Fintech 🧠 Food - A Fintech good news story Wise is hiring! What if Twitter did Payments? SBF Interview & BlockFi bankruptcy

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 24,815 others by clicking below, and to the regular readers, thank you. 🙏

Hey Fintech Nerds 👋

I hope this week's Brainfood finds you well. 

Some of you never get past the Rant, so here’s the things to know in summary (and you can find more later in the email if it hooks you) 👇 

• 👀 Wise is hiring 100s of new staff - because we need a good news story to understand what is still driving growth in Fintech. In the week Kraken laid off 1,100 and Doordash 1,250, many talented people are looking for a new home, and I wanted to unpack why Wise has been a success.

• 🥊 The SBF interviews. The former CEO of FTX appears to have opted for trial by media before the courts. The saddest thing about all of this is the distraction from the real potential of the technology.

• 🥊 Apple breaks Coinbase NFTs. Apple wants to take 30% of the gas network fee paid to Ethereum by users of the Coinbase wallet. This is so unequivocally stupid I don’t know where to begin.

• 👀 The BlockFi bankruptcy - because how could I not? But the lesson for me here is how CeFi and DeFi may end up using the same infrastructure in time for the same reasons. No matter how adversarial it seems today.

This week's 📚 Good Read is the Mckinsey Global Payment report, in which much of the data speaks louder than the text. Especially the continued rise of the Global South and the potential it still offers, even in this market. 

This week’s Rant 📣  What if Twitter did payments? 

I saw last week that Elon Musk posted an internal strategy document with a blank "Payments" page, and I couldn't resist. For this week's Rant, I wanted to speculate and have fun. Maybe they don’t have to do payments like everyone else?

I recognize Elon Musk is a lightning rod and divides opinion, but this Rant isn't about that. There's no lack of column inches dedicated to him, Twitter, and the happenings there. My focus is much more on what Twitter could be. 

Weekly Rant 📣

What if Twitter did payments?

Twitter could be the juggernaut of global payments if it leans into the simplicity and protocol-like experience the product had at its inception. 

The @handle is the natural, human-readable addressing system for money, but Twitter never doubled down on it.

Elon Musk included "payments" as a critical part of their strategy as a blank page. So, why not have a go at writing a strategy for Twitter payments? 

First, indulge me in some background as to where I got the idea in the first place for @handles as money addresses.

Twitter got me into Fintech.

More specifically, Jack Dorsey did. 

In 2009 I landed a job working for TSYS (now Global Payments) in the UK. TSYS is a major issuer processor with clients at the time, like Natwest, ING, Capital One, and Bank of America. They provided "the IT department" for some of the world's largest credit card businesses. 

At the time, I had no clue.

I'd spent the last 8 years as an engineer working for a Telco, helping scrape data from their old Mainframe systems and make it available to the public-facing internet. 

The hiring manager, Gareth, liked to hire for potential and attitude over experience. I'd largely talked my way into the job and had a good understanding of Mainframe systems and text base file formatting (which turns out to be very useful in Payments!)

Gareth's team was almost entirely staffed by ex-Army blokes, good on detail and teamwork, and they knew I'd talked my way into that job. As a result, they hazed me, saw through my crap, and called me on it. Lacking the emotional maturity to fess up, I, instead, decided to hide in the bathroom and doomscroll Twitter on my Blackberry.

This turned out to be a lucky break. 

I happened to spy a headline like "Twitter founder launches nutty new startup called Squirrel." I clicked and waited for the 2G signal to load the page to find a Techcrunch piece about Jack Dorsey's new initiative to get into payments (then called Squirrel, later renamed Square). 

Giving zero fucks about job security, I emailed it to the European leadership of TSYS. 

I got a reply. 

From the late Bob Evans, who said, "Twitter and payments? Interesting. Let me connect you to someone."

He connected me to John, who ran his sales team and was building a product team. John had product experts but wanted someone with a more engineering/future focus, and I fit that bill. Right time, luck, privilege, all of that helped.

But more than anything, it was my raw enthusiasm for what Twitter could become if it added payments.

Why I got excited about Twitter payments originally

At the time, much of the conversation was about mobile device manufacturers and "NFC" or near-field communication. NFC is the "tap to pay" technology used by Apple Pay and the contactless card in your wallet.

While that's interesting, it's not where payments were headed.

Digital payments have become multi-rail, multi-use case, and increasingly global. Funnily enough, it was PayPal that had shown the example of a powerful online brand for payment acceptance tied to a wallet. 

But there was no open-loop PayPal equivalent. Especially after it was acquired by eBay.

I got excited about Twitter as a payments "brand" because:

1. Twitter @handles looks like the email address for money. In 2009, Twitter was a very different product because it originated as an SMS-based protocol. For example, to direct message another user, you'd write a regular tweet like "DM @user hey this is a direct message." 

2. Twitter was developer first in a way other social networks were not. In 2009, an ecosystem of 3rd party apps surrounded Twitter and its APIs. The other social networks would try to "own" payments and take on the deep regulatory and infrastructure burden; Twitter could abstract that.

3. Square as a "captive provider" was a model I thought could have worked. Payments infrastructure is hard, and I thought Square would be more like Stripe. The API that made all of that simple, with its first customer being Twitter. Square ultimately built a business dramatically simplifying payments for merchants by abstracting complexity into a simple experience. 

Fast forward to 2022, and the payment landscape has changed dramatically yet looks remarkably similar. 

We need a human-readable universal address system for money. 

Each individual payment type and brand is trying to be the center of gravity for consumers. But consumers have many payment types from many providers, who vary by geography. 

From a consumer perspective, there is no center of gravity for money or payments, which makes life confusing and complex.

Various attempts to create standards have emerged to bring all of these together.

• The IBAN (International Bank Account Number) in the world of bank accounts. The IBAN is like an IP address for where the real fiat money actually sits. But consumers have multiple wallets, with multiple providers that aren't banks. The IBAN doesn't help with web3 and that future at all.

• Xpays like Apple Pay have built wallets to hold cards, accounts, and identities. But Apple's business model insists on the Apple tax, and their offering is very US-centric. Apple is also not exactly embracing web3. 

• Web3 address services like ENS and Unstoppable Domains are an attempt to be human-readable addresses for value transfer. But they have limited adoption or backward compatibility with the entire financial services landscape (so far).

• Open finance services like Plaid, MX, and Truelayer route between accounts wallets and web3 but aren't human-readable. They're also naturally more B2B than B2C, and it's hard to get around that without channel conflict.

Each of these solutions starts at the infrastructure or the bit they own and tries to bring every other payment type under it. 

The Twitter @handle approach could create a different consumer experience by intentionally being more abstract. If each payment rail has its own gateways and domains, the @handle becomes a pointer to those.

The consumer experience

The Twitter user could use several simple mechanisms to link existing accounts to their @handle, like those listed above. Connect accounts via open banking, authorize card details or X-Pays, and for web3, use something like Wallet Connect. No doubt Elon will want to support Lightning and the work Jack Dosey is doing over the Bitcoin network.

The low-hanging fruit is definitely getting paid (collections).

Getting paid: The user sets a preference for where received payments default. A holding "wallet" on Twitter directly lands into the underlying account or service. This could work equally well for brands too.

Make a payment: To make a payment requires the other party to accept @handles at checkout. The @handle would then need to point to a payment method that the merchant accepts (e.g., a debit card). From there, the standard payment flow applies. Although the experience could be improved significantly. For example, Privacy.com creates a one-time consumer virtual card linked to an underlying account, and Shop Pay pre-fills the entire checkout form with delivery details (the experience is so rapid it's like accelerating in an EV, intimidating at first!)

The world (and merchants especially) don't need another button at checkout, but if you've used Shop Pay, you'll get what I mean. If an abstraction improves the experience, reduces fraud, and increases conversion, then merchants will adopt it, and consumers will love it.

The @handle as the universal pointer to payments

(h/t to Fynbos that I covered last week for some of the inspo and terminology used here).

As a principle, the deeper you go into the payment stack, the more complex things become but the better the unit economics get. 

To work as an abstraction and get to market quickly, Twitter should avoid going deep into the infrastructure of any given market and offer a counterintuitive solution. Instead of building Twitter integration to payment types, make the Twitter @handle API a simple standard and have the wallets support that.

The actual implementation requires more thought, but two things struck me as areas to explore

1. Simplicity for developers

2. Building on projects solving for interoperability

Developer simplicity inspiration comes from one of my all-time favorite blogs is, by Ben Milne (founder of Dwolla and many other good things) on "the value layer for the internet." Ben describes two primitives _ValueType and _TransferType, that would look something like this:

_ValueType(USD)

  _TransferType(ACH, CashApp etc.)

Things get more complex when multiple currencies and provider types are involved. Still, Twitter could either push that to the underlying payment rail provider or have a 3rd party provider handle the exchanges. 

Interoperability projects like Interledger have a good deal of support (especially in the Global South) and Telco payment types. As an abstraction, it would work well for Twitter but lacks the simple addressing front end Twitter would bring. It also doesn't handle the complexity the payment rails themselves often insist on.

Jack Dorsey's Block Inc is working on a "Universal Exchange" called TBDEX that would allow users to on-ramp in one fiat currency and off-ramp in another. Whether this is ready for prime time (or the correct answer) remains to be seen, but it points to what could be possible.

In web3, countless attempts exist to build a "Layer 0" interoperability layer, but few think about backward compatibility with the fiat banking system. So much of that is about edge cases like AML, fraud, and the individual rules of the payment schemes and networks (which we will return to).

Regardless of how they build, Twitter's role could be abstracted to be: Support requests to resolve an @handle against known payment addresses, account numbers, or card numbers. Platforms like Skyflow, VGS, and Basis Theory allow these credentials to be stored as tokens and prevent Twitter from having to build the ultimate payment credential lookup database.

Let's assume Twitter @handles become universal pointers for money. Twitter has to grow its revenues significantly, and payments could be a great way to do that. 

Revenue Opportunities

Suppose we assume Twitter's role is to point at an existing payment method and pass those credentials along. In that case, a couple of revenue models appear.

1. Charge per API call: An entity wants to pull a credential from Twitter, and Twitter passes a token representing that payment method's relevant info. Simple to implement and puts Twitter more in SaaS territory. 

2. Basis point pricing: Take a % of the transaction amount (e.g., Interchange). This could get complicated because each payment rail has its fee model that merchants usually pay for. It also becomes harder to calculate; Twitter would need to know the transaction amounts involved and be less of a hands-off credential provider.

3. Advertising (outlined more below)

Perhaps more interesting are the advertising and data opportunities that appear due to being the payment credential hub.

A substantial portion of the internet economy is based on advertising, Google, Amazon, Meta, and to some extent, Twitter relies on advertising to drive their business. Apple may have dented the social networks with their "do not track" permissions in apps, but I still think Twitter has an opportunity that hasn't been grasped.

The holy grail of advertising is to bring potential customers through the "funnel" from awareness to consideration to purchase. Brands spend billions to compete for attention to get to the purchase.

For some brands, that is where the journey ends because once a payment happens, if a customer checks out, all the brand sees is the payment. 

If a customer buys more than once, that reduces CAC and improves sales, but getting those repeat purchases has long been a data problem. Card networks and payment data carry the data required for moving money, but it drops everything the advertising and loyalty world needs. 

(TrialPay was an attempt in the 2010s to solve this in eCommerce that ultimately got acquired before it hit scale).

This is why the BNPL providers have been successful. They not only improve the likelihood that a consumer will purchase (improve conversion), but they use their purchase data to build a shopping app experience that brings repeat customers to brands.

But all of the solutions to date are closed-loop.

The advertising to purchase to loyalty flywheel only works for those who use that payment button and that app.

But if @handles become universal pointers to all payment types, could Twitter do something meaningful with the advertising and loyalty loop?

Maybe.

Whatever you think of Elon, he (and some incredible teams of people) made EVs and private space flights commercially viable at scale. 

Creating the flywheel 🎡

IF Twitter could execute a lightweight abstraction for payments that developers can build to become multi-rail, they would have a huge opportunity. And if you sprinkle the advertising loop around that, it's lovely.

But my goodness, there are plenty of challenges in front of this approach (and they should probably just do a Shopify integration for creators or something, but that would have made a dull Rant).

Challenges for this approach.

1. Social and payments never seem to go well in the West. Meta has tried to launch payments in iMessage and other channels multiple times, only to pull back. Meta is finally making progress in India and Brazil, primarily through partnerships. 

APAC is a wide-open battleground outside China, but the US and Europe are much more complicated. With a smaller user base, Twitter's right to win is much lower unless it can bring something unique to the table. (Or they don't win, they just monetize what's already there).

2. Payment infrastructure is hard. Accessing a payment rail is more complex than, say, the Google Maps API. Payment systems all work in different ways, which vary by geography and come with their own rules. 

For example, the card industry has a compliance standard called PCI/DSS (Payment Card Industry Data Security Standard). If someone is storing anything related to a card, it must comply. Many providers abstract this (like Skyflow, Basis Theory, and VGS), but if you want to support all payment types, that's just one piece of a billion-piece puzzle.

The less Twitter can move money, the more it has a shot at building a flywheel. 

3. Payment edge cases suck. So much can go wrong around a payment, depending on what it's for. If you're buying something online, did the goods get delivered? What if the goods showed up but were faulty? Each payment rail and its participants solve this to varying degrees.

But now, if we built the ultimate bridge between rails, what new problems would emerge? What liability framework applies if someone wanted to collect payments via their card rail, but the consumer paid via ACH? Same for fraud?

I'm scratching the surface of why this crazy idea couldn't work. With enough caffeine, a whiteboard, and decades of Fintech experience, we could all likely come up with 100s of good reasons why Twitter could never own payments.

Twitter would absolutely have to up its game on identity and fraud prevention on some level and collaborate with the payment rails no matter how lightweight it could keep its payment solution technically.

A new hope

This felt like such a "completing the circle" piece to write about for me, given to some extent, "Twitter payments" started me on the journey that ultimately led to typing these words and you reading them.

Remember all of this is speculation. 

Objectively Twitter should start small with tips and help creators monetize as Instagram and Tiktok do. 

But a universal, human-readable address for money feels like a thing the world needs.

Regardless of where you sit on the spectrum of opinions about how Elon's takeover of Twitter is running, nearly everyone in Tech loves Twitter for what it could have been and perhaps still could be. 

Given a choice between hope or doomsaying, I'll always choose optimism. 

My hope is that we can do for consumers what Stripe and others have now done for businesses. 

Make payments just work.

Thank you for indulging in this wild ass thought piece

This was fun.

ST.

4 Fintech Companies 💸

1. Beamo - Low-code checkout pages for web2 or web3

• Beamo generates a checkout page with a single click for merchants who want to accept fiat or Crypto payments. They support "any card, any wallet, and any currency." The team is "ex-Stripe" and early waitlist. 

• 🤔 There is no lack of options for "Crypto checkout" solutions, but Crypto is unproven as an e-commerce payment method (outside of the grey economy). Stablecoins present a significant opportunity as another payment rail, especially for people who live in Stablecoins (either as part of the web3 economy or in the global south to manage inflation). The world needs the multi-rail, multi-currency checkout but also demand for that product.

2. Nucleus - API for l Cards backed with Crypto

• Nucleus provides the ability to create virtual and physical cards quickly for individuals or DAOs via its API. What makes Nucleus unique is funds are always held in your self-hosted wallet (e.g., Metamask), not at a custodian or exchange (like Coinbase). Nucleus charges a flat 0.5% to the user for each purchase.

• 🤔 So much to unpack here. My guess is Nucleus can tell the card that the balance on the card is high enough to authorize a transaction. They'll then pull the Crypto from the user's self-hosted wallet, convert it, and settle up with their banking partner end of the day (or later, card scheme reconciliation and settlement can take a while). Their website doesn't say who their banking partner is, but they're using Solid for BaaS and Persona for KYC. I wonder which partner bank got comfortable with this one as a risk! Still, a really excellent product, and it needs to exist.

3. Asset Dash - Get rewarded at merchants for your investments

• Asset Dash unlocks deals based on users' investments in companies like Apple, Airbnb, and Razer. Users connect their investments to the app, access deals, and gain points for making purchases. 

• 🤔 At its core, this is a portfolio tracker and aggregator, but baking in merchant rewards and ad tech is an interesting twist. Asset dash supports Shopify merchant integration "in minutes." While the logos they use to attract consumers are big names, the actual merchant partners they have to date are (understandably) smaller. I guess there's some marketing budget they're funding in there, and how does this make money without interchange revenue? This feels like a feature Robinhood and Public should have rather than a business, but I'd love to be proven wrong.

4. Br-dge - Payment orchestration platform

• Br-dge allows brands to manage multiple payment partners and workflows with a single integration. Payments can be routed based on location, timezone, and spending amounts to ensure payments don't fail. The platform also features analytics and a no-code workflow-building tool.

• 🤔 What stood out about Br-dge is that their customer case studies are in transport and FX technology providers. This isn't a SaaS selling to other SaaS businesses (at least on the surface). The "real economy" businesses have been harder to penetrate for companies that grow the GDP of the internet (for example). But orchestration that solves pain, like "removing payment failures" and "increasing resilience," is a different GTM.

Things to know 👀

1. BlockFi files for bankruptcy

CeFi wallet (and recent recipient of an FTX "$400m bailout" line of credit) BlockFi has filed for Chapter 11 bankruptcy, citing its exposure to FTX. BlockFi's largest debt was owed to FTX ($275m), and it said the cause of its liquidity crisis was exposure to bad loans to companies like Alameda (the sister entity of FTX). 

• 🤔 The optics of this consistent unraveling post-FTX are crushing for "Crypto" as a brand. Projects or attempts for institutions to move into DeFi will be put on hold or under further scrutiny.

• 🤔 DeFi infrastructure is the future of financial markets infrastructure. The bank for international settlements tested using the "automated market maker" concept from DeFi, to dramatically improve and automate cross-border payments. DeFi and TradFi will become the same thing. This is so unbelievably significant I want to shout it at you. CLICK THAT LINK 👆 and let it sink in. 

• 🤔 Regulation will come, and when it does, it will create legitimacy. Centralized Crypto lenders are not required to hold capital buffers like banks. The "CeFi" lenders of Crypto were able to be profitable in a bull market but lacked the buffer when the market turned, and loans went bad. European regulation MICA will require capital buffers for Stablecoins and "VASPs" like centralized wallets and exchanges. That sounds sensible enough to me. Generally, the US Crypto market is not paying enough attention to MICA, which I expect the US to copy+paste substantially. 

• 🤔 Meanwhile, DeFi lending protocols are absolutely fine. DeFi protocols always get paid back first because they are over-collateralized. For every $1 borrowed, more than $1 worth of Crypto must be deposited. If borrowers want that collateral back, they must pay the DeFi loans first.

2. Wise is hiring and benefitting from the FX volatility.

FX and payments Fintech company Wise is to hire 300 new staff (of which 100 will be based in London), bringing the total headcount to 4,000. Wise's Q3 revenue was up 55% YoY, and pre-tax profits are up 3x. The stock is up 56% over the last 6 months and, unlike many peers, is listed on the London Stock Exchange.

• 🤔 A good news story! So much in Fintech is doom and gloom for companies that did well in the pandemic. But the market change is benefitting some others. 

• 🤔 Wise is, above all, a revenue growth story. 55% growth vs. the same quarter last year is astonishing for a business that is also profitable. With the dollar strength this year, the price has mattered to small businesses and consumers, and FX has come into focus. Those customers are also leaving their balances at Wise enabling them to collect interest income (thanks to rising interest rates).

• 🤔 Bankers were cynical about Wise historically, but they've proven their sustainability. I remember working in Canary Wharf (where many banks have their London HQ) around the time of Wise launching and hearing bankers sneer that Wise "wasn't new" and "would never be profitable." How times have changed.

• 🤔 Listing in the UK may have led to people overlooking Wise, but now it looks like a great move. NASDAQ-listed Fintech companies may have gotten relatively overpriced in the pandemic-fuelled mania of 2021, while Wise has had to prove itself as a value investment. Global investors don't typically look to the UK for growth; they look at it for giants like Vodafone, Shell, and BP. 

• 🤔 I'm quietly hopeful for the future of Fintech in London. The Government will bring forward the most significant piece of financial services legislation in 23 years in 2023 (re-opening the financial services bill). It will focus on Fintech, competition, and digital assets, and as a market, the UK now has serial founders, operators, and 60k people who work in the sector. Maybe just maybe, the Fintech center of gravity shifts back from NY to LON :).

🥊 Quick Hit: The SBF interviews. The former FTX CEO has been interviewed by the NYT and ABC news, sounding very different from the previous media persona.

• 🤔 This keeps “FTX” in the news rather than letting the dust settle and the facts emerge. Meanwhile, “person works hard quietly building the future of financial markets” does not make the headlines. “Crypto” now has a truly dreadful reputation with traditional financial services and, frankly, among the general population. We’ll see “Stablecoins” fade into the background, and “deposit-tokens” emerge. But the tech platforms will be the same; the L1s like Ethereum will be here tomorrow and the future of financial markets.

Quick Hit: 🥊 Apple breaks Coinbase NFTs. Coinbase has announced NFTs cannot be transferred via their self-custody wallet, “Coinbase Wallet,” due to Apple requiring a 30% cut of Gas fees.

• 🤔 The Gas Fee paid by users of the Coinbase wallet is not revenue for Coinbase; it’s a cost to the user. Apple wants Coinbase to either pay Apple an additional 30% or have the user pay an additional 30% just because it’s in the mobile app. They wouldn’t have to pay this fee using the same wallet via a browser. This is precisely why I don’t own a single Apple device.

Good Reads 📚

1. 2022 Global Payments Report

Key findings in the Mckinsey 2022 report include: The pandemic has lifted the overall revenue of the payment industry. In 2021 payments revenue grew by 11% in a single year, and a slight decline has yet to reverse most of that growth. APAC is now half of all global payments revenue. Mckinsey has revised UP their estimate to $3trn industry revenue by 2026. Embedded finance and sustainability are the two biggest forces shaping the industry, but the rise of the global south, CBDCs and Stablecoins are the future forces to watch.

• 🤔 The payments industry has kept its pandemic revenue bump. While the headlines are gloomy for digital and e-commerce, the behavior shift is sticking around. 

• 🤔 But many of the "attacker" Fintech companies have given their share price bump back. Investors may have inflated the price of the new payments players, but over the long term, they're still taking market share from the incumbents. 

• 🤔 The US is still the world's most important credit card market. Look at that chart again; credit cards are a massive part of US payments industry revenue. What would happen if there was ever a "Durbin credit?" This is why most consumer Fintech companies are now chasing that sweet, sweet credit card interchange.

• 🤔 B2B and non-card payments are much more critical everywhere else. The world is multi-rail and the economics change by market. "Cards" generally are the western world's on-ramp into finance, but in APAC and the global south, it's more likely to be wallets. Europe has a kaleidoscope of payment types, and SEPA doesn't integrate them one hundredth as much as American's often assume it does.

• 🤔 In 12 months, we'll talk less about "CBDCs vs. Stablecoins" and more about deposit tokens. Mckinsey sells to established players, so I'm not surprised they've avoided "Stablecoins" as a topic. But there's no example of CBDCs being successful or wanted outside interbank use cases. Nigeria's eNaira has almost zero takeup, and China is having to push its DCEP hard and still not getting much joy. "Deposit tokens" are Stablecoins backed by deposits at a commercial bank. Watch this space.

Tweets of the week 🕊

That's all, folks. 👋

Remember, if you're enjoying this content, please do tell all your fintech friends to check it out and hit the subscribe button :)

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 *