A Perch of Birds by Hector Giacomelli.


#1: Cash App Adds Savings 

What happened?

New Cash App feature dropped:

Block Inc.’s Cash App unit says it is attempting to make it easier for consumers to salt away money with the introduction of Cash App Savings. The new feature allows Cash App users to deposit savings into a separate account within the app, build additional savings by rounding up their purchases when using their Cash App cards, and set savings goals.

So what?

Two ways to look at this:

  1. This is a weird way to add savings to your product suite. As Jason Mikula covered in great detail in his newsletter, Cash App’s savings feature is unusual. It’s not a distinct savings account but rather a stored balance within the core Cash App account. This means that it isn’t FDIC insured (unless the user also has the Cash Card), and it doesn’t offer any yield (competitive savings accounts rates today are in the 3-4% range). There’s no real obvious advantage to designing the product this way, which makes the drawbacks all the more glaring.
  2. The design of this feature meets the needs of Cash App’s customers. The feature allows users to set savings goals and save automatically if they also have the Cash Card (via roundups on purchases). Cash App’s customers tend to skew young and lower income. These consumers don’t care about yield. They need help building good savings habits. This feature will help them do that.

I come down more on the side of #2. Earning yield on excess cash is only valuable if you have excess cash sitting around. Most Cash App customers probably don’t. The growth of fintech apps like Acorns and Digit demonstrates the utility of easy-to-use, automated savings tools for younger, lower-income consumers. Cash App’s new savings feature is following this path, and that makes sense.

My one qualm is the lack of FDIC insurance. That’s a big miss. The number one job of any deposit account is to ensure that the money that is in the account today is there tomorrow.    

#2: A Win for the Hinge Model

What happened?

Treasury Prime banked a $40M Series C:

The banking-as-a-service startup has worked to build relationships with both banks and fintechs. And Dean believes Treasury Prime’s ability “to keep both sides happy” has contributed to its ability to grow its revenue by nearly 400% and accounts by more than 450% since it raised a $20 million Series B in May of 2021.

Unlike many fast-growing fintech startups, Treasury Prime has paced itself when it comes to raising venture capital — today announcing a $40 million Series C funding round led by new investor BAM Elevate. Banc Funds and Invicta also participated in the financing, along with existing backers Deciens, QED and SaaStr. While he declined to reveal valuation, Dean confirmed that the fundraise was “an up round.”

So what?

A while back, I wrote that banking-as-a-service (BaaS) platforms generally use one of two different models – the AWS model and the Hinge model.

The AWS model is all about abstracting away the complexity associated with launching and managing financial products. Companies building on these platforms don’t know or care who their partner bank is, and they never want to deal with compliance problems. They just want it to work, and they are willing to pay for the convenience.

The Hinge model is the opposite. It’s all about matchmaking. Companies building on these platforms want to know who their partner bank is. They want to manage that relationship directly and deal with all potential compliance issues themselves. And as such, they tend to be a bit more discerning in terms of both bank partner quality and pricing.

This Series C raise (and the growth numbers shared in the TechCrunch article) suggests that Treasury Prime’s bet on the Hinge model is paying off. Two things I’m curious about:

  1. Will Treasury Prime’s fintech customers figure out how to make money? According to the TechCrunch article, Treasury Prime is planning to add lending products to its product suite. This will be critical for its fintech partners, many of whom (I’m guessing) have been operating with debit interchange-centric business models. How successful will this expansion into lending be, especially in an uncertain economic environment?
  2. What are regulators going to do about BaaS? A number of BaaS banks have gotten into regulatory hot water due to their fintech partnerships in the last 18 months, and I’d have to imagine that regulators (the OCC, especially) are thinking about a broader strategy for BaaS. This strategy could be good for Treasury Prime (the company doesn’t attempt to abstract fintech customers away from their bank partners, which I’m guessing regulators prefer). Or it could be bad if regulators decide to try for a more ambitious solution, like creating an easier/less expensive option for direct supervision of non-bank financial services providers. I’d bet on the former, but this is an interesting risk area for everyone in BaaSland.      

#3: But I reeeally want it.

What happened?

A UK startup that offers short-term leases for personal electronics raised some money:

With the economy teetering on recession, and sales of mobile phones and other consumer electronics slowing down globally, a U.K. startup called Raylo that’s leaning into both of those themes has picked up £110 million ($136 million) to grow its business, offering consumers access to new gadgets by way of short-term leases.

The London-based company currently operates in the U.K. selling monthly subscriptions for phones, tablets and laptops, and it plans to use the funding both to expand that list to a wider range of gadgets like e-bikes, as well as to continue investing in its tech, which includes an AI-based platform to assess risk for each sale, recommendation tech and a platform called “Raylo Pay” that is embedded by third-party merchants for Raylo to power leasing services for them.

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So what?

OK, a few thoughts:

  • First, they violated the Mikula Rule – when announcing new funding, you must always disclose what percentage of the money is debt financing and how much of it is equity. Raylo raised $136 million. Most of it is debt, but they wouldn’t tell TechCrunch how much and how much is equity. [Mean Game of Thrones nun voice] Shame!
  • The tagline on the homepage of their website is “Get the tech you reeeally want.” This is worrisome. This will create negative selection – it will appeal to consumers who reeeally want an expensive thing that they know they can’t really afford. Lending to these types of consumers doesn’t generally lead to good things. Even in BNPL (which the founder of Raylo compares his service to), you try to lure in consumers with convenience, not “hey, here’s how to buy that thing you definitely can’t afford.”
  • Speaking of BNPL, how does Raylo make money, and how does it want to make money? It works directly with consumers today, but it indicated in the TechCrunch article that it is planning to grow through partnerships with third parties, where its leasing option is embedded as a payment option. Will it be able to convince these partners to pay it an MDR the way that BNPL providers have? Will it be able to deliver the same conversion boost that BNPL delivers? 
  • Raylo is like the bizarro version of a different fintech company I’m obsessed with – Twig. Twig is attempting to help consumers consume less by making it easier for them to sell their unwanted items immediately for cash. Raylo is also trying to power the ‘circular economy,’ but it’s doing that by helping consumers who can’t really afford to buy stuff rent the stuff instead. Twig is also a UK company. Why is fintech + the circular economy such a big theme in the UK?


#1: Alarm bells, arrogance and the crisis at Wells Fargo (by Kevin Wack, American Banker)

An 11,000-word investigative report and inside look at the cross-selling scandal at Wells Fargo?

Hell yes.

This is tremendous reporting on the most important story in financial services since the Great Recession. Kevin needs to win some awards for this one. Outstanding work.  

#2: What’s Going on in Banking? (Ron Shevlin, Cornerstone Advisors)  

Ron’s landmark report takes on a new form – a punchy 15-20 minute podcast featuring interviews with an interesting selection of guests covering the stuff that’s … well … going on in banking.

The first two episodes, featuring Rob Blackwell and Scott Harkey, respectively, were both excellent. Add this to your podcast show rotation.


What are the best books on the history of banking (or some aspect of it) that you’ve read (or been meaning to read)?

I’m in the mood to brush up on my financial services history and would appreciate your recommendations. Bonus points if the book isn’t a tortuously boring read.

Alex Johnson
Alex Johnson
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