Deceptive Tips + An Identity Crisis

What’s up, everyone – Pranjal here. In today’s edition:

• Dave gets busted over manipulative tip strategy
• Fintech infrastructure’s big identity crisis

Let’s get into it.

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My favorite finds of the week.

• CFPB orders Navy Federal Credit Union to pay $95M+ for surprise overdraft (link)
• Wallet wars (link)
• UBS pilots new blockchain-based system for cross-border payments (link)
• Fed aims to make instant payments the norm (link)
• How AI-driven CX is transforming fintech (link)

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NEWS

Dave's $149M tip jar

The backstory: Dave launched in 2017 as a feel-good alternative to predatory payday loans, promising instant access to up to $500 in advances. The pitch was simple: help people avoid overdraft fees while doing good in the world. Fast forward to 2024, and the FTC is telling a very different story.

Now... The FTC has filed a complaint against Dave for deceptive practices, revealing some truly eye-opening details:

1. Only a tiny fraction of users ever got access to the advertised $500 advances
2. "Instant" access required undisclosed Express Fees ranging from $3 to $25
3. Users were manipulated into paying 15% "tips" through dark pattern design
4. Their charitable meal donation program was essentially a psychological trick

THE TAKEAWAY

$149 million in "tips" over 18 months. That's not a gratuity - that's a business model built on guilt.

Dave didn't just stumble into psychological manipulation - they engineered it with surgical precision. Their masterstroke? Transforming the shame of high-interest lending into the virtue of charitable giving. Users who try to lower their 15% "tip" watch a cartoon child's food vanish from their plate. Peak Silicon Valley: disrupting everything about payday lending except the predatory rates.

But here's what makes this so fascinating: Dave's real innovation wasn't technological - it was psychological. Make people feel virtuous about paying high fees, and suddenly you can charge payday loan rates while commanding a tech valuation.

The crowning achievement in this masterclass of misdirection: Those "charitable" meal donations that guilt-tripped users into bigger tips sent just 10 cents on the dollar to actual food. The rest? Straight to Dave's bottom line.

For fintech founders keeping score at home: A product that only works by making users feel bad about themselves isn't financial inclusion. It's just predatory lending in a Tesla.

Bottom line: The next wave of fintech won't be built by companies that found clever new ways to extract fees. It'll be built by companies that succeed when their customers succeed. Until then, we'll keep getting payday lending dressed in Patagonia vests.

MY TAKE

The coming identity crisis in fintech infrastructure

Modern Treasury now offers payment operations. Stripe is rolling out bank accounts. Plaid handles KYC. Circle moves beyond stablecoins into payment rails. Griffin pivots from BaaS to... actually, what does Griffin do these days?

The fintech infrastructure space has become a game of product Pokemon - gotta catch 'em all. We're watching the early stages of an identity crisis that will reshape fintech infrastructure. The specialization that defined the last decade of fintech is dissolving into a messy battle for the entire stack.

Remember when each infrastructure provider did one thing exceptionally well? Stripe mastered card payments. Plaid owned account linking. Modern Treasury solved payment operations. Now each pitch deck ends with the same slide - an ever-expanding product roadmap that looks identical to their competitors'.

The pressure to expand is understandable. Core infrastructure products like payments and KYC are becoming commoditized. Venture funding demands growth. Customers want integrated solutions. But there's something more fascinating happening beneath the surface.

Infrastructure companies aren't just adding features – they're having existential crises about their very identity. A payment processor today is simultaneously trying to be a banking platform, a fraud prevention system, a treasury manager, and a compliance tool.

The results are predictably chaotic. Companies that perfected one domain are stumbling into others. Building great payment processing turns out to be very different from building great KYC. Excellence in one area doesn't guarantee competence in another.

Banks and fintechs building on these platforms face increasingly bizarre choices. Should they use Stripe's KYC because they already use Stripe's payments, even if dedicated KYC providers offer better solutions? Should they piece together best-in-class point solutions and manage the integration complexity? Or should they bet on someone's vision of a unified platform that doesn't quite exist yet?

The infrastructure companies themselves are trapped in a peculiar prisoner's dilemma. Everyone would probably be better off focusing on their core strengths, but no one can afford to be left behind in the race to own the full stack.

What makes this moment particularly fascinating is how it mirrors past technology platform wars. The cloud wars of the 2010s saw every provider rush to match each other's services. The result? AWS, Azure, and Google Cloud now offer hundreds of overlapping services of varying quality. The fintech infrastructure space is speedrunning the same pattern, just with higher stakes and stricter regulations.

The next 18 months will force some hard choices. Infrastructure providers will have to decide if they want to be AWS (everything for everyone) or Twilio (best-in-class at one thing). Banks will have to bet on either integrated platforms or best-in-class point solutions. Investors will have to figure out if the economics of full-stack infrastructure actually make sense.

My prediction? We'll see a return to specialization, but with a twist. The winners won't be pure-play point solutions or bloated do-everything platforms. They'll be companies that figure out which adjacent services actually create compound value for their core offering.

Meanwhile, somewhere in San Francisco, another infrastructure startup is adding payments to their roadmap.

Until next time,

Pranjal

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