Fintech 🧠 Food - Holiday edition 🎅 - BTC Moons, XRP craters, and the best of 2020

Hey everyone 👋, thanks so much for coming back for more brain food. This week is a little different. Since it’s the holidays, I take a quick look back at 2020 as well as one or two of the things that caught my eye this week.

Also to say, this newsletter started by accident. After a long drive, I felt the need to write a few things down in public because maybe someone else would enjoy them too. The response has been overwhelming. There are now just short of 3,000 of you. That’s humbling. Here’s to another year of learning in public :)

If you like this newsletter, here are my three most viewed posts of the year

1. Smiling curves and fintech business models

2. Ping-An case study

3. YCombinator class of 2020 fintech summaries

If you know anyone else who loves fintech, please do, share the food. 👇

I just watched “Death to 2020” on Netflix, which is well worth your time if you haven’t seen it. The cliche’s for how nuts this year has been don’t quite do it justice, but for me, the real silver lining as a fintech nerd has been all of the fintech.

I mean, all of the fintech happened.

Square Cash cemented itself as the future of everyday banking by distributing stimulus checks. Stripe became the world’s most valuable startup. Everyone is doing Banking-as-a-Service or their own Neobank. Fintech is the hottest thing in tech. Pipe.com turned ARR into an asset class.

To begin to unpack it all, I thought about the themes we saw emerge this year and how they’ll accelerate into next year.

1. Everything is fintech infrastructure.

2. Own payments, own finance

3. Banking without banks

4. Neobanks revenue conundrum

5. Solving deeper problems

6. A new generation of investor

7. Self-driving money

8. SMBs and growth corporates

9. Corporate banking is sexy again.

10. Mortgages are 1% done.

11. Crypto is mainstream

Everything is fintech infrastructure. 🔌

The level of VC FOMO for things in banking-as-a-service and fintech infra this year has been astounding but not unwarranted. Fintech infra is so unbelievably broken. We’ve seen plenty of neat abstractions and APIs, which make it cheaper and easier to build. However, now we see the introduction of new primitives from folks like Moov.io.

Next year: genuine infrastructure alternatives (e.g., Dwolla, new credit rating agencies, etc.) may gain more traction. It will also be a big year for open-banking payments in Europe.

Own payments, own finance 💳

Whether it’s Alipay, Square Cash, or Stripe, the businesses that started with direct payments offer have been able to pivot into adjacent finance products far better than competitors neatly.

Next year: we will see “embedded lending” gain much more traction, but those who own the payments are best placed to cross-sell. Owning “payments” is a new loss leading checking account.

Banking without banks 🤓

It’s already possible to have all of your financial life without a bank. Increasingly checking accounts is just where the paycheck goes before moving to somewhere you’d prefer it to be. Neobanks aren’t just for nerds; they’re solving real problems. Cash App is doing more for financial inclusion than banks can because of their business model and scale.

Next year: some banks will lean into this trend (many are, e.g., Goldman or smaller partner banks). Banks can’t turn off their checking account infrastructure or marketing, but we might finally see some fintech M&A or launches in new markets with new infra (see: JP Morgan UK market entry).

Neobanks revenue conundrum 📊

European Neobanks have struggled to monetize and grow. Revolut talks about its profitability when crypto does well (but no other time). Starling is “on the path to profitability,” & the gleeful kicking the mainstream media has given Monzo is a sight to behold. US Neobanks have it easier (peace be upon the Durbin Amendment), thanks to the interchange revenue, but that only gets you so far. This year saw the rise of the “subscription" account. Many resembled the packaged accounts by big banks, but we are just beginning to see real innovation appearing here.

Next year: We will see these accounts iterate and do more as the Neobanks aim for “super-app” territory. Re-aggregation in the fintech app could work if the service is strong enough. We will also see these accounts better address massive niche audiences (see next part)

Solving deeper problems 🧩

We’re spoiled at 11:FS. We have a platform called 11:FS Pulse, which’s like youtube for fintech UI. So I can view the user experience of Chime, Varo, N26, Monzo, Revolut, Current, Square. It’s a fintech nerd paradise. But do you know what I’ve noticed? Most of these apps are wonderfully executed, but a bit samey. The traditional banks are catching up, and the UX / UI edge isn’t what it used to be.

Next year: We will see the niches that warrant a higher MRR justify that (accounts for parents, accounts for landlords, SMBs, etc.). We’ll also see the beginnings of “self-driving money” come to mainstream fintech apps.

A new generation of investor 👶

Without question, 2020 has been huge for the mobile-first, first-time investor. Whether it was the once in a generation stock market dip, the “boredom economy,” or people suddenly having a little extra cash doesn’t matter. It hasn’t been without controversy, Robinhood especially seems to be a bit of a pariah of late, but that hasn’t limited consumer demand. Companies like Drivewealth have made it easier and cheaper than ever to offer real time share dealing services to your existing customer base.

Next year: The new generation of apps that focus on the social (Commonstock, Freetrade, Public.com) will become serious challengers to the incumbents and Robinhood. The key battleground will be what level of access consumers should get to non-traditional securities and derivatives markets. Plenty of apps are willing to add Bitcoin, less so options trading.

Self-driving money 🚗

A concept that has been around for a few years, self-driving money feels like it could have its moment soon. We’ve seen plenty of apps do the “we’ll pool all of your cash from elsewhere in our account,” but we haven’t seen the account agnostic solution take hold. When I saw Astra Finance, it clicked for me. The consumer fintech dashboard is better off not selling financial products. It creates different incentives.

Next year: Google Pay is the closest to realizing this vision by making all of your accounts searchable through open banking and exporting to sheets. I’d also put Square (the US only) and Apple in that conversation, of course. The “financial dashboard” that re-aggregates fintech is there for the taking.

SMBs and growth corporates 📈

You probably couldn’t move for another SaaS tool for SMBs this year, and that’s not surprising because SMB banking is much more broken than consumer banking. SMBs have so many more challenges (invoices, tax, getting paid). That industry presents a massive revenue opportunity, but also a client who sorely needs the solution.

Next year: This sector is only really getting started. Most of the major VC firms have made their bets, and the market is getting crowded, but if anything, that will lead to consolidation over time. SMBs and growth business is happy to spend on SaaS. It’s a no brainer trend.

Corporate banking is sexy again. 💃

Banking, the world’s largest corporates, has been a massive cash cow for the world’s largest banks. When Apple or Facebook want to move money around the world, they need a bank with Tier 1 banks' scale to help them. Chances are they have ~2 or 3 “primary” banks as well as a network of relationships with smaller banks around the world. It’s a very analog business that hasn’t meaningfully in decades; it has the ultimate scale and regulatory moat. That was until Goldman entered with an API-first approach.

Next year: Cash management, trade, and working capital are attacked from both sides. From below, up coming folks like Brex, Mercury, and Modern Treasury eat away at the cash flow management and treasury functions. From the side, Goldman (and possibly one or two others) get their act together on APIs. Most won’t. If you want to meet old school bankers, go to a transaction banking conference.

Mortgages are 1% done. 🎂

Mortgages are so broken the whole house buying process is. Generation rent is worrying if they will ever afford a house, and incumbent brokers, lawyers, and surveyors create a moat around analog processes. Early entrants like Habito and Better.com have created better digital broker experiences, but proptech could have its moment next year.

Next year: Disrupting the lawyers and surveyors and going deeper into the consumer dashboard and fintech aggregation is the way forward. I’m a big fan of Nude, the app that helps savers stay focussed on what house they could have if they save more. But how will they furnish that house? Where’s the marketplace of lawyers? If you’ve ever had a great broker, they’re problem solvers and help you think about things you’d miss. That, but digital, and at scale is there for the taking.

Crypto is mainstream 🌍

I covered this a bit last week, but when you look past the price action of crypto, you see an asset class that has arrived. There are still bankers rolling out the 2017 talking points (intrinsic value, energy use, blah). But Bitcoin arrived when it was made available in Square Cash App. When institutions and corporate treasury are buying Bitcoin as an inflation hedge, we’re on to something.

Next year: Whether Bitcoin crashes or moons isn’t the point. The genie is out of the bottle. Regulated financial institutions hold Bitcoin at scale. Stablecoins and Defi will continue to grow next year. They won’t be mainstream for a short while, but their impact will be even bigger when they do arrive.

Things to know 👀

1. The SEC sues Ripple

In a surprise to nobody, crypto’s very own Enron was sued by the SEC this week. The list of charges is astonishing for just how blatant and unapologetic Ripple has consistently been. The core issue is that Ripple created “XRP” unregistered security that enriched the Ripple management, but when you scratch beneath that, it is shocking. The SEC alleges Ripple management and staff engaged in full-scale price manipulation of XRP.

🤔 My Analysis: Ripple has always been toxic. The closer you get to them, the worse it got. The stuff in the SEC suit is the tip of the iceberg. The whole community of “XRP-Army” was some of the worst of the crypto industry, dressed up as Davos attending, suit-wearing corporate alternatives to SWIFT. Ripple may have set back the perception of digitally native crypto for the entire industry. The one silver lining here could well be that Ripple settles and puts all of its energy into solving the financial industry's problems.

2. Bitcoin passed $28k

Bitcoin is on a holiday tear. Be careful out there, people and never invest money you can’t afford to lose. That said. Bitcoin will either go to $0 or continue to rise over the longer time horizon. Pick a religion and stick to it :)

Holiday Read 📚🎅

Hip to be square by net interest

And a tweet to end the year. 🥂