Apple, Playing Chess

The Son of Man (1964) by René Magritte.

3 FINTECH NEWS STORIES

#1: Current Adds a Credit Builder Card 

What happened?

Current introduced a credit builder card in partnership with Cross River Bank:

Cross River Bank has partnered with FinTech platform Current to launch a new credit-building product that will benefit Current’s over 4 million members.

The credit-building product will enable Current members to establish or rebuild their credit histories through a single spending balance, the companies said in a Wednesday (Aug. 23) press release. Cross River will issue a secured charge card on the Visa network, which will connect to members’ available spending balance. This approach aims to build credit history while minimizing the risks associated with debt.

So what?

Current is a bit late to the credit builder card party (Chime and Varo have both offered these for a while), but, in typical fashion, Current’s approach is especially thoughtful.

Rather than offering a separate credit builder card that requires the customer to manually move money over from their checking account in order to spend with, Current’s credit builder card automatically sweeps money into the secured account as the card is used. Current is able to support this uniquely convenient design thanks to its homegrown core system, which facilitates this money movement between sub-ledgers and across multiple partner banks. Current even allows customers to use the credit builder card to withdraw cash, for free, at Allpoint ATMs, which it enables through intelligent routing across the customers’ credit and debit card accounts through its direct integration with Visa DPS (this little flourish honestly feels like Current showing off, which is an impulse I can appreciate).

Two thoughts from me:

1. It’s really interesting watching B2C neobanks solve for the core financial services needs of their customers – deposits, credit building, access to liquidity – while consistently putting their customers’ safety and financial well-being above everything else. It occasionally produces awkward results. Current has introduced a credit card that customers can’t borrow money through, which means that the only way for customers to solve their short-term liquidity needs (at the moment) is to use the overdraft functionality built into Current’s debit card. I expect, over time, that neobanks will rationalize down some of these awkward product overlaps (Current has a separate cash advance product on its roadmap).
2. By prioritizing customers’ safety and financial well-being, Current (like Chime and Varo before it) is contributing to a problem for the larger lending ecosystem. While it is technically possible for a customer to default on their credit builder card payments, it’s highly unlikely. The vast majority of customers sign up for autopay, and because the money spent on the card is automatically set aside as it is spent, there’s no real way for customers to get over their skis. To be clear, this is really good for Current’s customers (build your credit score with no risk!) However, it’s likely to further muddy the waters at the credit bureaus, where lenders are already struggling to figure out which tradelines they can trust.      

#2: Apple, Playing Chess

What happened?

JPMorgan Chase is adding support for Apple’s tap-to-pay functionality:

J.P. Morgan Payments today announces the launch of Tap to Pay on iPhone for its merchant clients in the U.S. The solution allows merchants to accept contactless payments using their iPhones, without the need for a dedicated payments card reader or additional hardware.

Using only an iPhone, merchants can now accept contactless payments, without a physical terminal. The result is a differentiated payment experience where merchants and their customers can engage and pay anywhere with Wi-Fi or cellular service, resulting in a quick and seamless checkout experience. The solution gives merchants the ability to accept payments anywhere in-store or on the move. 

So what?

It’s difficult to keep track of everything happening in fintech and, I don’t know, I guess I took my eye off the ball on this story after Apple’s $100M acquisition of Mobeewave because I didn’t realize that Apple had already added Adyen, Square, Stripe (which also got them Shopify), GoDaddy, Clover (Fiserv), and Zettle (PayPal) as payment service provider (PSP) partners for its tap-to-pay functionality in the U.S. (to say nothing of similar partnerships in the UK, Australia, the Netherlands, and Taiwan). 

Damn! That’s impressive stuff! Especially when you consider that unlike Apple Pay, where the fees are paid by the credit or debit card issuer, Apple’s tap-to-pay feature charges a fee directly to the PSP (which they can choose to pass along to their merchants or not).

How’d they do it?

Well, I’m not exactly sure, but looking at the order in which these PSP partners were announced, I’m guessing the strategy looked something like this:

We need to get all the PSPs onboard. Let’s start with Stripe because they don’t have an established solution for in-person transactions, and they’ll bring along some good partners like Shopify. Then we’ll leverage that to get Adyen and Square because they’re scared of Stripe. And with all those guys onboard, we’ll be able to convince PayPal, and once PayPal is onboard, we can start picking off the more traditional banking PSPs like JPMC and Fiserv.

I’m accustomed to Apple just bulldozing through its partners like it did when it first launched Apple Pay. It’s cool to see that it can play chess too.

#3: CONSORTIUMS!

What happened?

TrueBiz introduced some new offerings:

The Smart Blocklist and Merchant Risk Sharing Network are designed to protect FIs from known fraudulent merchants and repeat offenders. 

The Smart Blocklist empowers FIs to maintain an internal database of identified previously rejected businesses. These businesses are then flagged immediately if they reapply with similar credentials. Using cases that are flagged specifically for fraud on the Blocklist, the Merchant Risk Sharing Network allows FIs to opt in to share information about fraudulent businesses across a secure network.

So what?

The Smart Blocklist is neat, but the one I’m really excited about is the Merchant Risk Sharing Network.

It’s a consortium!

I’ve written a few times in this newsletter about the value of consortiums in solving common industry challenges like fraud, and it’s great to see this particular fintech trend get replicated in specific B2B contexts, like merchant risk evaluation.

I especially like that TrueBiz’s consortium includes both customer-contributed data as well as data from the TrueBiz research team. This allows the network to start on day one with a large data set (they claim to already have 100,000 fraudulent business websites) and to ensure that the network maintains a broad view of the industry as it adds new contributors (a process that can take years to reach sufficient scale).

BUILD MORE CONSORTIUMS!  

---

2 FINTECH CONTENT RECOMMENDATIONS

#1: The Smallest Bank in Tennessee Grew Fast With BaaS. Why It May Give The Entire Industry A Hangover. (by Jason Mikula, Fintech Business Weekly)

Jason continues his streak of breaking the most interesting and important news stories in the world of banking-as-a-service.

This one brought all kinds of questions to mind for me, including:

• How the hell could banking regulators in Tennessee continue to allow this family to start and/or buy banks?
• When will federal regulators just step in and stop Synapse? I mean, my god. Enough is enough.
• How do you distinguish between deposits sourced from BaaS that are fueling responsible growth and deposits sourced from BaaS that are fueling someone’s gambling addiction? The brokered deposits designation that we’ve traditionally used in banking feels insufficient for the task. 

#2: A Look at the Growing Use of Generative Artificial Intelligence and Chatbots in Consumer Financial Services (Consumer Finance Monitor)

Two of my favorite fintech experts (Ron Shevlin of Cornerstone Advisors and Reggie Young of Lithic) on a podcast talking about generative AI and chatbots?

Say no more. I’m in!

---

1 QUESTION TO PONDER

I am trying to learn more about branch banking and the role that it can play in driving growth. I want to talk to an expert who can speak intelligently (and honestly) about the unique value of branches in today’s digital-everything environment.  

If Steve Jobs were alive today and intent on replicating his Apple Store strategy for Apple’s burgeoning financial services business, who would he hire to do it?