16 May 2022 |

You’re Not Bad at Fintech If …

By Alex Johnson

Bad

3 Fintech News Stories

#1: We Need a New Name for (Most) Stablecoins

What happened?

Luna, the sister token of controversial stablecoin TerraUSD, is now basically worthless:

Luna plunged to $0 Friday, according to data from CoinGecko, marking a stunning collapse for a cryptocurrency that at one point was worth more than $100.

The demise of controversial stablecoin venture Terra has resulted in a meltdown in the crypto market, which erased billions of dollars in value in a single day.

TerraUSD or UST, is supposed to be pegged one-to-one with the U.S. dollar. UST has however lost its peg and on Friday was trading at around 12 cents, according to data from CoinGecko.

So what?

The reported data above is a bit old, but the basic point is the same — UST and Luna are effectively dead.

Here’s my thing — why did we ever agree to refer to projects like Terra as stablecoins in the first place? As Matt Levine has been writing for a while now, algorithmic stablecoins are (and always have been) bullshit; marketing layered on top of exuberant confidence and nothing else. Of course this was going to happen.

We never should have called these things stablecoins. To the extent that ordinary consumers were deceived into investing in UST (I’m not sure I buy this, but whatever), the term ‘stable’ probably has something to do with it, yeah?

The job of a stablecoin is to be boring. If you’re operating a stablecoin and you think “boy, it’s a shame that we have to keep all this money we have in US Treasuries and Cash, instead of more profitable investment ventures” then YOU’RE DOING IT WRONG!

USDC appears to understand this. CBDCs, if Central Banks ever get their acts together and launch them, will too. Tether very much does not understand this. Neither did Terra and nor do any of the other algorithmic stablecoins still floating around out there.

#2: Affirm is … Up?

What happened?

Something unexpected!

Shares of Affirm rose more than 20% to around $22.50 on Friday, the day after the buy-now, pay-later lender’s latest quarterly earnings report, which saw a smaller-than-expected loss. Affirm also beat top-line estimates and said it’s extending its partnership with Shopify.

So what?

With all the fintech stocks getting beaten up and crypto fortunes getting wiped out, I was prepared for some bad news coming out of Affirm’s earnings call this week.

Instead, Affirm reported smaller-than-expected losses and significant growth year over year. This number, in particular, jumped out to me:

Active merchants increased from 12,000 to 207,000

That’s the Shopify effect, which was emphasized in the earnings call when Max Levchin shared that Affirm had extended its exclusive partnership with Shopify.

My question is just how much adoption, by Shopify merchants, will we see of Affirm’s BNPL capabilities over the next couple of years? Affirm has had partnerships in place for a while now with Walmart and Amazon, but I’ve never gotten the sense that Walmart and Amazon have had a lot of interest in pushing significant volume through Affirm. Will Shopify be different? Or will the B2B2B nature of the Affirm-Shopify partnership mean that adoption (or a lack of it) will be determined more by the end merchants?

#3: Request for Fintech Companies: SHARE YOUR DATA! 

What happened?

Sorry for yelling in the title of this story, but announcements like this are way too rare:

[Current] announced the launch of its platform API, built to facilitate seamless integrations and embedded banking experiences. Plaid, the API-first data network powering the digital financial ecosystem, is the first-ever partner and will provide Current members access to a credential-less open finance experience.

Current members can now easily connect their account to thousands of other fintech apps, including digital payments, financial planning, and investment tools, on the Plaid network.

So what?

The fintech industry excoriates banks for not building integrations with open banking data aggregators and making it easy to share their customers’ data (with the customers’ permission). This is mostly a fair critique. It is the customers’ data. Banks shouldn’t hoard it.

Neither should consumer-facing fintech companies! Have you ever tried to connect a neobank account or online trading app or BNPL service through Plaid? If you succeed more than 4 in 10 times I’d be surprised. Fintech companies hate sharing their customers’ data, just like banks do. However, unlike banks, we kinda just let fintech companies off the hook on this? I have no idea why, but I’m thrilled Current prioritized this feature and built it for their members. Every other fintech company should do the same!

2 Things to Read and/or Listen To

#1: New Innovations—Including Crypto Cards—Energizing The ‘Dying’ Credit Card Market (Ron Shevlin, Forbes) 📚

Industry commentators are constantly making the claim that the credit card is dying. They did it when Millennials weren’t using credit cards much 10 years ago and they have been doing it again lately with Gen Z and the emergence of BNPL. The reality is that credit cards make a ton of sense for consumers once they reach a specific life stage, which Millennials and Gen Z appear to now have both reached, according to Ron’s research:

According to a recent consumer study from Cornerstone Advisors, 65% of Gen Zers (21 to 26 years old) and 67% of Millennials (27 to 41) have at least one credit card.

#2: Counterattack: Banks’ Field Guide to Fintech Disruption (Cornerstone Advisors & FICO) 📚

This was one of the final research reports that I worked on during my time at Cornerstone, so I can vouch for the fact that it is both interesting and cleverly constructed. The focus is on understanding how banks are (and should be) responding to five key areas of fintech disruption — overdraft, savings & investing, BNPL, niche neobanks, & open banking. Give it a read and let me know what you think! 

1 Question to Ponder

Affirm’s latest earnings report has me wondering — what public-market fintech company is most undervalued at the moment? And why?

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