WORKWEEK

3 FINTECH NEWS STORIES

#1: Coinbase, Selling Out 

What happened?

Coinbase launched a new platform:

Coinbase and its asset management arm teamed up to launch Project Diamond, a smart contract platform that allows institutions to trade and create new digital assets.

The goal is to allow institutions to manage digital assets “directly on-chain,” Coinbase said. However, only institutions outside of the US will be able to use it.

The platform uses both Base — Coinbase’s layer-2 blockchain — and Coinbase’s technology stack, which includes Coinbase Prime, Web3 Wallet and USDC. The platform itself is managed by Coinbase Asset Management.

So what?

I think the crypto industry can be best understood by comparing it to Metallica.

It conceives of itself as this anti-establishment, underground thrash metal band. It writes stuff like this in its S-1:

The current financial system is rife with high fees, delays, unequal access, and barriers to innovation. In many countries, citizens don’t have access to sound money, a functioning credit system, or even basic property rights. If the world economy ran on a common set of standards, that could not be manipulated by any company or country, the world would be a more fair and free place, and human progress would accelerate. 

Puts out chilling commercials like this one:

And even calls its new platform “Project Diamond” as, I guess, a vague callback to the retail trading battle cry “diamond hands”.

But the reality of the crypto industry (and Project Diamond specifically) is that it is now largely focused on the most boring, mainstream, establishment-friendly use cases you can imagine. Its biggest fans are institutional investors and central banks, not libertarians and digital nomads.

There’s nothing wrong with this (I am, personally, a big fan of Metallica post-1991), but it would be nice if they gave up the pretense.    

#2: Affirm, Expanding the Walmart Beachhead

What happened?

Affirm announced that Walmart has expanded the use of its BNPL services:

Affirm Holdings is offering its “buy now, pay later” loans for the first time at self-checkout kiosks at more than 4,500 Walmart U.S. stores, the lender said on Tuesday, sending its shares up as much as 16.1%.

Buyers of at least $144 of products at Walmart, except groceries, can divide payments over three to 24 months through Affirm, a spokesperson said. Financing is limited to $4,000.

After scanning purchases at Walmart’s self-checkout kiosks, shoppers need to log onto Affirm’s app or website and enter details including the last four digits of their social security number. Approved shoppers will receive a barcode to finalize payment, he added.

Affirm has been available with employee assistance since 2019 at 4,000 Walmart Supercenters and the retailer’s U.S. website. 

So what?

Lots of thoughts and questions on this one:

• I continue to be impressed by Affirm’s ability to acquire and retain big demanding retail partners like Walmart, Amazon, and Shopify. The business development team at Affirm is top-notch.
• I’ve also long wondered about this specific partnership – how much natural overlap is there between Affirm’s preferred credit box and Walmart’s core customer base? I’d assume the overlap, absent any subsidization or risk sharing on Walmart’s side, is relatively small. To put it in the specific context of this news, what percentage of Walmart self-checkout customers are going to be approved for financing from Affirm (and at what interest rates?)
• The customer experience, as described in the Reuters article, doesn’t sound amazing? Having to pull up the Affirm app or website, enter your personal information, wait to be approved, and then scan a barcode seems a bit clunky. I wonder what alternatives Walmart and Affirm contemplated.
• Why exclude groceries? Is that a negative selection issue?
• When is One (Walmart’s fintech arm) gonna start, you know, doing fintech stuff? CNBC reported more than a year ago that One would start offering BNPL loans, which hasn’t happened yet. And this latest news would suggest that Affirm isn’t at risk of being booted out by One anytime soon. What’s the holdup here?         

#3: Dave, Missing the Larger Customer Service Opportunity

What happened?

Dave, the neobank, upgraded its customer service capabilities with generative AI:

The fintech this month launched DaveGPT, a gen AI-driven chatbot that can respond to customer inquiries in real-time. 

The tool, which replaces its DaveBot, is generating an 89% resolution rate, said Wilk.

“It’s pretty impressive, based on what we used to have with our DaveBot, which was significantly lower,” said Wilk.

DaveBot’s “rules-based model” would generate canned responses, Wilk said, compared to DaveGPT’s “more human, large language model approach.” 

So what?

To be clear, I think it’s really smart for Dave to be upgrading its self-service customer service capabilities using generative AI. This is an ideal application for the generalized reasoning capabilities of large language models (LLMs). In fact, I think Dave (and all other B2C companies) will find that LLMs can actually replace a lot of the low-level customer service work that humans have been doing and that older rules-based chatbots couldn’t handle.

My concern is that Dave seems to view customer service, categorically, as a low priority for investment. Here’s Dave CEO Jason Wilk:

“We have a lot of operating leverage compared to incumbent banks,” he said. “AI is another lever we have to be able to do more while not growing our headcount in any kind of major way. So that’s a really important way that we can scale. We don’t need 1,000 more people for customer support. If anything, we can keep our support team the way it is and this allows us to 10x our capabilities.”  

My theory, which I wrote about last week, is that in a world in which LLM-powered customer service bots are ubiquitous (coming sooner than you might think), the companies that invest in human-powered customer service experiences may be the ones that most differentiate themselves.

I’d love to see fintech company CEOs starting to talk about customer service in terms of investment and customer value, not just cost savings and resolution rates.

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2 FINTECH CONTENT RECOMMENDATIONS

#1 & #2: Fintech Brainfood’s 2023 in Review (by Simon Taylor) 📚

Simon’s final work from 2023 (and some of his best ever) is expansive enough to justify both spots in today’s content recommendations.

Read this report, sleep on it, read it again, and then bookmark it in your browser of choice.

Not sure how the hell Simon pulled off something like this while out on paternity leave (I could barely speak in complete sentences when I was out on pat leave). Just another thing about him for me to hate.

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1 QUESTION TO PONDER

Thinking about the future of banking and fintech, which “legacy” bank technology vendor most intrigues you and why?

Could be one of the core providers or an OG payment processor or acquirer. Could be FICO or one of the bureaus. Could be one of the card networks (though that feels a bit like cheating).

We don’t pay enough attention to these companies (IMHO), and I am going to try to rectify that in 2024. Where should I start?