Fintech Fire Alarms: December, 2021

BNPL breaks into browsers, the ongoing evolution of P2P payments, and more.

Happy New Year!

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:

Alex Johnson @AlexH_Johnson

Rocket’s core business is originating mortgages online. This is a good and very profitable business … as long as lots of people are buying homes and/or refinancing mortgages. But of course the mortgage market is cyclical so that’s not always true.



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.

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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.

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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/

1. Research on this question is coming soon. Stay tuned.

2. The CFPB studied banks’ reliance on overdraft fee income in a recent research note, which is worth reading.

3. Most neobanks and fintech companies that offer cash advance or overdraft protection products either charge a subscription fee or ask for tips. Tipping in fintech is complete horseshit, but that’s a rant for another newsletter.

4. Bank overdraft protection tends to have higher limits than what is offered by neobanks and it works across more payment types (debit cards, ACH, Check, ATM, etc.)

5. On Juno is an interesting company to watch on this front.