Fintech 🧠 Food - Nov 1st - Goldman embeds finance, Coinbase crypto rewards, DOJ v Plaid and Shopify & Tiktok

Hey everyone 👋, thanks so much for coming back for more brain food. Covering 4 fintech's that caught my eye this week, a deeper look behind some of the biggest stories and best content of the week. It's the "I know kung-fu" version of what happened in fintech this week. Apparently. :)

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Goldman broke the fintechnet this week, launching its developer portal, intentionally allowing companies to "embed finance" with their bank as a service offering. Cue flurry of emails inside every large bank from CEO's wondering how seriously they have to make this move.

Take it seriously.

The past decade has seen several companies enable the beginnings of bank-as-a-service. Bond, Galileo, Marqeta, Privacy.com, Synapse, and Wise have made building a neobank or embedding finance in your offering better, faster, and cheaper. Leading to accounts from Chime, Credit Karma, Doordash, and countless others.

Matt Harris thinks this market could create $3.6 trillion of new market cap by 2030. The sober Cornerstone Advisors estimate there's $250bn in revenue available by 2025 (both USA only, extrapolate that to Europe and Asia and wow).

Look at Goldman's strategy here; this is them entering transaction banking. Per the fintech is 1% finished video, we've seen fintech do consumer, SMB, wealth, but it's not really solved for mid-cap to large corporates. This is the area the big banks still rule, but the experiences corporates receive are awful. Most corporate banking portals look like they're stuck in the 90s.

At this level, banking is still relationship-driven; it involves senior bankers talking with CFO's and Chief Treasury Officers over dinner and at conferences. Corporate Treasuries worry about two things 1) Cash 2) Risk. For cash corporates worry, is it working hard enough, am I collecting it fast enough, can I fund all of my operations? Risk is everything, like FX, market volatility, hedging, and more.

Banks convince themselves this is what clients want (and to a degree, they're not wrong), but digital clients have broader expectations.

In our bank as a service report at 11:FS, we split brands into four quadrants.

Digital non-finance businesses need greater control of payment engines. Imagine you are Spotify and need to collect payments globally, in countless currencies, via numerous banks.

The complexity of offering from banks makes simple things like refunds way too hard in the current system. I spoke to one corporate treasury team who runs an app store (of sorts), who would find in some countries they're having to pay SWIFT fee's of $40 to receive $0.99 of revenue, and then if the customer wants a refund, they're paying $40 to send the $0.99 back. This risk can be managed via FX and banks (and SWIFT GPI), but it's all way too hard and manual and 90s, and god awful. Especially compared to their own internal IT infrastructure.

Digital businesses operate globally, in real-time, and 24/7. Yet the banks are still offering digital businesses batch uploads as a primary channel. When banks do offer APIs, those APIs are awful, and there's no sandbox, horrible documentation, and onboarding takes at least 6 months. Banks view "having APIs" as the goal, not "being an API first business." Chalk and cheese.

I've heard a few times this week; If the future of finance is embedded, banking's future has to be more of an "intel inside" model. This is a great metaphor, but it's also broken. With APIs, much of the quality comes from the service wrapper. Banks need outstanding APIs and a comprehensive service model wrapped around that.

Enter: Goldman. Goldman has opened many of the tools it uses to manage complex, global market products as APIs in its developer portal. It's focussing documentation, developer experience, and an operating model designed to be API first. Take notes.

4 Fintechs 🤑

1. Dwelling - Save, find and buy your dream home

• Combining saving for a house, real estate market insights, insights into your finances with brokerage services, Dwelling aims to turn you into a home buying pro. Buying a house is harder and harder, with Gen Z making big purchases later in life, especially in markets where house prices grow faster than earnings.

• Services above the financial product solve all of the things before the house purchase makes so much sense. In the UK, Nude does some of the savings elements, Habito is a digital-first broker, but Dwelling has put it all together in an exciting way.

• If anything, it reminds me of Haofang, the Chinese service from insurance giant Ping-An. It solves saving with more than 12m users, areas you could live, and then the mortgage. This solves the whole customer job, not just the financial product. There is lots to learn from how these smaller, more engaging apps drive volume to finance's underlying engines.

h/t Ian Kar

2. Wise - If Brex did BaaS

• Wise is aimed at small businesses that want a better banking experience that need to pay and get paid. Wise embeds itself in other experiences (like Shopify) to make banking a little more invisible and a little more useful. It also offers the things you'd expect like digital onboarding and super clean UX for business owners.

• Wise just raised another $12m in their series A to double down on their vision of intentionally enabling others to embed banking. Wise isn't aimed at Neobanks, but companies that touch finance but aren't banks. Behind the scenes, Wise uses BBVA and Stripe, but above that, they've built-in KYC / KYB processes into a super simple to integrate solution for smaller businesses.

• This is really, really, really smart.

3. Pry - More financial planning for startups

• Pry provides runway cash forecasting, customizable models, and hiring plans. These tools for startups are a huge hit. There were at least 4 in the last YCom batch. Pry wants to differentiate with forecast flexibility. All the benefits of having a spreadsheet you can hack at.

4. Sheswell - The affordable fertility subscription

• Sheswell offers an affordable monthly subscription covering fertility planning, egg freezing, clinic matching, and nurse concierge. By age 30, a woman has 12% of her original eggs, and 3% by age 40. Fertility services are expensive and lack payment flexibility - this subscription smoothes it out and makes it an ARR style business.

• Nobody talks about how expensive fertility services are, especially earlier in your career. While some forward-thinking companies have started to offer fertility coverage as a standard benefit of employment, it's still too rare; it's may even be a factor preventing female talent from taking "riskier" startup jobs. For the fintech angle, this could easily live inside a Zenefits, Gousto, or similar service. The world has good in it :)

Would love to know your thoughts here. Is there value in consumer-led subscriptions that enable careers as we become more global and freelanced?

Things to know 👀

1. Coinbase launched a crypto debit card

• Coinbase launched its debit card in the US, including crypto as rewards/cashback (1% in Bitcoin, or 4% in Stellar lumens). The app allows consumers to spend many cryptocurrencies, including USDC (the dollar-pegged token, that may as well be dollars). There is a 2.49% fee for paying in all cryptos except USDC.

• 🤔 My analysis: The crypto rewards are * smart*. Historically reward points work on breakage. The rewards points sit in accounts often unused, and when they are, the points system masks a service that works out much more in favor of the reward scheme operator than the user. Crypto cashback is attractive because crypto (especially Bitcoin) actually tends to be relatively stable (yes, really) and over the long term increase in value. Instead of reward points worth less than the cash at the time of reward, the crypto could be worth more over time.

• 🤔 My analysis:No fee's for using the Stablecoin USDC is also brilliant. Stablecoins are synthetic dollars used by traders and crypto nerds to manage volatility and trades in the crypto market. They also operate as a near-instant, near free payment mechanism. Chances are if you're in crypto, you have a lot of USDC (or USDT), and Coinbase just gave you an excellent way to spend it.

• 🤔 My analysis: The Stablecoin element is also interesting because many wallet providers offer interest payments on USDC holdings. Depending on where you look in the market, you can find between 6% and 10% "APY" on those holdings. It's important to note this isn't like a bank savings deposit; there's often no government-backed insurance; it's more like holding your money in the market. But still, the relative simplicity of having USDC, gaining 6% a month on it, then 1% cashback on Bitcoin is, staggering. Why wouldn't you use this?

1.1 And everything happened in crypto

• In the same week, JP Morgan announced Onyx and JPM coin going into production. They also said DLT is gonna be profitable soon. People still hate on the big bank "DLT," but be like frozen and let it go, people. This is good shit.

• Singapore's biggest bank DBS launched a crypto exchange. You read that right. Significant.

• 🤔 My analysis: Crypto 👏 Is 👏 Mainstream 👏

2. DOJ is investigating Visa's Plaid acquisition

• The Justice Department is considering whether the Plaid acquisition will "allow Visa—the dominant provider of debit services in the United States—to create or maintain a monopoly."

• Visa and Mastercard have been concerned about getting left behind if more people change how they make payments and use apps that, for example, enable bank-account-to-bank-account payments that essentially bypass the card networks.

• 🤔My analysis: The banks were never going to like this acquisition. For banks, Plaid is quite hostile; it pulls data from their accounts and makes it available to the market, with no upside to the bank. I wouldn't be surprised if the bank lobby is behind a lot of pressure for the DOJ to look into this matter.

• 🤔 My analysis: It's impossible to separate this from the broader big tech anti-trust conversation. Big tech is big. Services like Plaid potentially turn the banks into "dumb pipes." Instead of lobbying and crying about it, what if the banks got off their ass and built outstanding APIs?

• 🤔 My analysis: The other big lobby here is the merchants, think Walmart et al. They're at the mercy of the payments rails for such a large part of their business, and Visa acquiring Plaid potentially just removed a great way to push cost out of their business (through cheaper, account to account rails).

3. Shopify and Tiktok did a partnership

• This partnership is about helping Shopify's merchants to advertise in Tiktok and reach that younger audience. Helping their merchants do marketing is a big part of what makes Shopify much more than an e-commerce tool. Partnerships like this make it even easier for those micro-merchants.

• Tiktok and Shopify had been spotted trialing a new shopping button that allowed TikTok creators to link their Shopify storefront from their videos. It's expected that coming soon will be the ability to browse and buy directly inside of the Tiktok app itself.

• 🤔 My analysis: Helping creators monetize their audience is so on point it hurts. Creators (and TikTok generally) have incredible engagement, so to turn that into commerce just makes heaps of sense.

• 🤔 My analysis: Shopify's focus on the micro merchant segment is consistent, proven, and their phenomenal Q3 results show it's working. I do wonder, though, how will they drive this for large merchants? How can Shop Pay be a real option for the whole internet if it only works at small merchants?

Other good stuff you should read:

This Week in Fintech is a round-up of all things financial technology, brought to your inbox each Friday and Saturday. It covers everything in banking and fintech from neobanks to payments to BaaS to roboadvisors, in a format, you can digest once-weekly over a cup of coffee.

Good reads 📚

1. Why tech companies are clamoring to give you credit cards

• Shopify wants businesses to use their warehouses. Venmo wants to embed itself in everyday life. Razer intends to use its diehard fanbase to grow even more. When a tech company introduces a card or bank account, they get "much more stickiness" with its customers.

• It's very cheap for tech companies to get their customers to try these products: They already have a giant user base to sell to. CAC for these businesses is super low (often 10x lower than the banks themselves). Therefore banks need to "become "API-driven banks, where they provide the infrastructure to other players."

• 🤔 My analysis: If it's a battle of the APIs, who's your money on? Most banks "have an API" in the way that I have running shoes. They're dirty, I don't really run ever, and I'm never going to win the Olympic 100m dash.

• 🤔 My analysis: It's about API quality, but also it's totally not about the APIs. Offering outstanding APIs is about having a great sandbox, developer experience, and go to market. This includes changing the pricing model, flipping the operating model, and partnering better. This isn't transaction banking via a new channel. (CLAPS).

• 🤔 My analysis: If you're about to build the economic model for your API first, bank as a service offering, and you're looking only at your existing business lines, you're doing it wrong.

2) Software is eating markets

• The rise of the consumer investor is altering how markets operate forever. This trend began with the Robinhood investor but got punched forward in the pandemic as boredom, low-interest rates, and money printing kicked in. Low-interest rates favor growth stocks; low interests look like they're here to stay.

• Consumers don't make decisions like businesses, and if the consumer investor is here to stay, they're likely to value brand and impact much more than professional investors had. Retail trades now make about 25% of the market.

• New technologies steal some market share from the previous generation, but overwhelmingly new technologies grow the pie. Like mobile advertising or mobile gaming, mobile investing is increasing the size of the investment market. The difference in attention between Robinhood and Wealthfront is staggering. Robinhood being mobile-first, has made such a massive difference. Mobile increased demand.

• New asset classes are emerging, it's easier than ever for the consumer to buy pre-IPO shares (e.g., EquityZen, Crowdcube), crypto, and even art. New asset classes increase supply.

• 🤔 My analysis: Packy mentions saying, "this time it's different," is dangerous. But so is not acknowledging that digital really is different. I agree with him here. Digital business's earnings growth is staggering. So even when you strip out the temporary effects, the fundamentals are still there.

• 🤔 My analysis: The boomer-bears focus on the .com bubble bursting, not that big tech is now the dominant and best performing sector of the economy 20 years later. The lesson from the .com bubble isn't 2002; it's 2020. Zoom out. Investor time horizons impact everything.

PS. Packy McCormick is SUCH a good writer; it's actually insane.

Tweets of the Week 🕊

That’s all folks 👋

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