P2P BNPL
Happy Monday, Fintech Takers!
I trust that y’all had a wonderful and relaxing weekend.
I am excited to be home for a few weeks before I head out to New York at the end of the month for New York Fintech Week.
If you’re in New York (or will be there for Fintech Week) and want to grab a coffee or a bite to eat (or if you want to shoot some hoops), hit reply to this email and let me know. I’ve got some free time on my calendar!
- Alex
A New View of the Moon: Earth sets over the Moon’s limb, Artemis II.
3 FINTECH NEWS STORIES
#1: P2P BNPLCopy anchor linkCopied
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Block introduced a new feature:
Cash App announced today a first-of-its-kind feature that allows customers to convert peer-to-peer (P2P) money transfers into installment plans, becoming the first major U.S. finance app to bring pay-over-time flexibility to everyday money movement.
The new feature allows eligible Cash App customers to convert recent P2P payments into short-term installment plans, instantly receiving the payment amount back into their balance for a transparent upfront fee. Customers can then repay the amount in weekly installments.
So what?Copy anchor linkCopied
Well, Block gets points for originality. I haven’t seen this before.
The feature will be available for payments of $25 or more that were made within the last 30 days. The exact amount of the fee and the structure and length of the term have not been disclosed, but I imagine that both will vary based on the context of the specific transaction.
It’s fun to imagine all the weird edge cases, like splitting up your payment to your drug dealer. Or, even better, having your drug dealer buy your fee down to zero because he really wants to make the sale.
However, on a more serious note, I think the motivation for Block is fairly straightforward. Cash App is now an open-loop payments network (as I wrote about here). Cash App users can now send money to and request money from anyone, without requiring their counterparty to be a Cash App user (or to sign up to be one to complete the transaction). This makes Cash App closer, in some ways, to a debit card, and debit cards (including the Cash App debit card) now come with built-in, post-transaction pay-later functionality. It’s becoming a table-stakes feature for debit cards (at least among neobanks), and Block clearly believes that it can and should become one for P2P transactions as well. If you use P2P payments to pay your rent or pay for a vacation, you should be able to split those payments.
The most interesting part to me is the underwriting. Obviously, Block has a proprietary credit score (the Cash App Score) that it is quite proud of. That score takes in Cash App P2P payments data as an input, so logically, it would make sense to use the score to underwrite loans for recent Cash App P2P payments transactions as well.
I’d be keen to understand exactly how that works. Does Block take who you paid into consideration when underwriting you for a P2P BNPL loan? Does it take into consideration why you paid them (Cash App requires users to add a note for what each payment is for)? Are there certain types of P2P payments transactions that Block views as more or less likely for users to pay back? And how does a user’s history of taking out P2P BNPL and paying (or not paying) them back impact their Cash App Score?
Inquiring minds need to know!
#2: Robinhood’s TreasuryCopy anchor linkCopied
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The Treasury Department announced that it is working with The Bank of New York Mellon and Robinhood on Trump accounts:
The U.S. Department of the Treasury today announced that it has designated The Bank of New York Mellon Corporation as a financial agent of the U.S. government to support implementation of the new Trump Accounts program. Under this designation, BNY will manage the initial accounts and help develop the new Trump Accounts app — a secure, user-friendly platform that will enable families to easily access and manage their accounts.
As part of this process, BNY has partnered with Robinhood, which will serve as brokerage and initial trustee for Trump Accounts. Together, these partners will support Treasury’s goal of ensuring every eligible child can access a Trump Account quickly and easily.
The Trump Accounts app is being developed as a custom, white-label product designed exclusively for Treasury. The National Design Studio, in conjunction with Robinhood, is creating an intuitive user interface and user experience that allows families to explore their Trump Accounts with confidence and ease. Treasury will retain control over the app and operations for these initial accounts.
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We knew this was coming.
All the big banks and brokerages wanted in on Trump accounts. Robinhood, in particular, really seemed to be campaigning for a role in the program. It’s worth trying to understand why that is.
Trump accounts are low-cost, tax-deferred investment accounts for any U.S. citizen under the age of 18. Those born between Jan. 1, 2025, and Dec. 31, 2028, will have $1,000 seeded in their accounts by the U.S. government, with additional funds for certain eligible children added by philanthropists and their parents’ employers. Additionally, parents or other adults can add as much as $5,000 a year to a child’s account. When the child turns 18, the account converts to a traditional IRA in their name, subject to taxes and penalties on withdrawals until retirement age.
As of March 31, taxpayers had signed up more than 4 million children for Trump accounts, and more than 1 million were eligible for the Treasury’s $1,000 pilot program contribution, according to the IRS.
Interestingly, the program will initially be made accessible through a Treasury Department-branded mobile app, which, if I’m any judge of the current administration’s aesthetic preferences, will likely have President Trump’s face plastered all over it.
It is that app that Robinhood is helping to build.
Treasury contracted with BNY to manage the overall program and act as its financial agent. BNY has subcontracted Robinhood to develop the mobile app (in partnership with the National Design Studio), act as the brokerage and trustee for the accounts, and provide customer support.
Now, on the surface, that seems fine. It’s a U.S. Treasury App. Robinhood’s brand won’t appear anywhere in it, and the accounts themselves will be fee-free and invested in extremely low-risk index funds.
Indeed, when Ron Shevlin wrote a piece about this news over at Forbes, criticizing the massive customer acquisition opportunity that the U.S. Government had just handed to BNY and Robinhood, the Treasury Department reached out to Forbes, calling the piece “wildly inaccurate” and successfully getting it taken down. After a call with a Treasury spokesperson, Ron agreed that his original piece missed the mark by not emphasizing that it will be a Treasury-controlled app with no front-facing role for Robinhood.
That’s fine, and I respect Ron, as always, for being willing to change his mind, but … I’m still not convinced.
Robinhood isn’t an infrastructure provider. It’s not in the business of letting other providers white-label its market-leading UX and product expertise. Unless the fees it is being paid by Treasury (through BNY) are ridiculously high (this is possible … no details on the economics of the arrangement or Treasury’s bidding process have been released), it doesn’t make sense for the company to divert its resources in this way.
The logical assumption is that, despite Treasury’s assertions to the contrary, this deal will eventually lead to a massive new customer acquisition opportunity for Robinhood. In fact, Robinhood CEO Vlad Tenev confirmed this to CNBC, saying, “This puts Robinhood in front of the next generation … this is literally going to be the first investment account for millions of people.”
That makes a lot more sense. And, as someone who believes that Robinhood is actively working to increase feelings of financial nihilism among young consumers, it scares the hell out of me.
#3: The Never-Ending Stablecoin Yield FightCopy anchor linkCopied
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The White House Council of Economic Advisors weighed in on the fight that the bank and crypto lobbies have been waging since what feels like the beginning of time:
The Council of Economic Advisers (CEA) released a 20-page report on Tuesday titled “Effects of Stablecoin Yield Prohibition on Bank Lending,” which directly models the deposit-shift and lending-capacity chain that banking groups have cited as a reason to close the third-party rewards loophole still being negotiated in the CLARITY Act.
At baseline calibration, the CEA finds that prohibiting yield on stablecoins would increase total U.S. bank lending by only $2.1 billion — or 0.02% of the overall loan market — while producing a net welfare cost of $800 million, with a cost-benefit ratio of 6.6. In other words, a blanket prohibition on stablecoin yield would cost more by denying yield to consumers than reducing the ability to receive loans from banks.
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I just … I want this to be over.
Please, let this be over.
I can’t take the disingenuous arguments coming in from all sides.
I can’t watch Brian Armstrong keep trying to reframe fractional reserve banking as a conspiracy against hardworking Americans. I can’t listen to Brian Moynihan say, seemingly seriously, that yield-bearing payment stablecoins could put more than $6 trillion in bank deposits at risk.
If you want to dig into the details of the data-driven arguments on each side of the debate, here is the White House report, and here is the academic paper that it is attempting to refute.
I’ve read them. I’ve also listened to far too many hours of experts debating this topic. No one knows what the impact of yield-bearing payment stablecoins would be on bank deposits. However, I think I’ve developed a fairly good intuition for what would be most likely to happen, and, crucially, I don’t have a dog in this hunt, so you can trust that I’m not biased (I’m just tired).
Yield-bearing payment stablecoins would, if they were permitted (directly or indirectly), have very little impact, overall, on bank deposits.
Why do I think this?
Well, to start with, yield-bearing payment stablecoins already exist! Coinbase offers rewards for holding USDC. PayPal offers rewards for holding PYUSD. Neither of these offerings has, from what I can tell, led to a significant outflow of deposits from the U.S. banking system.
More broadly, there are already TONS of high-yield savings options in the market. They are offered by banks and credit unions. They are offered by fintech companies and non-finance brands leveraging embedded finance. They are offered by money market funds.
These options are compelling to different customer segments. They have caused some displacement of deposits within the U.S. banking system, just as stablecoins will (regardless of whether they offer yield or not).
But on a large scale? Banks still control most of the money that is stored and moved around by people and companies.
I think there are two reasons for this.
First, most consumers and businesses are not especially price-sensitive. Interest rates are important, but they are far from the only factor that determines where customers keep their money (both their operating accounts and their savings/treasury accounts). The value proposition offered by banks, beyond yield, appears to be compelling enough for them to be able to hang onto most customer deposits, even in the face of increasing competition. I don’t understand why yield-bearing payment stablecoins would fundamentally alter this dynamic.
Second, to the extent that customers are price sensitive (and some are … some deposits are hot!), banks are still in the best position to win. Banks and stablecoin issuers have the same business model. They store money for some customers, loan out money to some customers, and make money on the difference in the rates they pay and are paid. The difference is who they lend to. GENIUS-regulated payment stablecoin issuers lend money to the U.S. Government. Banks loan money (mostly) to consumers and businesses. Banks’ lending businesses are much riskier (that’s why we have regulatory supervision and FDIC insurance), but they are also far more lucrative. Over time, banks will be able to afford to offer more yield, as needed, compared to stablecoin issuers, because banks are more profitable.
This fight needs to end. Banks need to worry less about Coinbase and more about DeFi (which is a much more insidious source of yield for stablecoin holders).
2 READING RECOMMENDATIONS
#1: More teens are getting hooked on gambling. Parents say it often goes undetected (by Sequoia Carrillo, NPR) 📚Copy anchor linkCopied
Great reporting on a huge problem.
I am seriously considering just not letting my kids access the internet, ever.
#2: Experian Expands “No Ding Decline” Feature to Personal Loans (by Carlos Caro, The Free Toaster) 📚Copy anchor linkCopied
Lots of good stuff in this edition of The Free Toaster, including Experian’s newest consumer innovation, info on FICO’s price hikes, Cash App’s P2P BNPL offering, and a lot more.
*Bonus: 5 Takeaways from Top Execs on Treasury Management (by Kiah, with Qolo) 📚Copy anchor linkCopied
Two-thirds of executives surveyed said they expect to lose mid-market and enterprise clients if they don't modernize treasury in the next 24-36 months. Here's what the data says, and what to do about it.
*This rec is brought to you by one of our fantastic brand partners.
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— Alex
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