This first appeared in the monthly a16z fintech newsletter. Subscribe to stay on top of the latest fintech news.
It was inevitable: After shaking up gaming, education, media, and audio, the creator economy is infiltrating financial services. Examples abound: YouTuber Graham Stephan “buying a bank” (investing in Yotta), TikTok sensation Charli D’Amelio promoting the teen-targeted banking service Step, and influencers partnering with Braid to give away $1,000 a week to fund collaborative projects. It would be easy to dismiss all this as a marketing ploy to appeal to Gen Z consumers — on par with, say, Shaq promoting The General’s car insurance or Disney issuing an affinity card — but there’s reason to take a second look. Whereas the previous era drew on celebrity and identity to market to consumers in a purely transactional way, the latest fintech x influencer wave incorporates product features that appeal to an audience of aspiring creators.
Oxygen, for example, bundles LLC creation, invoicing, and on-the-fly insurance into its core banking product. Others are purpose-built for community: Stir builds financial products and business tools specifically tailored to creators and entrepreneurs, like revenue splits for collaborations. These companies aim to meld emotional appeal and utility; marketing and product.
There’s precedent for this acquisition model in the Apple vs. PC brand war of the aughts. Though PCs had long dominated the market, Apple introduced a premium, high-margin challenger by targeting creative professionals. That strategy was telegraphed through everything from the aesthetics of the machine to the improved software (Keynote vs. PowerPoint; Pages vs. Word) to the in-store brand positioning. The Mac was positioned as the only choice for aspiring creatives, which spoke to the aspirations of Gen X and Gen Y.
Like PCs, banking is largely a commodity business. Increasingly, neobanks are converging around a commodity feature set: get paid early + debit + cash advance + high(er) yield savings. Thus, fintech companies like Step, Yotta, and Current are differentiating themselves by appealing to the aspirations — and product demands — of Gen Z. This generation is defined more by hustle culture than creative culture; indeed, our conceptions of entrepreneurship and success are being redefined (less Rolex, more F.I.R.E). Like Apple, neobanks and consumer fintech startups are positioning themselves as the premium product — desirable because of their association with top creators and useful (or aspirational!) because of bundled features that empower fans to become creators themselves. This approach works when the product combines brand positioning with utility that is purpose-built for aspiring creators, which lends the potential to be more durable than a traditional marketing partnership.
In addition, there’s opportunity for creators to directly embed their own offerings into banking products. MSCHF’s “Card V. Card” drop may be tongue in cheek, but it illustrates the creative ways influencers like David Dobrik might turn their broadcast relationship into a financial one. (Hypothetically, you could imagine that instead of giving away cars on YouTube, he could randomly award them to folks who have “Dobrik Debit.”)
We believe that consumer fintech companies with embedded product features for aspiring creators will be able to best differentiate themselves from those that are simply using creators as a way to reach an audience at scale.
This month, Walmart announced a partnership with the fintech investment fund Ribbit Capital to build new fintech products for its customers and employees. While this particular initiative is new, Walmart and the retail sector more broadly have long dabbled in fintech. Sears Roebuck sold insurance in the 1930s, offered a credit card in the 1950s, and even acquired a brokerage, Dean Witter, in 1981. Home Depot tried to acquire a bank, and Target succeeded at acquiring an industrial loan charter.
Thus, over the last 20 years, Walmart has become a “superstore” for financial services. Those services include in-store and online offerings ranging from bill pay to check cashing to money-transfer services to reloadable debit cards. In addition, the chain is known for advancing the concept of prize-linked savings. Walmart even made several attempts at becoming a bank in the 2000s before abandoning that pursuit amid pressure from the banking industry. Today, most of its financial services offerings have been extended through partnerships with companies like Affirm, Green Dot, Even, PayActiv, Ria and others. And fintech companies are eager to partner with Walmart from a distribution perspective. Walmart is the largest employer in many states, with more than 1.5 million employees and 5,000 locations across the U.S. More than 40 percent of Americans claim to shop at Walmart on a weekly basis, which provides a built-in distribution base for fintech partners. Moreover, many of Walmart’s customers and employees are underbanked, in need of better financial services.
That said, financial services make up less than 1 percent of Walmart’s overall revenue. So why does it have so many offerings? Most obviously, these products give customers another reason to transact at Walmart’s stores and website. The megachain also hopes to appeal to customers seeking greater convenience and lower-cost services. From a marketing perspective, saving customers money on wire transfers, for example, bolsters the company’s brand, as the perk aligns with its “everyday low price” messaging. Walmart likely views many of these fintech projects as experiments to see what drives customers to return to stores and online.
Why the latest fintech partnership? From a timing perspective, the continued decline in bank branches has left a void for companies like Walmart to fill. Employer-provided financial services are growing, and many consumer fintech companies are struggling to reach new users amid rising customer acquisition costs. Moreover, Amazon and other potential distribution platforms have been expanding into financial services. Of course, where Walmart and other retail giants have distribution advantages, fintech startups have speed, nimbleness, and less reputational and regulatory scrutiny hindering product experimentation. Going forward, we’re likely to see more collaboration between traditional retail and fintech.
When Simple announced it was shutting down earlier this month, the news was met with dismay from both its customer base and the greater fintech community. The arc of Simple, one of the first neobanks to enter the mainstream zeitgeist, was a harbinger for the rise of fintech. When it was founded in 2009, Simple was a revelation. Here was a company that brought technology to banking, offering smart budgeting and safe-to-spend balance monitoring. Though few were familiar with “fintech,” even the general public could appreciate that Simple was doing something new.
But what was even more important was what was happening behind the scenes. Though Simple offered banking services, it was not a bank. Instead, Simple partnered with Bancorp as a licensed regulated entity. In this way, Simple precipitated the era of partner banks. When Simple launched, there were only a handful of what would today be called neobanks. (Another early neobank, Moven, was founded in 2011.) Today, there are dozens of neobanks in existence — and more willing banking partners than ever.
Equipped with a bit of naiveté — “Surely this can’t be that hard?” — and loads of perseverance, Simple founders Josh Reich, Shamir Karkal, and Alex Payne essentially willed the entire stack for this new approach into existence. The first major hurdle they faced was banks’ risk aversion. No bank wanted to risk its license by partnering with unproven fintech. Even if a bank was willing, it was a tremendous amount of work to figure out the contracting, the revenue share, and who owned what parts of what processes. (Does the fintech handle the KYC or does the bank?)
In addition, banking technology was a contradiction in terms. Even if a bank signed an agreement with a partner bank, the tech integration still loomed large. In the aughts, many banks didn’t know what an API was, let alone how to let a third party use it.
It’s still a complex endeavor to create a successful neobank today, but it is an order of magnitude easier than it was at the beginning of the decade. We owe a debt of gratitude to entrepreneurs like Simple’s founders who paved the way. As one trailblazing neobank shutters, we’re grateful for all the entrepreneurs past, present, and future with the conviction to build something new.
Google recently unveiled a total revamp of the Google Pay app, introducing P2P payments, budget tracking, savings tools, and rewards. The app subsequently shot to the top of the Google Play and App Store charts and has remained in the top 15 ever since.
Since its launch in 2015, Google Pay has become one of the largest consumer fintech wallets in the world, with more than 150 million users across 30 countries. That scale is still dwarfed by Apple Pay, which has attracted approximately 500 million users since 2014, around half of iPhone users.
It’s evident from this redesign that Google is excited about untapped opportunity in financial services — its renewed focus on the Google Pay app is just the beginning. The bigger news is that Google intends to expand into banking later this year, partnering with 11 banks to launch a service called Plex. Plex is expected to offer many of the core features we’d expect of a neobank, such as no-fee banking and no overdraft fees, furthering Google’s transition from a digital wallet into a full-fledged banking service.
Of course, Google isn’t alone in pursuing financial services. Apple, Shopify, Amazon, and others spent significant resources to bolster their financial offerings last year, and Walmart just announced the creation of a new fintech company, as we note above.
Established companies like Google, Walmart, Apple, and Amazon have already dialed in distribution, which is traditionally one of the most difficult hurdles for new fintech companies. Thus, it’s only natural that these companies would want to be key players in continued disruption of the finance industry. For fintech startups, differentiation, product innovation, and a scalable go-to-market strategy are more important than ever.
Today, almost 5 billion humans have mobile phones, 80 percent of them smartphones with internet access. Amazon has rendered much of retail obsolete, and this process is quickly happening to banks as well. The bank branch is an anachronism. Eventually, every consumer will access his or her savings, loans, and investments via a mobile app. This reshuffling of the deck is being quickly adopted by consumers, but it should be appreciated even more by governments, who can finally offer monetary goals directly to their constituents.
Fintech represents the most powerful tool that governments have to make their monetary services available directly to their own citizens, benefiting consumers equally. The reason things like the Paycheck Protection Program (PPP) have been such a disaster, or that stimulus checks still have to be mailed in 2021, is that there is no “direct connection” between consumers and the government for money.
What might this look like? In the U.S., the Social Security Number is the universal, unique identifier for Americans. Not every American has a driver’s license, a passport, or even a copy of their birth certificate, but every American citizen knows their SSN. That SSN is the gateway into financial services, medical services, pretty much everything that requires a unique representation of you. Why not turn the SSN into a bank account, placing some measure of security (password + second factor authentication)? With a SSN as a permanent financial account with the government, the government could deposit money directly to consumers, or allow person-to-person transfers (Fedwire being the SABRE of sending money, only accessible through banks), or pay overnight interest on deposits directly. Need to pay your taxes? Just deposit it directly to your Federal account. Waiting for a tax refund? Nothing to wait for. The same could be done with the Federal Employer Identification Number (FEIN), the “SSN for businesses.” Start a business, get an instant “account” with the federal government for any transactions with the government.
If the borrower is the government or if the recipient of money is the government, it makes no sense for that to be filtered through legacy financial institutions. The government already owns identity and is exclusively in charge of the money supply. It’s time to unite them.
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