3 FINTECH NEWS STORIES
#1: The Curse of Being a Credit Builder Nerd
What happened?
NerdWallet is joining Credit Karma and Experian in offering its own financial product directly to its users, and you’ll never guess which product they are starting with:
The new NerdUp is a secured credit card that is designed to help consumers build and improve their credit responsibly
NerdUp, which is offered in partnership with Bond, provides several features that aim to remove barriers for consumers who want to build credit
The secured credit card is free, requires no hard credit check, has no annual or monthly fees, and has a minimum deposit that is lower than the industry standard — $100 compared to the standard of $200 to $300
NerdUp also offers a 0% interest rate as users pay off their balance each month
In addition, users of the card earn 1% cash back on purchases, which is automatically added to their deposit account, and have access to a free credit score, tips and insights
So what?
800 years ago, a witch cursed my family. From what I understand, the gist of the curse was, “Into your family, a child will be born. That child will be cursed to analyze the features of an endless array of credit builder products and scream into the void about the risks of polluting the credit bureaus with phony repayment data.”
It sounded like gibberish to my family at the time, but when I was born, my father feared that the curse might be meant for me.
He was right. I am that child, and this is my curse.
So, here we go again:
- The 1% cashback is a nice perk, I guess. Whatever.
- The credit limit for the card is the same as the security deposit. It can be as low as $100 and as high as $10,000.
- As a charge card, payment is due in full at the end of the month. The user can pay their balance from an external bank account or out of the security deposit. If they pay it out of the security deposit, their credit limit will be reduced by the corresponding amount.
- Here’s the crucial detail on the repayment process – “If you haven’t paid your bill by the due date, payment will be made from your deposit account automatically. A $5 late fee may apply in such situations, but the automatic payment can prevent credit score damage.” In other words, we won’t allow negative data to be reported, even when a user misses their payment. Thus, all of the repayment data we are reporting is bad signal.
- NerdWallet is positioning this product as a complement to its core business – providing leads to credit card issuers. I guess the idea is that this product can be used to cultivate subprime and thin and no-file consumers into the prime consumers that NerdWallet’s advertisers are looking for. The only problem is that NerdWallet’s advertisers aren’t stupid. They’ll know that the repayment data propping up these consumers’ FICO scores isn’t legit, and they won’t trust it.
Someone, please climb to the top of a tall mountain in Eastern Europe and sacrifice a goat or something. This curse has to end.
#2: Don’t Call it BNPL!
What happened?
U.S. Bank launched a BNPL embedded point-of-sale lending solution:
Avvance is embedded into the checkout process and shows the buyer multiple personalized loan options, offering them the ability to pay over time. U.S. Bank backs the loans and doesn’t require the merchant to manage the payments after the sale is complete.
Customers can use Avvance installment loans to finance purchases between $300 to $25,000. The financing terms range from 0% to 24.99% APR with repayment plans that range from three to 60 months. When a customer uses the tool to finance a purchase, U.S. Bank offers the merchant the full payment within 48 hours. While Avvance is free for merchants to offer, U.S. Bank charges a merchant discount rate fee for each Avvance loan that it processes.
Interestingly, U.S. Bank is marketing Avvance as a point-of-sale financing tool, rather than a BNPL tool. This may be because it wants to target an older generation than BNPL typically reaches.
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So what?
In 2021, everything was BNPL, even if it clearly wasn’t. In 2023, nothing is BNPL, even if it clearly is.
I miss the good old days. Alas.
Regardless of what we call it, this seems like a good idea. I’ve long felt that bigger banks were missing an opportunity by not finding ways to bridge their consumer and business banking divisions together in ways that could create value for both sides. BNPL Point-of-sale lending is a good mechanism for doing this, and U.S. Bank, which has a massive consumer business and one of the largest merchant payment processors in the U.S. (Elavon), is ideally suited to pursue this opportunity.
I’ll be curious to see exactly which merchants they focus on signing up (the information on their website references merchant ‘invoices,’ so maybe it’ll be service businesses?) and how smooth the consumer experience is, relative to the Affirms and Greenskys of the world.
#3: We Need to Disincentivize First-Party Fraud
What happened?
YOU GUYS, IT’S ANOTHER CONSORTIUM!
Socure … introduced its first-party fraud solution, Sigma First-Party Fraud, powered by the concurrent launch of its First-Party Fraud Consortium (FPFC). The first-of-its-kind consortium is unifying companies to tackle the complicated, multi-industry issue of first-party fraud by pooling data and insights, which allow its partners to detect and prevent fraud before it takes hold.
The consortium’s founding members include many of the nation’s largest digital banks and fintechs, including SoFi, Green Dot, Varo, Ingo, Dave and Public, amongst others, totaling over 50 million active accounts across the consortium at launch. Additionally, the consortium is actively working with many of the category defining players to provide insights into account activity – both positive and elevated risk – to quickly add more than 200 million additional active accounts to the network making it the largest of its kind in the industry.
So what?
Long-time readers will know that A.) I fucking love fraud data consortiums, and B.) I despise first-party fraud, so this is a great day for me.
This quote from Johnny Ayers, founder and CEO of Socure, hits the nail on the head:
“First-party fraud can be hard to spot and even seem accidental in many cases—which has invited fraudsters to take advantage of this confusion to the tune of billions of dollars each year … With over 40% of fraudsters planning to commit first-party fraud again less than 60 days after their first fraudulent event—and generally facing zero repercussions from law enforcement—it’s no wonder we’ve seen overwhelming demand for the consortium solution like we are launching today.”
First-party fraud lives in this weird gray zone, where depending on your vantage point and incentives, it’s either immoral and a crime or not a big deal and totally justified.
One of the worst consequences of fintech’s recent growth-over-everything phase was our tolerance for first-party fraud. As long as we were hitting those sweet, sweet monthly active user numbers, we turned a blind eye toward our customers’ shitty behavior. This, of course, encouraged consumers to double and triple down on such behavior, which eventually got so bad that hotels and rental car companies stopped accepting certain neobanks’ debit cards.
As an industry, we absolutely cannot tolerate first-party fraud. And tools like the FPFC will make it easier for fintech companies interested in cracking down on this behavior to do so.
(Editor’s Note – I’m disappointed but not terribly surprised to see that neither Chime nor Cash App are founding members of the Socure consortium [or any other fintech fraud data consortium]. Chime and Cash App are the Mark McGwire and Barry Bonds of the fintech steroid era.)
2 FINTECH CONTENT RECOMMENDATIONS
#1: Against The Clock: Synapse Has Two Months To Find New Bank Partner (by Emily Mason, Forbes)
Some good additional reporting on the Synapse/Evolve mess from Emily over at Forbes.
One detail in Emily’s story, which I don’t think I’d seen before, really jumped out – Synapse holds six FBO accounts at Evolve for roughly 40 clients.
That’s just plain crazy. The best practice is to set up one FBO account per fintech client, which … wouldn’t be that much more difficult than setting up six accounts and would have likely prevented all kinds of problems that came from pooling funds from multiple clients.
What an insanely risky thing to do!
#2: Some notes on Franchising (by Jared Franklin)
Jared provides an excellent primer on the franchising industry, which is (IMHO) one of the least-heralded yet effective wealth-building tools in the world and an intriguing area for fintech innovation.
If you’re interested in learning even more about this space, check out my crossover with The Wolf of Franchises. Owooooo!
1 QUESTION TO PONDER
Which BaaS middleware platforms (if any) will survive long-term as standalone businesses? And why?
