February 5th: GS’s Marcus-as-a Platform — Citi’s RoboAdvisor 🙄

 Happy February everyone! I’m writing this from NEA’s offices in SF—Rick Yang and Jai Sajnani were kind enough to let me work from here this afternoon. 

This issue is dedicated to a mentor of mine who passed away last week—Xana Antunes, who hired me at Quartz. Fintech Today wouldn’t exist without her; Quartz was a very formative place for my career and her influence on my life was profound. It’s a bit weird cause I was going to email her about FTT just a few weeks ago. My words wouldn’t do her justice (and she’d probably have a lot of edits on it anyway haha), so please read this lovely piece about her by Quartz’s Kira Bindrim. 

The Silicon Slopes conference went great! My buddy Matt Hamilton and I talked about Venmo and he shared some great stories. Hoping to get the audio for y’all soon. 

We’re getting ready to roll out the FTT+ community product too: people have been loving the FTT Slack (which is invite only btw) and I’m excited to roll out a more open community product.

Some of you will start getting random emails from me: we’re going to be doing a TON more user research around the FTT community and what products and content you want to read from FTT.

Analyzing Goldman’s Banking-as-a-Service Ambitions

Goldman Sachs had their investor day last week, and there was a ton of important details about the future of Goldman’s Marcus brand. 

The slide that caught my eye was this one:

Ian Kar @iankar_
Looks like Banking as a Service is on Goldman Sachs roadmap for the 2020’s. Check this from the GS investor day deck @fintechtoday_ has caught a number of job postings that have been hinting at this. More on this in next week’s issue

Ian Kar @iankar_

Goldman Sachs first ever investor day is going on today: following it closely not just for fintech but because it’s such a pivotal time for the firm itself too. Thanks @mfriedrichARK for sharing the investor day slides in the FTT Slack. https://t.co/vQPi9UtbFz

As you can see, Goldman lists “banking as a service” under 2020; its a strong indicator that Goldman is planning on turning Marcus into a platform to enable financial products for other fintech companies as well. We’ve also found 5 product roles for the Marcus team that hint at developing API’s for external facing customers as well.

First off, a quick explainer on banking as a service. It’s essentially the business model for many B2B infrastructure companies—provide API’s and services to make it easier and cheaper to develop financial products. The tradeoff is that you’re heavily reliant on your infrastructure partners; you can only develop products as fast as their infrastructure can support. In financial services there are a lot of technical and regulatory hurdles, so these hurdles aren’t insignificant either.

For Goldman, I think turning Marcus into a platform that enables other third parties to create financial products makes sense—and there’s an interesting advantage Goldman has compared to other infrastructure players as well: capital. 

As I wrote in the FTT+ 2020 predicitions; there are at least 2-3 startups that are planning on launching a credit card or credit-related product over the next 18 months or so. As credit cards become more attractive for customers and get offered by more startups, someone’s going to need to be able to work on the capital management side of a lending product. You need money to lend out when you do a credit card! Traditional co-branded cards relied on banks to take on the risk on their balance sheet; Goldman can do the same for the digital generation’s version of the Macy’s credit card. 

If Goldman does go this route, they wouldn’t necessarily be competitions with the Synapse’s of the world, but could become the de facto bank partner for fintech startups by focusing on offering a combination of developer-friendly technology and financial expertise.

Another key aspect: Goldman has an incentive to enable digital financial innovation. All these other apps are either potential distribution channels for Marcus products, potential investments or acquisitions, or potential Marcus partners. Enable the fintech ecosystem will help Goldman be the de facto leader 

For Goldman, this could be a potential profit goldmine, or it could lead to a lot of credit risk exposure to the fintech startup ecosystem.  But for all the talk around startups trying to be the “AWS for banking,” Goldman might have the best potential to actually pull that off. They have the regulatory, compliance, and banking experience, combined with the desire to develop technology products to pull it off. 

Citigroup unveils free robo-advisor for customers with at least $50,000 at the bank—CNBC’s Hugh Son

Sometimes I think I’m a bit too harsh on banks and their product development process. Then this Citi roboadvisor stuff comes out. 

Long story short: Citi’s rolling out a roboadvisor for Citi Priority customers. My favorite part? You need a minimum for $50,000 to open an account. 

It’s not just that I hate this idea, it’s such a bad idea that I have a lot of questions. Like...who made this product? Did some SVP at Citi read about Wealthfront in the New York Times and decided they should make a roboadvisor so they have something to talk about? Does anyone actually know what a roboadvisor is for? 

So, FYI, I’m extremely bullish on roboadvisors as a product; I worked as a product manager at Acorns for Pete’s sake! The problem is Citi’s implementation, not the theory behind robo’s. 

The theory around roboadvisors is around making investments more accessible for the average person. Historically, the less affluent haven’t been able to develop wealth not because of poor savings habits, but its hard to pick know which stocks to pick and learn about investing. Roboadvisors are algorithms that take a lot of the decision making and education process out of the equation; that’s why roboadvisors are great products for the average person, who wants to grow their wealth without putting in much work. But a roboadvisor for rich people?! (yes, if you have $50k to put in investments, you’re rich to me.) Rich people don’t even want robo’s! In theory, the more money you have to manage, the more human interaction and high touch services you want. 

My guess is Citi rolled out this $50k minimum as an artificial way to have a lot of AUM (assets under management) right off the bat. Whenever I talk to banking folks and defend roboadvisors, they immediately bring up the question about AUM. For traditional finance, AUM is a super important metric, since the business model has always been around charging fees. The more you manage, the more you make from fees. Since roboadvisors have been based on making services and products affordable, and have a fundamentally different business model, I don’t think AUM is as important for roboadvisors. Unless you’re Citi I guess. 

All of this reeks of desperation: making a fintech product for appearance’s sake. I’m actually very bullish on bank’s doing fintech products, the problem is that in order to make a successful fintech product, you need to go against the traditional bank culture. And that’s where things break down. 

Tweets of the Week

I really liked reading this piece on why ISA’s might not work in India, by my homie Anmol Maini. 

What gorgeous visuals from Finix! Shopify’s such a monster business. 

I love looking at fashion companies for inspiration—just look at how gorgeous this GDPR email is!

One of the hottest topics in my little bubble over the past week has been this Ark Invest report on digital wallets and their valuations. My 2 cents: digital wallets are tremendously undervalued.

I love this PM interview questions! Would you want to see some fintech PM interview questions? (Reply to FTT with a yes or no, and some sample questions if you have them!

Funding News of the Week

Finix Payments raised a $35 million Series B, led by Sequoia with participation from Activant Capital and Inspired Capital. 

I’m not super unbiased here—I love Finix as a business and the team. Everyone there is so smart and knowledgeable (shoutout to my homie Jareau Wade) about payment infrastructure, and I think the problem they’re solving is fascinating. We’re going to be publishing an interview with Richie next week too!

Job of the Week

Current is hiring a bunch of engineers in NYC, specifically a Core engineer and a User Acquisition Manager.

Here’s a little blurb from Current: Current is a digital bank focused on improving financial outcomes for people and their unique lives.  At the heart of Current is the Current Core. The Current Core engineering team is focused on building the core banking engine that enables powers all financial aspects of our company's product. On this team you will own high impact features and projects, and build modern banking infrastructure on a completely clean slate.