April 10th: Goldman Sachs’s Marcus Quietly Rolls Out Marcus Pay — Q&A With BetterBank CEO

 Hi everyone, Ian here. Hope everyone’s hanging in there. I’m going...a little stir crazy here at my parent’s house outside of Princeton. I tried out a mustache for slightly under 24 hours, just to feel something (my mom made me shave it.)

Did not have time to make a playlist this week, but got great feedback from readers on...my love for Rihanna. (You can email about, like, fintech stuff too ya know.) So here’s a playlist of only Rihanna remixes...there’s a lot but it’s really good in my opinion.  

FTT+ This Week

On Tuesday, Julie and I put out a special edition of FTT+ to talk about Sofi’s acquisition of Galileo. We were able to put it out within a few minutes of the announcement because we’d been hearing rumors about it for the past week or so—there’s a lot of interesting insights we compiled around the strategy and thinking behind the acquisition. In my opinion, the key to the acquisition is around whether Galileo’s customers stick around. As we wrote:

It’s a tough catch 22 for these consumer fintech companies on Galileo; moving technical stacks in fintech is not easy at all. But there are options out there. Do you bite the bullet and move to a different infrastructure partner, or stay on Galileo and run the risk of Galileo’s parent company SoFi getting unparalleled visibility into your business? 

In a FTPartners report, the firm wrote about how one strategy to hold on to Galileo customers might revolve around selling white-labeled SoFi products to Galileo’s current customer base.

On Sunday, I’m going to be writing about how it seems like COVID-19 is going to lead to a big push around contactless payments in the US—after years of slow but steady growth, all the ingredients are coming together.

Julie’s going to be writing about how consumer behavior has changed due to COVID-19 and will take a deeper look into Chime and its initiative around helping users through the current crisis.

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The News:

Alloy, Plaid, and Mercury roll out products aimed at PPP

Another week, another blurb about how fintech companies are helping small businesses manage PPP. Plaid spoke to CNBC about their newest product: a way for lenders to easily access a startups payroll data (something that Julie wrote for FTT+ before it was public, if you’re not subscribed to FTT+, click here.) Sharing information and verifying business documents and information is one of the most tedious and annoying parts of PPP for lenders, and Plaid is making that process easier. Alloy is too—the company is helping banks and lenders verify businesses. 

Mercury, a business bank, is also helping their customers that run payroll through Mercury and will be accepting PPP applications for those customers. They’re prioritizing customers with payroll because of how important that data is to the PPP loan application process, the company said on Twitter. 

It’s encouraging to see fintech companies change around their product roadmaps to quickly adapt to the current circumstances.

We’re planning a virtual event around how companies are adjusting their product processes to solve the challenges around the COVID-19 crisis. If you’re interested, fill out our survey below. (As a thank you, 1 respondent will get a free 6 month membership to FTT+!)

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Goldman Sachs Quietly launches MarcusPay:

We came across something pretty interesting, and unreported, earlier this week. CNBC’s Hugh Son wrote a great piece on MarcusPay that came out earlier this morning.

It looks like Goldman’s getting ready to deploy newest product under the Marcus brand: MarcusPay, an installment product turns “big purchases into monthly, fixed rate loan payments,” without additional fees. 

The product seems nascent so far, the only partner listed is JetBlue Vacations, and MarcusPay isn’t live on that product based on our tests. But the initiative capitalizes on a some products that Marcus already has; Marcus has been primarily a lending platform for personal loans (and, of course a high-yield savings account as well, which is still offering 1.70% APY, unlike similar products by fintech startups). According to CB Insights, it took Marcus 8 months to loan out $1 billion in personal loans (https://www.cbinsights.com/research/report/goldman-sachs-strategy-teardown/). That’s much faster than most digital fintech startups.

The issue has been that traditionally, people don’t take out personal loans or check their savings accounts that often; although it’s possible that this might have changed now. People are known to increase the rates at which they check their accounts during economic downturns. That being said, the key for Marcus is to go “up the engagement stack” (I’m pretty sure I made that one up) by creating more engaging digital financial products that consumers will use on a more frequent basis.

The hard part here isn’t consumer adoption, it’s merchant adoption. Merchants don’t add a new payment method just because it exists.  Everything a merchant does is to drive sales, reduce fraud, and improve conversion. How will MarcusPay convince merchants that its payment method does any of those things? Maybe JetBlue Vacations is an experiment to validate hypotheses for other merchants. Marcus could attract merchants if it simplifies the technical integrations for them. Many e-commerce companies leverage companies like Stripe and Braintree, and Stripe already partners with companies like After Pay and Klarna to offer installment loans at the digital point-of-sale. Building relationships with startups might help ease merchant acquisition. 

Btw, if this product sounds familiar, it‘s because it is—this seems extremely close to Affirm’s core product around installment loans at the point-of-sale. Affirm has a significant head start towards building a merchant network around an installment product but has less brand recognition with consumers. It’s almost like the companies building installment loans with antithetical strategies; Goldman’s building a consumer brand, and then wants to acquire merchants, while Affirm has built out a merchant partnership behemoth and will be working on the consumer side, while letting merchant market the product for them. Which strategy will win? Is there room for both strategies to work? Too early to tell.

It’s important to note that MarcusPay isn’t going to be like the Apple Card, I’d find it hard to believe that we’ll see massive adoption from Day 1. It’s an uphill battle to build out both consumer awareness and merchant adoption, and manage the underwriting risk of issuing installment loans at the same time. So while people may criticize the product adoption in the short term, I urge readers to consider long-term outlook when it comes to MarcusPay.

Q&A With BetterBank CEO Kaushik Tiwari:

I’ve known about BetterBank and CEO Kaushik Tiwari for a few months now. The idea around combining banking and insurance is really innovative, especially now, when the COVID-19 pandemic has forced us to be more mindful about both our spending and our healthcare. Kaushik and I chatted via email about BetterBank, which is launching soon. If you’re interested, check out the site and sign up for the waitlist here

Tell us a little bit about BetterBank and the value proposition for users? Why should people use BetterBank over other neobanks?

We are a neobank built around vulnerabilities. Our primary hook is free emergency medical insurance linked to a checking account. 

The thesis behind betterbank is simple, folks need help when they are down. Most Americans are doing ok most of the time, except for the times they are not. We are built for those days. Our goal is to be at the core of every prudent financial plan---there is no free lunch, but banking with us is the closest you can get to one .

How did you come up with the idea to tie banking with healthcare insurance?

This has been an evolving idea in my mind since 2014, back when Peter Thiel paid me to drop out of college and build a healthcare startup. That journey took us down the rabbit hole to insurance which ultimately led to betterbank. 

The moment of insight was when my brother/co-founder Saumik got hurt in a rugby game. Even with a very good health insurance plan, he was down a few thousand dollars in debt. That helped us realize just how much of a problem medical debt is, especially in America, with increasingly high deductibles and a large uninsured population.

As young people living in times of such inequality, we derive great meaning from our mission of building a free universal safety net.

How do the economics work out here? Can you go a bit deeper into the financial side of things?

Our free safety net is funded primarily through interchange generated on user spend on our debit card.  However, a core part of our business model is to leverage the checking account relationship to upsell on other financial products (both lending & insurance)

We visualize our safety net as a set of concentric circles that expand to protect you and your loved ones as you progress through life, gather up responsibilities and face down challenges.

Can you go a bit deeper into the product? Found it interesting that certain features are only activated when you hook up your direct deposit. What’s your product philosophy revolve around?

The free safety net is activated only when users deposit their paycheck. 

Our goal is to incentivize the common good of our members. We are upfront with them that the safety net is funded through their spending. Every transaction they make on their betterbank debit card helps protect them or someone like them who happens to be down and out in life. In a biblical sense, it's about being your brothers’ keeper. 

Banking with us is a commitment, and we want you to appreciate that.

Where else do you want to take Better Bank? After helping with medical debt, what’s next?

Medical debt is sadly just the tip of the iceberg of shocks that an everyday American faces in their daily life. Our vision is to build a bank around vulnerabilities---we look to support our members and grow with them.

Tweets of the Week

Kaz is not only a payments expert who‘s a VP at Shopify, but a great product leader too (I’ve known him for awhile and he’s one of the smartest people in fintech I know.) This thread on empathy, talking to customers, and being overly dependent on user research is short but worth reading.

Founders have had to make a lot of tough decisions over the past few weeks; Maia’s point about how amazing some of them been is great. A lot of been bragging about how they aren’t taking government loans and whatnot, but the founders I speak to regularly have been super thoughtful about how they can create even more value for their users, even it means completely changing around things like their product roadmap or temporarily shifting strategy.

This is very long but very interesting thread on growth that covers a number of important topics. I particularly liked the section on LTV/CAC payback (how long it takes for the lifetime value of a user to payback the amount of money it costs to acquire that customer) and avoiding paid acquisition. I learned a lot from Erik’s thread.

I love learning about how other people got to where they are today. This thread about my friend Trista’s journey was really great.

A16Z’s Alex Rampell is great on Twitter and had some of my favorite tweetstorms about fintech. This one is around PPP and how the IRS could help.

My friend Annika created a great PPP flow chart for venture-backed startups. My unsolicited advice is that you should talk to your lawyer, but really think twice about taking PPP if you’re venture backed. PPP wasn’t designed for you.

Annika Lewis @AnnikaSays
I created a #PPP flow chart for US venture-backed businesses. Sharing in case it can be of use to others.
shorturl.at/ekmqL Feedback encouraged - I am sure there are things I'm missing here! 🙏h

Chamath had pretty amazing CNBC segment this week, but here’s a great tweet about two tech debt rounds that happened this week. Slack’s debt round vs Airbnb’s is very much the “tale of two loans” (though, I’d argue that Airbnb didn’t have much of a choice here, the alternative would be to potentially lay off a ton of people, and then when travel picks up, they’d need to both hire those positions back *and* manage a rapid rise in demand.)

Jai Sajnani from NEA has great tweetstorms around big fintech acquisitions. Here’s another one:

Funding of the Week

Sila Money is run by founder Shamir Karkal, who was the founder of digital bank Simple, which sold to BBVA in 2014. The company raised a $7.7 million seed round led by Madrona Venture Group and Oregon Venture Fund. Sila Money is a banking API infrastructure startup that’s aiming toeliminate ACH payments by leveraging the Ethereum blockchain.