3 FINTECH NEWS STORIES
#1: There’s no money in payments. There’s money in commerce enablement.
What happened?
Twitter is getting closer to fulfilling Elon Musk’s original X.com dream:
X (formerly Twitter) appears to be making progress on its upcoming payments system, bringing it closer to Elon Musk’s vision of turning X into an “everything app.”
According to a recent finding by app researcher Nima Owji, the company is working on adding a “Payments” button to the navigation bar under the bookmarks tab. Owji, who made the discovery yesterday, told TechCrunch that he found references for new payment features, such as “transactions, balance, and transfer.”
So what?
We know that Elon Musk has, since the very early days of his career, believed that financial services would be easy to disrupt (listen to this podcast, if you want to learn the fascinating backstory of X.com). It appears that he is on the precipice of being able to test that hypothesis again. According to TechCrunch, Twitter’s financial services subsidiary now has money transmitter licenses in 33 states.
The timing of this news for Twitter is interesting, as TechCrunch notes:
With X facing challenges in monetizing through advertising, the payment service is the company’s attempt at an alternative source of revenue. On Tuesday, the company just filed an antitrust lawsuit against advertising groups over an advertiser boycott that resulted in significant financial losses for X.
Here’s the thing, though — payments, by itself, is not a lucrative business.
As PayPal, Block, and Early Warning Services have all discovered, payments is only an attractive business if it facilitates commerce. That’s why PayPal has the PayPal Button. And why Block is leaning into Cash App Pay. And why EWS is launching Paze.
Person-to-person payments is an easy service to drive user adoption of, but person-to-business payments is where the money is.
I can’t imagine that suing large companies for not advertising on your platform is going to set Twitter’s payment service up for a profitable future, but I guess we’ll see.
#2: But seriously, what’s Google doing with Google Wallet?
What happened?
New functionality is rolling out in Google Wallet:
Digital passes are helpful, but they don’t apply to everything. But, with some help from AI, Google Wallet can now turn virtually any document into a digital pass.
Within the Google Wallet app, you can access this new function by tapping the “Add to Wallet” button and scrolling down to “Everything else.” From there, Wallet will open a camera viewfinder where it can automatically detect compatible information (like a barcode) and import it into the app. The picture is analyzed using AI to detect the document type. You’ll be asked to verify the information and also given the opportunity to edit it as needed.
So what?
I stopped understanding what Google was doing with Google Wallet/Google Pay/Google Wallet a long time ago, so I guess I’m not surprised that I don’t understand this feature, but … I really don’t understand this feature.
The value of storing a credential in a digital wallet is the attestation of the trusted issuer of that credential. If you don’t have that, if you don’t have, I don’t know, Sam’s Club saying, “Yes, that is indeed Alex Johnson’s Sam’s Club membership card, and here is how much Sam’s Cash he has”, then it’s not very useful. It can’t function fully as a digital pass if the if the issuer of the physical version isn’t verifying and standing behind it.
Now, sure, maybe you have less official documents that you might want to have photos of on your phone in case you forget the physical copies. And I suppose being able to store, label, and access those photos directly in your phone’s digital wallet makes some sense. Maybe?
But Google is positioning this feature to work for things like driver’s licenses, which is just weird because Google says on its own website that Google Wallet only officially supports driver’s licenses and state IDs from four states (Arizona, Colorado, Georgia, and Maryland).
There’s a big difference between snapping a photo and provisioning a trusted credential, and just throwing in the term “AI” doesn’t change that.
(Also, FWIW, Google’s explanation of how it classifies different types of user-scanned passes and protects sensitive information would make me nervous, if I were a Google Wallet user.)
#3: CBDCs, Or, A Vision in a Dream: A Fragment
What happened?
The Bank of England and the Bank for International Settlements have developed a neat prototype:
Last year, the BIS Innovation Hub in London and the BofE embarked on Project Pyxtrial to explore how technology can help regulators monitor asset-backed stablecoins’ balance sheets, providing insight into whether the backing assets exceed their liabilities at all times.
The partners now say they have developed a prototype data analytics pipeline which includes data collection, storage and analysis. This can provide supervisors with near real time data about stablecoins’ liabilities and their backing assets.
Adopting Pyxtrial can support supervisors in receiving more frequent and fully automated reports, boosting the efficiency and responsiveness of the monitoring process, says the BIS.
The system is designed so that its technical components – the APIs, integration layer, data model, data storage solution and dashboard – are modular, reusable and can be repurposed. As such, it could be used to monitor other tokenised products that are backed by real-world assets.
So what?
Central banks experimenting with digital currencies reminds me of a dream I had …
The U.S. Federal Reserve, recognizing the obvious value and competitive necessity, created a CBDC. This digitization of the U.S. dollar enabled federal bank regulators to gain an immeasurably more detailed and nuanced understanding of the movement of money in the U.S. economy, improving the implementation of fiscal policy, the effectiveness of anti-money laundering controls, and the supervision of banks (including their use of those annoying brokered deposits). And as a pleasant side effect, it gave end customers a detailed, real-time view into where all of their deposits were at all times …
Unfortunately, a person on business from Porlock knocked on my door as I was writing down the details of this dream. They reminded me that the privacy-obsessed citizens of the U.S. freaked out when the Fed launched FedNow, mistakenly thinking that it had something to do with CBDCs.
And by the time I had gotten rid of my unwelcome visitor, I had forgotten the rest of the dream.
Ohh well. Back to asset-backed stablecoins, I guess!
2 FINTECH CONTENT RECOMMENDATIONS
#1: What is going on at Square? (by Jevgenijs Kazanins, Popular Fintech) 📚
Another great one from Jev, expanding on a point I made (briefly) in a recent newsletter — things at Square are not going well.
Growth is decelerating (while competitors’ growth rates are accelerating) and Jack Dorsey’s return to lead Square may be introducing more disruption than market observers (including me) originally anticipated.
#2: How to fix Federal Home Loan Banks (by Aaron Klein, Kathryn Judge, and Alan Cui, Brookings) 📚
Did you know that the Federal Home Loan Banks (FHLBs) are a group of 11 government-sponsored banks that essentially compete with the Federal Reserve to provide liquidity to other banks?
Did you know that the FHLBs are exempt from paying federal, state, and local income taxes and have a “super lien” status, which gives them priority over other creditors (such as the FDIC) when a bank they lend to fails?
Did you know that in 2022, FHLB presidents made on average more than four times Federal Reserve Regional Bank President salaries while managing roughly six times fewer employees?
Did you know that over the past 10 years, the FHLBs have spent $29 million on registered lobbyists?
No? It’s OK. I didn’t either until I read this article.
America’s banking system is so fucking weird.
1 QUESTION TO PONDER
If you were going to design a framework, from scratch, to assess the characteristics (and risks) of bank deposits, what would it look like? What would be the most important factors to consider?
