April 17th: Google Pay's Debit Card Leaks —Venmo Adds Direct Deposits—Bank & Fintech Apps See Downtime
Hey everyone! Ian here.
First things first, my friend Paige Doherty’s going to be helping me write the weekly edition of Fintech Today! Really excited; she’s incredibly bright and passionate about fintech. This way I can focus my writing a bit more on in depth pieces here, and longer form content for FTT+ subscribers that are a bit more forward looking.
This week’s been...kinda meh? I’m very much over this whole quarantine thing, and it doesn’t look like things are ending any time soon. I’ve been keeping busy with interesting side projects (yes, of course, all fintech related.) But that can only sustain me for so long. I may like take a MasterClass or something.
I’ve been listening to some chill tunes, so whipped up a playlist for this week’s issue. It’s only an hour long, and doesn’t feature any rap—a rarity for me.
FTT+ This Week:
Hi all! I’m going to be diving into the installment loan market on Sunday, talking about Affirm, Klarna, and Afterpay and how their models look in the “new normal.” Are they prepared? And what measures can help them through the crisis?
Ian will be writing a little bit about the bank outages from earlier this week (more on that later in this issue.)
We’re also going to have a special announcement about something we’re launching soon around fintech jobs and career development, too.
Santander, a bank headquartered in Madrid and the 16th largest bank in the world, just recently launched a competitor to cross-border payments platform Transferwise. Santander’s new fintech product PagoFX, launched in the U.K. on Thursday, offers cross-border payments with fees from 0.7 percent to 0.8 percent of the transaction total. These fees will be waived through the middle of June on transactions up to £3,000.
Strategically, this is an interesting move for Santander. As TechCrunch notes, the bank makes a lot by charging fees for international payments. Releasing an app in the UK that basically offers the same service for free is effectively rolling out a potential disruptor to an existing business line.
But we’ve seen this before, like Chase and its mobile banking app, Finn. Developing and releasing an app is only half the battle. It’s not like banks can’t hire smart people that have experience shipping product—Santander noted that it hired people from Amazon and PayPal. The hard part is marketing the product, acquiring customers, and getting them to use it consistently. Startups like Transferwise have had a head start, I find it hard to see Santander’s app breaking out beyond a certain demographic.
(Before anyone mentions Zelle, please note that Zelle is baked into bank apps, so they already solved a major chunk of the distribution problem.)
Josh Constine at Techcrunch broke a great story this afternoon around a new debit card product by Google’s Pay team. While Pay has mainly focused on online and P2P services, a debit card will help capture more payment volume through offline transactions.
I don’t want to summarize Josh’s article cause he did a great job explaining the product and framing why it's important to Google. I did want to highlight a few things:
The fact that Google went with a debit card, and Apple went with a credit card with its foray into fintech. That’s because of the user demographics: Android users statistically have lower incomes than iOS users. A debit card doesn’t tap into someone’s credit score and you can’t go into debt with one either. This could help Google create banking services for a wide group of people, like the under-and-unbanked population in the US, gig workers, younger people, and so on. Androids are popular with these demos, and since it’ll be baked into the Android OS, a checking account can create a stickier experience with Google for these consumers.
If this happens, it’ll be interesting to see what happens with neobanks like Chime and Current, which also focus on the same demographic. They have a number of cool features, like direct deposit advances that hit your account 2 days earlier, but Google has built in distribution into the Android ecosystem that give it quite the advantage. Fintech startups with debit cards will be under even more pressure to develop other products that engage their user base.
Or it might be that a lot of Android users already have debit cards with these neobanks and don’t want another one (not everyone’s like me...I have like 15 debit cards. I don’t recommend it tbh.) It also depends how serious Google is about this product—if the company thinks it can be a huge new consumer division for Google, then I could see a world where Google snaps up a thriving neobank to amplify their Google Pay product (it’s farfetched, but I wrote about how tech companies might be acquirers for fintech products back in January, and some tech giants have had light discussions with neobanks in the past.)
On the data side, it’ll be interesting to see where Google goes. On the one hand, transaction data is a potential goldmine for Google. They can use info on where you shop and how much you’re spending and partner with merchants and offer you discounts (and charge those merchants too, sort of like an ad network that functions as a rewards program.) They could use that data to make their existing ad network more powerful by “closing the loop,” and seeing whether a customer who saw an ad for oat milk on YouTube actually ended up purchasing oat milk through the Google debit card. The issue here is that user privacy is something that people have become very protective about over the past few years. Will people be willing to share their transaction data with Google? Maybe they would if they got a lot back, like heavily discounted deals. Maybe Google doesn’t even care about this though; the company could just be happy to develop a product that creates more engagement within the Android ecosystem and monetizes the Google Pay product through interchange revenue.
(Correction: I got a little caught up in my oat milk example. Google won’t be able to see “what” I’m purchasing (which is known as SKU level data), but would be able to see which merchants I’m shopping at. A more accurate analogy would be that Google would be able to tell if I saw an Oatly ad on YouTube and purchased Oatly from the company’s website (which I did early today btw.) Apologies!)
Things are very early days, but it’ll be interesting to see how Google markets its Google Pay debit card, the value proposition for customers, and other fintech products Google creates down the line.
Venmo Adds Direct Deposit:
Nicole Pinto, a payments analyst at Glenbrook (and a great follow on Twitter btw), came across an interesting development in the Venmo app earlier this week in the FTT Slack. The P2P money transfer app added direct deposit capabilities to their product.
PayPal confirmed it in a statement to Fintech Today senior analyst Julie VerHage:
I wanted to highlight the development for a few reasons:
First, it seems like Venmo is taking a cute from neobanks and offering direct deposits 2 days early. Chime pioneered this, and it’s been a popular feature for other neobanks like Current and Varo. It makes sense for Venmo to copy this feature considering the consumer demographic overlap between Venmo and neobanks, as well as how popular the feature is with users, based on a number of user interviews I’ve conducted in the past.
The timing makes sense too; stimulus payments from the government to Americans who made less than $75,000 went out in the middle of the week. For many unbanked Americans who don’t have a bank account but have Venmo, accessing their stimulus payment would be a nightmare. Now, Venmo’s solved that problem.
A bigger product question though: Why didn’t Venmo have direct deposit functionality before? The debit card’s been around since June 2018. Most other neobanks with debit cards have had direct deposit functionality in their products; some, like Cash App, just didn’t highlight it till recently. But to my knowledge, Venmo never did, which always seemed odd to me.
The reason companies make a debit card is to be the primary card for the user, and collect interchange revenue. Venmo was obviously banking on people using their Venmo balance to fund transactions, but wouldn’t it make sense for Venmo add direct deposits so people can get their salaries in Venmo and spend more with the Venmo card, thus, help Venmo better monetize through interchange revenue?
The answer is actually pretty clear: Venmo’s debit card was essentially a prepaid debit card. You needed to top up the wallet and it would only be able to fund transactions that were financed through your Venmo balance or by withdrawing funds from a connected bank account. While this fit the needs for Venmo users at the time, in hindsight, it seems like a clear missed opportunity.
I’ll be writing about this more in this week’s FTT+, but something surprising happened in the banking world earlier this week: a number of the most popular financial services and fintech digital products suffered from massive outages. One industry insider put the number of people affected well within the tens of millions.
Why? Well the US government sent $1200 stimulus payments as a part of a trillion dollar package to sustain the economy and the millions of Americans without jobs right now. What’s interesting is that this was an issue that both banks and fintech companies suffered from. DownDectector, a site that tracks when sites are...down, tracked major banks like Chase, Citi, PNC, and Capital One not working, but also fintech companies like Cash App and PayPal as well.
In FTT+ later on Sunday, I’ll be writing a bit more about how an issue like this occurred, how it can be avoided (and how some fintech startups did manage to avoid it), and whether this is indicative of a larger trend for the fintech industry.
Tweets of the Week
Jai at NEA had a great tweetstorm about Visa and MasterCard’s planned rate hike, which would drive up transaction rates for merchants. In today’s economy, where every dollar counts, a rate hike could be potentially catastrophic for small merchants.
Max at Ark Invest tweeted some interesting data around MercadoPago, a Latin American digital wallet, earlier this week. He noted that the app was approved to distribute aid and pension payments to citizens, and Google Trends data indicates that the app might be growing faster than before.
It’s a clear demonstration on how a strong government and fintech relationship can be a win for consumer and up-and-coming businesses (a topic I’m looking to get more into post-COVID.)
Sriram has worked at some of the biggest tech companies, like Snap, Twitter, and Facebook. And his insights on product development are great, as is this thread on how to break into product management. This is a question I get a lot, and there’s no right or wrong answer in my opinion (I mean, I was a journalist before I got into product.) One of the more straightforward ways is to move within the company you already work at, which Sriram talks about. My favorite tip was adding value outside your function and talking to customers: if you know your customer’s motivations deeply, you’re a quarter of the way there.
Seema Amble and Angela Strange at Andreessen Horowitz co-authored a great piece on how to reshape the CFO role, and how there’s a better need for tools and services for that function. As someone who recently realized I need to clean up my books, I couldn’t agree more. A lot of the software I’ve found is either expensive, doesn’t meet my needs, or a combination of both. Despite my passion for fintech, I hate math and accounting. Seema’s tweetstorm on breaking down the opportunity is worth a look, but definitely recommend reading the full article too.
Funding of the Week