09 May 2022 |

One-click Checkout is Fintech’s Iron Throne

By Alex Johnson

Alex Johnson headshot

3 Fintech News Stories

#1: Everyone is Moving Up the Open Banking Stack

What happened?

Stripe announced a new product:

[Stripe is] taking the wraps off Financial Connections, which will let Stripe’s customers connect directly to their customer’s bank accounts, to access financial data to speed up or run certain kinds of transactions.

These include verifying accounts for payments and payouts; to check balances ahead of a payment being made to ensure there’s enough money there; to confirm account ownership. Details like these can in turn be used to help underwrite risk for loans; to track spending patterns and automatically pay bills; and more — in other words, financial data that’s useful or necessary to run financial transactions over other Stripe services like Stripe Connect, ACH payments or Stripe Capital-powered loans.

So what?

If you work in fintech and spend any time at all on Twitter, you probably saw the drama play out between Plaid and Stripe executives, in the wake of this announcement.

The drama seems to have simmered down (if not fully dissipated), but I think it’s worth talking through the substance of the argument for why Stripe represents a threat to Plaid over the long term.

If you think about the capabilities offered by open banking data aggregators like Plaid and Finicity and MX as a ‘stack’, then the most foundationally-important layer in that stack is the ability to connect to and pull data from consumers’ financial accounts. Building coverage and reliable connectivity for this capability has, historically, been very difficult. We have a lot of financial institutions in the U.S. and building screen scrapers to access each of them is time consuming to do and really annoying to maintain. However, doing all that work also provides a competitive moat.

The trouble is that this moat is being filled in. Banks are, reluctantly, embracing open banking APIs. Regulatory requirements, courtesy of Dodd-Frank Section 1033, are imminent. Programmatic, consumer-permissioned access to financial account data will, eventually, become ubiquitous in the U.S. (as it is becoming in other parts of the world already).

When that happens, open banking data aggregation providers will need to have something differentiated to offer fintech developers. They will need to move up the stack. Finicity, by embracing the designation as a Consumer Reporting Agency, is positioning itself to compete for lending use cases. MX, based on its DNA in digital banking and personal financial management, is well positioned to help banks with digital transformation. Plaid, through recent acquisitions and partnerships, has been positioning itself to be a major player in payments and identity, which just so happen to be the same places that Stripe is already playing.

#2: What’s the Business Model for Financial Literacy?

What happened?

Truist acquired a financial literacy and savings provider:

Truist — one of the nation’s largest financial institutions — has acquired Long Game … Long Game has built a gamified finance mobile app that aims to help people “save, learn and engage” with their finances. Specifically, the San Francisco-based startup wants to drive bank customer engagement using prize-linked savings and casual gaming to motivate smart financial behaviors.

So what?

The way that Long Game worked, pre-Truist acquisition, was that customers would open up new deposit accounts with Long Game partner banks and then move money into those new accounts in order to qualify to play games and win prizes. Long Game was paid by those partner banks for every new customer that they brought to them (in the same general way that NerdWallet and Credit Karma make money) and the partner banks would fund the prizes for consumers who won the Long Game lotteries.

Here’s my question — banks are generally willing to pay quite a bit of money to lead aggregators to acquire new accounts. Now that Truist is the sole owner of Long Game, will it be willing to continue funding prize-linked savings lotteries in order to help existing customers save more?

I hope the answer is yes, but there’s a reason why banks don’t typically offer prize-linked savings lotteries for existing customers and there’s a reason why Long Game built its original business model around lead aggregation.

#3: You Win or You Die

What happened?

One-click checkout provider Bolt has been dealing with some bad news:

Bolt, which develops software that online stores use to help shoppers pay with one click, started the year riding high after rapid-fire fundraising and a private valuation that skyrocketed to $11 billion in January from $6 billion in October.

Behind the scenes, though, Bolt’s revenue growth fell dramatically, and questions have arisen about the veracity of its past statements about merchants that were using its services. Revenue from transactions Bolt processed grew around 10% to $28 million last year after it slashed the fees merchants pay for its services, according to an internal document viewed by The Information.

It’s also being sued by one of its own customers:

The complaint by Authentic Brands Group alleges that Bolt not only failed to deliver promised technology but that during Bolt’s integration with Forever 21, the clothier lost out on more than $150 million in online sales. The complaint also states that Bolt raised funding at increasingly high valuations by “consistently overstating” the nature of its integration with ABG’s brands to suggest it had more customers than it did and to convince investors to bankroll additional growth for the startup.

So what?

This news follows Ryan Breslow’s epic Twitter tirade against Stripe and Y Combinator (after which he resigned from his role as CEO of Bolt) and Bolt competitor Fast’s spectacular implosion after raising $120 million in funding.

All of which motivates me to ask this question — why exactly has the one-click checkout market devolved into Game of Thrones?

I mean, I understand the basic opportunity behind one-click checkout. E-commerce is big and growing. Merchants that sell online want to offer a fast and seamless checkout experience, in the mold of Amazon.com. Big TAM. Got it.

But, like, how hard of a problem is this to solve? How is it that Bolt has raised $1 billion and yet, according to reporting from The Information, the number of merchants Bolt works with “has been hovering in the low 300s since 2020.”? Why exactly did Stripe invest so much money in Fast rather than just building one-click checkout (a fairly obvious extension of its core products) itself? Why do companies in this market seem to habitually misrepresent their growth? Why are the founders of these companies so flamboyant and self-destructive in their use of social media?

Game of Thrones is the only analogy that makes any sense to me. One-click checkout has gained an almost mythic status as THE opportunity to be seized; a thing so worthy of blind and ambitious pursuit that any and all methods are fair game.

It’s the Iron Throne of fintech.

2 Things To Read And/Or Listen To

#1: Economic Mystery Hour (Plain English by Derek Thompson) 🎧

This discussion between Derek Thompson and Morgan Housel (the author of The Psychology of Money) is excellent and well worth a listen. Their explanation for why tech stocks are getting hammered — the market has shifted away from narratives and towards earnings — makes a lot of sense to me and feels highly relevant for fintech, which has been riding high on narrative-driven valuations for years now.

#2: Primer: The Ambitious Home for Ambitious Kids (Not Boring by Packy McCormick) 📚

As the son, brother, and husband of teachers, this deep dive into an EdTech startup — Primer — was going to grab my attention no matter what. However, I think it has a lot of relevancy for fintech.

Primer’s mission — to build a new education system that takes kids seriously — reminded me of this piece I wrote a while back on why most financial advice sucksit assumes there’s only one right answer. The reality is that financial advice is only useful in the context of what the individual customer is trying to achieve, which is similar to the thesis that Primer is building on — education is only useful in the context of what individual kid is naturally curious and/or passionate about.

Designing products and experiences that actually put the customer at the center; that take them seriously, to borrow Primer’s language; is much harder than you’d think. It’s also, perhaps, much more important than you’d think.

1 Question to Ponder

What will the U.S. credit bureaus look like in a world in which consumer-permissioned access is the dominant way in which companies acquire data on customers and prospects?

DM me on Twitter or LinkedIn if you have any thoughts on this question.