Can Fintech Bridge the Sustainability Gap?
By Alex Johnson
3 Fintech News Stories
#1: Can Fintech Bridge the Sustainability Gap?
Tenet, a digital lending provider focused on sustainability, raised an $18 million seed round:
Climate-focused start-up Tenet has launched an electric vehicle (EV) financing platform that it hopes will accelerate the adoption of EVs and help consumers enter the $185 billion EV market.
Tenet’s EV financing platform rejects standard car depreciation models and values EVs as clean collateral, taking into account the long-term value that EVs retain.
By leveraging EVs’ residual value, which is far better than gasoline-powered cars, Tenet says it has redefined the traditional auto loan.
Here’s what’s interesting. Electric vehicles (EVs) don’t actually retain their value better than internal combustion engine (ICE) vehicles. With the exception of Tesla (which seems to retain value due mostly to its luxury brand), EV depreciates faster than ICE.
This would seem to call Tenet’s whole business model into question.
However, many of the factors that are driving EV’s depreciation (government incentives, concerns about battery longevity, inconsistent consumer demand) seem likely to wane over the next 5-10 years.
So, the bet Tenet would appear to be making is that market demand for EVs will eventually grow to the point where their approach to loan underwriting will make economic sense. And, until then, Tenet is willing to subsidize cheaper borrowing costs for EV buyers in order to accelerate society’s shift to clean energy.
This is the great challenge with sustainability — it doesn’t make economic sense until it suddenly and overwhelmingly does.
Perhaps fintech’s role is to help bridge that gap.
#2: Retailers Aren’t The Problem
A survey from Barclays pointed out that retailers in the UK might not understand the risks they are exposing their customers to:
As most BNPL lending happens during the checkout process, either in-store or online, the retailer plays a vital role in the consumer appetite for this short-term, interest-free credit. Around one in 14 (seven per cent) shoppers plan to use BNPL for the first time this year, and three quarters (75 per cent) of those say that their decision will be influenced by the retailer at the point-of-purchase.
It is therefore worrying that many retailers do not fully understand the credit options they’re presenting to customers, with the research uncovering sizeable knowledge gaps about the pitfalls of unregulated lending. Notably, more than half (54 per cent) of retailers wrongly think that most BNPL companies perform a full credit check before deciding to lend money to a consumer, and almost as many (52 per cent) mistakenly believe that all BNPL brands report their lending to the UK credit reference agencies. In addition, four in 10 (39 per cent) incorrectly assume that unregulated BNPL providers are required to follow the same rules as traditional banks and credit card companies when it comes to lending responsibly.
Unsurprisingly, Klarna (the dominant BNPL provider in the UK) pushed back (emphasis mine):
“It is mind-boggling and frankly irresponsible in a cost of living crisis, that Barclays should use StepChange to endorse their high-cost installment credit product which charges 10.9% interest and to lobby against interest-free and manageable Buy Now Pay Later products,” [Alex] Marsh [Head of Klarna UK] said in a statement. “The conclusions in this report from Barclays are hugely patronizing to UK retailers.”
This spat between Klarna and Barclays is interesting to me because both companies seem to be missing the point.
Despite Klarna’s objections, it seems entirely reasonable to suggest (especially when you have data to back it up) that most retailers don’t fully understand how BNPL works and the impact that it has on their customers.
That said, Barclays’ apparent belief that retailers should understand and care about the nuances of BNPL and how they impact the long-term financial health of their customers is pretty naive.
Here’s the reality — retailers care about selling their products and services to customers. That’s it. Anything that enables more sales is going to be something that retailers like and pay for. That’s true for BNPL, just the same way that it’s true for credit cards. And like credit cards, the right answer to making BNPL safer for consumers (which is very much needed!) is regulating the providers of BNPL, not expecting retailers to magically change their stripes.
#3: Banking for Renters
Stake, a fintech company serving renters and property owners, raised a Series A:
Stake, which provides Cash Back and banking services to renters, announced today the completion of its $12 million Series A financing round. With Stake, renters earn Cash Back when they take positive actions, like signing a lease and paying rent. Owners save money with every renter action.
Today more than 44 million American households pay rent every month, and from 1985 to 2020, median rent prices increased by nearly 150% despite income growing just 35%. Leveraging behavioral science, Stake was founded in 2018 to empower renters by providing them with Cash Back on their rent as well as no-fee banking services to build savings. Stake also mitigates pain points for building owners, increasing lease-ups, reducing economic vacancy, improving maintenance, and increasing ancillary revenue.
The cash back part of this solution is pretty straightforward. Property owners get a marketing and rewards platform from Stake, which they use to deploy financial incentives to their renters for desirable behaviors (on-time payments, lease renewals, etc.)
The more interesting part, to me, is the embedded checking account and rewards debit card that Stake bundles into its offering for consumers. According to the press release, renters are really using that account:
Across the $385 million in annual leases connected to the platform, 65% of renters have more money in their Stake account than any other banking account.
That is a shockingly high percentage. And it’s not even that robust or well-integrated yet! Stake doesn’t process rent payments. It doesn’t offer a savings account or automated savings features. It doesn’t provide BNPL for household expenses or services.
Feels like there’s lots of room to run here.
2 Things to Read and/or Listen To
#1: What can crypto learn from TradFi? (by David M. Brear, 11:FS) 🎧
One argument that I’ve seen popping up in the crypto ecosystem recently is that the failures that we’ve been seeing in DeFi are actually failures of centralization (companies like Three Arrows Capital making bad business decisions) that have nothing to do with the decentralized protocols that represent the heart of what DeFi is about.
This is, in my opinion, an unhelpful argument to make. The reality is that DeFi will always require some level of centralization because the vast majority of consumers are never going to adopt the ‘be your own bank’ mindset and practices necessary to keep DeFi truly decentralized.
What we should be talking about is how to apply the lessons that we’ve learned in TradFi to the new centralized points of access and control that are forming in DeFi so that we can minimize negative externalities for retail investors.
This podcast features some great guests talking about exactly that.
#2: How Apple Will Boost The Apple Card With Buy Now Pay Later (by Ron Shevlin, Cornerstone Advisors) 📚
I believe that Apple’s Project Breakout represents a significant shift in the company’s strategy; from using financial services as a mechanism to strengthen hardware sales to seeing financial services as a significant source of revenue, independent of hardware sales.
But I could be totally wrong!
In this Forbes article, Ron Shevlin (my old Cornerstone Advisors colleague and super smart fintech observer) makes the case that Apple’s new BNPL product will A.) help it sell more hardware B.) strengthen its value proposition to merchants and C.) drive growth for the Apple Card (and its issuer Goldman Sachs).
1 Question to Ponder
#1: What new tool or technology will lead to the next step-change increase in preventing financial crime? It feels like we’re due. What are your best guesses for what it will be?
If you have any thoughts on this question, please DM me on Twitter or LinkedIn.