Hi y’all, Cokie here.
This week I planned to write about whether a core banking system is a differentiator or not, but got sidetracked by Coinbase’s apolitical statement, the first presidential debate, and Trump’s COVID-19 diagnosis.
America is divided. But I think we can help.
Bank the unbanked. Figures point to around 25% of Americans not having a bank account because they can’t afford to be charged fees for being poor. Not to mention, there’s a whole host of others that are using banks but getting charged absurd fees for not meeting minimum balance requirements and accidentally overdrafting on accounts. THIS DOESN’T NEED TO BE THE CASE! With the right infrastructure, this population can not only be banked, but profitable to the bank. By having clean infrastructure and being able to do more online rather than at a branch, banks can lower the cost to serve from the frequently reported $400 per customer number, making it cheaper than ever to serve them. When it’s cheaper to serve your customer, even formerly undesirable customers can be profitable customers.
Fees are the least innovative revenue source. Speaking of overdrafts. Chase Bank charges their customers $32 every single time they go into their overdraft. $32. That is a systemically enforced tax in the poor. A single parent using their last $10 to buy diapers at $11 will get charged $32 plus the cost of the diapers for the privilege. In 2015, banks earned a whopping $32.6 BILLION from fees, according to Deposit Accounts by lendingtree, averaging about $107 per customer. But we all know those fees weren’t equally distributed. As a percentage of bank income, fees actually constitute a very modest 3% of total revenue. 78% of those fees were charged by the big boys. Bank smaller and bank smarter. Or wait for the revolution in customizable banking (go read last week's edition of FTT).
Bank Black. With the ride of fintech partnerships at community banks, many banks are currently building up their APIs to house new fintechs. Pay attention to where your money is going and bank Black. If you’re a founder, choose to partner with a Black-owned bank. Make unraveling the wealth gap part of your mission. As the activist generation, Gen Z pays attention to where their products are made, their environmental impacts, the use of labor in developing and manufacturing. They’re hyper-vigilant with endless access to research resources. Use your money with intention. Shop for your bank like you’d shop for anything else.
Hire diversely. We’ve all worked in companies with too many bros, that much is true. By hiring diversely, we’re going to be better businesses. How can you serve a customer you’ve never met? Hiring diversely is a great start, but don’t stop there. Make sure your company has an unbiased complaints forum, so minority grievances can be heard and acted upon, without that person feeling completely disenfranchised. This can include an *actively anti-racist* policy in your handbook. Put the work in to make your company a safe place to all. Your business will improve, your products will be more innovative, and you can fully thank me later.
Register to vote. Well, duh.
A sadboi playlist brought to you by existential dread, rain, and the blanket I’ve been telling my colleagues is a shawl. Collaborative for group therapy.
As you guys may have already known, LendIt took place this week. In FTT+ this week, Julie is going to dive into one of the panels she watched featuring FDIC Chairwoman Jelena McWilliams. In her fireside chat, she had a statement worth digging into when it comes to the future of banking. “Relying on legacy systems and relying on technology that they have been implementing for such a long time — when their customer is three generations ahead in terms of the use of technology — is going to result in those banks losing customers.” The good news for fintech is that the Chairwoman seems to be a fan after years of regulatory sensitivity and caution around the space. She went on to say that “It is in the interest of the FDIC that we promote technological solutions and create a pathway for banks to team up with fintechs...when in the past, frankly, fintech was almost a dirty word in the regulatory sphere.”
The News by Parker Jay-Pachirat & Cokie Hasiotis
On Sunday, Brian Armstrong released a memo clarifying Coinbase’s stance on broader societal issues. In the memo, Armstrong emphasizes that because Coinbase is a mission-driven company, its employees should be “laser-focused” on achieving their mission: creating an open financial system for the world. Armstrong outlines Coinbase’s culture and the actionable steps Coinbase takes to further their mission, including "focusing minimally on causes not directly related to the mission.” Causes not directly related to the mission include policy decisions, non-profit work, “broader societal issues,” and political causes. Armstrong asserts that while companies' engagement in societal issues is well-intentioned, political engagement in the workplace invites distraction and internal division. He situates his opinions in a broader context by referencing recent internal strife at Google and Facebook. Then he concludes the memo by summarizing Coinbase's new internal communications guidelines and recognizing that while the blog post may be controversial, he aims to take a step in “[doing] a better job of being authentic about who we are” in publishing it. The post stirred up a lot of hot and cold takes. Since the time of posting, Armstrong has offered an exit package for employees not comfortable with its mission.
What’s crazy to me here is that cryptocurrency and Blockchain technology have the power to expand financial access to everyone with a smartphone without a trust-based system, meaning humans aren’t made to live and die by a credit score. Just by virtue of being a crypto exchange, Coinbase’s very existence is an endorsement for financial access -- i.e., a societal issue. Also, this was perhaps the worst thing to say at the worst possible time.
Frank Chaparro is a lot smarter than me on this one, so I defer to him:
On Tuesday, Congress explored the idea of providing bank charters to fintechs. The FSC (Financial Services Committee) observed that COVID-19 has driven significant changes in consumer behavior- especially surrounding banking practices. The memo notes that Americans haven’t been able to use bank branches, physical currency, and receive government money, resulting in the growing adoption of fintech. This adoption blurs the line between fintechs and traditional banks, especially regarding the distinction between their regulatory and legal frameworks. In turn, this calls for a re-examining of the legal and regulatory scope for fintechs- potentially granting fintech bank charters.
Goldman reshuffles its consumer banking leadership team in response to fallout from the pandemic. This Tuesday, Goldman announced Omer Ismail as the new chief of consumer banking. Ismail is replacing Harit Talwar, former US cards boss at Discover, and employee #1 of Goldman’s consumer bank Marcus. After Ismail steps into his role, Talwar will remain a member of Goldman’s partnership, and become chairman of the consumer division. More context for the change: the consumer and wealth management division accounts for only 10% of Goldman’s revenue this past quarter, a situation many lending banks have faced these past few months.
Fintech startup Step launched by announcing their partnership with Charli D’Amelio this past Wednesday. Step is another family-oriented fintech stepping into light these past few weeks, designed to provide a teen their first credit card and “improve the financial future of the next generation.” In June Step raised a $22.5 million Series A led by Stripe. As far as we know, the extent of Step’s partnership with Charli entails her sharing her favorite Step features and how she uses the app to manage money. Similar to Kard, Vybe, and other competitors covered in last week’s newsletter, Step markets itself to not just teens, but their parents, giving parents access and control over the card.
Business payroll startup Gusto expands from payroll into a financial wellness suite. On Wednesday, Gusto announced a couple of new features, including Gusto Wallet, an app that acts as a mini bank and “financial health monitor” for employees. Part of this app enables users to preserve a percentage of each paycheck for savings. Cash stored in the app earns 0.34% interest employees can spend with a Gusto debit card. Gusto Wallet also offers “Cashout,” a feature that can accelerate an employee’s payday based on their payment history. For employees, these additional features are essentially free, making the app even more attractive for both employees and employers.
Fundraising news
European digital investment platform Bitpanda closed a $52m Series A. Valar Ventures led the round, backed by Peter Thiel. The 300-employee, Vienna-based company will use this round to expand internationally, entering additional markets after its expansion into France, Spain, and Turkey this past year.
PayCargo raised a $35m Series A from Insight Partners. In April, Insight Partners announced a $9.5b fund to support portfolio companies during the pandemic and to capitalize on new opportunities born out of it. Founded in 2008, PayCargo has built a B2B online payment platform for the freight and cargo industries- making shipping, one of the most technologically neglected segments of commerce, faster and more efficient.
SME lending platform Capify closed a $10m equity round, also announcing continued support from Goldman Sachs Merchant Banking Division. Capify is now actively seeking to partner with companies and offered to assist their industry peers who don’t have access to capital during this time by providing capital to its customer base.
Indonesian fintech BukuWarung announced its most recent raise from investors like DST Global, Soma Capital, and 20VC. Though the amount was undisclosed, a close source revealed the number to be between $10 and $15m. The raise comes a month after BukuWarung’s participation in YC's most recent batch. Co-founders Chinmay Chauhan and Abhinay Peddisetty launched the BukuWarung app last year to replace pen and paper ledgers for the 60 million micro-merchants in Indonesia, including neighborhood store owner. In August, BukuWarung introduced digital payments into its platform and is planning to introduce additional features like credit, savings, and insurance.
