29 January 2024 |

Lending to Aspiring Hoteliers

By Alex Johnson

The Music Room of Fanny Hensel (1849), by Julius Eduard Wilhelm Helfft.

3 Fintech News Stories

#1: Klarna Plus 

What happened?

Klarna is introducing a subscription service:

Swedish fintech firm Klarna is launching a monthly subscription plan in the U.S. to lock in its heaviest users ahead of an expected initial public offering this year, the company told CNBC.

The product is set to be announced later Wednesday and will cost $7.99 per month, the Stockholm-based company said.

Users of the subscription plan, named Klarna Plus, will get service fees waived, earn double rewards points and have access to curated discounts from partners including Nike and Instacart.

When Klarna users shop outside the firm’s network of 500,000 retailers — at places such as Walmart, Target, Amazon, and Costco — they pay $1 to $2 in transaction fees.

So what?     

I mean, I just wrote an essay last week in which I begged fintech companies to save me from the subscription economy, so… I’m not in love with this.

My friend Matt Janiga pointed out on Twitter that this isn’t fundamentally that different from premium credit cards, many of which charge an annual fee to help offset the costs of their rewards programs.

It’s a fair point. $7.99 multiplied by 12 is $95.98, which is roughly what a mid-level rewards credit card (think the Capital One Venture Rewards card) charges for an annual fee and substantially less than what a premium reward credit card (like the Chase Sapphire Preferred card) charges.

On the other hand, I would be surprised if Klarna’s rewards program is anywhere near as robust as the ones offered by issuers like Capital One, which means that the value of this subscription is more about avoiding fees than it is about earning rewards. Klarna’s Chief Marketing Officer David Sandstrom essentially confirmed this, telling CNBC, “The main proposition of Klarna Plus right now is that you don’t pay any service fees … So if you love Klarna and if you love shopping at Target and Walmart, it makes a ton of sense financially.”

And this is an argument I’m less sympathetic to. Encouraging your customers to pay a fee to avoid paying fees for an activity that you encourage them to do more than they should or otherwise would feels a bit icky. Especially when you consider Klarna’s motivation as it prepares for an IPO: 

“The thing we need to prove to ourselves and to the market is that we can add a new kind of revenue stream to Klarna,” Sandstrom said. “That’s something that a lot of companies have struggled to do.”

#2: Lending to Aspiring Hoteliers

What happened?

Hilton launched a program for aspiring hoteliers:

Hilton said on Monday it had launched a program to match aspiring hotel owners with capital.

The program, called “Unlocking Doors,” intends to help small entrepreneurs overcome a major barrier to entering the hotel management or franchise business. Many local banks are reluctant to give first-time hotel operators loans — or at least loans on affordable terms.

To help overcome that obstacle, Hilton has teamed up with Bridge, a small business lending program run by the startup Foro. Bridge connects small- and medium-sized businesses with about 75 U.S. lenders for business loans, including names from Citigroup’s lender portfolio.

So what?     

A thing you might not know about Hilton – 95% of Hilton hotels are franchises. This means that the vast majority of Hilton properties aren’t actually owned or operated by Hilton but rather by independent entrepreneurs and hospitality companies that build on top of Hilton’s brand, reservation system, and loyalty program. Additionally, many of the newest Hilton hotel portfolios are curated collections of independent hotels, which continue to be run independently while taking advantage of the underlying Hilton infrastructure. 

It’s an efficient, capital-light business model, but it obviously depends on having a steady supply of new aspiring hoteliers who are financially ready to jump into the hospitality industry, either via franchising or building an independent brand that may someday be scooped up by Hilton.

Thus, this deal with Bridge – a small business lending network comprised of 75+ banks and non-bank lenders – which was originally built by Citi before being spun off to Foro (a provider of commercial lending services).

It reminds me a lot of the indirect auto space – a network of multiple lenders building integrations with distribution partners that can efficiently and cost-effectively reach the end customers.

I wonder how much of the overall commercial lending market will eventually get eaten by this embedded model.     

#3: What Happens When Pricing Data Becomes More Accessible? 

What happened?

Two things.

First, Turquoise Health, a San Diego-based healthcare pricing platform, raised $30 million in Series B funding:

Price transparency data has become critical after U.S. regulators passed legislation requiring hospitals to provide clear, accessible pricing information about its items and services.

Turquoise’s platform lets users browse and compare prices of elective services offered by hospitals, as well as compare prices between insurance services. Users can browse by the procedure and provider.

Second, MX, the open banking data aggregator, launched a new product:

MX Technologies, Inc., today announced the launch of Customer Analytics for financial services providers. Customer Analytics leverages enhanced transaction data and actionable consumer insights to help financial providers increase deposits and engagement by identifying cross-sell opportunities, achieving a higher ROI on marketing spend and campaigns, and predicting and preventing customer churn.

With Customer Analytics, organizations can gain a more comprehensive picture of their customers’ financial lives allowing them to improve customer segmentation and marketing strategies. It combines consumer-permissioned and enhanced transaction data into a centralized, comprehensive set of intelligent models, dashboards, and analytics tools all of which can be easily embedded into marketing automation platforms and CRMs.

So what?

The key value prop (IMHO) for the MX product was buried in its press release:

Identify external accounts, balances, and interest rates for credit cards, mortgages, and  loans to inform product roadmaps and improve targeted messages.

Yes! Pricing data! The ability to create APIs and analytic services that can deliver pricing insights is super valuable! 

Everyone wants to be able to steer consumers’ decisions, whether that’s through marketplaces that allow consumers to shop for and compare products or through focused cross-sell offers to existing customers.

Do you know what makes it much easier to steer consumer behavior? Being able to tell them exactly how much money they are wasting or how much you can save them.

I absolutely love this trend. Set pricing data free (over the strenuous objections of market incumbents) and watch innovation flourish.

2 Fintech Content Recommendations

#1: The lost art of “F*ck around and find out” (by Jake Gibson) 📚

This line is the heart of this outstanding essay by Jake on the value of operating in a lean environment:

When you’re operating in conditions of scarcity – you don’t have time, you don’t have bodies, you can’t just throw money at the problem – you have to get really creative and really resourceful.

Read this whole thing, please.

#2: The Future of On Demand Pay and Earned Wage Access (by Jason Lee) 📚

How should earned wage access be regulated? 

That’s the core question that Jason’s article explores, and it’s worth you taking a little time to explore it as well. Fascinating stuff!

1 Question to Ponder

How should I think about new-school deposit sweep networks like ModernFi (which just raised a fresh round of funding)? How are they going to displace or at least compete with established networks like IntraFi? What are the competitive dynamics in this market?

I want to write about this space, but I need some informed input first. Please help!