Fintech Fire Alarms: September, 2021
Building products for renters and landlords, super app obsessions, and more.
Another busy month in fintech is now in the books!
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:
Banks’ slow adaptations to fintech are a bad portent.
Crypto and investing companies are trying to capture direct deposits.
Fintech companies’ obsession with super apps is, perhaps, a mistake.
Renters and landlords are the perfect targets for fintech innovation.
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/
