Fintech 🧠 Food - The Future of Money

Plus, Revoluts Ultra Card, Robinhood acquires X1 and the GenAI landscape

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 31,645 others by clicking below, and to the regular readers, thank you. 🙏

Hey Fintech Nerds 👋

There's plenty of innovation in Consumer Fintech to be had.

One thing that caught my eye this week was Revolut launching its "ultra" proposition. For £540 per month ($690), you get 3x WeWork credits per month, a NordVPN and Financial Times subscription, and a host of other benefits. 

What I like about this is it's targeting a persona that AMEX or Chase Sapphire didn't historically (and it's focussed on Europe, where these cards are less prevalent). 

The market is maturing.

I also saw that Adyen announced its partnership with Shopify. Shopify had been famously the exclusive bestie of Stripe. (In principle, this was available for the last 6 years, so this timing is interesting).

The bigger story is how Adyen and Stripe continue taking market share from incumbents.

I also saw that the Digital Euro legislation got leaked. Which got my wheels turning. Is money due for an upgrade? 

If so, what would it look like?

That's this week's 📣 Rant.

Grab a coffee ☕

Go 👇

PS. The fabulous Jenny Johnston and Nik Milanovic have written a FREE Whitepaper on the future of money movement, and you can get it here.

PPS. The equally fabulous Sarah Hunkfuss and the team at BCV have written the ultimate “GenAI in Fintech” field notes. Excited to unpack this one next week as a good read.

Here's this week's Brainfood in summary

📣 Rant: The future of currency

💸 4 Fintech Companies:

  1. Round* - Meow for Europe

  2. Vabble - Invoice Finance for LatAm

  3. Louve - French real-estate / fractional ownership

  4. Clidrive - HELOC for cars in Spain

👀 Things to Know:

📚 Good Read:

Weekly Rant 📣

The Future of Money

Money needs an upgrade.

Money should be programmable.

It should be able to apply taxes, pay royalties and manage refunds. 

That's all possible today, but not with the currencies, banks, and apps people trust.

Digital technology and a global world didn’t exist when money was invented.

The invention of money solved another problem entirely.

Money was a solution to barter. 

In barter, every thing is tradeable for some other quantity of item or service, but there's a glaring problem.

It's hard to know how many pigeons are worth one cat. How many bushels of wheat are worth a new plow?

Money is an efficient way to exchange value, store it and account for it.

Coins and paper money become a simple way for a farmer to exchange their value (e.g., wheat) and receive value they can also exchange for other staples like tools from the blacksmith. They can also sell all of their wheat in one transaction and store that value for later, in a measurement we can all agree on (or account for).

That's why central bankers spend so long saying the three tests of money are it must be

  1. A medium of exchange

  2. A unit of account

  3. A store of value

That's how it adds value, but not why. 

Money is memory. It remembers the value you've created and can grow over time in a way perishable assets struggle to (e.g., the grain goes stale).

Money is also a fuel for action. 

For me, this is its most important function. If you want something to happen, it usually takes money. Want to build a school, travel to work, or have a place to live? You either have to buy or pay for that. Money incentivizes others to act to meet your need (or for you to meet theirs) because they can exchange, store, and account for it.

But money is dumb.

It is a legacy technology.

So how do we upgrade it?

Let's dive in 🏊‍♂️

  1. How money works today

    1. The vast majority of money is stored at a commercial bank

    2. Most payments are electronic but not truly digital

  2. The problems with money

    1. Money is local, not global

    2. Money is digitized, not digital

    3. Money has no context about how it is being used

    4. Digitized money doesn't solve all paper money use cases

  3. Requirements for a money makeover

    1. Meet the function of money requirements

    2. Be available globally

    3. Be modern, digital, and upgradeable

    4. Able to add context (programmable and/or composable)

    5. Solve cash-like use cases (trusted and private)

  4. The contenders to upgrade money

    1. RTP rails are digital and solve some cash use cases

    2. Central Bank Digital Currencies would be digital, work offline and solve many cash use cases

    3. Stablecoins are digital, programmable, and global

  5. Case Studies

    1. Central Bank Accounts, Systems, and RTP Bridges

    2. Central Bank Digital Currencies (CBDCs)

    3. Stablecoins

  6. How this plays out

    1. Enabling legislation will normalize tokenization

    2. RTPs with APIs will make tokenization mass market

    3. Deposit tokens will make "tokens" more trusted

  7. Questions

    1. 🤔 Should money be programmable? 

    2. 🤔 How private should money be?

    3. 🤔 Who should be able to program money? 

  8. Final thoughts

    1. Tokenization is inevitable. The only question is, are you paying attention yet?

1. How Money Works Today 💱

Today money is created by central banks and commercial banks. Central banks make notes and coins when they buy assets from financial markets. We call this Central Bank Money. Central bank money is considered "risk-free" because a bank can always print more money guaranteed by a nation's tax receipts. As long as the country exists, so will its central bank.   

Commercial bank money is when banks create money by creating debt. When you take out a loan, the bank creates those new deposits. Over time you have to repay that loan, and as you do, the net amount of money in the system increases. Commercial bank money is not risk-free, it is backed by deposits, but banks don't have to 1:1 back every loan they create with deposits. As we saw with the recent banking crisis

a) The vast majority of money is stored at a commercial bank. In the UK, 96% of money is held electronically as bank deposits, with 4% as cash. The money held as bank deposits is with commercial banks. Even if you're using a Fintech app, your money is typically held by an underlying commercial bank.

b) Most payments are electronic. The number varies by country (e.g., the US by volume is ~75% electronic, still using a lot of checks), but cash makes a fraction of the overall volume in most developed economies. 

In summary, users can store their cash in a wallet, Fintech app, or bank. In reality, these are all abstractions of commercial bank deposits. Users typically pay by card, local payments rail, or, increasingly, A2A (account to account) push payment types (Like Faster Payments, UPI, Pix, and soon FedNow).

2. The problems with money. 😠

It is the ultimate legacy technology, and it has incredible network effects. The currency works in the market; it's used by the entire economy and its critical infrastructure. The whole economy can grind to a halt if Central Bank or major payment systems go down. Competing with it is hard because everyone uses it; changing it is even harder.

Money wasn't built for today's always-on, 24-7 global world. 

a) Money is local, not global. Money is issued in the local currency of the country of origin. It is denominated in that currency, subject to national laws. This is fine if you're in that country, and up until the last century, for most people, most of the time, that was fine. 

The situation changes if you live in Argentina and work for a US company, freelancer, or trade across borders as a business. Not only do you have to manage multiple currencies, but you also have to manage multiple payment rails and relationships.

Banks, Fintech companies, and Central Banks all have countless ways to solve a piece of the problem and projects in flight to improve it. The point of this section isn't to discount this good work but explain why the problem exists. 

b) Money is digitized, not digital. The digital technology that stores and moves money was created with the technology available at its implementation. Its job was to replace checks and paper balance sheets, so it took its requirements from "replacing paper" rather than "how should we start again." 

This digital technology is often decades-old critical national infrastructure. The cost of change is high, and the risk of failure is massive. Our digital systems are often layered on what was there before and must be in service for an average of 30 years. They become incredibly complex and expensive to change or upgrade.

The private sector has improved the situation but increased the complexity. New payment rails like card networks, wallets, and open banking-initiated payments solve problems in isolation but exacerbate the problem in aggregate.

c) Money has no context about how it is being used. Money is recorded and moved. Simple accounting entries, debits, and credits are at the beginning and end of a transaction. Depending on the payment rail, some context about the payment might travel with it (e.g., in cards, we tend to know the merchant's name, the transaction type category, and more). 

But so much context gets lost and is never acted on.

A whole series of other things may happen after or around the payment. A cross-border transaction might be subject to local tariffs; some transactions require collecting taxes or might trigger another event like dispatching goods.

The economic activity before or after money gets involved shapes what happens to money so dramatically. In this world of digital technology, these things should be linked, but they aren't. 

d) Digitized money doesn't solve all use cases. Paper cash works offline is truly peer-to-peer and is preferred by vulnerable and marginalized populations. Whether it's older adults or immigrants often, paper cash is a lifeline and a source of confidence and control over their destiny.

(I should point out that criminals prefer cash because it is tough to trace, and there is a tradeoff between privacy and supporting the vulnerable that many countries try to make by limiting how much cash can be taken across borders or to a bank branch.)

Private sector payment rails are often either expensive or not interoperable. Digital money isn't universal. 

If you were to stand back and redesign money, it would look very different. That's the easy part. The hard part would be getting adoption.

But set that aside for a second.

What would smart money look like?

3. Requirements for giving money a makeover 📜

The first thing a tech upgrade for money would have to do is perform the functions of legacy money. 

a) Meet the function of money requirements. New digital money should be a store of value (not volatile), a unit of account (a way to measure the value of other goods), and a medium of exchange (used to facilitate the exchange of goods and services).

(This might sound obvious, but if you read central banks' critique of digital assets, they always point out that digital "currencies" fail the three money tests. )

b) Be available globally. New digital money should be as borderless as possible. We're in an increasingly divided world, and money is tied closely to sovereignty and economic influence, so there are obvious limitations. But as designed the global economy, consumers and businesses require money that is itself borderless. 

c) Be modern, digital, and upgradeable. Software is eating money itself. "Modern" is a moving target, but the principles of upgradeability by design are more common as a software engineering practice in the past decade. The practical reality is tech debt always gets you in the end. But by being upgradeable and existing as software first, money should be cheaper to upgrade and much more interoperable by default.

d) Able to add context (programmable and/or composable). If we could program money and its transactions, we could make it smart enough to automate specific activities. Money could wait in an account until some external event triggers it to move. The ability for it to be triggered by external services also makes it composable. To some extent, APIs enable this today, but it's often bespoke engineering; it's not a general capability. 

e) Solve cash-like use cases (trusted and private). Most digital money only works online and is subject to monitoring by banks or financial institutions. If we assume digital literacy improves over time. Is there a case to be made for a utility form of digital money that is universally available and gives confidence to vulnerable populations? 

4. The Contenders to Upgrade Money 🥊

There's no lack of people trying to upgrade money. 

a) RTP rails are digital and solve some cash use cases. Since launching Fater Payments in 2005, the usage of checks and cash has plummeted in the United Kingdom (also helped by the early and widespread adoption of contactless cards). Wallets like Venmo, Zelle, and CashApp fill this void in the US to some extent, but the arrival of FedNow presents a payment type that should be available to everyone. 

These rails are often domestic and struggle with cross-border connectivity. They're also rarely programmable like a Stablecoin might be (see section C below).

b) Central Bank Digital Currencies would be digital, work offline and solve many cash use cases. If a Central Bank made an equivalent to paper money available in digital wallets, it would be available to any consumer or business in that country. They can make it programmable (to some extent) or at least compatible with programmable software. 

The worry with Central Bank Digital Currencies is a possible backlash from the public about privacy. Central banks aren't renowned for developer-friendly technology either.

c) Stablecoins are digital, programmable, and global. Digital dollars issued on public Blockchain networks like USDC, USDP, and to some extent, USDT are available today, globally and 24/7. They are programmable and digital. Perhaps most valuable, however, is not that the money is programmable; other software can interface with the money and trigger it to move. 

The big issue Stablecoins face is credibility despite many offering 1:1 backing for US Dollars in the wake of the banking crisis and the collapse of more experimental alternatives (like Terra Luna). 

So my short-list is the RTP rails, a dedicated and consumer-facing CBDC and Stablecoins.

Who wins?

5. Case studies 🧳

a) Central Bank Accounts, Systems, and Bridges.

Central Banks operate bank accounts and national payment infrastructure between the commercial banks. This "direct access" to the central bank means domestic banks have zero credit or settlement risk (they're not worried about getting paid). It also means all funds held there are guaranteed. It's like FDIC but with an unlimited cap. 

Neither of these services is available to Fintech companies in the US, but the UK Fintech companies like Modulr (BaaS) can access both. Modulr (and its competitors) are not banks but have accounts at the Bank of England and direct access to some payment systems. This cuts out the middleman banks and makes their fee structure more competitive.

In the US, banks like Column (the API-first nationally chartered bank) could offer some of that capability as Clearbank in the UK did for many years. But direct access would open up competition. However, this isn't a massive upgrade of money.

Cross-border RTP bridges would be.

India's UPI and Singapore's PayNow have been linked since Q1 2023. The Fed has announced its intention to link FedNow to UPI and other global RTP systems in time. This would give consumers and businesses instant, near zero-fee cross-border capability. That could be a game changer if the US dollar joins the party.

It won't solve every cross-border trade flow, though.

b) Central Bank Digital Currency (CBDC)

At this point, it's essential to separate Wholesale CBDC from Retail CBDC.

i) Wholesale CBDC aims to significantly improve interbank financial systems making them interoperable and tokenized. This would unlock use cases like an instant settlement with central banks and more complex cross-border or trade finance use cases. 

ii) Retail CBDC aims to solve cash-like use cases. Consumer and business-facing CBDC is live and available. For example, China's eCNY now represents 0.13% of all cash and central bank money in circulation. The consumer benefit here hasn't been massive, but for the government, it would allow instant direct-to-consumer payouts like social welfare. It also solves cash-like use cases. While some transactions are private, larger transactions are traceable.

A draft law for the Digital Euro, a Central Bank Digital Currency for the EU, has been leaked. It would be illegal to pay interest on the new digital Euro or charge for using or moving it. It is designed to replicate cash and work offline, like withdrawing bank notes at an ATM. Shops would have to accept the Euro and would not be programmable. (Keep that bit in mind for later)

CBDC can be Direct, Indirect, or Hybrid

i) Direct CBDC would give every consumer an account at the central bank. There are almost zero case studies of this being the default, it risks competing too heavily with the role of commercial banks and creates a single point of failure. 

ii) A Hybrid CBDC is a claim on the central bank but is managed by intermediaries (like payment companies and Fintech companies)

iii) An Indirect CBDC is only available to financial institutions and intermediaries. Any balances and claims a consumer or business has are against the intermediary.

Is CBDC an upgrade on money? 

Well, yes, but it depends on who you ask.

For central banks, the policy benefits are obvious, direct social welfare and creating a more innovative payment rail. It is likely highly resilient and defends against the risk of big tech players having too much market power (like Meta launching Libra or the dominance of WhatsApp and Ali in China).

For Fintech companies, accessing tokenized central cash bank money creates a low-cost payments rail that could be programmable. This would give central bank account access and, if designed right, open space for innovation.

For consumers, the big worry is privacy. So intermediated models where the private sector operates much of the consumer relationship may make the most sense.

The big question is whether we have tokenized central bank money or tokenized deposits. 

What use case would that enable?

Glad you asked.

c) Stablecoins

If you're a Stablecoin skeptic, set aside Terra/Luna for a second. There's something important here. 1:1 backed Stablecoins like USDC and USDP trade across borders 24/7 and offer instant liquidity. All a consumer or business needs is compatible software, and they can send or receive US-dollar Stablecoins.

In effect, the money works more like email or the internet. 

Anyone can build the wallets; interestingly, anyone can write software to make those dollars move on certain conditions (if the price of Bitcoin goes below $25k, buy $1000 worth). 

Stablecoins are programmable, global, and 24/7.

For consumers in the high inflation, global south markets like Argentina, Stablecoins are the lowest cost way to get paid in dollars and are subject to the same legal requirements as cash. 

Today a consumer can travel through an airport with $10,000 in cash and store it under their mattress as an inflation hedge or exchange it later. But if they try to get paid across borders using the banking system, they're subject to countless fees, taxes, and limits that don't apply to cash.

International or cross-border businesses often use US Dollars as their core operating currency. If they move Stablecoins between corporate HQs, they've effectively created instant liquidity, bypassing the expense and slowness of some existing rails.

Of course, Stablecoins have drawbacks. They're not a default, not widely accepted, and still have some regulatory uncertainty (Although in Europe and, as of Monday, 26th June 2023, in the UK, they're legitimate, provided they're well managed).

Not all Stablecoins are the same thing. I will ignore the pure Ponzis like Luna and focus on the flavors that have a shot at being a significant part of the payment landscape in the coming decade.

i) Classic 1:1 Backed Stablecoins like USDC and USDP hold 1 dollar at an FDIC-insured bank, Treasury Bills, or other dollar equivalents for every $1 of Stablecoin issued and in circulation. The biggest barrier these Stablecoins face is keeping and maintaining bank accounts. The banking crisis brought down their biggest backers of FDIC deposits (SVB, Silvergate, and Signature). 

b) Deposit-Backed Stablecoins are 1:1 backed by a bank, with bank deposits. Deposit-backed tokens are proposed in Project Guardian, which JP Morgan and DBS did with the Monetary Authority of Singapore. The challenge is for global banks to get regulatory clarity and solve significant compliance challenges. They will get there; it's a matter of time.

c) Central-Bank-Backed Stablecoins are backed with deposits at the central bank. Just as Fintech companies have accounts with the Bank of England, why couldn't they do the same with a Stablecoin version of the pound sterling? 

d) Money Market Funds (or central banks for the internet). MakerDAO and M^Zero both build balance sheets. They hold deposits in tokens like ETH and lend to generate a yield. In the European MiCA legislation, they're legitimate, provided these Stablecoins are well run and meet capital requirements to cover their liabilities. 

Are Stablecoins an upgrade on money?

The short answer is yes if they can solve their credibility and acceptance issues. 

That feels inevitable. 

In Europe and the UK, they're now legitimate in the eyes of the law. I suspect we'll see multiple models emerge where some issuers get accounts with central banks or where large commercial banks start offering deposit-backed tokens. 

 d) Hidden option - some mix of the above. 

By far, the most likely outcome is that all of these models continue to exist and begin to co-exist. They'll also exist alongside the existing layers of payment rails from RTP to Open Banking initiated, to cards to SMS, and everything else.

But all of that will get tokenized.


6. How this plays out ▶

Programmable money is cool AF.

It's inevitable.

It will involve tokens.

As I'm drafting this, the Monetary Authority of Singapore and IMF just proposed standards for Stablecoins and deposit tokens with a trial between Amazon and Grab Financial. This trial would escrow e-commerce payments and only release funds to the merchants after delivering goods.

If that happened, that would change the economics of payments dramatically.

Did you see Nike's digital swag is now available on Fortnite? If not, pay attention. Nike's SWOOSH digital assets are NFTs. That might mean nothing to you person who works in payments and is over 40. But it means much more to a Fortnite-playing teenager who's a sneakerhead.

Tokenization's impact will be monumental, according to Blackrock. Citi says $4 trillion in assets will be tokenized by 2030. 

Starting with the thesis that all cash (and assets) will be tokenized, the next question is how? 

Some of that will live on Blockchain networks, and most will reference some classic database like a central bank or stock market, but much of it might reference new, digital-only assets. 

But how?

a) Enabling legislation will normalize tokenization. Europe, Dubai, Singapore, Hong Kong, and the UK have authoritative regulatory frameworks for tokens and Stablecoins. Tier 1 banks, asset managers, and the world's largest payments companies are paying attention. Perhaps the only people not paying attention are the consensus tech and finance crowd.

b) RTPs with APIs will make tokenization mass market. RTP systems and bridges will create numerous benefits to upgrade money, including making it global and real-time. But adding accessible APIs (like those proposed by the Bank of England project Rosalind) will be game changers. 

Rosalind proposes an API layer above the central bank ledger. It would enable users to open a CDBC account, check balances, push payments, request payments, program payments, and transact offline. It proposes that all account and transaction data would not be visible to the central bank, only the consumer or financial institution accessing the API from their wallet. 

This is tokenization, just not on a Blockchain. 

c) Deposit tokens will make "tokens" more trusted. The technology manufacturing (minting) of tokens and the backing on a balance sheet will begin to bifurcate. Regulated financial institutions have the balance sheet power to make other large corporate and institutional pools of capital comfortable to enter the fray.

7. Questions ❔

Gate's law says People tend to overstate the pace of change and understate the impact. This is especially true with tokenization.

This led me to some questions.

🤔 Should money be programmable? The draft digital Euro legislation says no; it's too risky. The Bank of England research says it's possible with central bank money if you make the payment programmable, not the money. It also allows non-central bank tokens like Stablecoins or other payment rails to innovate. 

Why bother doing a CBDC if it won't be an upgrade? Programmability is the most significant benefit a central bank could offer in upgrading its money.

For Europe, I get it; they want less reliance on other countries' payment infrastructure, but that's not a compelling value proposition for the private sector or consumers. And yes, it’s a tradeoff between controlling your payments infrastructure and innovation. But still. All carrots and no sticks don't guarantee adoption.

🤔 How private should money be? I saw graffiti in London that read, "Say no to CBDC!" Which felt niche but also spoke to a part conspiracy theory, part real fear of having every transaction traceable. If CBDCs were designed like Bitcoin or Ethereum and required full KYC to use even in the lowest way, and that KYC information was available to the government, you'd have the ultimate traceable money and zero privacy. However, no CBDC design (including China's) meets these conditions. 

Like cash at a branch today, I can imagine there would be sensible limits to how many CBDC coins or Stablecoins a consumer could hold before KYC is required. 

🤔 Who should be able to program money? This is a tricky one. With Stablecoins, the answer is anyone; it's open source. The answer is unknown with deposit tokens or CBDCs because we don't yet have live APIs.

8. Final thoughts 🤷‍♂️

Tokenization is inevitable. 

Sovereigns and central banks can make their jurisdiction the home of that innovation as the US did with the internet. 

The winners will be those that think globally, offer benefits to as many stakeholders as possible, and balance innovation with the classic trust and credibility that money is relied on to have.

If you're a payments company, pay attention to these fragments of news. The trendline is towards more tokenization and vastly different economics.

If you're a financial institution, this is land grab time. Your largest competitors are playing to win. 

Are you?

4 Fintech Companies 💸

1. Round* - Meow for Europe

Round provides up to 4.8% return with Money Market funds custodied at JP Morgan for growth businesses. Users create a portfolio tailored to their unique circumstances and benefit from an ongoing white-glove service where investment managers will rebalance the portfolio consistently. The platform has no minimums or platform fees.

🤔 The UK doesn't have good liquidity sweeping and treasury buying experience for mid-market corporates. Plenty of good ledgering and payment automation solutions exist, but that's one piece of a treasurer's stack. Most Fintech and Tech companies in the UK struggle to get the most from their cash. I should point out that a company could do this themselves, but growth finance teams are often scrambling to keep up with today instead of making the most of idle cash. Like a high net worth individual, often they know how to sign up for a broker and buy treasuries, but most don't. Having someone just take care of that is useful. Makes me wonder about the long-term scalability and pricing model though.

2. Vabble - Invoice Finance for LatAm

Vabble allows exporters to finance invoices from any country without a credit line and entirely online. Users create accounts, pass KYC and KYB checks, then upload invoices. If the invoices qualify for funding Vabble will deliver cash into the exporter account within 24 to 48 hours and manage collection from the buyer. The team also offers "local and international experts" for any support queries. 

🤔 Import / Export trade routes outside the G7 lack trade finance infrastructure. Last week I covered, which focuses on similar non-G7 corridors. As LatAm, India, Africa, APAC, and the wider Global South economies expand, they need infrastructure to trade with each other. With all these things, the devil is the credit model. It's easy to lend, but it's hard to get paid back. The team was founded by experienced bankers who spotted the gap in the market for cross-border funding in these markets. If you look at the Oaknorth story, taking banker experience and deploying it with technology can be a huge win. 

3. Louve - French real-estate / fractional ownership

With Louve, users can buy fractions of real-estate funds (SCPIs) for as little as 200 Euro. Users can invest monthly or quarterly and receive the return directly into their bank account. The aim is to compete with becoming a landlord and diversify risk for users. Or for landlords who don't want to increase their debt risk burden but want further real estate exposure. 

🤔 There are plenty of companies that have attempted fractional real estate in other markets, but none seem to have made it big. I'm trying to determine if that is because demand isn't there or the distribution is wrong. Louve has a fantastic pitch and seems to be winning the landlord class as customers. Maybe the French middle class is the right place to start for direct distribution. But I can't escape the idea this should also be a feature of a Neobank.

4. Clidrive - HELOC for cars in Spain

Clidrive lets car owners use their vehicles as collateral on a loan of up to 100% of the car value. The platform connects borrowers with financial institutions that offer better rates than standard personal loans. The website creates a "simulated offer" and follows up with a personalized offer. 

🤔 Using an asset as security isn't new, but making a simple digital platform for better loan pricing is less common than it could be. There is no lack of lending brokerage businesses, but "HELOC for other assets" (with the right protections) could be valuable in a cost-of-living and inflation spiral. 

Things to know 👀

Revolut's new premium subscription called Ultra will cost £540 ($690) per year and offers £4,100 of benefits, including offers on newspaper subscriptions (like FT), WeWork, and NordVPN. The offer is available to consumers in Europe. The benefits include airport lounges, travel insurance, and cashback on travel bookings.

🤔 There's a market for this in the UK and possibly Europe, and the timing is good. Interchange sucks here, so rewards cards are less common (notably, Revolut offers 0.1% cashback in Europe and 1% everywhere else.) Amex Platinum is £575 per year and is arguably the middle class's default travel card. Chase will likely launch its Sapphire offering in the UK following its massive success with the deposits business.

🤔 The tech-friendly benefits of this product suit a persona that isn't well served in the UK. NordVPN, Financial Times, and WeWork play to someone who likely works remotely, in tech, or as a freelancer. Which also plays the Revolut audience. The VPN, newspaper, and co-working alone are worth £1,100 ($1,400) per year with my napkin math. 

🤔 This could be a persona or product worth targeting for other businesses (incumbent or challenger). As a challenger Neobank with a profitability challenge; instead of launching "subscriptions," launch the freelancer, remote worker, and post-pandemic rewards card. As the incumbent, perhaps repackaging existing products with a similar reward set is sensible? I'm super curious to see what Chase does next in the UK.

Robinhood will acquire X1, the no-fee credit card startup, for $95m in cash. X1, founded in 2020, has raised $62m and offers an income-based credit card with rewards. 

🤔 This product line extension for Robinhood has a strong user base but needs to cross-sell to grow profitability. Historically Robinhood was very strong when consumers were in the market trading memestocks. This is not that market. Their net loss in Q1 was a staggering $511m (although there was a $483m one-time expense). The more important numbers are total net revenues of $441m (growing 16% QoQ) and operating costs at $465m if you exclude the one-time expense but include ongoing stock-based comp. 

🤔 X1 had a feature-complete proposition. It has deep banking integration and strong aggregation (e.g., couples can see their combined charges across multiple accounts in a single view). These integrations and aggregations also allow unique use cases, like using points to buy stock (so you can see why Robinhood was interested). Alex Johnson pointed out on Twitter both brands have a machismo about them, so there's some brand alignment there. 

🤔 Premium credit cards can be great revenue-generation tools. Robinhood gets a ready-to-go credit card to cross-sell to 23m funded accounts in build vs. buy. X1 didn't have many users, but it is feature complete compared to the Revolut Ultra card. The Chase Sapphire and Amex Platinum are cash cows for their respective businesses. I get why Robinhood would want into this business line. There likely were other acquisition options, but sometimes it’s about under-the-hood stuff like ease of integration, brand alignment, and time to revenue.

Good Reads 📚

Onboarding, KYC, and AML are the most critical part of risk management in financial services. This post maps the early stage, growth, and late stage or public "identity verification and onboarding companies." The post points out the map is non-exhaustive and includes a mix of fraud, compliance, and other related identity products. This market is expected to be worth $70bn by 2027, but the risk is considered a commodity. Solutions are often strong in one Geography, but no true global solution exists.

🤔 Global is hard because of the depth involved. Identity is the most complex bit of finance. If every company becomes a Fintech company, they are default global; they need their providers to be too. The short-term reality of this may be they do an RFP with one supplier who partners lower down and locally. This is the key to winning big global businesses, and growth companies need to learn that motion.

🤔 The LLM piece is the attention grabber. This is really a market map and explanation of identity and onboarding. Regarding LLMs themselves, the post finishes with a tweet from Soups Ranjan, CEO and founder of Sardine*, pointing out that LLMs create new risks and new opportunities. The new risk is fraudsters scale up their attacks and trick onboarding systems. The opportunity is that LLMs could summarize complex data quickly to streamline onboarding and compliance tasks. Increasingly identity won't be documents or external checks about a person. It will be intrinsic and related to how a user behaves. 

🤔 What's the moat? Is orchestration a feature or a business? The blog post discusses how orchestration platforms typically have lower margins than "core" KYC and KYB companies. Companies that do "core identity" are like issuer processors in payments; they own a primitive of financial services and can charge margin. It's a hard business to be in. They can add or partner for orchestration, but the orchestration platforms must build similar IPs to get the same margins. Intellectual Property, closer to the metal, makes sense as a moat. 

🤔 The exception is LLMs, how RTP changes the landscape. In Fraud and AML, many banks are wedded to long contracts with incumbent providers not geared up to manage scams, Crypto fraud, and sophisticated sanctions evasion. Some big banks already have sophisticated programs in place, but mid-market down is wide open. Being "LLM-proof" is a wedge; detecting scams before they happen becomes a USP. Incumbent providers really struggle here, and I expect all market participants in the growth & early stage to narrow in there.

🤔 When you make an image, people will have opinions. The first thing people do when they see a market map is complain a company is in the wrong place. And while I'd argue many companies are in the wrong category in this picture, that's not the point. It's impossible to neatly fit every company into a category. However, I offer that the big miss here is the NICE Actimize, Verafin, and IBM solutions in public. These are the legacy platforms everyone in the market is coming towards in some way. That's important because for any growth or early-stage companies to win, they must know who they might eventually displace.

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.