Fintech ?? Food - 4th Oct 2020

Whether it's Credit Karma launching a debit card or the payroll company Gusto doing accounts, it seems the best way to win at fintech is to solve financial health (which Dave Birch covers this wonderfully in his Forbes piece this week). It feels like it's better to solve the customer problem FIRST then sell financial products in that context. Not the other way around.

Fintech is about much more than an excellent digital experience  Customers are buying better financial health, which fundamentally challenges the banking business model.  

Banks have woken up a little and realized (at least in their marketing) that they need to stand for a cleaner environment, tolerance, and leave society better than they find it. As mentioned last week, when Natwest (RBS) is launching a carbon tracker for your spend the times, they are a changin'.

Banks found a new way of marketing but haven't solved the deeper problem. The NYT this week reported that despite billions in fees, banks predict meager profits on PPP loans. Even with government assistance, it's hard to be a bank running the 20th-century business model, with all-time low-interest rates and net interest margins.  

BUT, banks still have one incredible asset. The ability to manage risk across a diversified balance sheet.  That, ultra-complex netting and risk management stuff is perhaps their last, great, unchallenged superpower. At scale, complex risk management is probably the killer opportunity for them to solve for their big tech clients, and a way to find a win/win with the fintechs. I'm obsessed with the idea of a balance sheet as a service.

Can banks become more "intel inside"? Do they want to?

So the trends for me this week are

1. Financial Health > Financial Services

2. Fintech APIs for everything

3. Multiplayer fintech

4. Gen Z banking

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4 Fintech's ??

1. Kaoshi Network - If Plaid had a multi-country router API

• Kaoshi for migrant workers who want to go beyond remittances and solves for more financial services use cases. It manages remittances but also adds in other financial services via open banking services in different countries. 
• A migrant could purchase health insurance for their family by connecting their identity (say, now in the USA) with a bank back home (say in Nigeria). Kaoshi builds "KYC profiles" for these users that can then work with multiple FS providers.  

2. Rightfoot  - Student Debt repayment as an API

• Rightfoot could be used by *insert your favorite fintech here* or almost any business to instantly add debt repayment plans into their app or service. So imagine payroll providers, 401k providers, neobanks, and more.
• Student debt is a massive (and ever-growing) problem. 44 Million American's hold $1.6trn in debt. This debt is delaying people getting married, buying homes, all against the backdrop of a global economic crisis fuelled by a pandemic.  Putting debt repayment on top of mind is critical for anyone solving financial health.  

3. Mono - Plaid for Africa (API)

• Banks in Africa have pretty awful public APIs (if they have them), and many of the existing API providers are slow or rely on screen scraping.  Mono sells itself on lower upfront fees and high performing APIs. Ideal for entrepreneurs and builders in a market where early-stage funding is often much lower than the USA.
• Like competitor Okra, they're starting in Nigeria as a phenomenal and growing home market, but Africa is enormous, so there is no guarantee of regional success. If you're interested in the market dynamics here's an episode of Fintech Insider we did with entrepreneurs and builders from the region I enjoyed ??. 

4. Weavr - Composable payments for Verticalised SaaS (API)

• On the surface, Weavr looks like many BaaS providers, who offer pre-paid, debit, and virtual cards. But when you poke around in the documentation, things get a lot more interesting.  They have the concept of "Payment Models" designed for specific payment action types (e.g., consumer payments, business purchasing).  
• Payment models abstract a lot of complexity to allow developers to focus on building their marketplace (e.g., a car park marketplace, or education marketplace). SaaS businesses would pick up the various payment models and combine them for their industry. Companies still get the flexibility to build and embed finance, but within guardrails, Neat.

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Things to know ????

1. Google Pay Updated for Singapore (Finextra)

• Google has added several local payment acceptance types, bill splitting, group payments, scratch cards, and more.
• ?? My Analysis: South East Asia is a battleground for big tech and super apps. Singapore is an overbanked and unique market, with 2.3 accounts per person. The incumbent banks are incredibly innovative, cashback is the norm, with cards ranging between 5% and 10% cashback depending on the fee structure. Local super apps like Grab and Gojek are battling Ali and Tencent and the western giants. As a result, there are SO many payment types in Singapore.  
• ?? My Analysis: Instead of trying to be another wallet, Google has focused on being super lightweight, which is super interesting. It's feature-rich, deeply market-specific, but able to be lightweight.  The "getting out of the way" design approach could be fundamental for them to win in markets with a glut of super apps and wallets.

2. Ant launches its trade finance blockchain platform (Finextra)

• Its new platform is called "Trusple," a contraction of "trust made simple." (I guess portmanteau are in)  Buyers and sellers can upload trading orders to the platform, which automatically generates a smart contract with logistics information. The banks of both buyers and sellers can then process payments using Antchain.
• ?? My Analysis: Trust that something will get delivered or that you will get paid is a significant problem. In China, counterfeit goods and fraud are still substantial issues (which, if you've ever bought anything on Wish, you might be familiar with). By outsourcing the release of funds to a cryptographically-driven-workflow technology, the chances of fraud are counterfeit decrease.  
• ?? My Analysis: Antchain is the auditor and the workflow tool that extends beyond the Ali ecosystem. Think about that for a second.  Whether Ali is involved or not in the sale, you get the same guarantee of being paid or receiving goods. They built marketplace-as-a-service.
• Isn't it interesting how corporate blockchain's get crapped on in the west, but China sees real value?

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Good reads ??

1. Multiplayer fintech - Braid Blog

• Killer quotes here: "finance and fintech have remained stubbornly single-player. We still call it personal finance". "If the primary tool of one's financial life is the checking account, what's missing right now is a layer of collaborative tools that live on top of our primary accounts." "Fintech has a lot to learn from products like Figma and Dropbox."
• ?? My Analysis:  The layer above banking is solving deeper problems, without an underlying financial product attached, and feels like a natural next step for fintech. Solve a big enough problem, and you can justify a SaaS pricing model.  
• ?? My Analysis:  Embedded finance will change the game when the business model of consumer fintech changes. We don't need more lifestyle brands built on card rails. We need products that solve customer contexts.  Contexts like parenting, being a landlord, group savings. (And if you want to look a little way out, the real opportunity is for those then to be built as APIs, and big tech to aggregate them, e.g., Rightfoot)

2. API Led fintech - Blog by Aneesha Raghunathan

• This blog is a playbook for how to build API first fintech businesses. Quotes in here from Aneesha like "To understand the behavior of non-fintech customers adopting the APIs who are introducing financial services, look for proof points around their gross churn decreasing as financial products attach rate increases."

• ?? My Analysis: The fintech API space is crowded, well funded, and it's hard to tell who the winners and losers will be. I believe that the near term future of finance is more like schools of fish specialists APIs.  Fintech APIs may get re-aggregated by platforms like Plaid someday, but there's value in doing one thing well, especially when some finance areas are complicated.

3. Gen Z and Millenial fintech - a16z Podcast

• "Millenials had the one-two punch of 2008, and now 2020," for nearly their whole life, banks have been the bad guys. The podcast talks through the journey of how first millenial fintech was about lending, but increasingly it's evolved around the real problems.  
• ??My analysis: We're seeing Neo banks evolve around being fairer digital banks with a brand (e.g., Current, Step) and credit score building (Chime, CredAI). But there are so many complex problems above providing a checking or deposit account. I wonder if for entrepreneurs starting a company today, is it better to try and compete with Chime, knowing that megabanks are still so large. Or would it be better to move a layer up?

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Tweets of the week ??

I'm gonna be honest, that Starling bank tweet got me. Turns out it's about a pledge to plant trees (Branching out. Get it? ??)

That's all for now, what are your big trends for the week?