Capital One, Being Tricky

3 FINTECH NEWS STORIES

#1: HMBradley Pivots to Infrastructure 

What happened?

HMBradley, the consumer neobank, is no more:

We’re announcing that beginning November 15th, HMBradley is beginning a wind-down of our consumer deposit and credit card programs over the next 30 days.

Since the start, we have been on a mission to bring a better banking experience to life, dedicated to empowering customers with tools and services that enable smart money management. Throughout 2023, it became evident that our consumer brand growth was falling short of our goals.

At the same time, several banks approached us to use the technology we’ve developed to power their next generation of financial products. Because of this, we have made the strategic decision to shift to focus on integrating our technology with established banks. This transition enables us to continue our mission on a larger scale and hopefully positively impact the financial experiences of a broader customer base beyond just HMBradley customers.

So what?

This is a time-honored tradition in fintech. You build something cool. You find an initial base of consumers who like it. You fail to reach escape velocity as a consumer-facing brand (no shame in this … it’s incredibly freaking hard). You re-package what you built into infrastructure for other financial services providers to leverage.

A few specific thoughts on HMBradley joining this club:

• It wasn’t difficult to see this coming. HMBradley’s model (build a rewarding experience for savers that attracts significant deposits) didn’t make sense for a non-bank. Without the ability to make loans and profit fully from the resulting NIM, HMBradley’s margin was always going to be too thin (especially without significant debit card interchange revenue, which its target customer segment doesn’t generate). 
• I feel bad for the team over at HMBradley, having to go through all the drama with Hatch Bank and finding a new sponsor bank (and setting up their own ledger) only to wind up here. Ouch.
• As I wrote about here, HMBradley has gotten the closest to building what I personally consider to be the ideal retail banking product bundle (in particular, I love the automation routines). It doesn’t surprise me at all to learn that multiple banks had reached out to them about licensing their technology, nor that HMBradley raised $13 million in new capital back in July of this year to fuel this infrastructure pivot.
• As a consumer-facing brand, the name HMBradely never made much sense to me. However, as the name of a bank technology vendor, it’s perfect. So, I don’t know, maybe this was always the company’s destiny.          

#2: Capital One, Being Tricky

What happened?

Capital One is facing a lawsuit from its customers:

Capital One Financial is being sued by savers who say they were tricked into thinking that they were earning the highest rate available from the company’s online banking arm.

The plaintiffs in a lawsuit that seeks class-action status argue that the McLean, Virginia-based bank acted deceptively, dishonestly and unfairly by creating a new high-yield account rather than raising the rates it was paying on its longstanding “360 Savings” account.

Existing 360 Savings customers who were seeking juicier yields in the current higher-rate environment would have needed to open a “360 Performance Savings” account, according to the lawsuit.

As of last month, Capital One customers with 360 Performance Savings accounts were receiving 4.30%, while 360 Savings customers were getting 0.30%, according to the latest version of the lawsuit, which was filed in federal court in Virginia. 

So what?

Here’s the timeline: 

1. Capital One bought ING Direct in 2012, which, among other things, brought it a whole bunch of high-yield online savings account customers. It rebranded the accounts those customers had as “360 Savings”.
2. In 2019, Capital One launched an account called “360 Performance Savings”, which was a separate product that Capital One created in order to raise new, rate-seeking deposits without having to increase the rate it was paying to its 360 Savings account customers. According to the complaint, as of last month, 360 Performance Savings customers were receiving 4.30%, while 360 Savings customers were getting 0.30%.
3. Earlier this year, 360 Savings customers noticed that they had been missing out on the opportunity to earn more yield by keeping their money in their 360 Savings accounts rather than opening a 360 Performance Savings account (or a high-yield savings account at a different bank) and sued Capital One for being unfair and deceiving them.

I’m of two minds on this one.

Creating a new, digital-only savings account and offering above-market interest rates to attract hot, rate-seeking deposits while keeping the rates on your established deposit products at rock-bottom levels in order to keep your overall deposit betas low is a well-established strategy in retail banking. It’s a shitty thing to do to your loyal customers, but it’s not some novel idea, and in this case, it appears (unsurprisingly) that Capital One had all of its T&Cs buttoned up (the bank is trying to get the case dismissed).

That said, if you make the name of your new savings product really similar to the name of your flagship product and then broadly advertise how competitive the rates are for the new product, thus creating a nice brand halo for yourself (Capital One rewards savers!), you are being a bit unfair and deceptive, and you’ll probably get sued.

I’ll be curious to see if this one gets tossed out or not.       

#3: Smart Strategy

What happened?

Truework launched a new product:

Truework … today announced the launch of Truework Income for Tenant Screening. It acts as a single income verification provider, orchestrating every major income verification method in one integration, maximizing speed and coverage. With this new product, property managers can automate more verifications with direct-to-source data to avoid payment issues, mitigate fraud, and reduce evictions while eliminating manual work for leasing staff. 

So what?

Couple things here.

First, it’s good that we’re bringing more innovation focused on assessing consumers’ ability to pay to the property management space. As consumer advocates have been screaming for decades, credit scores (a measure of willingness to pay) are a poor fit for tenant screening and should be replaced by fairer and more logical solutions. Income verification is the most straightforward alternative.

Second, Truework is playing this very smart. It wants to eat into as much of Equifax’s share in the “workforce solutions” market (income and employment verification solutions for companies) as possible. Truework is not alone in having this ambition (most companies in the open banking/payroll space look at Equifax’s Work Number product like a big juicy ribeye), but it’s the only company that I have seen attempt to realize this ambition by partnering with another one of the bureaus (it partnered with and received an equity investment from TransUnion earlier this year). This is really smart! I’ve worked around the credit bureaus for nearly 20 years, and I can tell you for certain – they can’t wait to turn on each other if you give them a good reason. Taking Equifax’s most profitable business away from it is a good reason!       

---

2 FINTECH CONTENT RECOMMENDATIONS

#1: A Fintech Titan in Community Banker’s Clothing (by Jeff Kauflin, Forbes)

The most interesting fintech company operating in stealth right now isn’t a fintech company (it’s a bank), and it isn’t operating in stealth (but it is being quiet).

It’s Lead Bank, which was bought by Jackie Reses in 2022.

This is the first profile written about Jackie and Lead Bank (outside of Kansas City), and it’s worth a read. 

#2: Why Venture Should Care About Franchises (by Slow Ventures)

I’m glad to see someone else who swims in the same general tech/VC/fintech waters that I do share my obsession with the franchise industry.

This article (and the accompanying deck) is an excellent primer on the industry and why VCs should take it seriously.

If you want a more fintech-specific lens, check out this piece I co-wrote a while back.

---

1 QUESTION TO PONDER

If I wanted to go DEEP on the subject of digital identity, where should I start? 

What are the essential books, reports, articles, blogs, podcasts, and other resources that I should start with?

Also, who in the digital identity space should I talk to?