January was a blockbuster month for fintech, so without further ado I present five fintech trends that caught my eye over the last month:

1. Fashion-forward Fintech

2. The Neobank-ification of QuickBooks

3. The Credit Bureaus Evolve

4. The Delicate Dance of the DeFi Mullet

5. Better Banking for Lower-Income Americans

1. Fashion-forward Fintech

What happened?

• Twig, a circular economy fintech, picked up $35 million in Series A financing.

• Responsible, an embedded finance platform for fashion, raised a $6.6 million seed round from Barclays.

So what?

If your goal is to start a bidding war between VC firms to fund your Series A, you literally cannot come up with a better description of your company/product than this:

[Olympic ice skating TV commentator voice]: Notice those buzzwords! See how gracefully it combines fintech with crypto and ESG? Magnificent.

Let’s set aside Twig’s marvelous marketing copy for a moment1 — the underlying concept here is very interesting. It’s essentially a bank account that allows you to upload a list of your possessions (clothes and electronics, particularly) and instantly liquidate those possessions whenever you want. Think Cash App + iBuying except for retail items rather than real estate.

Responsible is similar — buying back used clothing from the owner instantly — but it relies on an embedded distribution model via an e-commerce plugin.

When I hypothesized, in a prior newsletter, that that the atomization of banking would lead to new and wildly unique financial products, this is the kind of thing I was thinking of.

2. The Neobank-ification of QuickBooks

What happened?

• Heard raises $1.3M to help mental health professionals run their own business.

So what?

OK, I’m cheating here a bit. This company didn’t raise in January. The news is from back in March of 2021, but I just heard about Heard from a recent edition of Simon Taylor’s Fintech Brain Food newsletter and I wanted to write about them.

Heard provides accounting, payroll, and tax management services (software and human accountants) for private mental healthcare practices.

What’s interesting to me is that Heard is following the same basic playbook that niche neobanks like Daylight and First Boulevard are using — a combination of software and people focused on solving the unique financial needs of a specific, durable customer segment. The difference is that heard is starting with accounting rather than banking because, as Simon put it well in his newsletter, “accounting is the operating system of SMBs.”

That’s interesting! That means, in theory, that segment-specific startups could attack SMB accounting incumbents like QuickBooks in the same way that Daylight and First Boulevard are attacking Chase.

Watch this space.

3. The Credit Bureaus Evolve

What happened?

• Equifax, TransUnion, and Experian are all adding support for BNPL providers to furnish repayment data.

• Experian is planning to launch a tool — Experian Go — to allow credit invisible consumers to create their own credit reports.

• TransUnion will enable consumers to give crypto lenders access to their personal credit data.

So what?

Two forces are, simultaneously, pushing the credit bureaus to evolve.

One is regulation. To say that the CFPB is intently focused on credit reporting is underselling it:

And this pressure is encouraging the bureaus to make changes to help consumers get credit for the positive, credit-related things they are already doing.

However, the other force, which we don’t talk about enough, is business. The credit bureaus are for-profit businesses. Many of the new innovations they introduce are, understandably, designed to help them make more money from lenders or from consumers directly.

What’s most interesting to me is how these forces overlap and occasionally come into conflict. For example:

• Experian is keeping its BNPL repayment data separate from its traditional credit data, in order to “protect consumer credit scores from immediate negative impact”. That’s very consumer friendly, but I wonder if this will make it more difficult for lenders to incorporate this data into their decisioning processes (which would be bad for business)?

• Experian Go is the first consumer-focused mechanism that I’m aware of for triggering the creation of a new credit report. Good for credit invisible consumers! But also, maybe, really good for fraudsters looking to create synthetic identities?2

• TransUnion is letting consumers take their TradFi credit histories into DeFi. That has the potential to be useful for consumers and DeFi lenders. Will TU allow TradFi lenders to get visibility into consumers’ DeFi lending histories?

4. The Delicate Dance of the DeFi Mullet

What happened?

• Current launched a 4% APY interest product.

• Current partnered with TurboTax for faster tax refunds.

So what?

I’m going to go out on a limb and guess that there’s only one company in the world that is partnered with both TurboTax and Compound Labs.

Current is trying to build what it calls ‘hybrid finance’ and what fintech Twitter tends to call the ‘DeFi mullet’ — a banking service that seamlessly combines the intuitive user experience of fintech with the infrastructure and yield advantages of decentralized finance.

One of the reasons this concept is so hard to build is that it requires companies to put customer value above ideology.

If you’re a web3 person, it’s likely that you think web3 is the answer for pretty much everything and that software products like TurboTax are unrepentant evil:

That’s a perfectly understandable perspective!

It’s also understandable for web2-era fintech folks to look at web3 and conclude that 99.99% of it is made up of scams and speculation.

What’s hard to do is to set aside your personal feelings and build the best possible product for your target customers, drawing equally from web2 and web3 toolboxes along the way.

5. Better Banking for Lower-Income Americans

What happened?

• H&R Block launched Spruce, a digital bank for low-income Americans.

• Walmart is acquiring One and Even with the intention of creating a digital bank for customers and employees.

So what?

If you really want to get better digital banking solutions in the hands of lower-income consumers, you need to obsess over distribution.

It’s relatively easy, today, to build many of the banking features that these consumers need (early access to paychecks, automated savings, earned wage access, etc.)

However, as Nik Milanović3 recently pointed out on Twitter, too many of these features are currently offered by fintech apps that expect users to find them rather than being embedded in the places where these consumers already are:

I’m personally more bullish on Walmart than H&R Block, but both are great examples of companies with built-in distribution advantages offering digital banking solutions to the exact consumers fintech most needs to help.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

Before we close the books on 2021, I want to look back on a few notable fintech trends from the end of the year.

In addition to today’s newsletter — in which I will hit on 5 interesting fintech trends that caught my eye — I will also be releasing another episode of the Fintech Recap podcast with Jason Mikula next week, where we discuss a few of our favorite fintech news stories from December (subscribe to the podcast on Apple Podcasts or Spotify, if you haven’t already).

Now, on to the five most interesting (to me!) fintech trends from December, 2021:

1. People paying people.

2. BNPL breaks into browsers.

3. Banks take the lead on overdraft protection?

4. Tax prep is the new fintech (and crypto) frontier.

5. The transformation of mortgage servicing.

1. People paying people.

What happened?

• Alloy Labs Alliance, an association of community banks, is launching CHUCK, an open network for instant payments to compete with Zelle.

• Facebook is testing a new feature to let users split payments in group chat.

• TSB’s Paul Pester is building Loop, a “social network for money.”

• Block’s Cash App will now let users gift each other stock or bitcoin.

So what?

Despite the fact that person-to-person (P2P) payments never has been a profit center, companies continue to believe that offering it is critical to acquiring, engaging, and retaining customers.

I’m not sure that belief is warranted1, but regardless it seems like investment is going to continue pouring into this area.

My level of optimism for these specific initiatives ranges from high (CHUCK seems likely to be a worthy competitor for Zelle and the addition of stocks and crypto to Cash App’s P2P functionality makes a lot of sense) to neutral (I don’t know if there’s room for a new P2P app in the UK, but I wish Mr. Pester the best of luck) to very low (I’ve yet to see evidence that Facebook knows how to crack payments, despite its many attempts).

2. BNPL breaks into browsers.

What happened?

• Microsoft is building buy-now-pay-later into its Edge browser through a partnership with Zip.

• Klarna rolled out a BNPL browser extension powered by its PiggyVest acquisition

• Butter made a BNPL extension for the Opera browser.

So what?

As BNPL has proliferated across (seemingly) every e-commerce checkout page, BNPL providers have had to get creative in finding new and differentiated points of entry into the commerce experience. We are seeing BNPL in brick and mortar, BNPL apps transforming into comprehensive shopping apps, and now BNPL migrating down the e-commerce stack from specific websites to being built into internet browsers.

This strategy makes sense, although success will be highly dependent on how well it’s executed. Will the change be communicated clearly to users? (Microsoft Edge users seem pissed FWIW) Will the service be interoperable? (Klarna’s browser extension works across Chrome and Edge right now, with more browsers coming) Will there be other value adds, beyond financing, built into the experience? (Opera and Klarna are both bundling in cashback offers and coupons)

Once the browser wars end, expect to see the next BNPL fight play out at the OS level (Apple and Google have already made initial moves in this space).

3. Banks take the lead on overdraft protection?

What happened?

• Capital One is getting rid of all consumer overdraft fees, eliminating a $150 million annual revenue line for the bank.

• JP Morgan Chase, starting next year, will give customers a day to restore overdrawn balances before assessing overdraft fees.

So what?

Let’s play a quick game of bad/better/best.

Bad: Banks making an excessive amount of revenue from overdraft fees, including on unintentional, small dollar overdrafts that don’t provide any value to customers.2

Better: Neobanks offering limited, but much less expensive overdraft protection options.3

Best: Neobanks continue to offer competitive overdraft protection products and banks take steps to reduce or eliminate overdraft fees and/or reduce the amount of unintentional overdrafts while continuing to offer robust overdraft protection.4

Feels kinda weird to write this, but is it possible that Capital One now offers the best overdraft protection product in the industry?

4. Tax prep is the new fintech (and crypto) frontier.

What happened?

• FlyFin, an AI tax and CPA engine for freelancers and the self-employed, raised $8 million in seed funding.

• Column Tax raised $5.1 million seed round to launch mobile tax-prep products.

So what?

The seeds of this trend were planted when Cash App swooped in to acquire Credit Karma’s tax prep business. However, in the last year this trend has picked up steam, as established fintech companies and new startups have realized how much more value they can layer on top of the tax preparation experience.

FlyFin is one of a growing group of fintech startups focused on making it easier for gig workers, creators, and other freelancers to manage their finances and file their taxes.

Column Tax is going in a different direction, building tax filing and tax refund advance lending services that can be embedded through APIs into other companies’ apps.

Expect to see tax preparation and tax refund advance lending show up on the list of table stakes features for neobanks within the next year or so.

And, of course, expect to see crypto grab this trend and take it even further! As more consumers decide to get part or all of their paychecks in cryptocurrencies, they will need integrated capabilities for managing the complex tax implications of that decision.5

5. The transformation of mortgage servicing.

What happened?

• Mortgage provider Rocket Companies agreed to acquire personal financial management app Truebill and its 2.5 million users for $1.275 billion in an all-cash deal.

So what?

This is an interesting acquisition, on a couple of different levels.

As Alex Wilhelm at TechCrunch noted, the acquisition was surprisingly inexpensive for Rocket (compared to the prices we’ve been seeing in fintech, and SaaS more generally).

More importantly, in my opinion, is the strategic rational for this acquisition, which I outlined in this thread:



Put simply, Rocket is using mortgage servicing (which it started doing in earnest in 2010) as the foundation to create a comprehensive personal financial command center for each of its customers. The acquisition of Truebill accelerates this endgame. As I’ve written before, it’s about time somebody did this.

Research Corner

🚨New research alert🚨

Ron Shevlin and I teamed up to create The Definitive Guide to Potentially Misunderstood Fintech Trends & Terms (and what they mean to the banking industry).

You’re going to want to download this report (which you can do here), trust me. It’s got all the fintech buzzwords you love to hate — super apps, open banking, embedded finance — and plenty of snark and (dare I say) insight.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

As an early present (because I know you’ve all been on your best behavior this year), I have a double helping of fintech content for you this week.

First, my monthly recap of the five most interesting fintech trends from November, 2021 (found below). And later this week, a Fintech Recap podcast with Jason Mikula (and a special guest) breaking down some of the more interesting fintech news headlines from the past month.

Subscribe to Fintech Takes here, if you haven’t already, to ensure you receive the podcast as soon as it drops. You can also subscribe on Apple Podcasts or Spotify.

And without further ado, the five fintech trends from November, 2021 that caught my eye:

1. Fintech Acquisitions: Eat or be Eaten

2. The Platonic Ideal of a Distribution Model

3. Fintech’s First-party Fraud Fiasco

4. Crypto Solves Payroll?

5. The Long-term Sustainability of Alternative Investment Assets

1. Fintech Acquisitions: Eat or be Eaten

What happened?

• Personal investing platform Vestwell acquired Sumday, a college savings platform, from bank BNY Mellon.

• BM Technologies, a neobank, will merge with Seattle-based First Sound Bank.

• Oportun, a consumer lending platform, will acquire neobank Digit for $212.9 million.

• Financial services marketplace MoneyLion acquired content creation platform Malka.

• Klarna continued its acquisition spree by buying out PriceRunner, a Nordic shopping comparison site with 3.4 million products from 22,500 retailers in 25 countries, and browser extension Piggy.

So what?

I wrote recently about the trend of banks acquiring fintech companies, which I expect we’ll continue to see in increasing quantities.

That said, we are also seeing an uptick in the number of acquisitions being made by fintech companies. Even if you discount Klarna’s crazy shopping spree — like cutting out Olympic scores from the East German judge — you are still left with a myriad of interesting examples. You have fintech companies acquiring non-financial products (MoneyLion). You have fintech companies acquiring other fintech companies in adjacent verticals (Oportun). You even have fintech companies acquiring fintech companies from banks! (Vestwell)

Fintech companies are now getting a taste of what community banks in the U.S. have experienced for decades — an environment in which you are always either eating or being eaten.

2. The Platonic Ideal of a Distribution Model

What happened?

• Klarna is moving from shopping facilitator to e-commerce destination with the launch of its global one-stop shopping app.

• Afterpay launched buy-now-pay-later for subscriptions in the US.

• CommBank's venture arm launched a machine learning shopping app for Gen Z.

So what?

If you provide a payment or lending product, the Platonic Ideal for distribution is for that product to be the last step — the obvious and unscrutinized conclusion — in a much longer journey that you control and orchestrate.

The initial form of BNPL was a distribution model based on merchant partnerships. The ideal form of BNPL is a distribution model based on a highly engaging, always-on digital shopping assistant.

That’s basically what Klarna and Afterpay1 are building. And it’s what CommBank in Australia is, in a somewhat clumsier way, trying to build with its Cheddar shopping app.

3. Fintech’s First-Party Fraud Fiasco

What happened?

• First-party fraud is reportedly becoming a big problem at big neobanks like Chime and Cash app.

• Neuro-ID, an anti transaction fraud platform, raised a $35 million Series B.

So what?

Everyone should really read this Forbes article on fraud in neobanks. Parts of it were legitimately shocking to me:

HMBradley, a three-year-old, Santa Monica-based online bank with $375 million in assets, saw a startling rise in fraud coming from the transfers it gets from Chime and Cash App accounts. The schemers would typically open an HMBradley account, then connect it to an existing Chime account. They’d request to transfer funds from Chime, and when the money reached HMBradley, they’d quickly ferry it into a third bank account. Often, the funds HMBradley was pulling in from Chime didn’t exist—and that’s possible because of the way the U.S. bank-to-bank transfer network, or the Automated Clearing House (ACH) system, works. 

While HMBradley typically only sees about $500 worth of fraud per month, in May it lost tens of thousands of dollars, split between Cash App and Chime users, according to CEO Zach Bruhnke. To stop the bleeding, Bruhnke put longer holds on transfers so that a customer trying to pull in funds from a Chime or Cash App account would have to wait a few more days to see the funds arrive in HMBradley. 

Chime CEO Chris Britt again prefers to shift the blame. He says that small companies like HMBradley and One “probably don't have the same level of sophistication in terms of how to process things like ACH transactions and transfers from online accounts.”

It’s not often you see fintech companies go on the record talking about the fraud problems caused by other fintech companies. Nor do you typically see the CEO of one of those companies blaming the fraud on the other companies’ lack of sophistication.

Spicy stuff!

What many of these reported problems come back to is first-party fraud — the use of fraudulent tactics by customers under their real identities and accounts, much of it involving the U.S.’s antiquated ACH payments system.

First-party fraud is a notoriously difficult problem to solve (or even identify2), which is why I am playing close attention to the field of behavioral biometrics (and companies like Neuro-ID) which has the theoretical capability to divine a new user’s intent, which could be extremely useful in detecting users planning to commit first-party fraud.

4. Crypto Solves Payroll?

What happened?

• UK fintechs Mode and PayEscape are partnering to let people accept their payroll in bitcoin.

• Zebec Payroll, a Solana-based payroll provider, raised $6 million.

So what?

There’s a lot of talk in crypto and DeFi circles about the need for better on-ramps. And rightly so! Most corners of crypto are still legitimately terrible to use for neophytes.3

One approach to solving the onboarding problem would be to build the on-ramps at the very beginning of the process — enable consumers to get their paychecks (or a portion of their paychecks) directly in crypto.

I can see the appeal of this idea to crypto builders and investors that want to convert more mainstream consumers into crypto users. I’m just not sure I see the appeal for the consumers themselves.

Zebec Payroll makes the case that this capability can unlock the ability for real-time, streaming wages:

“What we are basically enabling is making money continuous,” Zebec CEO Sam Thapaliya told CoinDesk in an interview. “Imagine I send you $100 over 10 days, and you’re receiving money every single second. It makes money programmable. It makes money a continuous flow and enables completely new possibilities for how money can function in the world.”

But … like … we could do this with non-crypto technology as well, right?4

5. The Long-term Sustainability of Alternative Investment Assets

What happened?

• Yieldstreet launched a fund for small investors to bet on art.

So what?

This is part of a much larger trend — the democratization of the ability to invest in fractions of basically anything. Classic cars. Fine wines. And, of course, art.5

What’s interesting about these investment offerings is the way they try to blend the financial (consistently strong, stable returns) with the aesthetic (invest in things that are beautiful and/or interesting). Here’s Yieldstreet’s Managing Director and Head of Art Finance, Rebecca Fine:

Most collectors also prefer to buy art to put it on their walls rather than simply buying for profits. Fine said that while the details are still in development, the company is planning events where investors can view the artworks and learn more about collecting from art experts and artists.

“The experiential aspect will be a big part of the platform,” Fine said. “Ideally we’re hoping to inspire them to not just invest, but buy physical art and build more of their own collection.”

My question is how well will these fractional alternative investments hold up, as an asset class, when interest rates go up and retail investors are left with a comparatively less attractive investment that they can’t actually show off in their homes?

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

it’s only right that I cap off an insanely busy month with a summary of the five interesting fintech trends that caught my eye in October, 2021:

1. Banks are … GMI?

2. The challenges of being a challenger bank.

3. Parent-approved boyfriend or bad boy?

4. What’s the right strategy for crypto investing?

5. I wish you good fortune in the B2B banking wars to come.

1. Banks are … GMI?

What happened?

• Bank of America’s Life Plan tool grew to over 5 million users in its first year.

• American Express expanded beyond its premium roots, with record new card acquisitions among Gen Z cardholders, small businesses, and more blue collar workers.

• Piermont Bank launched BancFi, a credit platform for fintechs and their users.

So what?

I vacillate between thinking that banks are doomed (an opinion strengthened when they do things like this) and thinking that banks (at least some of them) are actually gonna make it.

The headlines from October have pushed me to the optimistic side of that spectrum.

Looking for evidence that big banks can build compelling digital experiences? Check.

Looking for evidence that old-fashioned brands can acquire a younger, more diverse set of customers? Got you.

Looking for evidence that mid-size and community banks can keep up with the pace of fintech? I have you covered there too, complete with glowing testimonials:

2. The challenges of being a challenger bank.

What happened?

1. UK neobank Monzo is abandoning its plan to get a US banking license. It is also in talks to raise £300m at £3 billion valuation.

2. N26 raised a $900 million Series E at a $9 billion valuation.

3. Neobank Revolut acquired the team of New York-based recruiting marketplace Wanted.

4. Starling is launching its BaaS product across Europe.

So what?

The big European challenger banks provide an interesting window into the future of neobanking. Specifically around this question — what do you do after you reach scale?

You have millions of customers and strong brand awareness in your core markets. You have a load-bearing infrastructure and operating model. You probably aren’t making a profit yet, but your investors are pot committed and will continue to shovel more money into your coffers.

So, what do you do? [Dennis Hopper voice] WHAT DO YOU DO?

You could try expanding into new geographic regions, but that hasn’t exactly been smooth sailing for N26, Revolut, or Monzo.

You could acquihire an HR team, which is what Revolut seems to be doing through its acquisition of Wanted, I guess?

Or, if you want to be boring, you could just keep plugging away at growing revenue, cutting expenses, and sticking to your established growth strategies.1

3. Parent-approved boyfriend or bad boy?

What happened?

• Greenlight is going to teach parents to invest.

• Step partnered with a Fortnite champion.

• Square’s Cash App is now available to users 13 and over.

• Copper Banking, a digital bank for teens, raised $13.3 million in seed funding.

So what?

It’s becoming increasingly clear that there are two ways to win in the banking-for-kids space. You can build a brand tailored to parents, with an emphasis on safety and financial literacy. Or you can build a brand tailored to teens, with an emphasis on financial independence and (mild) rebellion.

The actual products are, generally, pretty similar, but the go-to-market and growth strategies are very different.

Greenlight is clearly focused on parents and is expanding its products accordingly. Step and Cash App are all in on teens, with brand identities and celebrity sponsorships to match. Copper Banking — somewhat uniquely — seems to be trying to split the difference, although this quote from one of Copper’s investors would seem to suggest that building a brand focused on teens is the priority:

Teens don’t want one imposed on them by their parents. Copper has the brand, the product and the go-to-market model to fill that void.

4. What’s the right strategy for crypto investing?

What happened?

• Average revenue per user at Robinhood dropped in Q3 as crypto trading volumes fell.

• Coinbase’s Q3 revenue missed analysts’ estimates as monthly active users fell and the company tests a no-fee subscription service.

• Investing exchange Public launched crypto trading.

So what?

As an asset class for retail investors, crypto is inarguably here to stay. Bitcoin and Ether just hit new all-time highs and Tim Cook, CEO of Apple, just revealed that he owns crypto in his investment portfolio.

And yet, it’s not clear to me what the best way is for financial services companies to profit off of retail investors’ enthusiasm for crypto.

You can try to become the home for wild crypto speculation, but this strategy is subject to the extreme volatility of the exotic cryptocurrencies that drive this speculation and the public markets have a hard time accepting this volatility, as Coinbase and Robinhood have discovered:

In the second quarter, for example, the company [Robinhood] said that nearly two-thirds of cryptocurrency revenue was attributable to dogecoin transactions, a parody token that returned more than 15,500% on a year-to-date basis when its price peaked in May. Dogecoin has since struggled to gain momentum after falling sharply off its high.

Or you can attempt to bolt crypto on to your existing investment platform and help your customers navigate the inherent volatility, as Public is doing:

Public.com’s trading platform includes social features that allow users to follow other investors and share ideas. The company has also made several decisions to help safeguard investors. In addition to restricting options and margin trading, Public.com has stepped in during volatile periods. It temporarily restricted users from buying shares of Hertz Global Holdings Inc. in 2020 as the car-rental company’s stock price dramatically swung. During the meme-stock rally earlier this year, it added safety labels, which warn users of the possibility of financial loss, to stocks such as GameStop Corp. —something they have done for other more volatile investments.

Since cryptocurrencies can be a highly volatile asset class, Public.com will include so-called volatility reminders on cryptocurrency pages. Public.com will also offer crypto-focused educational content on the platform

I’m honestly not sure what the right answer is, but this seems like a question every bank, fintech, and consumer-facing crypto company is going to wrestle with.

5. I wish you good fortune in the B2B banking wars to come.

What happened?

• Brex raised $300 million in funding at a $12.3 billion valuation.

• Ramp launched free payments and invoice management software.

• Modern Treasury launched virtual business accounts to streamline payment reconciliation.

• Corporate spend startup Jeeves launched in Canada.

• American Express opened business checking accounts.

• Mesh Payments launched spend intelligence and insights for subscription businesses.

• Airbase announced plans to return nearly all interchange revenue to its customers.

So what?

I see tweets from founders in the B2B banking and corporate spend management space like this:

And I immediately think of this line from Game of Thrones:

Much like in GOT with the Iron Throne, every company competing in the B2B banking space is trying to get to the same place — an integrated spend management software platform that seamlessly combines deposits, payments, and credit.

Every company is converging on this vision from a slightly different place. Every company is (or likely soon will be) extremely well funded. And things are starting to get cutthroat.

Watch this space.

Fintech Naming Awards

In writing this newsletter, I get exposure to a lot of fintech companies. As a former marketer, the first thing I always notice are the names.

So, to add a little fun, I’m going to start a new section in this newsletter and hand out some fintech naming awards.

Best Name That Shouldn’t Work But Surprisingly Does — Sommelier

Sommelier is a hard word to spell and a hard word to pronounce and it’s French. It shouldn’t work as a name for a decentralized finance protocol for automated portfolio management and yet … I think it kinda does?

Best Name Based On A Figure From Classical Mythology — Persefoni

Named (I presume) after the Greek goddess and queen of the underworld. I’m a sucker for the classics, but I could use a clear articulation of why Persephone is a good inspiration for a climate management and accounting platform. Maybe because she brings Spring?

Best Old-Fashioned Name For A New-Fashioned Bank — Marygold & Co

Be honest, if I told you I was opening an account at a financial institution called Marygold & Co, would you assume the institution was a community bank?

I certainly would have. But no! It’s a digital-only neobank that I’ll admit to never having heard of. A digital-only neobank with a charmingly old-fashioned name.

Nerd Corner

A new month means a new question for the Fintech Nerd Collective — How can traditional banks adapt or evolve to compete with fintech? What moat do they have?

I went a bit against the grain in my answer and there were a lot of other great, unconventional answers that really challenged my thinking on this topic. Check it out!

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

There was, of course, plenty of news about BNPL and credit builder products and BaaS, but those have been covered very well in other newsletters. Instead, I’d like to focus on the following five observations based on fintech trends from September of 2021:

1. Banks’ slow adaptations to fintech are a bad portent.

2. Crypto and investing companies are trying to capture direct deposits.

3. Fintech companies’ obsession with super apps is, perhaps, a mistake.

4. Renters and landlords are the perfect targets for fintech innovation.

5. The digitization of philanthropy is happening and it is glorious.

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1. Too Little, Too Late

What happened?

• Synchrony Financial is launching its own pay-in-4 buy-now-pay-later product.

• Bank of America launched Balance Connect, a new feature that helps users avoid overdraft fees, for a $12 fee.

So what?

Synchrony Financial is the dominant provider of private label credit card and lending solutions to merchants in the U.S. Bank of America is the second largest bank in the U.S. by consumer deposits.

They have, in theory, the scale and market position necessary to successfully respond to disruptive fintech trends like BNPL and fee-free neobanks.

In theory.

In practice, I find it extremely unlikely that either of these two new products makes much of a difference in the companies’ struggles against fintech competitors.

The appeal of pay-in-4 loans and no overdraft fees to customers has been evident for quite a while and yet Synchrony is only now introducing a pay-in-4 product and BofA is only now taking a (rather lame1) step to mitigate the impact of overdraft fees. This lack of urgency makes me extremely pessimistic about the prospects of these initiatives, despite the incumbent advantages enjoyed by both companies.

2. Direct Speculation

What happened?

• Robinhood is currently building an early direct deposit paycheck feature.

• Coinbase will soon let you deposit your paycheck in your Coinbase account and convert it to crypto.

So what?

In The Gentrification of Deposits, I wrote:

No company is content to stay within its wedge. All of them want to rebundle into full-service providers that can meet a majority of their customers’ needs. They don’t want to be the spot that customers occasionally visit when they are trying to get away from their paycheck motels. They want their customers to move in, which means getting the direct deposit.

Robinhood and Coinbase are two of the premier examples of fintech companies building a new ‘neighborhood’ in the deposits landscape that is focused, primarily, on financial speculation.

There’s absolutely nothing wrong with investing in options on meme stocks or in Dogecoin. I’m just not sure it’s a great idea for consumers to send their paychecks directly to the apps that enable those activities.

3. Fintech’s obsession with super apps.

What happened?

• PayPal added a savings account and other features like crypto to its app and is working on a stock-trading platform for its US customers.

• Affirm is planning to debut a debit card and allow customers to buy and sell crypto directly from savings accounts they have with the company as part of a broader push to become a one-stop shop for consumers’ financial needs. 

So what?

Is it just me or does the super app strategy feel a bit forced?

I know the argument — Alipay and Paytm and Grab are showing us the future that all consumers want and the U.S. will eventually reach a similar state of mobile commerce nirvana. But what if that isn’t true? Is there any compelling evidence that U.S. consumers are desperate for one app to rule them all? And if there is, why is it at all likely for that app to be PayPal or Affirm rather than, you know, Amazon or Google or Walmart?

4. Renters and landlords are the perfect fintech targets.

What happened?

• Jetty, a rental payment flexibility startup, raised $23 million.

• Bilt Rewards, a loyalty program for renters to earn points on rent, raised $60 million at a $350 million valuation (including from backers like Wells Fargo and Mastercard).

• Stake, a cash back rewards program with flexible payment plans for renters, raised $4 million in seed funding.

So what?

The U.S. rental market is actually kinda fascinating:

• Renters headed about 36% of the U.S.’s 123 million households in 2019, but that percentage jumps all the way up to 65% for heads of households under the age of 35.

• 60% of people in the lowest income quartile rent their homes, as do 88% of people with net worths below the 25th percentile.

• Fewer than one-fifth of rental properties are owned by for-profit businesses. Most rental properties – about seven-in-ten – are owned by individuals, who typically own just one or two properties.

Young, poor, and overwhelmingly served by small businesses.

Sounds like the perfect target for fintech.

5. Digitizing Philanthropy

What happened?

• Omaze, a fundraising tool for charities, announced an $85 million Series C.

• Snap Raise, a digital fundraising platform, raised $90 million.

• Groundswell, a corporate donation and philanthropy startup, raised $5 million in seed funding.

So what?

There’s a surprisingly wide range of jobs to be done in the world of charitable giving and fintech is helping to tackle many of them:

Democratizing access to the philanthropic tools used by the 1%? That’s Groundswell:

our Groundswell app provides machine learning driven nonprofit recommendations, tax-advantaged investment vehicles, a universal dashboard of all the user’s philanthropy, and the ability to share publicly their portfolio of causes.  Basically, we let everyone give like Gates, get taxed like Buffett, and get recognized like Rockefeller. 

Giving school teams and clubs the infrastructure to fundraise effectively and efficiently? Snap Raise is working on it:

Snap Raise envisions a toolkit used by high school athletic teams, arts programs, clubs and other groups that will help them with managing a slate of tasks around fundraising, budgeting, team administration, e-commerce, and more. The ecosystem of software services will make it easier for coaches and other leaders to build lasting programs and weather high turnover.

Digitizing the celebrity fundraiser? Omaze has a solution:

The company promises nonprofits that it can raise far more money than traditional galas or other fundraising events with their star-studded online campaigns — which have included celebrities such as Michelle Obama and Oprah — and prizes like a custom tiny home or a Lamborghini blessed and signed by Pope Francis. Omaze organizes the campaigns and handles the marketing, content and outreach.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

As always, here are the five fintech trends, from August 2021, that caught my eye.

1. I dig music.

What happened?

• UnitedMasters partnered with beatBread and Paperchain to offer advances and real-time payments to musicians.

• Nerve launched the world’s first neobank for musicians.

• Royal, a music marketplace planning to monetize royalties as NFTs, raised a $16 million seed round.

So what?

It cuts against popular imagination, but the reality is that most musicians are less like celebrities1 and more like small business owners:

Financial support remains a key selling point for artists to sign to a label rather than remain independent, as most musicians likely don’t have access to the significant capital a label would have that can help fund more music and promotional services to help push careers forward. Artists can often wait at least a month before getting royalty checks, and payment delays are currently the norm. While larger artists with significant revenue streams may not need their royalty cash right away, less established independent musicians are more likely to need access to their earnings sooner so they can fund their projects. 

And so, in the new tradition of building digital banks for every community, why not a neobank for musicians? Why not wage advances and early access to royalty earnings? why not NFTs?

2. The accessibility imperative.

What happened?

• Nationwide is issuing braille cards for blind customers.

• HSBC will work on cards “with features that will support people with dementia, as well as visual impairments, learning difficulties and dyslexia.”

So what?

It’s estimated that less than 2% of the 350 million active websites in the U.S. are considered accessible to people who have disabilities.

As banks embrace digital transformation in the face of disruption and as fintech companies leverage their digital capabilities to take market share away from banks, it would be nice to see all companies pay more attention to the accessibility of their digital financial products and services.

Credit to Nationwide and HSBC for their moves in this direction.

3. Competitive convergence in credit card.

What happened?

• Banking as a service provider Synapse plans to offer its customers white-labeled credit products.

• Revolut is set to offer a credit card product in the US as a way to differentiate itself from other neobanks.

• Walgreens announced new health and wellness credit cards.

• American Express’ black card is getting a facelift.

So what?

With all the excitement around BNPL, credit cards aren’t getting the attention they normally do. That’s a shame because a diverse set of companies are converging on credit cards as a key competitive battleground:

• Neobanks are embracing credit cards as a key point of differentiation from their peers (it’s telling that Revolut, which has probably spent more time than anyone thinking about what differentiation in the U.S. neobank market requires, landed on credit cards as its strategy).

• Traditional banks are refreshing their products (AmEx updating the design of the Black Card would seem to indicate that the aesthetic that fintech has brought to financial services is having an impact).

• Non-bank brands have more options than ever to launch their own credit cards (Synchrony Financial is staying in the game with Walgreens’ new credit cards, but new BaaS providers like Synapse are introducing interesting new offerings focused specifically on credit).

4. Why are payments and investing becoming the same thing?

What happened?

• You can now buy a sandwich with bitcoin, thanks to Bakkt and Quiznos.

• NCR, one of the largest ATM operators in the US, will acquire LibertyX, a cryptocurrency software provider, to enable crypto withdrawals.

• UnitPlus is enabling people to pay for goods with their ETF portfolios.

So what?

I guess this is the the logical conclusion of the atomization of banking — fintech companies can combine financial services functions in whatever combinations they please. I suppose I shouldn’t be surprised that two of the more engaging functions — spending and investing — are being bundled into the same product.

But, like, why? Why is this happening?

Here’s the case that UnitPlus makes:

If you think about what all these payment methods have in common, you'll notice that until money is used for payments, it hasn't been working productively for us. It sits in our current accounts and eWallets and is literally waiting for the moment to get used for transactions. Why isn't there a payment method where the money is actively working for us until we spend it? With the current real inflation rate of 1.25%, money is losing value every time we make a payment.

Interesting argument, but here’s the thing — that money sitting in our current accounts and eWallets? It’s safe. That’s why it’s there. It’s great to have some of my money “working productively”, but I’ve found it’s generally a good idea to not have it all working in case, you know, it has a bad day at work and suddenly I can’t buy that Quiznos sandwich I’ve been craving.

5. Pay-in-4 plays merchants against themselves.

What happened?

Afterpay introduced in-app ads:

Afterpay will introduce ads to its app for the first time with a new option that lets retailers buy featured placements for promotions and products through a pay-per-click model. The Australian buy now, pay later platform said the move comes after early tests showed that Afterpay Ads achieved a 20% lift in sales as compared to non-promoted listings within the app. … “It’s an ideal time for us to make this service available to brands, as they can leverage it as an added customer acquisition tool going into the busy holiday shopping season,” Zahir Khoja, general manager of Afterpay North America, told Adweek.

So what?

It’s not just Afterpay. Klarna, the other big pay-in-4 BNPL provider, has been doing affiliate marketing for a while now. Here’s David Sykes, President of Klarna North America, describing the shift:

A year to 18 months ago, most of our conversations with large partners were with the payments people. We were really bucketed into that payment mix, comparing us to PayPal or a traditional credit card. These days, we’re just as likely to speak to the marketing teams.

This is literally a case of the right hand not knowing what the left hand is doing. Merchants’ payments teams are dropping new customers into Klarna and Afterpay’s laps and Klarna and Afterpay are selling them right back to merchants’ marketing teams.

Incredible.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from July 2021, that should be setting off alarms in your organization.

1. BNPL isn’t a feature; it’s the feature.

What happened?

(takes a deep breath)

• A bunch of BNPL providers raised money.

  • Sezzle, a buy-now-pay-later platform, raised $30 million from Discover, in an agreement which will also allow the network to launch Sezzle’s services to its customers.

  • Zilch, a UK buy-now-pay-later provider, raised £80 million in combined debt and equity from Goldman Sachs.

  • Buy-now-pay-later provider Behalf raised $100 million in debt.

• BNPL providers, B2B fintech companies, and revenue-based financing platforms all realized they’re basically in the same business.

  • Buy-now-pay-later provider Sezzle is launching a working capital platform for merchants.

  • Revenue-based financing platform Capchase launched its own buy-now-pay-later platform.

  • Biller, a buy-now-pay-later service for B2B purchases, launched in Europe.  

  • Klarna embedded Liberis to add revenue-based financing to its platform.

• BNPL expanded internationally in several interesting directions.

  • Citi is launching buy-now-pay-later in Australia.

  • PayPal launched no-fee buy-now-pay-later in Australia.

  • Grab and Adyen are partnering to provide buy-now-pay-later across Southeast Asia.

• BNPL companies announced plans to launch a number of new products.

  • SplitIt is launching buy-now-pay-later loans for in-store purchases.

  • Afterpay launched a consumer money management app.

  • Afterpay plans to launch a consumer banking app in October.

• Klarna went shopping.

  • Klarna acquired Hero, an in-store social shopping platform.

  • Klarna bought German discount shopping app Stocard for €113 million.

  • Klarna acquired marketing platform APPRL.

  • Klarna is potentially sizing up its Australian rival Zip (a publicly-traded firm) for acquisition, having acquired 4% of the $160 million lender.

• More attention was given to the risks posed by BNPL.

  • A survey found that UK BNPL users think that the average time to pay off their debts is now up to 9 months.

  • TikTok banned buy-now-pay-later ads.

• And big players made big moves into the BNPL space.

  • Visa launched a buy-now-pay-later API.

  • Goldman Sachs and Apple are planning to collaborate on a buy-now-pay-later product in the US.

  • Square acquired Afterpay in a $29 billion all-stock deal.

So what?

Most companies that offer financial services want to, eventually, sit at the intersection of consumer spending and merchant commerce enablement.

Visa and the card networks are obviously the standard bearers for this model, but you can see the same blueprint being methodically executed by big tech (Apple embedding Apple Pay at the operating system-level in its ecosystem and slowly expanding its consumer banking product suite) and by fintech (Square merging its seller and consumer product ecosystems to create a closed-loop payments network).

BNPL, it turns out, may be the ideal product feature for aligning the interests of merchants and consumers and accelerating companies’ digital shopping and commerce enablement roadmaps.

2. B2B fintech goes vertical.

What happened?

• Karat, a corporate card and banking solution for the creator economy, raised a $26 million Series A.

• Juni, a neobank for e-commerce and online marketing companies, raised a $21.5 million Series A.

• Willa, a fintech platform for freelancers and the creative economy, raised an $18 million Series A.

• Canopy, a technology provider for accounting firms, raised $11 million in funding.

• Coast, a payments platform for trucking fleets, raised a $6 million seed round.

• Greenphire, a financial software for clinical trials, raised strategic funding from Thoma Bravo.

• Anduin, an invoice and billing solution for professional services firms, raised a $14 million seed round.

• ProjectPay has launched a solution to streamline construction payments.

So what?

We talk a lot about specialization in B2C fintech and the emergence of digital community banks like Daylight and First Boulevard, but as competition (and funding) in B2B fintech ramps up it’s becoming increasingly clear that specialization, particularly vertical specialization, is becoming the key to long-term competitive differentiation. After all, if you’re a general contractor, would you rather manage payments and chase invoices using a generic tool like Bill.com or one tuned to your industry-specific needs like ProjectPay?

3. Travel + Fintech

What happened?

• Revolut is launching “Stays”, a travel booking feature to compete with Booking.com and Expedia.

• Booking.com launched an internal fintech unit to build travel financial services.

• Travel booking behemoth Amadeus is partnering with travel app developer Hopper, adding fintech offerings to product line.

So what?

An area of embedded finance that may have gotten a bit left behind over the last year was travel. This is understandable given the headwinds the industry faced during the height of the pandemic, but now things are starting to pick back up:

The nation’s 11 largest airlines are planning to offer nearly as many seats this July as they did in July 2019, according to Cirium, an aviation data firm, though schedules could still change.

“There is no doubt the pace of the recovery is accelerating,” American’s chief executive, Doug Parker, said.

After a series of stops and starts over the past year, travel started to recover meaningfully in early March, driven by leisure travel within the United States or just outside its borders, to places like Mexico, the Caribbean and Latin America.

Assuming this continues (obviously not a certainty … please get vaccinated, if you haven’t!), I expect that we will see a profusion of new fintech products and experiences focused on the travel industry.

Revolut-style super apps that incorporate travel booking will be one vector to watch (maybe PayPal next?), but I think a huge area of growth will be travel booking platforms (like Booking.com) starting to solve for new financial services use cases for consumers and businesses. Taking a leaf from the vertical B2B fintech trend discussed above, what if Airbnb built out an end-to-end business management platform for its hosts?

4. Credit builder products are next.

What happened?

• Sequin launched a credit building debit card for women.

• Kikoff, a personal finance platform for building consumer credit, raised a $30 million Series B.

• Esusu, a credit building startup, raised $10 million.

• Credit Sesame unveiled a credit builder service that enables consumers to use debit to build and improve credit.

So what?

One of the things that makes leading neobanks like Chime so successful is an uncanny ability to pick out the most annoying value deficits within banks’ existing product sets and business models, create superior alternatives, and market the holy hell out of them.

When this playbook works well it forces traditional banks to respond (see: overdraft fees and early access to direct deposits).

Established neobanks (and a growing cohort of fintech startups) are all in on credit builder products. Will this pressure drive more financial institutions to respond with new products of their own?

I’m betting yes.

5. Can we make crypto feel safer and more accessible?

What happened?

• Robinhood is testing a new feature to protect crypto traders from volatility.

• Square is building a hardware wallet for bitcoin and cryptocurrencies and a platform for decentralized financial services.

• New Jersey’s Attorney General issued a cease and desist order to crypto lending platform BlockFi. Other states quickly followed suit.

• 650 US banks will soon be able to offer bitcoin purchases to 24 million consumers through partnerships with NCR and NYDIG.

• Eco, a decentralized finance neobank for the future of money, raised a $60 million Series B.

So what?

In a recent interview, I asked Current’s CTO, Trevor Marshall, to characterize the experience of using DeFi apps to generate yield.1

It feels scary. It feels dangerous. It’s not the way you should interact with this stuff. Here’s the generally accepted mechanism for how you interact with DeFi today — first thing, you create a MetaMask account. What is MetaMask? It’s a Chrome browser extension that has an Ethereum wallet built in, which you can back up somewhere else. You then navigate to the DeFi app, which will have a hook into MetaMask. You then set up the transaction in the browser, you confirm the transaction, pay the gas fees, and then you can start allocating and managing your new assets to generate yield.

This answer, which made me a little trepidatious just listening to it, might explain why lots of surveys2 on consumers’ attitudes towards crypto tend to produce results that look like this:

And this:

Consumers want to take advantage of the benefits of crypto, but many need the rough edges sanded down first. That sanding down may be accomplished through product innovation (Robinhood, Square), trusted entities like banks getting involved (NCR & NYDIG), regulatory intervention (BlockFi), or simply better communication (Eco).

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from June 2021, that should be setting off alarms in your organization.

1. Imitation is the most reluctant form of flattery.

What happened?

• Capital One, OneUnited bank, LendingClub Bank, Randolph-Brooks Federal Credit Union, and Andrews Federal Credit Union have all begun offering their customers early access to their direct deposits, following in the footsteps of neobanks like Chime and Varo.

• Ally Financial has eliminated its $25 overdraft fees and a number of other banks - PNC, Fifth Third, Bank of America, and Huntington Bank - have taken steps to limit the impact that overdraft has on their customers.

So what?

The easy narrative here is that traditional banks and credit unions are, finally, following in the footsteps of the big neobanks (Chime, Varo, Current, etc.) in delivering product features like early access to direct deposits and overdraft fee-free accounts.

Complicating this narrative is the fact that some of these product features will be easier for a majority of banks and credit unions to adopt than others. Early access to direct deposits should become table stakes within the next two years. Eliminating overdraft fees entirely will be, for many FIs, a more difficult decision. With no branch costs and limited overdraft revenue to begin with, Ally Financial was well positioned to go first. It remains to be seen how many others are willing to follow.

It'll also be interesting to see how far down the neobank roadmap most banks and credit unions go. The next big product category under consideration is credit building, which is an area that traditional FIs have traditionally avoided.

2. A fintech shopping spree.

What happened?

• JP Morgan Chase’s UK arm will acquire personal financial management startup Nutmeg to expand its consumer wealth management offering in the UK. The bank will also acquire OpenInvest, a personalized consumer ESG investing platform and 55ip, a provider of automated tax-smart investment strategies.

• Following its failed acquisition of Plaid, Visa will acquire European open banking provider Tink for €1.8 billion.

• Fintech investing platform Stash acquired financial literacy app PayGrade, following the former’s growth to 6 million users.

• Fintech partner bank Cross River Bank acquired lending risk management tool PeerIQ.

• Fifth Third Bank announced that it will acquire Provide, a platform for healthcare practices.

So what?

With so much money floating around the financial services industry right now, it was inevitable that we'd see an uptick in strategic acquisitions.

From a bank perspective, the playbook appears to be to fill in gaps in product (JPMC — 55ip), industry (Fifth Third — Provide), or geography (JPMC — Nutmeg). This makes sense given the cultural and political challenges that banks tend to struggle with when partnering or acquiring to get capabilities that could be perceived as cannibalizing existing revenue streams.

From a fintech perspective, the acquisitions we are seeing so far seem to be more focused on product synergies (Visa — Tink, Stash — PayGrade).

In both cases, the increase in acquisitions is an acknowledgment that building everything internally isn't a feasible option in today's fast-moving environment.

3. Investigations and lawsuits and fines, oh my!

What happened?

• Afterpay got hit with a class-action lawsuit for allegedly misleading customers in regards to the costs of its service.

• MoneyLion disclosed that the CFPB, SEC, and multiple state regulators are looking into the company's lending and membership practices ahead of its SPAC merger.

• Robinhood was ordered by FINRA to pay a $70 Million fine for systemic supervisory failures and significant harm suffered by millions of customers.

So what?

Here's Matt Levine (writing about one of the other times Robinhood screwed up):

In many areas of “tech,” companies are racing to do things—in virtual reality, in artificial intelligence, in surveillance and data collection—that have genuinely never been done before and that pose novel social and regulatory challenges. In many areas of fintech, though, companies are racing to do things that were done in the 1920s, before modern financial regulation came into effect, only this time with an app. The regulators know how to handle that.

Well, they're handling it.

4. Yield is the new wedge.

What happened?

• Startups are trying to lure customers in search of yield with novel deposit solutions, like lotteries:

  • PrizePool, a lottery-based savings app, raised a $10 million Series A.

• Yield farming:

  • Linus, a high-yield cash account & crypto provider, raised a $1 million seed.

  • UK banking app Ziglu opened new investment accounts with 5% APY up to £10,000 balances.

  • Yield, a provider of fixed-rate DeFi lending, raised $10 million.

  • Compound Labs launched Compound Treasury, which will enable fintech partners like Current to convert US dollars into USDC and deploy them for a guaranteed 4% interest rate.

• And sometimes both:

  • Lottery savings startup Yotta launched crypto savings buckets to give users exposure to DeFi. 

So what?

The calculus in deposits, traditionally, was about figuring out exactly how much of a pricing increase you should offer in order to attract the 'hot money' that tends to chase the best yield.

The lower the federal funds rate is, the less ability banks have to grow through these targeted pricing changes.

With the fed rate continuing to hover just above 0% and with bank customers holding excessive liquidity thanks to stimulus checks and strong savings behavior over the last year, there's an unusually big opportunity to acquire new deposit customers if you can offer a superior yield.

This opportunity isn't going to last forever. TradFi interest rates will, eventually, go back up and DeFi interest rates from yield farming will go down as investment in various tokens continues to grow.

5. The data ownership debate is just getting started.

What happened?

• California’s Office of Financial Empowerment released a scathing report on banks’ use of ChexSystems to deny bank accounts to low-income consumers. 

• The House Financial Services Committee held hearings on the proposal to create a public credit reporting agency.

So what?

An under-appreciated side effect of fintech is the increased public awareness of previously-obscure companies in the financial services ecosystem; companies like ChexSystems (FIS) and TALX (Equifax).

Even well-known companies, like the credit bureaus, end up getting a lot more public attention than they are, historically, accustomed to receiving.

These companies provide critical yet deeply controversial services to banks; services that depend on the collection and aggregation of consumers' personal data without consumers' permission.

Where there is increased public awareness, regulatory scrutiny always follows. This scrutiny revolves around a single question — who owns the customers' data?

Fintech infrastructure companies are betting (wisely, in my opinion) that the answer to this question won't be in favor of the status quo.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from May 2021, that should be setting off alarms in your organization.

1. Innovation: Coming to a Core Near You.

What happened?

• Banking neo-core provider Q2 acquired the original direct deposit swiching startup, ClickSWITCH.

• FIS and NYDIG partnered to enable FIS clients to let their customers buy bitcoin.

• Jack Henry and Finicity partnered to give community banks open banking APIs. This follows a similar partnership between Jack Henry and Plaid.

• Jack Henry joined the bank consortium open banking tool Akoya.

• Thought Machine and Temenos both integrated Wise into their core banking products.

So what?

Remember when most banks didn't offer a mobile app or remote deposit capture? And then, almost overnight, it became strange to come across a bank that didn't offer those capabilities?

That's the impact that the big core banking system providers - FIS, Fiserv, and Jack Henry - can have when they finally make new capabilities available across their massive customer bases.

It happens slowly at first and then all of a sudden.

We are on the precipice of another massive wave of innovation hitting the financial industry thanks to the slow but steady work being done by the core banking system providers.

Crypto investing, international money transfers, and open banking are about to become table stakes.

2. Cash Flow-based Underwriting is Here.

What happened?

• JP Morgan, Wells Fargo, US Bank, and others in the US plan to issue credit cards to consumers using data like checking and savings account balances. This capability will, reportedly, be enabled through integrations with Early Warning Services (EWS).

• Petal, one of the original fintech credit card providers, announced its subsidiary, Prism Data, which will provide cash flow-based underwriting technology to other lenders.

So what?

Cash flow-based underwriting, in which a lender uses transactional banking data (provided through an aggregator like Plaid, Finicity, or MX) to evaluate the capacity of a borrower to handle a new credit obligation, has proven to be an effective approach for originating credit cards and short-term, small dollar loans.

Since it doesn't depend on credit bureau data or the FICO Score (which excel at evaluating character), cash flow-based underwriting is an effective tool for underwriting credit invisible consumers.

Fintech companies have succeeded in publicly pressuring banks to look beyond bureau-based underwriting, which has motivated the national banks to cooperatively use cash flow data to underwrite their common customers for credit cards.

The fact that this cooperation is being enabled by EWS rather than Plaid or Finicity or MX is fascinating.

3. Rewards Get Unpredictable.

What happened?

• Credit Karma launched Instant Karma, a tool that rewards users by randomly refunding purchases.

• Mythia, a recent Y Combinator startup, is building a debit card with gamified rewards for…you guessed it…gamers.

• Brex launched crypto rewards for business clients.

• SoFi is letting users redeem credit card rewards points directly into cryptocurrency.

So what?

Variable reinforcement, in which rewards are delivered in unpredictable patterns, tend to produce strong levels of engagement. This has been proven, experimentally, in behavioral science labs for decades and, anecdotally, in casinos for much longer than that.

Fintech companies are beginning to incorporate these variable reinforcement strategies in the design of their rewards programs, which simultaneously increases customer engagement (the Holy Grail of metrics for any fintech company) and lowers costs (it's cheaper to provide richer rewards less frequently).

Rewarding customers in cryptocurrencies, whose inherent volatility provide the desired unpredictability, is proving to be a particularly popular approach.

4. The 31 Flavors of BNPL.

What happened?

• The success of BNPL providers like Affirm and Klarna has attracted a large number of (well-funded) imitators, all of which are focused on their own flavors of BNPL.

  • Air Travel

    • American Express launched its own buy-now-pay-later option for flights.

    • Fly Now Pay Later, a UK fintech for financing post-covid travel, raised a £10 million Series A.

    • Buy-now-pay-later provider Uplift partnered with Southwest Airlines for flexible flight payment options.

  • Expensive Necessities

    • Graviti, a Mexican buy-now-pay-later startup for appliances, raised a $2.5 million seed.

    • Sunbit, a buy-now-pay-later startup for critical everyday expenses, raised a $130 million Series D.

    • Walnut raised $3.6 million to provide buy-now-pay-later for healthcare.

  • B2B

    • Resolve, a B2B buy-now-pay-later startup that spun out of Affirm, raised $60 million.

So what?

This is what the unbundling of the credit card looks like.

With early pioneers in BNPL like Klarna and Affirm paving the way, the mechanics for BNPL are now easy to replicate and ready to be applied across a much wider set of use cases.

Use cases that focus on making essential services like healthcare more accessible have the potential to have a significant positive impact for less affluent consumers.

Use cases that focus on making shopping more fun and frictionless (which Klarna, Affirm, and Afterpay all already specialize in) have the potential to build on top of credit cards' worst legacy: encouraging consumers to take on unnecessary levels of debt.

While a certain segment of consumers will likely continue to prefer the simplicity and aggregated rewards provided by credit cards, it seems likely that a growing number of consumers will become accustomed to BNPL as a standard payment mechanism across verticals.

5. Fintech + DeFi = HyFi.

What happened?

• Current and DeFi network Acala partnered to enable decentralized financial products within Current, with the bank acting as a validator on Polkadot.

So what?

This feels like one of those things that, with the benefit of hindsight, is seen as a watershed moment.

DeFi is a really exciting arena, where entirely new protocols for moving money and facilitating financial transactions are being built. Thousands of different experiments are being run in the world of decentralized finance every day without anyone asking for permission from banks or regulators.

The problem is that DeFi is, to put it mildly, not easy to understand or navigate for the uninitiated.

Fintech can help. Fintech companies specialize in abstracting away technical complexity to create beautiful, intuitive customer experiences.

Fintech started by building these experiences on top of legacy financial services infrastructure, but there's no reason they can't do the same thing on top of DeFi.

Call it Hybrid Finance or 'HyFi'.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from April 2021, that should be setting off alarms in your organization.

1. Banks' responses to fintech are missing the mark.

What happened?

• PNC released details on its checking account for underbanked consumers, with no added charges and a $5 monthly cost.

• PNC launched a feature to let users avoid overdraft fees with proactive notifications.

• PNC is on track to complete its acquisition of BBVA USA by mid-year.

• KeyBank launched Laurel Road for Doctors, a bank designed for doctors and dentists with tailored savings and sending products for their needs.

• Fifth Third has been expanding into the southern US, with 32 of 120 planned new branches open.

• Fifth Third launches Momentum Banking, a digital deposit product with goal-based savings, early wage access, and tools to help avoid overdraft fees.

So what?

Banks are trying to keep pace with the product innovations introduced by challenger banks like Chime, but deeper structural challenges continue to hamper them.

PNC and Fifth Third are trying to help customers avoid overdraft fees. Challenger banks eliminated them.

PNC is closing down Azlo, the digital business bank that it acquired from BBVA, despite Azlo having 100,000 customers at the end of 2020. Meanwhile, Brex just raised $425 million at a $7.4 billion valuation after reaching 10,000 customers at the end of 2020.

Laurel Road for Doctors is a good attempt at a niche digital banking play, but it's a confusing mashup with the established Laurel Road brand and there's no mobile app.

Fifth Third is introducing a new digital deposit product and opening 120 new branches; an odd bifurcation of resources.

2. The crypto product development dilemma.

What happened?

• Venmo added functionality to let users buy, hold, and sell cryptocurrencies on its platform through its Paxos partnership.

• SoFi will now let users redeem credit card rewards points directly into cryptocurrency.

• Wealthfront added cryptocurrency investing to its platform.

• MoneyLion made a strategic investment in Zero Hash to enable cryptocurrency features for its users.

• Unifimoney has integrated Gemini for crypto trading.

• Payments app Ziglu launched an interest-bearing bitcoin account.

• Revolut added 11 new cryptocurrencies to trade in its app.

• Youth checking account Strive launched a piggy bank named Penny to teach kids about crypto investing.

So what?

At the end of 2020, 15% of US consumers owned some other form of cryptocurrency and 17% of consumers said they planned to invest in cryptocurrency in 2021. These numbers are almost certainly higher today.

Fintech companies are rushing to add crypto services to their apps in order to drive increased engagement, following in the footsteps of early leaders like Cash App.

Despite 60% of crypto owners saying that they would use their bank to invest in cryptocurrency, 79% of banks have no interest in offering crypto investing services to their clients.

Not every crypto service makes sense. Making everyday purchases with Bitcoin is a bad idea. A crypto piggy bank for kids is a really bad idea. But banks need to get over their squeamishness and at least start offering crypto investing services or risk losing more customers to fintech competitors.

3. Fintech ushers in a new era of relationship banking.

What happened?

So what?

Banks have long argued that relationships matter in financial services. This argument has been used to justify investments in branch distribution models and human-centric sales strategies.

Banks are right. Relationships do matter because financial services is still, fundamentally, about trust.

The problem is that the people that consumers trust aren't in branches. They're on YouTube and Instagram and TikTok.

Influencers and creators now play an enormous role in shaping consumer affinity, preference, and choice.

Fintech companies (Square and Current, in particular) are forging genuine relationships with these influencers and leveraging those relationships to build trusted brands.

4. Teenagers are our future.

What happened?

• Current, a digital bank for teens and young adults, raised a $220 million Series D at a $2.2 billion valuation.

• Greenlight, a family-focused fintech app, raised a $260 million Series D at a $2.3 billion valuation.

• Step, a digital bank for teens, raised a $100 million Series C at a valuation of nearly $1 billion.

• Till Financial raised $5 million for a kids’ spend management app.

• Apple introduced Apple Card Family, which allows families (including kids between the ages of 13 and 18) to share an Apple Card and build credit together.

So what?

Fintech for kids/teens/young adults has exploded in popularity over the past year.

Providers like Current and Step appear to be focused on owning the next generation of financial services customers and are building their brands (with the help of influencers and celebrities) to appeal to them.

Other providers like Greenlight and Till Financial appear to be focused on building financial literacy platforms for kids and teens (and their parents), with the intent to graduate them off the platform as they turn 18.

Banks will need to develop new products in order to compete with companies like Current and Step (and Apple) for Gen Z and Gen Alpha.

Banks should also consider referral and white label technology partnerships with companies like Till Financial and Greenlight (who has already partnered with Chase).

5. The disruption of Credit Cards-as-a-Service.

What happened?

• OppFi, a credit provider to underbanked consumers, announced a new credit card.

• Instacart and Doordash are both planning to launch credit cards.

• Gemini, a cryptocurrency platform, is launching a credit card.

• Unifimoney launched a credit card in partnership with Railsbank.

• Cardless partnered with Manchester United to launch a co-branded credit card.

• Ramp, a business spend management solution, raised $115 million at a $1.6 billion valuation.

• Brex, the corporate card provider, raised $425 million at a $7.4 billion valuation.

So what?

Traditionally, launching a credit card has been one of the harder things to do in financial services. It requires both operational excellence to facilitate a high volume of payment transactions and credit risk management expertise to manage the lending process. This explains why:

• The top ten issuers control 90% of the $3.8 trillion credit card market in the U.S.

• Of the 70+ challenger banks in the U.S., only a handful have launched credit cards.

The emergence and maturation of Credit Cards-as-a-Service (CCaaS) providers like Deserve, Railsbank, and Cardless significantly reduces the upfront time, expense, and complexity of launching a credit card.

This will lead to a boom in new, more focused credit card value propositions offered by challenger banks, crypto exchanges, merchants, sports teams, and others. It will likely also lead to more competition for Ramp and Brex in the corporate credit card space.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from March 2021, that should be setting off alarms in your organization.

1.Fraud Management Providers Pivot to Platform

What happened?

Fraud management and ID verification vendors raised almost half a billion dollars in venture capital financing in March.

• Socure, the financial identity verification provider, raised $100 million at a $1.3 billion valuation.

• Feedzai raised $200 million at a $1 billion valuation to continue building out its AML and financial fraud ID tool.

• Jumio raised $150 million for its financial fraud ID platform.

• Incode, an ID verification platform for financial services institutions, raised a $25 million Series A.

• Middesk, a KYB business ID verification startup, raised a $16 million Series A.

• Fraud-detection-as-a-service platform Sardine raised a $4.6 million seed round.

So what?

There are two types of vendors in the fraud management and ID verification space; those that are pursuing a comprehensive platform strategy and those that have not yet pivoted to a comprehensive platform strategy.

The inherent challenge in fraud management and ID verification is that no company can succeed, long term, by building a better mousetrap. Fraud changes too fast and has too many different attack vectors for any one solution, no matter how clever, to dominate the market for long.

The real money is in providing the platform that facilitates fraud management and KYC decisions, often through integrations to various point solutions. Companies in this space that are raising money likely have their eyes set on building out comprehensive fraud management and KYC decision facilitation platforms.  

2.The Payroll Land Rush

What happened?

Competition in the payroll API space ratcheted up with the introduction of Plaid’s first payroll data-powered products for income verification and direct deposit switching.

Moving beyond APIs for accessing payroll data, a number of new startups are now competing directly with legacy payroll providers like ADP and Paychex. Wrapbook focuses specifically on solving the unique payroll and accounting challenges in entertainment industry. Puzzl and Check, by contrast, have built payroll-as-a-service APIs that can be embedded in other software platforms, allowing those companies to differentiate their platforms with bespoke payroll functionality tuned to their customers.

So what?

Payroll systems (and the data they contain) sit a level above the bank infrastructure that fintech companies have already begun to unbundle. As such, there is a lot of value waiting to be unlocked by digitizing the payroll process and making it accessible via APIs.

That process began with payroll API providers unlocking read/write access to the data held in legacy payroll systems, which is enabling use cases like payroll-attached lending, direct deposit switching, and income verification.

By moving even further up the stack and competing directly with legacy payroll system providers, companies like Wrapbook, Puzzl, and Check will unlock even more innovative, vertical-specific use cases in which embedded accounting functionality and embedded financial services functionality can be combined in creative new ways.

3.Bank vs. Fintech Reaches an Inflection Point

What happened?

Established fintech companies are taking a number of steps to establish a more mature presence in the financial industry — from forming new industry groups like the American Fintech Council and the Financial Technology Association to applying and/or acquiring bank charters — a marked difference from the early days in which regulation and lobbying were seen more as distractions from fintech companies’ core businesses rather than strategic imperatives.

Meanwhile, financial industry incumbents are finding themselves increasingly playing defense — from Visa facing regulatory scrutiny over debit card routing (on the heels of the Plaid acquisition antitrust lawsuit) to executives at JPMorgan Chase and Santander complaining about the unfair competitive advantages enjoyed by fintech — a marked difference from the early days in which incumbents’ attitudes towards fintech startups would be more accurately described as dismissive.

So what?

In terms of scale, valuation, and (most importantly) influence with customers, the largest fintech companies — Chime, Square, SoFi, Plaid — are now on a level playing field with financial industry incumbents.

These fintech companies are increasingly shifting their resources to overcoming the remaining competitive moats enjoyed by banks, namely bank charters and influence with industry regulators.

After decades spent behind these moats, financial industry incumbents are reacting to this new competitive environment by arguing that the playing field has suddenly become tilted against them. The question for incumbents is where will they focus their time and resources moving forward? Complaining to regulators? Or building products and experiences that can compete with fintech companies?

4.Neobanks for Underserved Communities

What happened?

Fintech companies building digital banks for specific, underserved communities are raising money, establishing strategic partnerships, and building awareness in the market.

• Mastercard partnered with Deserve and Seneca Women to launch a card that rewards users for shopping at women-owned businesses.

• Cheese raised $3.6 million to build a digital bank for the Asian American community.

• Greenwood, the neobank for communities of color, raised a $40 million Series A.

• First Boulevard, a neobank for Black Americans, raised $5 million in seed funding.

• Plaid announced its inaugural fintech incubator class, which includes Guidefi (connecting communities of color to vetted, culturally attuned financial advisors) and OfColor (Enterprise financial wellness platform for employees of color).

So what?

Community banks have historically defined their communities in geographic terms, which is a natural byproduct of a branch-based distribution channel. However, with the mass adoption of digital channels, banks can now be built to serve communities based on affinity and identity. This is especially important when you consider that many communities (LGBT+, African American, Asian American, etc.) have traditionally been underserved by mainstream financial institutions.

Companies utilizing this new digital community banking model can produce higher levels of profitability and customer engagement by delivering products that are tailor-made to address the unique financial challenges of their customers. They are also demonstrating a willingness and ability to drive large-scale economic value back to their communities by, for example, rewarding customers for shopping at community-owned businesses.

5.Merchants Ready to Ride the Fintech Wave

What happened?

Merchant interest in and engagement with the fintech industry is continuing to accelerate.

BNPL is red hot, with Klarna raising $1 billion for a $31 billion valuation, BNPL firm Zip partnering with BigCommerce, and Swedish fintech Zaver raises $5 million to bring cardless payments and BNPL to the 'durables' sector.

More significantly, Walmart expanded on the earlier announcement that it was creating its own fintech startup by hiring two Goldman Sachs executives (Omer Ismail and David Stark), who played critical roles in the development of Goldman Sachs’ consumer bank, to run it.

So what?

Merchants have no interest in becoming banks or competing with banks. They have, however, repeatedly dabbled in financial services and fintech, with the goal of lowering their costs, improving conversion rates, and creating deeper and stickier relationships with their customers.

More often than not, these fintech experiments have failed and been shut down. Sometimes in spectacular and embarrassing fashion.

This does not mean that merchants’ investments in fintech are always doomed to fail. The maturation of fintech, particularly fintech infrastructure and embedded fintech, has made it much easier and more cost effective for non-banks to develop and launch financial products and services. Banks that underestimate Walmart’s fintech ambitions or the rise of BNPL do so at their peril. 

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/