OK, a mailbag! Let’s dive in!
If we experience an economic downturn due to tariffs and other policy changes from the Trump Administration, what could we expect that to look like? What impacts to consumers and fintech might we see?
Even with the 90-day pause on reciprocal tariffs, there is still a very decent chance that the broader economic uncertainty unleashed by the President will push the economy into a recession. Kalshi currently puts the odds at more than 60%.
Were that to happen, here are some possible impacts:
- Consumer and business credit quality would worsen, and lenders would tighten their credit boxes to control risk. There is a general sentiment in the lending community that consumers and businesses are not doing as well as delinquency data (or broader economic data) would suggest. If that’s true, a macroeconomic shock could potentially impact borrowers’ ability and willingness to pay far more than we might ordinarily expect.
- The Fed might not be able to help. Depending on the circumstances of a recession and where employment and inflation are, the Fed might not be willing to lower interest rates (or lower them as much as they otherwise would) in response. That would be very bad.
- Investors would pull back further. This one is obvious, but the effects on fintech would be significant. Funding from private credit firms and other investors would become less available and more expensive, which would adversely impact all non-bank lenders. Public market investors would be less enthusiastic about fintech companies going public, which would make it even harder for late-stage fintech companies to go public. I think we would also see a reduction in VC investment in earlier-stage fintech companies, though the effects here would be less severe.
What’s up with Chime?
I wrote about them in some depth recently.
The TL;DR is that they are caught between a rock and a hard place. They’ve been preparing to go public for a while and have made some big investments to increase their appeal to public market investors. However, with the current economic uncertainty, I can’t imagine they’ll file an S-1 anytime soon.
Do they hunker down and wait for more favorable conditions? How long can they afford to do that? Do they raise another round at a lower valuation?
I don’t know!
I’m curious about the adoption curve for biometric payments. Consumers are a big part of this, but also merchants, networks, processors, and terminal providers. JPMC recently unveiled a facial recognition terminal and there are others which leverage palm scanning….. all of which is to ask, what do you think the adoption timeline is for biometric payments?
This is a great question.
I’ll be honest, I don’t really understand why JPMC, Ingenico, NCR, and others are investing in hardware for merchants that are capable of biometric authentication. Consumers already carry around little biometric authentication machines in their pockets, and those machines are compatible with the POS hardware used by 85% of retailers in the U.S.
Obviously, consumer use of mobile wallets like Apple Pay still has a long way to go (consumer behavior takes a long time to change!), but the problem is not merchants’ inability to accept biometrically-authenticated payments.
BTW, watch out for payment cards with built-in biometric authentication getting into the mix here. There have been some interesting advances in this space.
Last year, Apple announced that any third-party wallet can now build on Apple’s Near Field Communication (NFC) and Secure Element (SE) architecture. What might happen with mobile commerce wallets + other types of ‘keys’ that might be added to mobile phones? Who’s most well-positioned to benefit from this?
A couple of thoughts here.
I would have to imagine that at least a couple of the bigger, payments-focused banks and fintech companies will take a stab at trying to integrate NFC-powered in-store payments into their apps. PayPal has already said that they are planning to do so. Others will follow.
I also think that we will see larger merchants that offer closed-loop payments alternatives (or that have ambitions to offer such capabilities) leverage Apple’s open NFC & SE architecture to strengthen their offerings. It seems like a no-brainer for Target Circle, for example.
Finally, to your point about other types of “keys”, I am cautiously optimistic that this will move the ball forward (very incrementally) on digital identity. Apple has been pursuing its own proprietary digital identity initiative for a while now, which was always a bit of a “my way or the highway” type proposition for the states. Theoretically, this change reduces Apple’s leverage in trying to own digital identity and lets others compete on a more level playing field.
When will mainstream loan collateral be on the blockchain?
Depends on how you define “mainstream loan collateral,” but I would argue that we already are seeing this happen at scale.
Figure is probably the most interesting fintech company that no one talks about. It has originated over $12 billion in home equity loans for roughly 150,000 households. Figure is the largest non-bank provider of HELOCs in the U.S., and the entire lifecycle of each of its loans, from origination to servicing and securitization, is recorded on Figure’s Provenance blockchain.
That feels like it qualifies as mainstream!
What would it take to build interoperability in ‘real time payments’ across banks, FedNow, and other proprietary rails? What are the factors that enable a UPI-like mobile-first payment experience to take off in the US, and what holds it back? Is it really true that Americans only love their credit cards, or is there something shifting in consumer behavior already (Zelle adoption, higher share of RTP vs. non-RTP ACHs)?
It would take A LOT.
The reality in the U.S. (unlike in India) is that we have a very large, fragmented financial services market, and there’s no centralized entity that has the authority to force banks, fintech companies, and merchants to play nicely with each other. As bizarre as it may seem, the Federal Reserve is not allowed to require banks to adopt FedNow. They have to compete with The Clearing House and Early Warning and the card networks, and those groups have no interest in making their proprietary networks more interoperable.
I do think there is a strong possibility that bank-to-bank payment solutions will eat into credit card and debit card volumes (I wrote about this last month), but there’s just no way that we end up with something in the U.S. that is comparable to UPI or Pix.
How concerned should we be, and what’s the risk to individuals and companies of the government seizing their bank accounts?
Looking at how the Trump Administration is going after Citibank and the accounts there belonging to Habitat for Humanity and others that received funds as part of the Inflation Reduction Act for fraud. Does this constitute an abuse of the government’s role in the financial system?
I’m glad this question was asked because this is an important news story that hasn’t been getting enough attention.
To quickly summarize, the Trump Administration has been quietly freezing bank accounts and clawing money back from entities like Habitat for Humanity, United Way, and New York City because it is mad that those entities received funding from the federal government (during the Biden Administration) for initiatives that it disapproves of.
In the Habitat for Humanity case referenced above, this was accomplished by having the FBI pressure Citibank to freeze accounts. In a different case (documented by Nathan Tankus), it was accomplished through the Bureau of the Fiscal Service, which is an obscure but very important government agency under the Treasury Department.
This is deeply concerning. Our banking and payments systems should not be weaponized against anybody.
(Sidenote — you would think that everyone who has been up in arms about Operation Chokepoint 2.0 and about the broader issues of politically-motivated debanking would be just as enraged by these Trump-era stories of debanking, but, strangely, I haven’t heard much from them!)
And it doesn’t look like the Trump Administration is planning to stop its debanking efforts anytime soon. Here’s a disturbing new story from the New York Times:
The administration is taking drastic steps to pressure some of those immigrants and others who had legal status to “self-deport” by effectively canceling the Social Security numbers they had lawfully obtained, according to documents reviewed by The New York Times and interviews with six people familiar with the plans.
The effort hinges on a surprising new tactic: repurposing Social Security’s “death master file,” which for years has been used to track dead people who should no longer receive benefits, to include the names of living people who the government believes should be treated as if they are dead.
The Commerce Department sells a version of the list to banks, credit bureaus and other financial institutions that want to avoid operating accounts for scammers using stolen Social Security numbers.
Those who have been put on the list mistakenly while still alive have reported calamitous effects, such as having their homes foreclosed and bank accounts canceled.
Do consumer relationships with banks falter as they spend more time digitally? Where’s loyalty when consumers (or their agents) just shop for the best yield?
This would be one of the things I would worry about the most if I worked at a community bank or credit union. The internet leveled the competitive playing field for all financial institutions. Open banking and agentic AI are going to make it much easier for customers to traverse that playing field, meaning that account switching is very likely to increase by a significant margin.
How do you build loyalty in this environment? How do you convince a customer to stick with you rather than moving to a competitor to shave a few basis points off their loan’s interest rate?
I wrote about this problem in more detail here, and I will likely be writing about ti more in upcoming newsletters. It’s existentially important.
OK, that’s it for fintech. Let’s wrap up with a few fun, non-fintech questions. (Feel free to skip if professional basketball and historical TV dramas aren’t topics that interest you!)
Are you ever going to update your fintech company/NBA player comps?
Well, Zach Lowe just got a new job, so never say never!
But I think my next silly fintech/basketball crossover piece will be fintech company/WNBA player comps. Which company is the best comp for Napheesa Collier? How about Arike Ogunbowale? Is there any fintech company that is as popular and important to the industry as Caitlin Clark is to the WNBA?
What are your thoughts on the NBA playoffs?
Very quickly:
- I feel good about my beloved Boston Celtics making it back to the finals, assuming Jaylen Brown’s knee holds up. Cleveland is very good, but I think we can beat them.
- OKC scares the hell out of me. They have the look this year. I don’t think much will rattle them (except perhaps another run-in with Luka).
- The West is a bloodbath, but I am most confident in OKC, the Lakers (I still can’t believe the Luka trade), Golden State, and (weirdly) the Clippers.
Explain the Denver Nuggets situation from the perspective of a cartographer …
Weird request! But OK!
They have Nikola Jokić, who is, in my opinion, the best basketball player in the world. So that’s good. He’s like the central plateau, a stable, fertile expanse around which the team’s entire ecosystem thrives
But, of course, that ecosystem was recently thrown into chaos with the abrupt firing of head coach Michael Malone and GM Calvin Booth with just three games left in the regular season. This was, for the Nuggets, the equivalent of a massive earthquake.
The question is how much damage has been done to the central plateau? Is Jokić still going to be happy playing in Denver? Does he have confidence in the owners? Would he ever, in a million years, ask to be traded?
A 1923 Lightning Round
My wife and I have watched a season and a half of 1923, the Yellowstone prequel starring Harrison Ford and Helen Mirren, and we are obsessed with it.
For this newsletter, my wife dared me to write about the show, and so even though I didn’t receive any questions from y’all about it, I’m going to pretend like I did!
Q: Is that actually Bozeman?
A: No! Those in-town scenes are filmed in Butte, which is about an hour away from Bozeman. Interestingly, in 1923, Butte was a much larger and grander city than Bozeman, due to the wealth generated by its copper mines. And yet Butte is never mentioned in the show, which is weird!
Q: Speaking of mines, what’s up with the evil mining guy?
A: Well, he is cartoonishly evil, what with the mistreatment of prostitutes and the proactive paying of other men’s property taxes. But Taylor Sheridan is straining my credulity by suggesting that the evil mining magnate will end up founding Big Sky Resort. Come on.
Q: Who is your favorite character?
A: For my wife, it’s a three-way tie between Carra Dutton (she likes Helen Mirren’s fashion sense), Alexandra Dutton (Bozeman!! I will meet you in Bozeman, Montana!), and Spencer Dutton (whom I am starting to dislike due to my wife’s comments about his appearance). For me, it’s Jacob Dutton. I’m a Harrison Ford guy.
