Tearsheet

Download Tearsheet’s 2020 Resilience Guide

Fri, 18 Sep 2020 11:45:00 GMT

As COVID-19 spread around the world, financial institutions were forced to shutter branches, transition employees to work from home, and find new ways to transact and communicate with their customers. Traditional financial institutions needed to accelerate digital transformation projects from a timeline of years to just a few weeks.

At Tearsheet’s Resilience Conference 2020, we brought together senior leaders from banks, credit unions, lenders, and payments firms for a candid discussion about what the top firms are doing to remain relevant and thrive in this challenging environment.

We compiled the best of their thinking, experience and advice into Tearsheet’s new Resilience Guide, recognizing companies that have found the best ways of overcoming adversity, pivoting quickly and resiliently in the face of unprecedented challenges.

Tearsheet’s 2020 Resilience Guide explores:

how top firms like Goldman Sachs, JPMorgan, Fifth Third Bank, Marqeta and Intuit navigated through the pandemic to find their own resilience
what customer demand looks like now and how successful firms are serving individuals and commercial clients
how partnerships between fintechs and incumbent banks helped serve both parties and their clients
how communication within companies and with customers helped the financial ecosystem survive

Learn from some of the best financial data companies in the business, including Goldman Sachs, JPMorgan, Intuit, Fifth Third Bank, LendUp, Marqeta and more.

Download Tearsheet’s 2020 Resilience Guide (free)

Kraken is first cryptocurrency exchange to receive state bank license

Thu, 17 Sep 2020 11:45:00 GMT

In a move that may pave the way toward mainstream acceptance for digital assets, an exchange received the first Wyoming banking license granted to a cryptocurrency firm.

What’s going on: The Wyoming Banking Board will issue Kraken, a San Francisco-based crypto exchange, a special purpose depository institution charter.

Headquartered in Cheyenne, Wyoming, Kraken Financial will enable Kraken clients in the U.S. to bank between digital assets and national currencies.
Kraken clients will be able to hold digital assets and pay bills and get paid in cryptocurrencies within a regulated, US institution.
The new institution will be regulated similarly to other US banks, but it is nuanced in its differences.
The charter doesn’t create a full-fledged bank but is part of a series of laws Wyoming passed to usher in cryptocurrency firms to the state.
Kraken says it has 4 million users globally.

Launch plans: Kraken Financial plans a rollout of products and services over the next year.

First up, it will give clients access to dollar deposits and custody of digital assets.
These banking services will integrate into Kraken’s existing services on its exchange, making it easier to fund crypto purchases and clarifying surrounding regulation of these new assets.
With the license, Kraken will target individual and institutional clients.

Funding cryptocurrency from fiat money is an important hurdle the needs to be lowered if cryptocurrency is to become more widely popular. Kraken recently partnered with MVB Bank to enable banking customers to wire dollars in to fund their Kraken accounts.

“By becoming a bank we get direct access to federal payments infrastructure, and we can more seamlessly integrate banking and funding options for customers,” said David Kinitsky, a managing director at Kraken and the CEO of the newly formed Kraken Financial.

Data Snacks: New data shows the majority of SMBs didn’t even bother to apply for PPP assistance

Thu, 17 Sep 2020 11:45:00 GMT

The Coronavirus pandemic has hit the small business community hard. To help, the U.S. passed The Cares Act and with it, the Paycheck Protection Program, intended to keep small businesses afloat without having to layoff employees. But new data shows that many SMBs didn’t even bother applying for relief.

Big banks generally focused on their own larger commercial customers, letting SMBs founder. So, some small businesses found their way to being resilient using specialized fintech tools and software. Fiserv and Intuit both supported financial services customers and small businesses. Fiserv and Intuit both supported financial services customers and small businesses. Financial data firm set up an SBA application portal for its banking partners. It took Sunrise Banks 5 days working with software firm Anvil to help 1600 SMBs access over $100 million in relief funds.

SMBs are still struggling. While many SMBs applied and were denied assistance, many didn’t even bother, according to new data from Intuit.

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New speakers from Betterment, Intuit, and Aspiration announced for the Challengers Conference

Wed, 16 Sep 2020 11:45:00 GMT

Tearsheet’s inaugural Challengers Conference (September 22-24) is the first-of-its-kind online event focused entirely on digital banking. Challengers brings together senior leaders from banks, credit unions, challenger banks, and firms outside of banking for a candid discussion about what the top firms are doing with banking products and services, strategy, talent, and customer acquisition to thrive in today’s unprecedented environment.

We’ve announced three new speakers for our event.

Betterment’s Mike Reust

Betterment’s president of retail, Mike Reust

First up is Betterment’s Mike Reust, president of retail. The firm has been rolling out more banking functionality and Reust joins us to talk about the firm’s move into banking.

Mike was previously the firm’s CTO so his perspective on Betterment’s product roadmap gives some insight into where the firm is headed. He discusses the demand side and what customers are looking for. We also chat about the firm’s overall vision and how that impacts product development during the COVID-19 era.

Intuit’s head of product for QuickBooks Cash, Rob Daniel

Intuit’s Rob Daniel

Rob Daniel has spearheaded the business software firm’s launch of a banking product, QuickBooks Cash, a business bank account that earns high-yield interest and when used with the QuickBooks suite of business services, takes the complexity out of managing finances for small business owners. The new bank account also includes a machine-learning powered finance planner to help small businesses plan for the future by making 90-day cash flow projections, including predictions on when invoices are likely to be paid.

Rob hails from Uber, where he lead the firms financial products.

Aspiration’s CEO and co-founder, Andrei Cherny

Aspiration’s Andrei Cherny

Aspiration’s Andrei Cherney has created a new type of financial institution, one with 1.5 million customers who pay what they think is fair. There’s no set fees for banking. Aspiration is a socially-conscious financial institution that plants trees when customers swipe their cards, provides investment portfolios that screen out companies that abuse the environment, and offsets its customers’ carbon usage on the gas they purchase.

We’re got a great lineup of experts talking about challenger banking from firms like N26, Revolut, Current, Bank Novo, Wealthfront, N26, BankMobile, and more.

To learn more and to register for the Challengers Conference, go here.

4 charts on the impact COVID-19 has had on consumer fintech adoption

Tue, 15 Sep 2020 11:45:00 GMT

With bank branches closed, consumers turned to fintech apps to help them manage their finances. For many of them, this was the first time they’ve really turned outwards from their banking relationships. Others, though familiar with fintech, doubled-down on their usage of new digital finance software. With job losses and reductions of income, Americans turned to fintech.

Fintech adoption is increasing globally, according to the 2020 Fintech Report published by Plaid. The report, which surveyed 2000 people in the US, found that the majority of people used fintech before the crisis, but COVID-19 accelerated their usage of fintech for more financial tasks and with more frequency.

More apps

Source: Plaid

COVID-19 disrupted the processes and routines people had to manage their money. 59% of Americans said they use more apps and digital tools to manage their finances now versus before the pandemic hit. Even people who didn’t use fintech at all started to. 48% of non-users agreed that their usage had increased. Two-thirds (66%) also say they plan to use fintech more often for at least one financial task, from budgeting and saving to investing and paying off debts, as a result of the pandemic.

People are using more apps. During COVID, 13% of people reported they used more than 6 financial apps. That’s up from 8% before the pandemic.

More frequent usage

Source: Plaid

People aren’t just using more fintech apps to manage their finances — they’re also using them more frequently. Before COVID hit, 37% of people surveyed by Plaid said they used fintech apps daily. That number rose to 44% during the crisis.

30% or more of respondents said that due to COVID-19, they’re relying on fintech for the more complex parts of financial management, like investing, managing their credit scores, and paying off student loans and personal debt.

Expanding use cases

Source: Plaid

For many Americans, fintech proved to be a lifeline. With branches closed and cash seen as a powerful vector in transmitting the virus, people needed to use financial apps and software to access their money. That means they used fintech for more activities, like banking (34%) and savings (34%). It also means they turned to fintech more frequently for paying other people (33%) and investing (32%).

69% of Americans found fintech to be a lifeline during COVID-19. More than half say they could not have kept up with their finances during COVID-19 if it weren’t for digital apps, products and services.

Interestingly, people who are married or have kids are more likely to say they use more than 5 fintech apps before, during and after COVID . They also manage a higher proportion of their finances digitally during all 3 phases.

Fintech is the new normal

Source: Plaid

As the pandemic wears on and we prepare to reopen, people have created new habits around their finances. Where they once turned to a bank branch to handle certain activities, they are now more likely to use an app to complete the same task. 73% of Americans believe that fintech is the new normal.

Before the pandemic, respondents used fintech to manage just over half their financial activities. But during COVID-19, with branches closed, they handled 62% of their finances digitally. That number is expected to stay that high, even when things open up.

Ultimately, more than half say they could never go back to a world of bank branches and paper statements. The reasons are numerous why people don’t want to go back: those who used fintech during COVID found that it saved them time (57%), saved them money (42%), and reduced the stress or fear of managing their money (37%).

Payoneer’s Charles Rosenblatt: ‘We found a way to play on both sides of the market’

Mon, 14 Sep 2020 11:45:00 GMT

There’s still significant friction dealing with international transactions. Payoneer is a pioneer in the space of helping people and businesses transact across currencies.

Charles Rosenblatt is the firm’s new chief strategy officer. An executive with decades of experience in payments and financial services, Rosenblatt joins us on the podcast to talk about his new role and how Payoneer is positioned for further growth. He describes how the firm’s value proposition is differentiated from the competition and how sitting on both sides of the transaction can propel future opportunities for the payments firm.

Tearsheet Podcast · Payoneer's Charles Rosenblatt: 'We found a way to play on both sides of the market'

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The following excerpts were edited for clarity.

Joining Payoneer

I worked for a firm (Hyperwallet) that was really talking about two sided markets and the importance of two sided markets. There are many firms that work on just side of the market. Payoneer really found a way to be able to come and play on both sides of a market. Playing on both sides of a two sided market, like a Visa or MasterCard as an acquirer and a processor, reminds me in some ways of my DE Shaw days. You become a bit of a market maker and that creates a tremendous opportunity. Payoneer was really attractive to me as a place to head out.

We have a huge business with large enterprises, like the Airbnbs and the Walmarts of the world. And then we have an equally big business dealing directly with SMBs.

Path to growth

As a company that’s growing tremendously, both from a core business perspective and from a product perspective. And we’ve added two new products over the last few years. One is our working capital product, which is lending money, providing financing for buyers and helping them grow their businesses, as well as our merchant services business, which is sort of our first foray into the acquiring side of the world.

There was a need for someone organically, organizationally, to essentially look over how all of that’s going to interact with each other. One of my first tasks was more an inward-facing role, really to look and figure out internally, how we can make sure that the machine is working well together, that the new businesses are integrating well into the old businesses. And, that we have an absolutely great value proposition for our customers across the board.

Measuring success

My goal is to help be a capacity expander for the great leaders that we have within each of our areas, and help them look at things and see things that perhaps they may not see because they’re running very successful products and or businesses. While I won’t take a direct role in figuring out how they allocate the resources between each other in order to solve it, I may, as an example, say, “Look, there are three different areas where a partnership makes sense.” We don’t need to run it out of one group rather than the other, which is what we’ve been doing historically. Let’s take a more holistic look and make sure we can provide the highest value add for our partners, our clients, our customers, and internally, rather than just servicing one distinct business unit or product line.

The role of Chief Strategy Officer

I believe that I’m the first person in this role. I’m not sure whether there’s been one in the past, but I know there hasn’t been one in the last 10 years while Scott Galit has been running the company. Some of this role, to be fair, is figuring it out as we go and what we need. To tell you truth, I wouldn’t have it any other way. I don’t think I’ve taken a role personally in the last 15 years where there hasn’t been a piece of it that is open to figure out what the organization needs and how we can best utilize myself, the team I build, etc. as opposed to just saying, “Here are the four things you’re trying to check the box of.” I don’t think you can do that at a midsize company.

Two sided markets

Much of our competition participates on just one side of a two sided market. If you think about where Payoneer is versus competition, we provide value to everyone in the value chain, from the marketplaces to the sellers. Our B2B business is one of our largest growing businesses internally. We actually provide help to sellers working with other sellers that are in this marketplace ecosystem.

Competition

I come from one of the competitors, Hyperwallet. Granted, that was a while ago. Hyperwallet has a fantastic business, but it is focused solely on one of the legs of the stool. We see other folks like TransferWise and Airwallex and others who come up. But from what I’ve seen, three months in, when we want to go out and get a business, we feel like we have the best equipped product in order to do that. And thus, we win a fair proportion of the RFPs that we are a part of.

Stripe is a very interesting company. They’ve done an amazing job on the acquiring side with a developer-first solution that you can get up and running in five minutes. I would argue the disbursement side of the equation is a secondary piece of it. It’s a piece that’s important that they’re offering, but they haven’t built their ecosystem around doing that.

Payoneer is built around the ecosystem of payouts for merchants and corporates, and pay-ins for the SMBs of the world. Adyen, and Stripe for that matter, is built around the pay-ins for corporates. And the rest of the services they offer are sort of secondary to that. So in some ways, if and when we move into the acquiring space, there will be a level of competition, but I don’t view them as the primary competition, other than some of our clients use them on the acquiring side. And thus, through that service, also use them for some of the services we provide.

Card networks

We work closely with MasterCard and Visa on disbursements. As a whole, we believe that they are very well positioned with the acquisitions they’ve made with Transpay and Earthport. To play in this market, they have grown with Visa Direct and MasterCard Send. Those are channel plays, more or less. There are there’s no reason why we couldn’t actually create partnerships with them in some of the areas that they may have a product that would help with us.

One thing about MasterCard and Visa is that historically, they weren’t really owners of the customer as part of issuers. And when I was at Capital One and Washington Mutual and Chase before that, the whole thing was we own the customer, and MasterCard and Visa provided the rails. I think unless they are going to take a complete overhaul to their philosophy, they’re going to continue to own the rails. And we are absolutely happy to work as a partner with anyone who can help provide rails in a more cost efficient way for our end customers’ overall pain here.

Trends in the business

One of the biggest trends that we’re seeing has come out of this COVID period — the dramatic shift into the world of ecommerce. We have seen the volume from the current commerce business grow tremendously during this period. And it is our belief that there there will be no downtick from that. When this all ends, may it will be two months, maybe it will be 12 months, who knows? We don’t actually see people stopping their newly formed behavior of shopping online and getting their Amazon Prime dropped off in a day, as opposed to heading out to the stores. That may be sad for the retail market, but really good for us and our customers as we are the leader in sort of facilitating ecommerce marketplaces throughout the globe.

The other thing we’re seeing, and we’ll continue to see, is we have a heavy presence in the travel space. That industry clearly got hit hard, but what I’d say is that the moment that any good news comes out around COVID, it will come back. The travel space will come back over time.

I don’t think travel is going to stop. So, the combination of the two, when you talk about Payoneer, what’s really exciting is if the travel business goes back to what it was previously, but this ecommerce bounce stays where it was, that has a direct effect on the volume we put through our system and the revenue we grow as a company because we are facilitating so much of that transaction marketplace.

Looking ahead

We are a global company and we feel very strongly about our customer base about our employee base staying global. We’ve seen that this global model will continue to grow and it’s allowing us to disaggregate some of our hiring. We are adding a lot of folks year over year. We have a hiring plan, which has us growing in double digit percentages, even by the end of the year, if we can find the right people. I’d welcome your listener base if they think they’re the right people, to feel free to reach out. We’re not constrained. We used to think you have to be near an office. But as an example, I relocated to the state of Virginia, and our main offices are in New York, and that’s not really a huge deal overall, helping to work and run run the company.

Externally, we’re very excited about some of the new business lines that we’ve launched and the acquisition that we did last year. We did an acquisition of a company called Optile. It was our first venture into merchant services. We are working on evolving that product to work for our enterprises and our small businesses. That will give us an eye into what what may potentially go down the path of becoming more and more ingrained into the acquiring side of the world — either as a partner or potentially a competitor down the road.

Internally, what we’re also seeing is a huge desire and volume for the seller ecosystem within the marketplace and the supply chains within the marketplace, to work with each other, and help each other find better ways to pay each other. And that’s sort of an exciting line of business, right?

We have these huge sellers from Amazon or Walmart or whoever it may be, who come on and have a whole supply chain to deal with. What we’re finding is our outside products, some of our own existing and new products like Pay with Payoneer are all growing tremendously because of the value we’re adding and helping small businesses grow.

Inside Shopify’s financial services strategy

Fri, 11 Sep 2020 11:45:00 GMT

The convergence of retail and financial services is being led by large platforms that help merchants seamlessly reach customers online and offline. Indeed, embedding financial services within commerce platforms helps them unlock additional value from seller relationships, and provides a repository of data to personalize product offerings.

A major player in this ecosystem is Shopify, a Canada-based company that helps more than a million merchants operate digitally and in-person. On today’s Tearsheet podcast, we speak with Kaz Nejatian, vice president and general manager of Shopify Financial Solutions.

Shopify, a 14-year-old company that has a market capitalization of more than $100 billion, began making forays into financial services in 2013, with the launch of Shopify Point of Sale. Three years later, it rolled out Shopify Capital for sellers. The company in recent months made a couple of noteworthy financial product announcements, including the upcoming launch of Shopify Balance, a money management solution for sellers; and a buy-now-pay-later option for consumers in partnership with point-of-sale lender Affirm.

Nejatian discusses Shopify’s financial product roadmap and how its embedded financial solutions connect to the company’s broader seller toolkit. A lawyer by training, Nejatian previously worked in private practice; the Canadian government; Facebook; and founded and successfully exited payments startup Kash.

Tearsheet Podcast · Inside Shopify’s financial services strategy

Subscribe: Apple Podcasts I SoundCloud I Spotify I Google Podcasts
The following excerpts were edited for clarity.

The journey to Shopify

I’ve spent most of my life in this weird intersection of money and computers. I grew up watching my mom manage her store, and when I was a teenager, I was responsible for making sure her books balanced at the end of the day. I would leave school, go to the store and look at the credit card terminal. I became obsessed with this thing. I broke my first rule and hacked my first credit card terminal when I was a teenager.

I spent most of my career in that space. I’m a payment lawyer, and I had a payments startup. I was at Facebook working on payments and billing. The thing that really drew me to Shopify was the fact that Shopify helps merchants like my mom, who is a Shopify merchant. About a year ago, I decided to join the company to help create the next million entrepreneurs. Our team works both on [financial] products and partnerships and commercial operations across the board for all of our merchants.

Shopify’s approach to financial services

If you look at financial services, the largest companies in the world are fine, but small businesses are not fine, and I think the pandemic has made that super obvious. Legacy banks don’t want to serve small businesses and entrepreneurs, and because they don’t want to, they create processes that are punishing for entrepreneurs. When the pandemic hit, one of the first things we did was [put our capital product to work]. We put $200 million more dollars into the market.

Shopify’s data advantage

Shopify is where merchants come to work. They receive their sales from the Shopify website, and they run their stores through Shopify Point of Sale, and they do their marketing through [the platform]. This is where all their information lives. Because we have all this information, we can make really smart decisions. If you go to a traditional bank and ask for a loan, the bank will get you to fill out a bunch of forms. We don’t need to do that because we already have all that information, and we don’t need to rely on outdated legacy systems to make decisions. We look at literally thousands upon thousands of factors [and] have software make decisions where people used to make those decisions, and this has allowed us to move much faster.

How shopping app Shop connects to payment vehicle Shop Pay

Shop Pay is the easiest converting, and most loyal payments [vehicle], which is why our merchants love it. We recently released some data showing that Shop Pay converts 190% better on mobile than alternatives. Shop Pay is designed to fight [cart abandonment], which is why our merchants love it.

Shop Pay and Shop work so well together because Shop Pay converts customers and Shop allows merchants to connect with customers again and again, and they can have their own branding and communication [channels]. Shop Pay takes a traditional checkout field — anywhere from 16 to 22 pieces of information — and reduces all that to one click.

Why Shopify is rolling out banking and money management offerings, Shopify Balance

The reason why we’re working on this is we’re trying to make it easier for merchants to start and run their businesses. Legacy banks suck when it comes to entrepreneurs and small businesses. Our merchants don’t get the services they need, they get put on hold and have to fill out lots of forms. This harms their ability to focus on their businesses, and that’s why we are getting into Shopify Balance. That’s why we got into shipping, fulfillment and marketing. I don’t think of shipping as something different from Shopify Balance. We think of this as our subset of problems that make our merchants less likely to succeed [and] it’s our job to make small companies win.

The rationale for point-of-sale loans, Shop Pay Installments, in partnership with Affirm

Our merchants have told us that payment choice and flexibility is helpful for conversion and buyer acquisition.

When it comes to the existing buy now, pay later solutions, we think experience is not great on mobile without having to enter a whole bunch of [information], and the off-site process is just not great. Our goal is to make that native for our merchants. Millions of users who already use Shop Pay every time they pay for something, and our Shop Pay Installment product will be native to Shop Pay.

The entry of other platforms like Amazon, Facebook, eBay into financial services

I am excited about our merchants having more choices. I’m for lots of people offering financial solutions to merchants because I think they are incredibly underserved. Successful entrepreneurs today need to find their customers through multiple different channels. Just selling in one place doesn’t tend to work as well anymore, and we help our merchants through partnerships with Facebook, Pinterest, eBay and lots of other channels. Anything that will reduce the barrier to entrepreneurship is great. It’s good for commerce, and we think our financial services products that are native to Shopify are ones that our merchants prefer.