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Hey Fintech Nerds 👋

I was in New York all week for an incredible first-ever Stablecon by Nik and the TWIF folks. The momentum is palpable; the whole week felt like stablecoin week. I was in closed-door meetings with senior bankers, Fortune 500 companies, VCs, and asset managers. You cannot afford to miss next year. Mark it on your calendar now.

I’ll be in Amsterdam for Money 2020 next week. No rest for the wicked. I’m doing various things on stage on the scamdemic, stablecoins and AI. Come say hi?

I haven’t written up the news this week because life is intense enough rn. However, I noticed that Square is accepting Bitcoin at the Bitcoin conference, and the SEC states that staking isn’t a security. What goes up must come down, but secular shifts tend to survive that cycle. Stablecoins are absolutely a secular shift, and platform shift. That’s your rant this week. 📣

Here's this week's Brainfood in summary

📣 Rant: Stablecoins are the new platform

💸 4 Fintech Companies:

  1. Nekuda - Makes AI Agents “Checkout Ready”

  2. Celery - AI Powered Financial Monitoring

  3. Filed - The Tax Prepper AI.

  4. GoDutch - The business account for business owners in Europe

👀 Things to Know: I was at Stablecon this week, so I didn’t write up the news. 😇

📚 Good Reads:

  1. Agentic Commerce and the Original Sin of the Internet

  2. AI Agents as Adversaries for Fintech Product pen testing

Gmail hates me so click below for the best reading experience Gmail users 👇

Read online

Weekly Rant 📣

The Stablecoin Platform Era.

Every fintech company will be a stablecoin company.

While there’s a ton of hype, cynicism, hope, worry, and other emotions stablecoins evoke, I do believe we’ve crossed a Rubicon. From the age of Banking as a Service, to stablecoins as infrastructure. Stablecoin-first companies in B2C, B2B, and infrastructure will shape the next decade. 

This shift will be 10x more dramatic than the fintech boom of the past decade. 

Because we’re heading to a new infrastructure layer. People still see stablecoins as a new payments rail, when they should be seeing it as a layer above all the others, and, eventually, we’ll go fully stablecoin-native. Stablecoins are a platform.

Today’s Rant

  • The last era: Banking as a Service and lessons for stablecoins

  • Why stablecoins are the infrastructure layer (not just a new rail)

  • The stablecoin gold rush and regulatory unlock

  • Use cases across the stack

  • Strategic positioning, and what's next

1. Lessons from BaaS for Stablecoins

The old saying is that fools rush in.

We just saw this play out in BaaS.

The 2010s era of financial services was characterized by companies adopting mobile-first distribution and cloud-first infrastructure. 

We saw a generation of new infrastructure providers specific to financial services. Every bank department and IT system was now available as an API. Onboarding, Fraud, AML, Cards, in some cases, even customer service. This allowed new companies to launch mobile apps, wallets, and “accounts” that could acquire and service customers at a much lower cost than incumbents.

Combining APIs, mobile, and cloud, the Fintech companies also benefited from a small handful of “sponsor banks” who saw an opportunity to give this new segment access to banking rails, store money, and move money. And some of those banks won big by being “easy to work with.” 

By Klaros Partners

For Fintech companies, their business model was initially:

  1. Revenue from card swipe fees (interchange)

  2. Reduce customer acquisition costs (CAC) with frictionless, digital onboarding.

You know the saying: Show me the incentive and I’ll show you the outcome?

Some (not all) fintech companies are optimized for conversion, and when you do that, a lot of the norms of financial services look like friction. Things like having people provide pages of documents for “Know Your Customer” checks, or having to monitor transactions for the risk of international terrorism when the vast majority of customers are domestic.

When I wrote BaaS is dead in March 2023, we could see the writing on the wall.

❝

Account onboarding is a critical time for both to catch the bad guys. If you view account onboarding as a tick-box process that must be done with the least friction, then a minimalist reading of the BSA/AML rules will result in a high conversion onboarding process. Over the past two years, this has made fraud and money laundering something that can be done remotely at scale, attacking the system's weakest parts.

From BaaS is Dead.

If you’re a bad guy. Attacking the small, Neobanks, and digital banks was low-hanging fruit. 

It did not end well.

When BaaS provider Synapse went bankrupt on April 22nd, 2024, 10s of thousands of customers lost access to their life savings. Fintech apps could not access the funds, and the underlying banks couldn’t trace or reconcile where the funds had gone. 

This flashpoint created headlines in mainstream media, and in the banking industry, regulators issued a blizzard of consent orders, after finding banks had been deficient in things like 

  • Third-party risk management (i.e., the API provider and Fintech companies)

  • Anti Money Laundering (i.e., those companies' controls may not have aligned)

  • Board governance (i.e., Were you holding management to account)