Fintech Fire Alarms: October, 2021
Traditional banks might make it, the spend management platform wars, and more.
After debating if we’re in a fintech bubble and spending three days in Las Vegas meeting all of my fintech heroes IRL,
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:
Banks are … GMI?
The challenges of being a challenger bank.
Parent-approved boyfriend or bad boy?
What’s the right strategy for crypto investing?
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?
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.
N26 raised a $900 million Series E at a $9 billion valuation.
Neobank Revolut acquired the team of New York-based recruiting marketplace Wanted.
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/
Of all the European challenger banks, Starling tends to be the one I’m most optimistic about.