3 FINTECH NEWS STORIES
#1: Nice Free Checking You Have There …
What happened?
JPMorgan Chase issued a high-profile warning about the impact that coming regulatory restrictions will have on consumers:
Marianne Lake runs Chase Bank, the sprawling franchise inside JPMorgan Chase that is the country’s biggest bank for consumers and one of its biggest credit-card issuers. Lake is warning that new rules that would cap overdraft and late fees will make everyday banking significantly more expensive for all Americans.
Lake said Chase is planning to pass on the costs of higher regulation and charge customers for a number of now-free services, including checking accounts and wealth-management tools, if the rules become law in their current form. She expects her peers in the industry will follow suit.
“The changes will be broad, sweeping and significant,” Lake said. “The people who will be most impacted are the ones who can least afford to be, and access to credit will be harder to get.”
So what?
So many thoughts on this:
- Marianne Lake is considered to be one of the two most likely candidates to succeed Jamie Dimon when he retires. I wonder if this is one of the tests for that succession? Go on the record with the Wall Street Journal and threaten to take free checking away from poor consumers if regulators don’t back off.
- It’s pretty rich of JPMorgan Chase to threaten to end free checking when the bank is, by far, the biggest beneficiary of sticky, low-cost deposits in the U.S. Those deposits are the fuel for a massively profitable business. Also, Chase is finding plenty of novel ways to further monetize these accounts. It’s not like the bank has been banking low-income consumers out of the goodness of its heart.
- This Wall Street Journal article is badly written. It lumps a bunch of different regulatory restrictions – overdraft fee and credit card late fee caps, a lower debit interchange rate, tougher capital reserve requirements, and a prohibition against charging customers for sharing their data – together, without explaining that those restrictions are coming from different regulatory agencies for different reasons or clearly differentiating how each of those changes would actually impact JPMC’s bottom line. It also references the Durbin Amendment and big banks’ aborted plan to charge a fee for debit cards without getting into all of the unintended consequences that the Durbin Amendment actually did have (including banks’ more aggressive overdraft strategies).
- Another unintended consequence of the Durbin Amendment? Fintech! This is the main reason I doubt that JPMC or other big banks will start charging fees for checking or credit score monitoring. If they did, fintech companies (of all sizes) would pick their pockets. Chime is hoping beyond hope that Chase adds a mandatory fee for its basic checking account products. Intuit and Experian are hoping the same thing on the credit score monitoring side. Regulators shouldn’t worry about big banks’ threats. They don’t have the same juice they used to have.
- I think it’s also worth considering that regulators may want the big banks to follow through with their threats, in some cases. Take credit cards as an example. JPMC is warning regulators that if the $8 cap on credit card late fees is implemented, it will raise interest rates and approve fewer consumers for credit cards. The CFPB, which is the regulatory agency attempting to implement the late fee cap, might welcome that. Fewer consumers using credit cards and higher interest rates that encourage consumers to either revolve less or use alternatives like BNPL might sound pretty good to Director Chopra!
#2: Pay for Stuff with Your Stuff
What happened?
A circular economy app is pivoting to become a payments service (I promise I will make that sentence make sense … just stick with me):
Tiptop … first launched in 2023 as an app. It connected to users’ Gmail accounts and scoured their inboxes for receipts of the things they purchased online so it could estimate trade-in prices for reselling those things later. It also then offered access to a select marketplace of products in which it used that price data to offer trade-in discounts on other stuff.
That app isn’t going away, but now Tiptop has morphed into a much more fluid service that you might see showing up as a payment option within e-commerce checkout experiences across the web. You’ll be able to click on Tiptop’s logo right next to PayPal, Apple Pay, and the other familiar payment systems. In addition to buy now, pay later options like those offered by Klarna or Affirm, Tiptop will also offer a trade-in service, letting you offload a product that’s been sitting around your house for a while in order to help pay for something new. Lehmann says they’ll take just about anything that is TV-sized or below, from electronic devices to home goods.
So what?
I’ve written about the circular economy a few times in the newsletter over the years (start with this essay, if you’re curious).
The basic idea is that consumers (particularly Gen Z) increasingly value long-term ownership and the creative reuse of assets rather than simply throwing stuff away. Digital marketplaces facilitate this reuse, making it easy for consumers to discover the value of their possessions and to liquidate those possessions efficiently.
Tiptop is one of the natural endstates for the circular economy. Here’s how it works:
Once you’re ready to complete a purchase on a shop’s checkout page, click the option to checkout with Tiptop. You will then be prompted to select the device you want to trade in via a dropdown menu that asks for the brand, model, and condition of the thing you’re getting rid of. Tiptop shows you a dollar amount denoting how much the trade-in will take off the price of the sale. If you agree with the math, you complete the transaction. You can choose to pay for the new purchase in full and then receive a partial refund in the amount of the trade-in value after Tiptop has received the shipment of the device you’re trading in. Or you can choose to pay for the new item in installments, in which case the trade-in discount is applied instantly. After the transaction, Tiptop provides you with a prepaid shipping label and asks you to mail your unwanted device back within a few days. (You’ll need to provide your own box.) After Tiptop receives your trade-in, it will resell the item and keep whatever profit it makes.
In addition to making money on the resale of the trade-in item, Tiptop charges the merchant a fee (between 5% and 12%, depending on the value of the item). Tiptop is already integrated as a payment option within Shopify and is, according to the Wired article, getting some initial traction with merchants.
I have three thoughts on this:
- 5% – 12% feels a bit steep given that there’s probably not much evidence (yet) that Tiptop drives significant incremental sales activity for merchants (which is the main reason that merchants pay more for certain payment methods like pay-in-4 BNPL), especially when you consider that Tiptop is also making money on the trade-in.
- I’d be curious to see how often circular economy providers like Tiptop lose out on the value of the trade-in. How often are their resale pricing algorithms wrong? And how often do they get bit by first-party fraud? Obviously, if consumers opt to get a rebate after the item is received, Tiptop can protect its downside. However, if consumers opt for the installment payment option and get the credit for the trade-in applied upfront, they are taking some risk (this is likely why the merchant fee is higher in some cases).
- The consumer experience feels a bit too inconvenient. Part of that is inherent to the model (you gotta ship your item to Tiptop), but even the upfront experience (selecting items from a drop-down list) seems kinda clunky. I wonder what impact that friction has on conversion rates and if there’s something Tiptop can do (like bringing in the Gmail receipt scanning functionality from the app) to ameliorate it.
#3: Plaid’s Non-Fintech Ambitions
What happened?
Mary Ann Azevedo at TechCrunch wrote about Plaid’s enterprise growth ambitions:
In its early days, the fintech giant mostly sold to other fintechs. Then more banks and financial institutions got into the mix. Today, its customer base also includes large companies in general looking to embed solutions into their offerings, including a mix of established fintechs and incumbents, such as Venmo, SoFi, Chime, Rocket Money, H&R Block, Western Union, Affirm, Citi and Shopify.
That expansion into being a multi-product company has led to Plaid starting to see real traction beyond traditional fintech customers. In fact, the company says that enterprise and traditional financial institutions growth is starting to outpace the rest of its business.
So what?
I used the word “ambition” above because while I think Plaid does have a genuine desire to sell to large companies outside of fintech, and Plaid’s expanding product stack (which I’ve written a lot about) will appeal to a wide swath of companies across industries, I didn’t see anything in the TechCrunch article that convinced me that Plaid has fully cracked the code (yet) on selling to enterprise companies outside of fintech.
In fact, the way that many of the examples in the TC article were framed suggests to me that Plaid is still in the top of the first inning when it comes to growth in the enterprise segment.
Here’s one example:
product lines such as identity, payments and credit are growing “five times faster” than its core account connectivity products, according to the company.
Well, yeah. A large part of the market already uses Plaid for account connectivity. There’s not much room to grow there. Of course the growth rate for the new product lines is faster! That doesn’t really tell us much.
I can’t blame Plaid for pitching this story this way. You gotta lay the groundwork for that IPO.
However, if I were a public markets investor, I would want to see a lot more evidence of the company’s traction outside of fintech (particularly among banks) before I bought into this narrative.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Global Fintech 2024: Prudence, Profits, and Growth (by QED Investors & BCG) 📚
This is one of my favorite new-ish content things – a joint report from the smart people at BCG and QED on the global fintech industry.
This report is the second in what I hope becomes an annual tradition, and it is chock-full of great data and insights. And it’s free! Go download it!
#2: Fast Crimes at Lambda School (by Benjamin Sandofsky) 📚
This is the definitive story on Lambda School, which the author describes as Uber if Uber had also been incompetent.
A very comprehensive overview of a company that everyone in fintech (and tech more broadly) should learn from.
1 QUESTION TO PONDER
What are the benefits of the U.S. dual banking system?
Please don’t cite the U.S. Constitution or use vague phrases like “boots on the ground” in your answer. Be specific!
