Goldman's Newest Partnership with Amazon — Insurance Expert Talks Lemonade — Q&A with Pinwheel CEO

Yoooooo what’s up everyone, happy Friday. Ian here. 

I’m excited for the next few weeks—we’re launching our brand new website, and have a ton more developments coming out. Can’t wait for y’all to see it. 

Lot’s going on this week, so let’s dive in:


We’re running a user survey for FTT subscribers over the next few weeks—if you fill out our survey, you’ll be automatically entered for a raffle to win a $50 Amazon Gift Card. We’re giving away two (no, you can’t win twice) so fill it out ASAP! Winners will be announced next week!

Fill out our Readers Survey here!

We’re raising the prices for FTT+ soon. If you sign up over the next month, you’ll get locked in to the $25/month rate for the first year. You also get a 15% discount if you sign up for the annual membership.

Sign Up for FTT+

Sign Up for FTT+ (annual, 15% off)


Lemonade IPO Reactions, by Nitin Gupta

Lemonade, the insurance startup, filed for an IPO earlier this week, shocking many in the tech and insurtech space. I’m not super knowledgable about insurance, and luckily, Nitin Gupta, who’s at Newfront Insurance, shared his thoughts on the IPO with me. He was kind enough to let us republish a part of it, but recommend reading the detailed analysis here.

“Lemonade is a quality insurance business that has figured out how to acquire customers who have previously never engaged with an insurance company for their renters insurance needs at reasonable payback economics (~2 years). This low-touch customer base / insurance product allows Lemonade to service the insurance policies with minimal human oversight, thus providing reasonable economics on an otherwise razor thin insurance product. Their renters insurance product is magical and is a step-up from any other insurance transaction I've experienced.

For Lemonade to achieve its true potential (and recent multi-billion dollar valuation) it will have to successfully move into other lines of insurance (homeowners, life, auto, or commercial). Unfortunately, the prospectus does not touch on Lemonades ability to sell beyond the initial renters insurance market, even branching into the homeowners insurance space with HO-3/HO-5 policies, which requires a higher amount of engagement for underwriting and claims servicing. Based on the self-reported $183 of premium per customer, it's hard to imaging they're doing much business outside of renters. In order to turn into a Lemonade bull, I'd want to understand loss ratio + gross margin profile (underwriting, servicing, etc) of lines outside the renters category or at least better appreciate the depth of technology built today to price and service the renters insurance.

In its current state, operating at an estimated EOY 2020 GWP of $265M and net revenue (not GAAP) of $80M and -$100M+ in loss, I find it hard to believe Lemonade will price north of their latest funding round of $2B (25x net revenue).”

Read Nitin's Detailed Analysis Here

Goldman & Amazon Partner On Merchant Credit Lines

Earlier this week, CNBC’s Hugh Son got the scoop on a new partnership between Goldman Sachs and Amazon. Because it seems like a no brainer to me, so wanted to dive into the implications around the partnership a bit. 

The tl;dr on the deal is straightforward: Amazon is extending US merchants credit lines up to $1 million, with Goldman Sachs as its partner bank, under the Marcus brand. The credit lines will have a fixed annual interest rate of 6.99% to 20.99%,will basically operate like a business credit card, and merchants can incur fees, unlike other Marcus products. Users can get hit with late fees if they don’t make on-time payments, or maintenance fees if they don’t use at least 30% of their credit line. 

For Goldman, this is a clear move towards becoming the de facto partner bank for tech giants. Tech giants are looking for highly reputable, and stable, companies to partner with on their banking products; they can’t run the risk of launching a credit card and having their partner startup fail. And, unlike other large banks, this is Goldman’s core retail business; other banks aren’t as incentivized to make partnerships like this work because any successful partnership is a threat to their core retail business. 

As Goldman’s head of US consumer banking, Omer Ismail, told CNBC, “we’re doing this with all the benefits of being a start-up, i.e. no legacy technology, no legacy business models.” Without the baggage of a firm like Bank of America or Chase, Goldman can move faster and devote the proper resources for partnerships like this and others, like with Apple. 

For Amazon, supporting merchants is a no brainer—it’s yet another example of embedded fintech. Lending for merchants works—Amazon loaned out $1 billion to merchants in term loans through a Bank of American partnership, and more recently, Shopify Capital has been growing well—the firm originated $430 million in loans and merchant cash advances in 2019. It makes sense Amazon wants to double down here. 

The unique aspect here is the data sharing agreement between Amazon and Goldman—Amazon merchants will be sharing data with Goldman on an opt in basis. This can help Goldman break into a new lending area for Marcus—small businesses—by using Amazon’s data to power more efficient underwriting models. By developing merchant profiles with details on their business, Goldman can extend loans to similar merchants that aren’t on Amazon—a demographic that’s been underserved by banks. Time will tell, but this could be a huge win for Goldman in the long run. 

Q&A of the Week: Pinwheel CEO Kurt Lin

Pinwheel’s an API company that just came out of stealth this week—I’ve heard a ton about them through the grapevine and got a chance to catch up with Kurt this week and was really impressed. Pinwheel raised a $7m seed round from First Round Capital and Upfront Ventures, and Kurt was kind enough to answer a few questions for us about the business and vision for Pinwheel. 

For those who don't know, how do you explain Pinwheel? What's so innovative around unlocking data around payrolls?

Most people’s money can be traced back to a payroll system (e.g. ADP, Paychex, Gusto, etc). In fact, 82% of Americans get paid via direct deposit. This makes payroll systems incredibly powerful because they sit at the top of the financial stack, with the controls that determine where your paycheck goes and how it gets split up before anyone else has a say. They also harbor a wealth of income and employment data, making them tremendously valuable to just about every financial institution, especially for streamlining underwriting or approval processes. 

Unfortunately, the payroll ecosystem is largely closed and highly fragmented, disconnected from the banks, lenders, and service providers that could benefit from access to it. 

That's why we built Pinwheel, the first API for Payroll. By building the pipes that aggregate and unlock these payroll systems, we can help consumers access better, cheaper financial products when they need them most while also sparking innovation of new financial products.

What other areas can you get into by unlocking this opportunity? When we chatted you mentioned lending, which I thought was really compelling.

There's a thousand different use cases for our API but we're focused on 3 big ones right now. One is helping lenders streamline underwriting and approval processes with instant income/employment verification. Two is helping neobanks grow by offering their customers an automated direct deposit switching solution. 

Three is what you mentioned and something we're incredibly excited about--paycheck-linked loans. With PLLs, borrowers can opt to have lenders collect payment directly from their paycheck, essentially guaranteeing that the latter will be the “first money out.” This higher accountability model means lenders significantly de-risk their loans while consumers, especially those with bad or no credit, can finally access fair interest rates.

How was fundraising during COVID? 

It's funny…given the current economic climate, we thought (like most others) that it was going to be nearly impossible to raise a round. So we put feelers out to a couple folks and were surprised by how eager they were to meet. Because everyone was pent up at home with nowhere to go, it felt like VCs had more free time and were more willing to take meetings.

Logistically speaking, I enjoyed it a lot more than the usual process. There's no harried travel from office to office and you can pitch from the comfort of your home instead of a board room somewhere on Sand Hill. Best of all, you can take meetings with your pajamas on!

What're the goals for the next year or so for you all?

We're currently working with a variety of early banking and lending partners and opening the doors to more. Our goal for the next year will be to continue to grow our customer base while staying laser-focused on delivering the best experience for them. 

Given COVID's devastating impact on the livelihoods of so many Americans, access to fairer financial products is more important than ever. And our resolve to fulfill our mission of building a more equitable financial system has never been greater.

Tweets of the Week

Bain Capital’s Ashley Paston shared some data from an updated JPM report: integrated payments (part of Bain’s thesis around embedded fintech) has already grown from 8% to 10% in the past 6 months. It’s growing 2x the market rate, which implies that more firms are thinking about embedding payment services into their technology—a good sign for Bain’s portfolio company Finix. 

The Snap Summit was a must follow this week. If you don’t believe me, just check out Turner’s recap of it (and follow his newsletter while you’re at it)

Ari Lewis has been doing a great job documenting stuff and taking notes via Twitter–I find myself on his feed on a daily basis. Highly recommend following him. Here’s a great thread on an interview with the founders of Morning Brew

Bit old, but still interesting: Max points out som interesting savings data from Germany.