Making Rewards Unrewarding
By Alex Johnson
#1: Speeding Up Auto Lending
Carmoola raised a Series A:
UK car finance fintech Carmoola has raised £8.5 million in a Series A funding round and secured another £95 million through a debt facility.
The round was led by QED Investors, with participation from existing investors VentureFriends and InMotion Ventures, the investment arm of Jaguar Land Rover. NatWest provided the debt facility.
Launched last year, Carmoola offers a “neo car finance” product that promises to reduce the time taken to complete a car purchase from days to minutes.
The auto lending market is a tough one to disrupt, as I wrote about recently. The car shopping experience has, for obvious reasons, remained a largely in-person proposition. And as such, car dealerships maintain a great deal of control over that experience, and dealerships have a lot of incentives to stop the auto lending process from ever changing.
Direct auto lending, in which a consumer gets a loan from a lender outside of the dealership, is rare. Carmoola is betting that it can make it more common by helping consumers easily figure out their budget for a car purchase (Carmoola only works for used car purchases) and then, if they’re approved for a loan, easily pay for the car with an instantly-issued virtual card.
I’m not sure if this will work (I haven’t spent a lot of time studying the auto lending market in the UK), but I really like the way Carmoola is reframing the idea of a direct auto loan as “figure out your budget before you go to the dealership.” That, and the virtual card, are smart tweaks on an old model.
#2: BaaS for Cannabis
Green Check Verified raised a Series A:
Green Check Verified (GCV), the leading fintech provider of compliant cannabis solutions and services to financial institutions, today announced a $6 million Series A funding round, led by Mendon Venture Partners, a venture capital investment firm focused on the intersection of innovative technology and banks.
“We’re excited to continue building a comprehensive financial services ecosystem for banks, credit unions, and cannabis-related businesses,” said Kevin Hart, CEO and co-founder of Green Check Verified.
This is a neat solution for the problem of banking the cannabis industry (which I wrote a little bit about here).
Green Check Verified (GCV) is basically playing the role of a BaaS platform for the cannabis industry. It onboards legal cannabis businesses (it claims to have 4,000+ already), doing the initial vetting and due diligence and getting direct, ongoing access (through API integrations) to the businesses’ sales and inventory data. It then connects those businesses with the banks on its platform that operate in states where cannabis banking is legal (it claims to have onboarded bank partners in 39 states). The GCV platform then helps the banks conduct their own due diligence and ongoing account monitoring and FinCen reporting (banking legal cannabis businesses requires a lot of SAR reports).
Taking a vertical-specific, platform-focused approach to banking high-risk businesses makes a lot of sense. Each high-risk industry (cannabis, gambling, adult entertainment, etc.) has its own quirks. Specializing in one industry enables a platform provider to completely master those quirks (and thus put skittish banks and credit unions at ease) and scale up more quickly.
#3: Making Rewards Unrewarding
I’m not sure when MoneyLion introduced its “Shake ‘N’ Bank” rewards program (late last year, maybe?), but it’s something else:
Shake ‘N’ Bank is part of our rewards program that lets you shake your phone to earn cashback every time you make an eligible purchase with your RoarMoney account. An eligible purchase is any purchase over $10.00 USD made with your MoneyLion Debit Mastercard®, your RoarMoney virtual card or using your RoarMoney cards through your Apple or Google Wallet.
The amount of your reward will be a surprise each time and can be anywhere between $0.01 to $500 on each eligible purchase, up to 500% of the value on your purchase! Your reward gets deposited into your MoneyLion Investment Account.
You must have an active MoneyLion Investment account in good standing to participate in Shake ‘N’ Bank rewards, and it may take 5 business days for your reward to settle in your investment account.
MoneyLion likes to talk about how traditional banking is broken and how it is “rewiring” it for hardworking Americans.
Based on my reading of MoneyLion’s website, here are the broken things about traditional bank reward programs that it has decided to rewire:
- Rewards are too accessible (so let’s restrict consumers’ ability to get rewards to purchases of $10 or more!)
- Rewards are too predictable and easy to compare across providers (so let’s make it impossible for customers to anticipate how much cash back they’ll get!)
- Rewards are too easy (so let’s require customers to physically shake their phones after each transaction has settled in order to get their rewards, and if they don’t do it within seven days, let’s not allow them to earn rewards on that transaction!)
- Rewards are too flexible (so let’s only allow customers to earn rewards as deposits into our MoneyLion investment accounts, which they need to have in order to participate!)
- Rewards are too safe and low cost (so let’s force our customers to put their rewards at risk by depositing them into an investment account that could lose value at any time, and let’s charge them a monthly account fee for that investment account, which they may not even want!)
If this is banking “rewired,” please just chain me to a bank branch.
2 FINTECH CONTENT RECOMMENDATIONS
#1: The Co-Pilot Revolution: How ChatGPT Changes Fintech (By Simon Taylor, Fintech Brainfood) 📚
Simon took two weeks to put this one together, and you can tell. It’s really, really good. He talks about the value adds of generative AI today (a co-pilot for every task & a chat interface for complex questions) and how generative AI in financial services might evolve if we solve the data problem.
Read this and then go back and read it again.
#2: Interchange is a burning platform (by Matt Brown) 📚
Here’s a line from this post that I heartily agree with:
Startups have been crowding into the slim and inflexible card payment fee pools, although these pools weren’t designed to support multiple venture scale businesses.
Matt goes on to argue that these pools may, in fact, be shrinking due to the emergence of alternative payment products like BNPL and the development of closed-loop networks like the one that Block is assembling. I’m not sure how worried I am about these developments posing a significant threat to Visa and Mastercard, but Matt’s broader point still hits – Durbin-exempt debit interchange fees were never going to sustain an entire ecosystem of venture-backed businesses.
1 QUESTION TO PONDER
Forgive the naivete of this question, but I’ve seen a lot more funding rounds for later-stage fintech companies come from private equity firms in the last couple of months, and I’m curious – is this a bad sign for these companies?
Raising from a private equity firm would seem like the opposite of the founder-friendly VC checks that these types of companies were scooping up in 2021.