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Happy Monday, Fintech Takers!

I hope you had a marvelous weekend. 

We got some snow in Montana, which THRILLED all the skiers. On Friday, parents were dropping their kids off at school, fully geared up and (safely) peeling out of the parking lot like they were fleeing from the cops.

I’ll be in Washington, D.C. again this week, speaking at the Urban Institute’s Future of Fintech event (which you can still register to watch remotely!) 

If you’ll be there, drop me a note!

- Alex

P.S. — I assume that you are already registered for our upcoming virtual event — Cash Flow Lending: From Roadmap to Reality — because you, like me, are endlessly curious about cash flow data, open banking, and the future of lending. If you haven’t yet, you still have plenty of time. Register today!

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3 FINTECH NEWS STORIES

Confido, an early-stage fintech startup, raised some money:

Confido, the embedded financial infrastructure platform built for law firms and legal technology providers, has raised $9m in financing across two rounds, with the latest led by Aquiline Capital Partners.

The round also drew participation from The LegalTech Fund (TLTF), Breakwater Ventures, Live Oak Bank, and Context Ventures, which also led the initial round.

The funding will be used to strengthen Confido’s payments and disbursements infrastructure while expanding into additional embedded financial products designed for LegalTech providers and the law firms they serve. The company says the expansion reflects its broader goal of consolidating fragmented financial workflows into a single, compliant platform.

OK, a couple of interesting things here.

First, as the Fintech Global article explains, there are some very important nuances that anyone processing payments for law firms needs to understand:

While the global legal industry moves more than $1trn annually, much of that volume continues to be managed through paper checks, manual reconciliation, and bank tools not designed for legal trust accounting, it said. Law firms must maintain strict separation of trust and operating funds, comply with state bar and IOLTA rules, and often manage multiple trust accounts across banks — requirements that generic payment and FinTech products are not built to support. As LegalTech platforms increasingly become systems of record for firms, these limitations have created a material operational and compliance bottleneck.

As a lawyer, if you violate state bar or IOLTA (that’s “interest on lawyers’ trust accounts” if you didn’t know) rules, you can get reprimanded, fined, or even disbarred. That’s a very harsh consequence for a set of mistakes that would, in other B2B payments verticals, be considered relatively minor.

So, there’s a need for fintech infrastructure providers that understand the operational and compliance nuances of the legal industry. That’s the good news for Confido.

The bad news is that Confido is not the only fintech or fintech-adjacent infrastructure provider that understands the importance of specialization for serving the legal industry. In fact, the first time I learned about the need for strict separation between trust and operating funds for law firms, it was in a conversation with the VP of Payments and Financial Services at Clio. Clio is the leading vertical SaaS platform for law firms, offering everything from case and document management to client communications to … drum roll … billing and payments.

Clio already does this! And it has 150,000 law firms, ranging in size from solo practitioners to large, multi-state and multi-country firms, already using it.

Now, to be fair, Confido (which has 1,500 law firms using its services) says that it integrates with Clio, so that law firms using Clio can easily sync all of their bills, send them, and collect payments, but … why wouldn’t a law firm that is already using Clio just use Clio to do that? Why would they go out of their way to use Confido?

There may be a very good answer to this question, but it’s not apparent to me.

And it makes me wonder just how much room there is in the vertical SaaS fintech stack.

I buy the argument that vertical SaaS companies need infrastructure partners that specialize in enabling vertical SaaS platforms. Hence, the argument for Rainforest over Stripe when it comes to embedded payments for vertical SaaS.

I’m just not sure that argument extends all the way down to the individual verticals. 

Confido did indicate in the article that it would be using its new funds to expand from payments and disbursements into other embedded finance products (lending, maybe?) So, maybe the answer is that the more that a fintech infrastructure provider focuses on a specific vertical (like the legal industry), the broader its offering needs to be?

I guess we’ll see.   

Robinhood is launching a Platinum Card:

Robinhood is releasing a premium rewards credit card with a $695 annual fee — the Robinhood Platinum Card.

With a $695 price tag, the Robinhood Platinum Card has among the highest annual fees available from premium rewards cards today. In exchange, you’ll earn solid rewards and get benefits for select spending each year.

Bonus rewards cover a few different categories: 10% cash back on hotels and rental cars, 5% cash back on flights booked through the Robinhood Banking app, 5% cash back on dining, 1% cash back on everything else.

The product will also offer a range of other benefits, including a complimentary Robinhood Gold membership, unlimited Priority Pass airport lounge access, credits for DoorDash, autonomous rides, wearable purchases, and memberships to Amazon One Medical and Function Health. Robinhood puts the value of these benefits at more than $3,000 per year. However, as Josh Kale points out on Twitter, there are a lot of gotchas in the fine print that make realizing the entirety of that $3,000 bundle of benefits very difficult in practice.

More broadly, this product is just more evidence for my emerging theory that credit cards, as a product category, are increasingly becoming an expensive and annoyingly challenging video game for a narrow segment of points optimizers and status-oriented strivers.

That customer segment can be very lucrative (if you get the balance between optimizers and status seekers right), but I am starting to feel like there’s this weird feedback loop (facilitated by Twitter and influencers like The Points Guy) between this segment and credit card product managers that is leading those PMs to forget about the rest of the market.

I mean … who is the Robinhood Platinum Card for, exactly? 

Judging by its rewards and benefits, it’s for health-obsessed day traders who travel constantly and never cook their own food.

There are, to be sure, a good chunk of people who fit that description. However, I suspect there are other customer segments that are larger, more lucrative, and less well served. It’s disappointing (though not surprising) that Robinhood is using its second credit card to double down on the part of the market it already dominates (a $250 annual credit for autonomous taxi rides is a benefit that only makes sense to you if you’re based in Menlo Park).

This feels more like a product designed to get Sheel Mohnot to tweet about it (positive or negative) than it does to meaningfully expand Robinhood’s customer footprint.

PayPal has partnered with M0 and MoonPay:

MoonPay and M0 today introduced PYUSDx*, a new offering that enables the creation of application-specific stablecoins backed by PayPal USD (PYUSD). PYUSDx is designed to help builders launch and scale application-specific stablecoins while significantly lowering the technical and operational overhead to get started.

PYUSDx addresses a critical gap in the market: enabling developers to launch application-specific stablecoins quickly while leveraging the core foundation of an established stablecoin, PayPal USD (PYUSD). PYUSD is issued by Paxos Trust … a federally regulated national banking association, while PYUSDx is a distinct tokenization and issuance framework offered by MoonPay Digital Assets Limited that enables developers to create application-specific stablecoins backed by PYUSD.

You know that expression, “playing chess while everyone else is playing checkers,” meaning to think strategically while everyone else is thinking tactically?

In payments, the equivalent of playing chess is building a closed-loop network in which the same company controls both sides of the transaction. If you can build a closed-loop payments network, you can reap significant benefits: the unit economics are vastly better (you don’t have to share your take rate with anyone), the merchant and customer data that your network generates is extremely valuable, and, most importantly, you retain full control to make merchants’ and customers’ experiences as frictionless and delightful as possible.

Of course, building a closed-loop payments network is extremely difficult. As a default state, payments want to be free. Buyers and sellers want choice and ubiquity. To earn the opportunity to construct a closed-loop network, you have to spend years (sometimes decades) building up usage and trust on each side of your network before slowly merging them together. To return to our idiom, you have to play several patient games of checkers simultaneously (and do so well for a long period of time) in order to get the chance to play chess.

Many of the most admired and profitable companies in and around payments have built or are in the process of building closed-loop networks, including American Express, Capital One, Block, Affirm, and Starbucks. Indeed, just the threat of a new, at-scale closed-loop network is often enough to force the big open-loop incumbents in payments to give massive concessions, as Visa and Mastercard are rumored to have done with Apple in the early days of Apple Pay.    

PayPal — a company that recently replaced its relatively new CEO — has earned and subsequently given away more opportunities to build a closed-loop network than any payments company ever.

For more than a decade, the company has had hundreds of millions of consumers, tens of millions of merchants, and a reach that extended around the world. On top of that scale, it had assembled all of the pieces you would need to create a massive closed-loop payments network: a mobile wallet, P2P payments, BNPL, and a branded one-click checkout button.

And yet, over the last 10 years, PayPal has repeatedly surveyed the chessboard that other companies would kill to get a seat at and pre-emptively decided to tip over its king.

During those years, the company came to an agreement with Visa to stop steering customers away from cards and towards ACH funding, ending the company’s opportunity to build a multi-merchant pay-by-bank network. It began to prioritize growing unbranded payment processing volume (through Braintree) rather than continuing to push its branded checkout solution (the PayPal button). And it failed, utterly, to leverage Venmo and its BNPL offerings to consolidate its hold on the consumer side of the market, even as Block, Affirm, and others used the exact same consumer products to advance their checkers-to-chess ambitions.

With stablecoins, the company had yet another chance to play chess. As usual, the company (even in its bloated and bureaucratic late-stage form) was early to the market. It launched PYUSD in partnership with Paxos in August of 2023, well before stablecoins were the cool thing in payments (Stripe acquired Bridge to make a big leap into the space more than a year later). 

Its ambition at the time was clearly to use PYUSD to glue the various parts of its ecosystem together into a new, global on-chain closed-loop payments network. Consumers could buy and sell PYUSD on PayPal and Venmo, send it to other people on PayPal and Venmo, and use it to make purchases with PayPal merchants. The company even incentivized consumers and merchants to keep their funds in PYUSD by offering them a 3-4% yield on their balances.

And now, with this partnership with M0 and MoonPay, PayPal is, once again, tipping over its king before the game is close to over. 

Instead of focusing 100% of its time and energy on distributing PYUSD directly, PayPal is turning PYUSD into infrastructure and enabling other fintech apps to launch their own branded stablecoins backed by PYUSD. In other words, PayPal is positioning PYUSD as unbranded infrastructure, rather than solely a branded solution for consumers and merchants. 

Seriously, what the fuck?

Do they understand that they’re not going to beat Visa, Stripe, and Circle at this open-loop, developer-centric game? Are they aware that Capital One just spent $35 billion to build its own closed-loop payments network? Do they see Block finally getting out of its own way (perhaps too much? 4,000 people is a lot of people!) in its long-standing pursuit of its own closed-loop payments network?

Why does PayPal keep making this same mistake?

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2 READING RECOMMENDATIONS

Great stuff from Jason in this one on Bilt (how did they screw up the Bilt 2.0 rollout and transition this bad?) and Tomo (the idiot scammer ghost haunting the house that is fintech). 

Really interesting if you are a fan of basketball, Moneyball, or how in-person events (even small ones) can catalyze systemic changes in highly competitive industries.

Cash flow data has a strong ROI and very real operational landmines. I break down how lenders should sequence adoption, from second-look underwriting to full off-us origination, without blowing up the workflows they've spent decades optimizing. It's the map you need.

*This rec is brought to you by one of our fantastic brand partners.

1 QUESTION FROM THE FINTECH TAKES NETWORK

There are a TON of interesting questions being asked in the Fintech Takes Network. I’ll share one question, sourced from the Network, each week. However, if you’d like to join the conversation, please apply to join the Fintech Takes Network. 

Have you ever made a bet through a prediction market? If so, how did it go? What was your experience like?

If you have any thoughts on this question, reply to this email or DM me in the Fintech Takes Network!

Thanks for the read! Let me know what you thought by replying back to this email.

— Alex  

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