three letters (FTX), and what was frankly a speculative bubble leaves people wondering if the whole thing was a "solution in search of a problem." Perhaps the ultimate Zero Interest Rate Phenomenon (ZIRP)?

No. 

Blackrock and Fidelity filled a Bitcoin ETF in the past month. Europe and the UK now have legitimate Crypto and Digital Assets trading laws. The UK has defined digital assets as a 3rd kind of property.

This is just the activity you see in the headlines. 

Behind the scenes, financial institutions are steadily implementing the infrastructure to tokenize countless asset types. 

If Crypto and web3 are over, why are the big institutions still gunning for it?

They're not. They're after something bigger. The tokenization of all assets. Starting with assets that are tokens and have some market volume.

Moving to all assets. 

To Quote the Bank of International Settlements (emphasis mine)

"Monetary system stands at the cusp of another major leap, following dematerialization and digitalization, the key development is tokenization, the process of representing claims digitally on a programmable platform."

The wider opportunity is enormous. 

In 2021, $179.5 trillion of US securities were bought or sold. Retirement assets hit $48.5 trillion. SWIFT transacts $5trn per day with nearly 75m individual messages. The DTCC settled securities transactions worth a notional $2.4 quadrillion.

Quadrillion!

These markets are enormous. They're also poorly understood by most entrepreneurs and investors and so regulated they make payments or lending look simple by comparison.

The answer is convergence. 

As these deep infrastructure and tech providers look seriously at tokenizing "real world" assets. The web3 and DeFi world is increasingly tokenizing "real world" assets.

These trends will meet in the middle.

And it's the single largest opportunity in financial services.

Why?

Let's dive in 🏊‍♀️

  1. What is a token?

  2. What assets can be tokenized?

    1. Money in all its forms

    2. De-materialized assets like securities

    3. Alternative assets like private equity

  3. Who will do the tokenizing?

    1. Tokenizing Money will be done by central banks, commercial banks, and DeFi

    2. Tokenizing securities requires regulated infrastructure providers (CSDs) by law

    3. Plenty are already tokenizing alternatives

    4. Natively digital assets are often already tokenized (IP etc)

  4. Token categories won’t compete; they will co-exist

    1. The consumer, web3 world creates new asset classes for financial markets

    2. Tokenizing the wholesale TradFi assets is a platform shift in capital markets Fintech

    3. CBDCs will play an important role and shouldn’t be controversial once understood

    4. Deposit tokens have value to institutions and corporates

    5. Stablecoins become an offshore dollar for retail and long tail

    6. DeFi stablecoins (like Maker) will be a source of long-term innovation

  5. Macro is driving us toward decentralization

    1. Decentralization is a trend regardless of the technology platform

    2. Consumer privacy and data ownership is a trend regardless of tech platform

    3. Combined, these forces create a platform shift opportunity window

    4. Disrupting capital markets and investments is an enormous opportunity

    5. The crypto bear market has washed out the hype and that’s positive

  6. What we need to focus on

    1. A sensible discourse. Less “or” and more “and”

    2. Regulatory clarity arrived in Europe and UK; where next?

    3. Institutional adoption of open standards for regulated activities (I’m working on this, reply if you want to help out)

  7. Reasons I might be wrong

    1. Maybe institutions only ever build walled gardens

    2. Maybe we recreate the maze of financial market infrastructure in new tech, limiting the upside

    3. Many of the capital markets problems are unrealetable to investors or founders unless you’ve worked in the sector

  8. The non-consensus view

1. What is a token? 🤷‍♂️

The word token gets thrown around a lot.

The answer to "What is a token" depends on who you ask. The English language uses the word in such a wide variety of contexts it's easy to misuse. 

I'm going to narrow our definition using the example of a house. 

A house is a real world asset that has multiple tokens.

  1. Access: The key to the house gives you access. Anyone who has the key can use it to get in or out. 

  2. Control: A rental contract gives you some level of control. You choose who comes and goes and can rightfully control access by law.

  3. Ownership: A title or deed gives recognition of ownership. You can rent out the house, extend it, and if your key is stolen, a local government will restore you to rightful ownership.

A house is a simple real-world asset, but now think about how this could apply to any asset. Any physical or existing asset (like a house, car, stock, bonds, or art) has tokens and could be tokenized.

An NFT is a natively digital asset with a single token with many functions.

  1. Access: You access your NFT via your wallet. The wallet provides the key to access functionality (like unlocking a gated discord server or physical venue). 

  2. Control: You control the NFT via the wallet. You can change or use the NFT in games or other media. For example, Nike partnered with EA Sports and Fortnite to make digital shoes and items available in-game.

  3. Ownership: The existence of the NFT in your wallet implies ownership. You can transfer, buy, sell, lease, or enter any other agreement form as the owner. 

With a natively digital token, access and ownership are the same thing. This has huge implications (and is why the UK Law Commission views Crypto tokens as a unique 3rd kind of property).

To recap. Real-world assets can be tokenized. 

There are, of course, things that are digital that are not tokenized that could also be tokenized. Emails, MP3s, PDFs, and existing asset records recorded digitally. Like, all of TradFi today.

To Quote the Bank of International Settlements again (emphasis mine)

The report defined tokens as being not just digital entries but having the ability to integrate the records of underlying assets with set rules.

This allows tokens to be customized to meet specific user or regulatory requirements for individual assets, which the report claimed would provide significant potential for enhanced supervision and compliance settings

Put another way. When discussing assets in financial services, a token is a programmable asset. Many competing designs still exist for how we tokenize and interact with tokens. Annoyingly, most of these will co-exist because the world is complex.

To answer how these things co-exist, we need to examine each individually.

2. What can be tokenized? 🤷‍♂️

Anything can be tokenized, but the framework for what types of assets exist helps understand the nuance between the tokens.

a) Money in all its forms. Today most money is issued by a country and its central bank. It exists as cash balances at the central bank or a commercial bank. It's either recorded as the cash itself or as an electronic entry into the accounting ledger at a bank or Fintech company. 

The problem will electronic money is reconciliation. Every bank, Fintech company, and merchant must record duplicate payment and balance update entries. This becomes inefficient, error-prone, and a giant pain in the ass. 

Tokenized money has two benefits.

  1. Tokenized money solves reconciliation. A token creates a single record of which wallet currently holds that money. Just as one person can only ever hold cash, one wallet can only be the keeper of a token (we'll come back to how). 

  2. Tokenized money could be programmable. As the BIS notes in its report, assets with rules could be default compliant but also automate many other things. A simple example is Escrow. A buyer and seller enter an agreement to transfer money when goods are delivered. As soon as the buyer confirms receipt of goods, the money is "unlocked" for the seller.

There's a spectrum of how money will be tokenized, as this diagram by Oliver Wymann neatly sums up. 

b) De-materialized assets like securities. Today most stocksbonds, and mutual funds exist primarily electronically. Printing and mailing paper for every share or bond bought or sold is impractical, so since the 70s, the vast majority of these records are held at a Centralized Securities Depository (CSD). Examples of CSDs are the DTCC in the United States and Euroclear in Europe. 

The problem electronic securities have is the same as money; reconciliation. A trade can happen at lightning speed but "post-trade," or what happens after in the middle and back office, can take days. The standard is 2 days later (T+2), and the reality for anyone in Fintech is often a ton of manual errors, spreadsheets, and 3rd parties to manage.

Seemingly simple trade orders (like a limit or stop loss) can quickly become complex to reconcile across multiple infrastructure providers. Unlike cash, which might be recorded in ~3 places, a securities trade might involve 5, 6, or even 7 market participants. At a minimum, the CSD, the custodian bank, the seller's broker, and the buyer. 

For asset managers, banks, and brokers, the complexity of understanding the contract language vs. changing the underlying record can be enormous. There's a ton of busy work between figuring out what the contract agreed to and then changing the electronic record.

This in-efficiency creates a remarkable drag not just on the capital markets participants but shows up as the fees we pay in investments like a 401k or pension plan.

Tokenized securities have two primary benefits.

  1. Tokenized securities could solve reconciliation. A security token would be in one wallet at one time. 

  2. Tokenized securities could be programmable. Even the most complex contracts could remove busy middle and back office work. Once agreed upon and signed digitally, the securities could move multiple times based on the agreed terms.

The reality is CSDs, and the existing market structure are unlikely to disappear. Custodian banks, CSDs, and brokers will likely work together to tokenize those securities. Once a security becomes a token, it floats around between buyers, sellers, and brokers. But the underlying electronic record would be parked. 

c) Alternative assets like private equity. Anything that isn't money or a security fits into the wider bucket of "alternatives." That's a wide net to cast, but commonly you'd see private equity, commodities, venture capital, and real-estate fit this description. These markets are massive. There are 22,000 publicly traded companies vs. 98,000 in private markets. $10 trillion in real estate is traded in public markets, and 317 trillion in private

In principle, collectibles like art, wine, and memorabilia are also alternative assets but not always private markets. 

How the assets are recorded varies. A fund manager might keep an electronic record, and a whiskey manufacturer might label their barrels and bottles.

Private market financial assets have access and efficiency issues. The barrier to trading private equity or real-estate funds was being qualified and able to afford to. Most countries won't allow consumers to invest in these asset classes unless they earn above a certain threshold or hold a qualification. Most funds won't sell a tranche of private equity or venture capital for less than $5m, given the paperwork and compliance overhead involved (although we now see some companies beginning to fractionalize this). 

Collectible assets have forgery and theft issues. Without a definitive record of ownership, validating an asset's provenance is challenging and expensive. Art galleries will employ experts who can sometimes be fooled. 

Tokenized alternatives have three primary benefits.

  1. Tokenized alternatives could create a golden source of ownership. For that asset, a token could only be held by one wallet.

  2. Tokenized alternatives could create a golden source of provenance. The history of every token movement could be recorded on a blockchain network or similar platform.

  3. Tokenized alternatives create programmable assets. Most projects creating tokenized real-world assets are tokenizing emerging market debt and making it available to DeFi investors. Once there, it is available to a full suite of DeFi use cases. The same could be true with many alternative asset classes.

Combined tokenized alternatives could reduce the barrier to entry for financial assets and make the collectibles much more tradeable. 

Depending on its implementation, it could also create a single global, 24/7 market for certain asset types. The implementation choices depend on who's tokenizing and what their objective is.

3. Who will do the tokenizing? 🤷‍♂️

There's a broad split between wholesale and retail.

Wholesale financial markets are complex, regulated, and require a high standard of governance. Retail has a high risk of consumer harm and needs to operate at a much lower cost per transaction or trade. 

a) Tokenizing Money will be done by many. Central banks will create central bank digital currencies (CBDCs), banks will create deposit tokens, and fiat-backed stablecoins already exist, as do decentralized stablecoins. This won't be a winner take all battle; these options will co-exist and occupy some of the payments, finance, and economic landscape. 

At one end of the spectrum, you have more wholesale (CBDCs and Deposit tokens) and, at the opposite, more innovative and available to consumers today (Stablecoins). 

b) Tokenizing securities requires CSDs. Importantly, Centralized Securities Depositories are required by law in most jurisdictions. To lawfully transfer the security title, you must change the record at the CSD. The bank of International Settlements calls this links between tokens and the underlying asset a "Ramp" 

The CSDs will likely create or participate in wholesale networks with which other institutions can trade and settle. The giant unanswered question is if and how those tokens would go beyond the institutional actors and possibly(?!) to consumer wallets. If they do, it will be like how Fintech companies fractionalize stock by holding it on behalf of their users and then running a ledger of fractional balances. 

c) Everyone is tokenizing alternatives. Wholesale-facing alternative tokenization will likely be managed by consortia or startups selling to capital markets institutions. Today Maple Finance, Goldfinch, and TruFi are available to consumers and sell private debt. 

d) Natively digital assets are an open design space. Digital goods, in-game items, digital art, and fashion could use any type of token. The artist or brand who creates the IP would likely create the token. It's likely to be consumer-facing initially, but why wouldn't they have a wholesale marketplace in time? At this point, these digital tokens are most likely recorded on a public blockchain network (like Ethereum or Solana).

4. Many token types will co-exist 🤝

When you discuss the future of blockchains, tokens, or finance, you tend to be greeted with a religious fervor.

People believe tokens on blockchains OR regulated tokenized assets are the only two possible outcomes.

The TradFi banker says that serious grown-up and credible change is happening with CBDCs and real-world tokenization. The libertarian Bitcoiner or web3 believer says anything less than trustless cedes too much power and control to governments that can't be trusted.

I dislike binary perspectives.

The reality is an AND, not an OR.

The market landscape is a spectrum.

That spectrum is starting to meet in the middle.

At either end, there is value. 

A few token types worth exploring include:

a) The consumer, web3 world creates new asset classes. The innovative IP, data ownership, and consumer collectible and tradeable assets of web3 are bigger than finance. They're a way for brands to engage consumers, consumers to own their data, and create entirely new business models for the internet.

b) Tokenizing the wholesale TradFi assets is a platform shift in capital markets Fintech. If nothing else, this end of the spectrum will increase transparency and efficiency in financial markets. The scale of the prize here is ridiculous. It could create a genuine platform shift of who the gatekeepers are in investment banking and capital markets. 

c) CBDCs will play an important role. CBDCs are weirdly controversial. There are many design choices for CBDCs, and a fairly strong (partisan) backlash against them is almost entirely unwarranted. If CBDCs replicated the design of Bitcoin's blockchain network but added KYC directly with the government, they'd create a privacy nightmare. But not a single government has proposed that. Wholesale CBDCs make the existing cross-border flows way more efficient. Retail CBDCs potentially fill a gap for the digitally and financially excluded who currently rely on cash.

d) Deposit tokens have value to institutions and corporates. CBDCs will have to be limited in their use cases and availability. Most central banks don't want to displace the entire commercial banking sector or compete with it. Therefore there's a gap for a highly credible programmable electronic money that is an open loop (like a Stablecoin, available to any compatible wallet). Consider large merchants or corporations moving cash across borders between multiple regional entities. A deposit token would give instant liquidity, 24/7. 

e) Fiat-backed stablecoins have value today. Not only do they support much of the DeFi ecosystem they're becoming a US dollar deposit and payment rail for global south consumers and small merchants. A freelancer or tech company employee in Argentina would rather get paid and hold dollars than the Argentine peso. Many now do. International payroll platform Deel pays 5% of salaries in Crypto or stablecoins (and demand is much higher).

f) DeFi stablecoins have value today. DaoFi stablecoins are tokens that hold stable to the US dollar by running a kind of central bank for the internet. MakerDAO and M^Zero are examples of tokens attempting to create open capital markets and become a platform for more wholesale financial services use cases. 

This consumer and wholesale spectrum will play out across all three existing real-world asset class types. Each finds its use case and eventually figures out how to reference the other. 

The innovative end of the spectrum will create new markets. The regulated end of the spectrum will take existing markets.

The most interesting and unanswered question is how these worlds co-exist in time.

5. Macro is driving us to tokens and decentralization 📊

We've been talking about Crypto and web3 for a long time. Institutions have talked about "distributed ledger" for nearly a decade. Why does this matter, and why now? Cynics are rightly a little bored of what feels like empty promises or a train that never arrives. But there are a few macro trends forcing change.

a) Decentralization is a trend regardless of tech. There's pushback in governments and consumers against big tech data monopolies. With regulations like GDPR, and competitors like Bluesky and Mastodon, we're heading to a world where consumers want and will be given more data. Tokens, wallets, and blockchain networks comprise this broader puzzle.

b) Consumer privacy and data ownership is a trend regardless of tech. Privacy and cyber resilience push institutions and corporates to push data more into the consumer device. The more data sits at the edge, the better for risk management. The problem with privacy is managing fraud and AML. Better encryption, like zero-knowledge proofs (ZKPs), is the best way to manage this tension. Much of this innovation revolves around wallets, tokens, and blockchain networks. 

c) The infrastructure and platform shift is coming. The institutions are working hard to tokenize assets. When they're tokenized, they will behave differently and new providers.

d) The prize is too hard to ignore. Private markets, new asset classes, and financial markets could be more efficient, fair, and transparent. Money touches everything, and tokenization is platform shifting trillions and possibly quadrillions of notional trading volume in the next decade.

e) The bear market makes discourse more pragmatic. While nobody is distracted by token price headlines, large-scale scams, or hacks, we can focus on the true utility. 

6. What we need to focus on now 👀

a) A sensible discourse. It's so hard to discuss tokenization without someone in the room objecting. Someone will view it as all hype or take the opportunity to criticize Bitcoin for having "no intrinsic value," or Crypto being all speculation, or CBDCs for being a potential surveillance nightmare

b) Regulatory clarity. This is now much closer in Europe, APAC, and the Middle East. Quietly, behind the scenes, it's coming in the US too. The problem is that because of the lack of a sensible discourse, institutions are being very quiet (mostly) about their ambitions with tokenization and blockchain networks. Do not underestimate these moves and their significance.

c) Institutional adoption of open standards for regulated activities. There are multiple ERC standards for tokenizing securities, data sharing for AML, and how financial institutions might safely operate on public Blockchain networks. For securities tokens, the T-Rex (ERC 3643), for data sharing IVMS 101, and for financial institutions in Crypto GFIC are interesting examples. Then there are securities disclosures, DAO registries, and more. We don't need to pick winners; we must promote and adopt these things.

(I'm working on something called the Open Standards Council to draw a big circle around all of these standards and drive adoption, hit reply if you're interested in learning more).

7. What could be wrong with my thinking 🙅‍♂️

a) The risk is institutions only build walled gardens. Tokens need networks to operate across. If the network is narrow in scope, its value will only accrue to network participants. Networks need network effects. The more open the network, the better the network effects.

b) Institutions might recreate the maze of financial market infrastructure. The evolution of financial markets infrastructure has led to countless overlapping providers of bits of infrastructure. These providers are incentivized to continue to exist and have the ultimate high switching costs for their users.

c) Institutions are unrelatable for most entrepreneur talent. The language is jargon, and solving problems in deep financial infrastructure isn't the most attractive to entrepreneurs. Crypto true believers generally perceive the institutions and governments as the bad guy and vice versa. 

8. The non-consensus view. ❎

There's a classic blog post from 2014 in which a16z founder Marc Andreessen imagines a 2x2 matrix. 

Crypto used to be viewed by investors as "consensus," and so we saw a ton of investment activity and funds around it during 2021. 

Nothing is less hot than web3 or deep capital markets investment. 

But that's more exciting. It's now non-consensus, and what if it's correct?

Coming back to my spectrum from earlier. 

All of these worlds will co-exist. 

There is a platform shift opportunity coming to financial markets as they tokenize. 

Making the new asset classes from the internet and web3 available to institutions is a key area of opportunity. As is the inverse. 

Startups need to be the right mix of regulated, open-minded to compliance, and entrepreneurial to take advantage.

Most institutions are far more open-minded than most give them credit for. They just exist in a context that the people they speak to don't share.

I guarantee this post will get fewer views than embedded finance or GenAI.

That's why I had to write it and focus on it.

ST.

4 Fintech Companies 💸

1. Collectiv - Group payments app (UK)

Collectiv gives users a simple "collect money" payment link supporting digital wallets like Apple Pay, Google Pay, or their card. Users create a pot like "school trip," share the payment link, collect funds, and then can withdraw to their bank account. It also has some neat features like a sweepstake or secret santa generator. 

🤔 The organizer is always out of pocket. This is one of those consumer problems that has been around forever but has never been fully solved. Every P2P app has a payment link, and some Neobanks do pots, but turning the consumer into a mini merchant is a nice twist. The key for something like this will be go-to-market. Can they get adoption before everyone else adds the feature? Is this huge or just a nice business? Neither is wrong, but something in the execution is spot on. Their website tone of voice is just perfect. They might just have cracked it.

2. Translucent - The CFO super app

Translucent integrates with Xero, Sage, and Netsuite to create a single system of record for CFOs who run accounts for multiple legal entities. Users can search all of their data in a single place, run group-level reporting and run month-end through a single system.

🤔 This mini category of "multi-entity accounting for scale-ups" is becoming a pattern. Now set that against a backdrop of increasing M&A and investment becoming default global. The fight for the CFOs dashboard is still in progress. Treasury Management and payments happened, but the more complex stuff? Just getting started. This is a very nice wedge into companies scaling globally, but I wonder what the natural center of gravity for a CFO will be in 10 years. Does this live in their eventual ERP? Does it stand alone like Modern Treasury? TBD.

3. Bits of Stock - Fractional stock as consumer loyalty

Bits of Stock provides an API to allow card issuers to reward their users with customers every time they transact. The company claims an NYU study showed a 50% increase in monthly card spend plus a 24% increase in transactions. 

🤔 The financialization of loyalty has been done before but never this simple. Most strong brand advocates (that can afford to) tend to own stock in companies they love. The insight here is simple, why not flip that on its head? Consumer engagement is hard, especially with the highly prized Gen-Z. They're more financially savvy than the generation before, and it becomes an on-ramp to investing for people early in their careers with lower incomes. If I was a brand embedding finance for consumers in some way, I'd at least want to experiment with this API. Who says consumer Fintech is dead? If you need interchange revenue, this is worth a try.

4. Boodil - The open banking checkout with loyalty baked in 

Bodil provides an e-commerce button that uses Open Banking for authentication and payment as an alternative to cards. When clicking the "Bodil" button for the first time, consumers can scan a QR code that pushes to a secure authentication in their bank's mobile app. Consumers get instant rewards for every purchase, and merchants get instant liquidity.

🤔 Acceptance is everything. I have no doubt Open Banking based payments make a phenomenal alternative to cards for merchants. But consumers have a cold start problem. Why would I use this when it comes with fewer protections than a card? If the goods are never delivered, I'm shit out of luck. Also, when the browser stores my card, it's not that bad checking out. Bodil attempts to solve this with loyalty which is smart. But well-funded incumbents and existing Open Banking companies can eat this market segment. The issue is demand, not supply. The best place for open banking payments is bill pay or high-value purchases that use A2A today. It only takes off as a rail when someone solves the "what happens when stuff goes wrong" problem. 

Things to know 👀

Goldman is said to be in discussions with AMEX to take over the credit card and "other collaborations," according to the Wall St Journal. Despite Goldman moving away from consumer banking, it has continued to support Apple through the launch of Apple Pay Later and its recent savings account. The news follows Goldman examining sales or buyouts of its Greensky (POS lending) business and the troubles consumers had withdrawing their savings balances. 

🤔 The losses have been substantial. As an investment and IPO-focused bank, Goldman's business could swing from profitable to challenged depending on market conditions. Adding a consumer bank was supposed to bring consistent returns. Instead, it lost $4bn since inception and was on track to lose $1.2bn in 2022. In part, I'm sad they couldn't weather the storm. JPMC is spending big on tech but has highly focused bets (like its UK consumer bank or Onyx payments platform)

🤔 I still think the original Marcus strategy was and is correct. Getting deposits and pushing lending through BaaS, partnerships, and directly is the right answer, especially in a deposit-starved market with increasingly higher funding costs. The path there maybe wasn't. Perhaps it took on too much too fast. Often banking orgs only know one way to execute. Go huge, or go home. They went big, spent billions, and saw inconsistent results. I believe it's possible to spend far less, do less, and scale what's working. 

🤔 Is Goldman out of anything consumer? Over the past 6 months, the bank has cut jobs at its consumer division and canceled launching direct consumer loans or checking. It still has a high-yield savings account but will supposedly wrap Marcus into its wealth management division. If it does exit the Apple partnership, that might be profitable short term but a huge missed opportunity in the long term.

🤔 Apple-related products have been a headache for Goldman. Over the past 18 months, the partnership has grabbed headlines often for the wrong reasons despite being a huge hit with consumers. Complaints of bias in card onboarding and inability to take deposits out of the savings account become headlines. Headlines become CEO-level issues. Building a new business line is hard. Building 6 at once with a demanding partner like Apple is exceptionally hard. Now doing that, and more partnerships and going to direct to consumers was possibly too much. 

🤔 What's the Marcus strategy now? The Marcus by Goldman strategy decks of ~ 2 years ago had three components. Direct (Marcus), Partnerships (like Apple), and embedded (API first). This third category is where I think the focus will be. Marcus and their transaction banking division will focus on embedded finance use cases for major brands. 

🤔 The team and people involved got a lot right. The story of an investment bank exiting after going too hard too fast shouldn't reflect on the people or the strategy. Marcus and its partnerships achieved some incredible things in a very short space of time. Perhaps a leaner, meaner API-first TxB division can bring that to its full potential. This bank has the relationships it needs to win huge corporates and could become a dominant player in payments, banking as a service, and embedded finance.

Amazing data from Ron here: 47% of new checking accounts opened in 2023 were with digital banks (up from 36% in 2020). The Megabanks dropped from 24% to 17% in the same period, and community banks from 27% to 21%. Chime and PayPal are 43% of all Fintech checking accounts, and 20% of all accounts opened. SoFi is the fastest growing, from 1% of accounts opened to 4%, and Wells Fargo is the biggest loser dropping from 7% to 3.5%. 72% of accounts opened are by 21 to 42-year-olds. 

🤔 What about primary accounts and deposits though? 1/3rd of Gen Z and Gen Y consider their Fintech bank their primary checking account. The megabanks also see incredible deposit flight to Fintech companies, high-yield treasuries, and savings accounts. 

🤔 But aren't the megabanks getting a more affluent customer? Yes, but the customer is also older. People later in their careers tend to earn more.

🤔 The risk to big banks is generational. Their market share has eroded, continues to erode, and their deposit base is shrinking. The megabanks won't be the first choice for the affluent consumer of 2033 at this rate, especially as new wealth and private banks enter the segment.

🤔 So much for consumer Fintech being dead. Despite the large SPAC's and public Fintech companies seeing valuation drops, they're growing. They will become dominant players if they can keep growing, attracting deposits, and diversifying their product offerings. There's a real potential for a changing of the guard.

🤔 The big unknown is can the Fintech companies get a charter? Can one of those Fintech companies become the new Chase, Wells, or Citi, and would they ever open a branch? If we look at the UK or Brazil, the digital banks hitting profitability all have a full banking license. If we want these companies to succeed, we have to see movement there.

Good Reads 📚

The Bank of International Settlements report outlines a future of programmable securities settlements, tokenized deposits that settle in CBDC, low-cost credit in trade finance, and privacy-preserving data sharing. These "unified ledgers" would be a new regulated financial market infrastructure (FMI) type.

🤔 If you're in payments, stablecoins or Crypto go read thisThis is the thinking shaping future government policy. The full report is here.

🤔 One centralized ledger to rule them all? No. The report covers "Unified ledgers" that could be broad or narrow, and notes at first, they will support specific use cases. Read another way; these networks you see in financial markets like Canton are already emerging. But it goes on that we could interlink these ledgers with APIs and create a "network of networks." 

🤔 There is a whole section on privacy-preserving technologies and partitioning of data. They don't name ZKPs, but they're implying it. Chances are you are systematically undervaluing ZKPs as a tool and their development.

🤔 The value of decentralizing data storage and privacy-preserving is also cyber-risk prevention. Interests are aligned here between consumers, businesses, and the big scary government overlords. The way to get more privacy is also the way you prevent cyber risk. Give users more control over their data and use better encryption.

🤔 I know they can't or won't say it, but the "network of networks" will inevitably converge with open blockchain networks. Think about it like VPNs and firewalls but for finance. The unified ledgers do the big heavy lifting of finance movement between institutions. The blockchain networks operate as auditors and app chains for new use cases.

Tweets of the week 🕊

That's all, folks. 👋

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Disclosures: (1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees. (2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a (3) Any companies mentioned in Rants are top of mind and used for illustrative purposes only. (4) I'm not an expert at everything you read here. Some of it is me thinking out loud and learning as I go; please don't take it as gospel—strong opinions, weakly held.