Cliffs at Étretat (1870–1880) by Samuel Colman.

3 Fintech News Stories

#1: For Whom the Chime Tolls 

What happened?

Chime reportedly tried to buy DailyPay, a provider of earned wage access, a couple of times earlier this year:

Chime offered to buy earned wage access startup DailyPay twice this year, first for $1.6 billion and then for $2 billion, and was rejected twice … The neobank’s first offer, which it put forth in May, comprised $300 million in cash, $1.2 billion in stock and $100 million in restricted stock units, the outlet reported. A second offer, which Chime presented in June, entailed $700 million in cash, $1.2 billion in stock and $100 million in restricted stock units. DailyPay declined both offers after its board decided the bids undervalued the company

So what?

This is surprising to me, from both sides.

From DailyPay’s perspective, I have a hard time understanding the decision to turn down that second offer. $700 million in cash in this environment sounds pretty great, even if you aren’t bullish on the future value of Chime’s stock. DailyPay last raised a $175 million Series D from Carrick Capital Partners in May of 2021, so maybe its Board is still riding high on becoming a paper unicorn and really does think these offers aren’t fair value? IDK. Being a non-bank lender in this rate environment would scare the shit out of me, but sure, fine.

I also don’t get this from Chime’s perspective. DailyPay has something like 500,000 active users and distribution partnerships with companies like Kroger and Dollar Tree, but I don’t think customer acquisition is Chime’s biggest problem. Chime’s biggest problem is figuring out how it can slowly migrate up market – helping its current customers better manage their finances and grow their wealth while stealing similar ‘on-the-way-up consumers’ from other banks and fintech companies – and then monetizing those customers through new products like personal loans and credit cards. How does acquiring DailyPay help with any of that?   

#2: Fintech For (gasp!) non-Founders

What happened?

A new fintech company, focused on retirement accounts for solopreneurs, creators, and freelancers, publicly launched last week:

Ocho is charging a flat $199 annual fee to help individuals start their retirement account. It takes about 10 minutes to set up, and 48 hours to get final confirmation.

The big challenge for the startup is getting the right solopreneurs to care about their retirement accounts. It looks for people who have income-generating businesses, but don’t have any full-time employees. If you have a side gig alongside your full-time job, you can create a 401(k) just for the side hustle, but can’t put full-time income into the retirement account. 

So what?

This quote from Ankur Nagpal, founder of Ocho, feels like it was written just for me:

There’s so many companies targeting startup founders and their wealth — there’s literally a new one launching every month or two all backed by big-name VCs, but no one is focused on the business owner that is otherwise doing well but is not a startup founder or a startup employee.

Yes! Thank you! Say it louder for everyone in the back of the room!

Now, to be fair, Ocho has a steep hill to climb. Getting people to invest in retirement accounts is an incredibly difficult challenge, and I’m guessing that challenge will be magnified when dealing with freelancers and creators who already have very little excess cognitive capacity.

Also, this is a bit weird:

To power that ambitious product spree, Ocho has raised $2.5 million from Nagpal’s own venture firm, Vibe Capital. The entrepreneur says that he raised the $60 million debut fund for Vibe Capital with the idea that he would incubate a startup or two out of the firm, which materialized today now that it owns 20% of Ocho.

Nagpal admitted that the idea of a founder using his own venture firm to seed his own startup may appear to be the “mother of all conflicts of interest” but reasoned that it was everything but. He emailed all LPs in his fund about the investment, got a unanimous yes, and ended up raising at a much lower price for the startup than if they had gone out into the fair market. 

But I guess if his LPs are cool with it, then whatever.

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#3: Indirectly Competitive

What happened?

Well, you know, yeah, I guess this was inevitable:

Reports this week that Goldman Sachs was gearing up to lay off 400 employees may have underestimated the breadth of the coming cuts. By a factor of 10.

Managers across the bank have been asked to identify low performers for a cull that could cut loose as many as 4,000 employees — or up to 8% of its staff

Along with underperformers, those at greatest risk of reduction are in Goldman’s much-maligned consumer-banking unit, Marcus. The consumer bank is being split, Goldman announced in an October restructuring, and the platform will stop offering personal loans, Bloomberg and the Financial Times reported this week. Many of the 400 cuts reported earlier centered around Marcus.

So what?

When Marcus first launched in 2016, it was one of the few successful digital bank spin-offs. Greenhouse by Wells Fargo failed. So did Finn by JPMorgan Chase. Marcus was the exception, as I wrote about myself a while back:

Goldman Sachs and JPMorgan Chase were both unwilling to cannibalize their existing revenue streams with their new digital initiatives. The difference is that Goldman knew that going in and picked a complementary market to go after with Marcus first. Chase tried to split the difference with Finn by targeting the retail banking market, but not allowing anyone living in close proximity to a Chase branch to open an account.  

My analysis at the time was that Marcus could succeed where Finn and Greenhouse failed because Goldman Sachs wasn’t a retail bank, and thus Marcus wouldn’t be competitive with Goldman’s existing business.

I was wrong.

A bunch of things contributed to Marcus’ failures, but one that I underestimated was the sheer degree of difficulty new initiatives have surviving inside of successful established companies. Yes, Marcus wasn’t directly competitive with the rest of Goldman Sachs. But it was indirectly competitive. It competed with the rest of Goldman Sachs for resources. It competed for attention from the C-suite. And it competed for the right to have a few bad quarters and stay alive.

That indirect competition couldn’t last forever.

2 Fintech Content Recommendations

#1: Customer Segmentation (by Francisco Javier Arceo, Chaos Engineering)

Francisco just passed 1,000 subscribers to his newsletter, so it’s officially no longer a niche fintech content resource (according to the arbitrary rules I just made up). All self-respecting fintech nerds should be subscribed to it.

This post on customer segmentation is a great example of why. It tackles an important topic in an approachable yet insightful way, and (bonus!) it comes with sample code for the tinkerers out there.

#2: Orchestration is everywhere (by Michael Jenkins, Fintech Across the Pond)

Another fintech substack you may not be familiar with, but absolutely should be reading!

Michael is sharp on all things fintech, and I thought this post (and the one that preceded it) was especially insightful. The basic idea is that orchestration – the process of applying business rules and automated workflows on top of data – is the evolutionary endpoint for most fintech infrastructure providers.
I couldn’t agree more. I noticed this in the fraud and ID verification space (which I talk about in this podcast). Most companies start out by building a better mousetrap (a data source, analytic model, ID scanning tech, etc), and then when their mousetrap starts to age out, they inevitably pivot to providing orchestration as a way to broaden their appeal and make their platform (they always start describing themselves as a platform business) stickier.

1 Question to Ponder

What is one resolution you have for fintech in 2023? 

I don’t want to hear your prediction for what will happen next year. I want to hear your conviction for what should happen in fintech in 2023. What’s your one wish for our industry?

I would very much appreciate your thoughts on this as I will be writing about this in a few weeks. Hit me up on Twitter or LinkedIn! 

Alex Johnson
Alex Johnson
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