Fintech + Family Tech
By Alex Johnson
3 FINTECH NEWS STORIES
#1: A Fintech Time Machine
Mayfair, a fintech company focused on business banking and treasury management, is emerging from stealth:
Mayfair is a new fintech startup that offers businesses up to 4.02% APY, a number it claims is among the highest out there. How a startup that is barely two years old is able to offer such a high interest rate to businesses goes back to its partners. Mayfair itself is not a bank, but rather a fintech company that offers FDIC-insured products through an Arkansas-based bank called Evolve Bank & Trust. The money is actually moved by Stripe via its technology into an account at Evolve, with Stripe holding the ledger.
“We’ve tied all that together,” said Mayfair co-founder and COO Munish Chopra.
I like the concept here. Businesses are hungry for safe, high-yield places to park their cash right now, and many traditional banks are keeping their rates artificially low in order to protect their deposit betas. There is an opportunity to take market share.
That said, I had a very hard time reading the TechCrunch article linked above and figuring out what makes Mayfair’s approach differentiated or defensible.
The company claims that its 4.02% APY is among the highest in the industry and that other business-focused neobanks like Mercury aren’t really competitors, but Mercury does offer this exact same functionality (as does Rho) at a higher APY. And Mayfair’s answer for why it’s able to offer as high a rate as it is basically boils down to good negotiating:
“As we were going around and trying to figure out what our options were, it turned out that if we pushed hard enough and negotiated hard enough, we could get far better [interest] rates, and we could develop far better partnerships,” Chopra told TechCrunch in an interview.
Mayfair makes a big deal in the TechCrunch article and on its website about how it works with both Evolve Bank & Trust (the partner bank) and Stripe (the BaaS platform) to offer this product. That’s cool, but when I hear Stripe’s name in a BaaS context, all I can think is, “that’s another mouth to feed out of your unit economics.”
Over time, Mayfair wants to add more partner banks beyond Evolve, which it plans to do by doing basically what every fintech company does for their BaaS partners:
In the short term, Mayfair is eager to line up more partner banks and build out more products. The company believes that it can attract banks as partners by pledging to deliver a higher amount of deposits than they would get on their own.
“They don’t have to pay to have a marketing force or for distribution,” Chopra said. “We’re doing that effectively, and then handing them a pot of cash. If they had to borrow overnight, they’d have to pay more.”
Banks that offer BaaS have no shortage of fintech companies pledging to bring them high volumes of deposits. What makes Mayfair different? What is Mayfair’s unfair advantage in acquiring customers?
I also found this pretty interesting:
Notably, Mayfair managed to raise $10 million in venture funding across a $2 million pre-seed and $8 million seed round before it had even settled on its current concept. The raises took place before the downturn that has hit the startup world began in full force, with the seed round closing in April of 2022 in conjunction with the closing of a $4 million debt line.
This story is like a fintech time machine! Raise $10 million in pre-seed and seed rounds (including money from Tiger Global!) before you settle on your product concept and build the product with a boatload of infrastructure partners and seemingly little concern for unit economics.
I guess this is a bet on the founding team?
Patrick Yang, founding general partner of Amity Ventures, told TechCrunch via email that he was drawn to the caliber of Mayfair’s founding team.
I do genuinely believe that great execution beats a great idea ten times out of ten, so maybe this will all work out just as they drew it up. I certainly hope so!
But man, reading this story is like stepping back into 2021.
#2: Breaking Breakage
I absolutely love this:
Ami Kumordzie, MD/MBA and founder/CEO of Sika Health, raised $6.2 million in a round led by Forerunner Ventures. The startup helps employees maximize their FSA/HSA healthcare benefits.
A black female-founder physician with no technical experience has developed a fintech platform to connect consumers with IRS-compliant merchants. Kumordzie came to the U.S. from Ghana when she was six.
First, this is a great problem to solve. In 2020, $4.2 billion in healthcare benefits went unused. In business accounting, this is known as breakage – when a product or service that has been paid for never gets used. It’s awesome for the company facilitating the service (in this case, the banks holding the unused FSA/HSA dollars), and it completely sucks for the end customer (in this case, the employees). Building a BNPL-like service for connecting consumers with FSA/HSA accounts and merchants selling qualified medical products and services is a great idea.
Second, as I wrote about a while back, if you are a Black woman trying to raise money from VCs for a fintech company, your odds of success are basically zero. This is complete bullshit (and bad business to boot!), so it’s absolutely worth celebrating when someone succeeds despite the odds. This is really inspiring:
Interestingly, it was leaning into her differences and not matching the traditional pattern that VCs often look for that led Kumordzie to success. “I’m a Black female [fintech] founder with a non-traditional background,” said Kumordzie. “It’s my superpower.”
Kumordzie understood the market’s pain point because she had helped her mother figure out how to avoid forfeiting her FSA benefits when she lost her job. As a physician, she understood that it wasn’t just her mother who had the problem. As a healthcare consultant, she understood the opportunity of solving for this pain point.
We need so much more of this in fintech.
#3: Fintech + Family Tech
Sticking with our healthcare theme, a fertility financing provider called Sunfish Technologies just netted a $3.8 million seed round:
Sunfish Technologies wants to make it easier and less costly for people with reproductive challenges to start a family.
The company will use the funds to better predict the costs associated with in-vitro fertilization (IVF) and egg freezing, and to better match people with ideal lending partners.
Based in Santa Monica, California, Sunfish plans to crunch data associated with customer behavior, treatment costs, health profiles and success probability to offer support for fertility treatments.
The startup currently offers loans and lines of credit up to $100,000.
Fintech works best when it gets outside financial services.
Fertility and family planning is a great example. The market is massive. The global fertility market was valued at $26.9 billion in 2020 and is projected to nearly double to $45.4 billion by 2027. And the broader family tech market is substantially bigger, as this wonderful market map by Betty Chang illustrates.
And traditional financial services providers have a hard time supporting it. Financing fertility treatments like IVF and egg freezing is tricky. The costs can be difficult to estimate, and the desired outcomes and odds of success vary tremendously family-to-family. The best version of lending in this space will go well beyond FICO.
Most of the companies in this space are being financed by VCs focused on healthcare and healthtech (for that matter, Sika Health is too). It would be nice to see more fintech-focused VCs wedge themselves into these deals. This is where the money needs to go.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Let’s go payment processor shopping (by Trupti Natu, Fintech Musings) 📚
Yet another awesome fintech newsletter that I somehow wasn’t subscribed to!
Trupti’s musings on fintech are excellent, and I particularly enjoyed this latest one. It’s a short, extremely detailed guide for how merchants should think about selecting a payment processor. I (and probably lots of you) don’t spend much time thinking about fintech from merchants’ perspectives, but it’s an extremely valuable thing to do, and I’m glad to have Trupti’s help in doing it.
#2: Sanctions with Former OFAC Head John Smith (by Matt Janiga and Reggie Young, Fintech Layer Cake) 🎧
I’ve been catching up on my podcast feed lately, and I wanted to call this one to your attention.
Fintech Layer Cake is an awesome resource if you haven’t already subscribed to it. In this episode, Matt and Reggie interview the former Director at the Office of Foreign Assets Control (OFAC), and the resulting discussion gives a wonderful overview of what OFAC is, how sanctions work, and what banks and fintech companies need to know. Great stuff.
QUESTION TO PONDER
What are some good examples of fintech startups building decentralized solutions that don’t leverage blockchain technology?
I’m trying to separate, in my own head, the general virtues of decentralization (in system and network design) from the specific virtues of blockchain technology.