Experian Goes All In
By Alex Johnson
3 FINTECH NEWS STORIES
#1: Experian Goes All In
Experian now offers a bank account:
Experian has launched the Experian Smart Money Digital Checking Account and Debit Card, featuring FICO score-boosting Experian Boost.
The Experian Smart Money Digital Checking Account allows consumers to pay eligible bills, such as utilities, rent and telecom, and have those payments added to their Experian credit file, according to the release. This has the potential to increase consumers’ credit scores and improve their credit profile.
In addition to the Experian Boost feature, the Experian Smart Money Digital Checking Account offers access to a worldwide network of over 55,000 surcharge-free ATMs, bill pay services and, for those enrolled in direct deposit, the option to receive a paycheck up to two days early.
If you’re surprised that Experian is launching a consumer-facing bank account, you haven’t been paying attention. Experian has, for years, made it clear that it’s all in on B2C, as I wrote about a while back:
It’s clear that Experian’s biggest bet is on becoming the consumer-facing credit bureau and monetizing the opportunities that come out of that (directly and indirectly).
The other bureaus have largely left this business to Experian, which is a big competitive advantage. The B2C business also provides Experian with a new mechanism to differentiate the data and services they provide on the B2B side (consumer-contributed data from Experian Boost makes their core credit files thicker).
Experian’s B2C offering is comprised of credit monitoring, credit building (Experian Boost & Experian Go), lead aggregation (Experian Marketplace), and identity theft protection. Put simply, it’s Credit Karma.
Indeed, credit karma is the perfect comparison for Experian these days. Credit Karma offers a digital checking account (Credit Karma Money) with all the standard neobank bells and whistles. It recently added a credit-building savings product to Credit Karma Money, in which Credit Karma advances money to the consumer to set aside, and then the consumer “repays” Credit Karma and those repayments are reported to the bureaus.
Experian’s version of this play is Experian Smart Money, which comes with all the same neobank bells and whistles and automatically feeds bill payment data associated with the account into its own credit-building service – Experian Boost.
It’s unclear to me if all this effort is really going to pay off.
Will this expanded foray into consumer financial services draw even more scrutiny from regulators? Will Experian be able to compete effectively with all the other banks and neobanks out there for new customers? Will its brand drive away younger consumers, who need credit building but don’t necessarily like or trust (or even know) Experian?
Or will Experian’s incredible timing in signing Travis Kelce as the spokesperson for Experian Smart Money, right as he entered into the world’s most well-known relationship, vault Experian right to the top of the pile?
#2: Going After the Platforms That Stripe Isn’t Connecting With
A new fintech infrastructure company emerged from stealth and raised a seed round:
Rainforest … is a payments-as-a-service platform (PaaS) that helps software companies “build and optimize” embedded financial services.
Rainforest raised $8.5 million in a seed funding round led by Accel. It also secured a $3.25 million venture debt facility from Silicon Valley Bank (SVB), a division of First Citizens Bank. Infinity Ventures, BoxGroup, The Fintech Fund, Tech Square Ventures, Ardent Venture Partners and a number of strategic angel investors also put money in the seed round.
$8.5 million is on the higher end for a seed round these days, so what’s got folks excited about Rainforest?
The basic pitch is that it is attacking a market segment (software platforms) that legacy service providers (Fiserv, FIS, etc.) don’t understand and that newer platform providers (Stripe) aren’t well-suited to serve.
That last part is worth double-clicking into because I think, generally speaking, people are skeptical when you tell them that you are going to go head-to-head against Stripe. And justifiably so!
However, it’s important to remember that Stripe, in its modern form, is well-optimized to help a certain type of company – one that is looking for a comprehensive set of developer-friendly payments and banking capabilities that are close to the metal and that can, when configured properly, create a significant new stream of revenue for the company (and for Stripe). Shopify is a good example. Shopify wants to make money by offering financial services, which makes Stripe’s robust and granular portfolio of payments and banking capabilities very compelling.
However, most software platforms out there don’t view financial services as a new product category that they want to get into. Most don’t want to become fintech companies. Rainforest is built for these companies:
Joshua Silver, CEO and founder of Atlanta-based Rainforest, told TechCrunch in an interview that he believes that every software platform wants to embed financial services and embed payments into their offerings.
“But they don’t want to be a fintech themselves,” he said. “Being a fintech means you are highly regulated. You have risk management to contend with. You have compliance burdens. And the vast majority of software companies just want to add payments.”
#3: What Programmable Money is Good For
A few of the central banks are working on something interesting:
The Bank for International Settlements, along with the central banks of Australia, Korea, Malaysia, and Singapore, is exploring the possibility of embedding regulatory requirements into cross-border transactions.
The envisioned compliance-by-design architecture could enable a more efficient cross-border transfer of any digital assets including CBDCs and tokenised deposits, says the BIS. It could also serve as the foundational compliance layer for legacy and nascent wholesale or retail payment systems.
The more boring the crypto or crypto-adjacent use case is, the more I like it.
It doesn’t get much more boring than compliance for cross-border payments, but this is exactly the kind of thing that we should be using new infrastructure to solve for. Cross-border payments are slow and expensive largely because of the disparate policy and regulatory frameworks in different countries and the complexity that arises when a transaction attempts to traverse those various frameworks.
When crypto enthusiasts talk about programmability being a key feature of digitally-native money, this is precisely the type of real-world application that they should be holding up as an example – embedding the intelligence necessary to smoothly transact across countries, in full compliance the entire time.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Braid Is Dead, Long Live Braid (by Amanda Peyton) 📚
This essay by Amanda Peyton, the CEO and co-founder of Braid, is really really great, and you should stop what you’re doing right now, read it, and then come back.
OK, are you back?
Incredible, right? I deeply admire when fintech founders write these types of essays. They must be really painful to write, but they are also an extraordinary look into the joys and challenges of building in financial services. The most interesting insights (to me) were the inherent risk of operating downstream from regulated banks and the subtle costs of building with third-party infrastructure (rather than building tech yourself).
Also, this line is just [chef’s kiss] – “The revenge of the nerds is happening in real-time, and gosh, it fucking rules.”
#2: $13M in Missing User Funds: Evolve, Synapse Play Blame Game as BaaS Crisis Intensifies (by Jason Mikula, Fintech Business Weekly) 📚
Another week, another batshit crazy story from the world of BaaS, reported by our correspondent for batshit crazy fintech news.
This one really does take the cake, though. Millions of dollars in dispute due to a years-long inability to correctly reconcile transactions between accounts! A secret negotiation between two parties to cut out a third! A lawsuit between a VC firm and a portfolio company!
1 QUESTION TO PONDER
If you are building a fintech company to serve consumers or businesses, what is the right approach for leveraging third-party software from fintech infrastructure providers while maintaining strong unit economics and minimal technical debt or dependencies?
It’s obviously never build or buy. It’s always a bit of both. But how do you strike the right balance?