After an extended pre-launch period, Apple launched Pay Later yesterday. Pay Later allows users to split purchases into four payments, spread over six weeks with no interest and no fees.

How it works: Based in Apple Wallet, users can apply for Apple Pay Later loans of $50 to $1,000. These short-term loans can be used for online and in-app purchases made on iPhone and iPad with merchants that accept Apple Pay.

• Apple uses a soft credit pull during the application process.
• After a user is approved, they will see the Pay Later option when they select Apple Pay at checkout online and in apps on iPhone and iPad, and can use Apple Pay Later to make a purchase.
• Once Apple Pay Later is set up, users can also apply for a loan directly in the checkout flow when making a purchase.
• Apple plans to report Apple Pay Later loans to U.S. credit bureaus starting this fall.

Pay Later is being rolled out slowly, as Apple randomly selects users to participate in the new program.

Apple’s deepening foray into financial services: Apple Pay Later is offered by Apple Financing, a subsidiary of Apple. This arm is responsible for credit assessment and lending.

• For merchants, Apple Pay Later is enabled through the Mastercard Installments program.
• Goldman Sachs is the issuer of the Mastercard payment credential used to complete Apple Pay Later purchases.

For its part, Goldman Sachs, which has backed the Apple Card since its launch, has significantly changed its commitment to its digital retail banking offering, Marcus. After restructuring its groups under the Platform Solutions group led by Stephanie Cohen, the bank is more focused on powering financial services for 3rd parties like Apple, as opposed to going direct to consumer.

BNPL now: Apple’s entry into BNPL comes as the industry anticipates more regulation. Buy Now, Pay Later is also facing growing blowback from customer protection organizations because of how BNPL has been marketed as a better alternative to revolving debt. See Tearsheet’s coverage of BNPL.

The post Apple (finally) releases Apple Pay Later appeared first on Tearsheet.

SoLo Funds has become the first Black-owned financial services company to cross the 1 million customer account mark. It did so last month, achieving a statistically significant milestone.

Launched in 2018, SoLo, the peer-to-peer lending marketplace, has had over 1.3 million downloads to date. Additionally, 600,000 loans have been funded through the platform, with over $300 million in transaction volume.

SoLo facilitates P2P loans for consumers living on the margins of financial services, by way of its digital SoLo Wallet that launched last year. The firm’s app lets anyone with a bank account sign up and make a loan request ranging from $50 to $1,000 by linking their bank account and debit card to the wallet.

A report issued by the US Congress Joint Economic Committee (JEC) found that roughly 20% of US adults are either unbanked or underbanked. Additionally, recent research by SoLo verified that 82% of its total members live in underserved zip codes according to the US Census designation. 

Moreover, as the nation is grappling with record-high inflation, conditions continue to exacerbate for people of color, minorities, and other underserved demographics. The Federal Reserve Bank of New York came out with a new report on inflation inequality earlier this year showing that the high prices seen lately aren’t hitting everyone the same way. People of color and gig workers, for instance, often find themselves in a tight corner due to higher rates than their counterparts at the higher end of the income scale experience.

The difficulty of accessing loans is amplified for this demographic as traditional banks typically do not offer short-term loans at scale. These institutions have labor-intensive lending processes and regulations that make it unfavorable for consumers seeking this option.

In order to issue loans more quickly, SoLo has removed itself from the lending process directly – in fact, consumers borrow from each other. Borrowers asking for short-term personal loans for immediate needs can connect with individual lenders looking to support their community and gain extra income in return. Borrowers have the option to tip the lender and the SoLo Funds platform – that is how the platform makes money without charging additional fees or interest rates. 

By providing a short-term loan solution that equips its borrowers with speed, autonomy, and access to emergency funds, SoLo aims to serve this population. It also zeroes in on middle-class consumers who are trying to step up their rate of saving – by providing them the option to earn returns on the dollars they lend.

Lately, neobanks have helped underserved populations access bank accounts, while credit-focused fintechs are providing these populations with access to credit to a certain extent. But despite so many offerings and products being launched, pain points continue to exist for this population.

“Products and features are coming out but only a few are reaching scale like SoLo and Esu Esu. The financial services of conventional banks are not readily accessible to cash-poor groups of Americans – to improve credit, make ends meet, or make a return. Additionally, government regulators haven’t made it easy to serve those in need,” said Rodney Williams, co-founder and president of SoLo.

On surpassing 1 million users:

Often, growth is uncomfortable – acquiring more than 1 million registered users hasn’t come easy for SoLo. The company drove its business model reinventions a couple of times to hone its financial model before hitting on the idea of providing a safety net to its lending members. For a 5% fee, the firm’s Lender Protection product secures a lender’s loan in case it’s not paid back on schedule and will credit the full amount to their SoLo Wallet. 

The platform raised a $10 million Series A round in 2021. But prior to that financing, SoLo was forced to shutter as it was strapped for funds in 2019, according to Williams.

The company was reinstituted in April 2020 with improved quality and safety of its suite of products, including protection for lenders.

In addition to building and scaling its line of products, Williams attributes incorporating Lender Protection as one of the overriding drivers of SoLo’s growing users. After it instituted Lender Protection, the company experienced significant user growth, which was followed by its Series A funding round backed by Serena Williams’ venture firm, among other investors. 

“SoLo is transforming the lives of everyday Americans with democratized access to capital and returns that’s truly rooted in community,” said Serena Williams, future tennis hall of famer and managing partner at Serena Ventures. “Community Finance is working and SoLo is proof of that. We are proud to stand behind SoLo as it continues growing at an incredible pace and focuses on giving underserved groups and individuals the tools they need to thrive financially.”

What makes SoLo different?

There are a number of fintechs, like Dave, that offer solutions for early pay as a short-term capital solution for underserved consumers. These solutions are effective but cater to only a fragment of Americans who are employed at sizable corporations like Walmart with regular work hours to draw down on, according to SoLo’s Williams.

This is a smaller segment as opposed to the addressable market of SoLo that comprises a significant portion of middle-class Americans ranging from lower incomes to individuals living paycheck-to-paycheck, employed across small businesses with no access to such solutions. 

“Our market is most of America with over 200+ million people being underserved. We do make an effort to speak to every American regardless of ethnicity, location, work, and family style. We are an extremely inclusive organization and go-to-market solution,” added Williams.

The company has plans to integrate products and features like interest-bearing accounts, automated lending solutions, and subscription services into its platform later in the year.

Will things change for the better for Black-owned fintechs?

Despite SoLo stepping in to challenge banks on their own playing field, the firm doesn’t consider this the tricky part. It finds limited competition due to the fact that large banks don’t generally offer access to short-term capital to the underserved demographic. 

SoLo has seen a high influx of business as demand for short-term loans has widely grown due to the massive market need and lack of options amid ongoing economic stress.

However, the challenge for SoLo continues to revolve around the rough road to land funding for founders of color.​​ Racial disparity in both lending and equity is a pivotal factor behind Black entrepreneurs’ struggles to secure business funding in financial services. 

Venture funding in the US overall dropped nearly a third in 2022 as inflation and interest rates jumped — from about $337 billion to less than $214 billion. Black-founded startups were hit hard in particular by this decline, data shows. 

Furthermore, statistics do not paint a hopeful picture for Black founders as they saw their share of the venture market drop from 1.5% in 2021 to 1.1% last year. 

“Inflation and industry-wide regulatory challenges disproportionately affect founders of color with limited funding and support. Launching and scaling such a company is rare and a key reason why SoLo is the first one to get to a million users,” noted Williams.

The post How Black-owned SoLo scaled to 1 million registered users appeared first on Tearsheet.

Banking is a necessity for most, but not everyone is able to access it equally. For example, often banking apps cannot be fully operated through keyboards or alternate keyboards. This bars people who are visually impaired from using these apps. These kinds of operability issues were found in 67% of banking apps according to the Bureau of Internet Accessibility.

Equal access to information and services is not possible if essential software like banking apps continue to fail on critical accessibility metrics. Accessibility doesn’t have to be the “road less traveled by”.  In fact, FIs like U.S. Bank and Citi and companies like Google have started to pay more attention to digital equality needs across their digital platforms by building internal oversight teams and partnering with accessibility software and training providers. 

Understanding how these institutions tackled accessibility issues may be the key to deconstructing the hard problem of inaccessible software into a solid plan of action for digital equality.

Making use of accessibility tools: U.S. Bank

“Accessibility is a hat I wear 100% of the time, I don’t get to take it off. And that’s where my passion comes from,” says Heather Lee, a user experience architect on the digital accessibility team in the U.S. Bank. Under her tutelage, the bank has been able to bake digital equality into its product development lifecycle. For the bank, this is an ingredient that goes first but not last. The bank collaborates with customers that have disabilities. It also works with Deque Systems, a digital accessibility company based out of Houston, to ensure every product meets accessibility goals and standards.

The firm’s commitment to provide accessible products and services led to the implementation of automated accessibility testing at scale.

Currently, the bank has accessible parking spaces, teller counters, and talking ATMs which also meet height and reach requirements of the ADA. People can and contact their local branches to arrange American Sign Language interpretation services for in-person or virtual meetings. And the firm provides statements and communications in large font, Braille, and accessible digital formats.

Lessons learned at Google

Google’s digital equality journey started with a complaint, said Eve Andersson, senior director of product inclusion, equity, and accessibility at Google, last week at Deque Systems’ axe-con conference. A client noticed a regression in one of their product’s accessibility and sent an email to the firm, citing concerns. Andersson  sent an email to the concerned department but then lost track of how matters proceeded. She snapped out of her complacency when the client sent another angrier email. 

It was time to take charge. For her this meant going up to the VP and asking for the right to stop any inaccessible product from going to market.

That was not going to happen within an organization as autonomous as Google. So, Andersson and her team restructured their plans to come up with a hub and spoke model. At the core of this plan was the idea that the “hub” was responsible for oversight and providing centralized services regarding accessibility. And the “spokes” (every product development team) would be empowered to design, build, and test their products for accessibility. 

Their first area of focus was building centralized education materials that teams could use to understand what needed to be done to meet accessibility requirements in their products.

Using an incremental approach, Google was able to introduce internal standards which allowed every team to bake in accessibility themselves.  Similarly,  the team also introduced accessibility orientation for new hires like engineers and product developers, which made sure they got hands-on experience with coding accessible software.

10 years later, this step-by-step approach means that Google built a solid culture of accessibility. This allows teams to work independently with accessible tools that are used in-house. And provides recognition for those who champion this work through its “Accessibility Champs” program.

These strategies can easily be adapted to the financial services milieu. Since most FIs have an array of products and services, the incremental and hub and spoke method can serve as a blueprint for accessible product building.

Go beyond: Citibank

Citibank’s accessibility journey has recently been evolving, with the establishment of its Digital Accessibility Center of Excellence. This center monitors and manages digital equality efforts across all the digital content created by the bank for its different lines of business. The firm now focuses on pre- and post-production accessibility requirements and uses Deque Systems’ education platform Deque University to educate its teams.

Moreover, the bank also has an Accessibility Resource website which is used as a hub for Citi employees to access disability inclusion and resources. Given Citibank’s influence, the firm hasn’t stopped at just promoting accessibility in-house but it also co-developed the “EmpoweredNYC Campaign” with the city of New York, which provided financial counseling for the differently abled community in NYC. 

The key takeaway here is that accessibility should be cultivated within organizations and then also spread around. Large FIs have the room and funds to not only focus on building accessible tools for their employees and customers but to benefit the differently abled community at large. These kinds of initiatives go beyond providing access but help cultivate a better socio-economic reality for this community. Accessibility is not really a destination; it is very much a journey whose graph is asymptotic. While small FIs can start by building digital equality into their platforms from the start, bigger banks can have an impact outside their organizations as well. 

The rising tide of accessibility will not just lift up customers but also raise banks into perceptions, ideas and business of those who experience the world differently.

Both forms of action are incredibly important. While ensuring financial services are accessible is the first step. Providing opportunities and co-creating products with this community completes the picture. Simply, ‘nothing about us, without us’. 

The post ‘Accessibility is a hat I wear 100% of the time’: Lessons learned from U.S. Bank, Citi, and Google appeared first on Tearsheet.

Today’s guest on the Tearsheet Podcast is Michael Shaulov, co-founder and CEO of Fireblocks. Michael strikes me as one of the smartest guys in finance – Fireblocks, for its part, is a platform to create blockchain-based products and manage day-to-day digital asset operations. Banks like BNY Mellon and BNP Paribas are using the firm’s wallet technology for digital asset custody. 

For an industry in flux, Michael is positioning Fireblocks as an important layer in the digital asset technology stack. Our discussion happened before the failure of SVB and the closure of Signature Bank. Michael’s pragmatic approach is refreshing and speaking to him, you get the feeling that he’s building something for the long run.

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The following excerpts were edited for clarity.

Fireblocks’ genesis story

So initially, to be fair, we ran into this problem. When I was at Check Point, we investigated a breach that happened in South Korea. Back in 2016-2017, the North Korean hacking team hacked four exchanges in South Korea, and they stole $200 million worth of bitcoin. Bitcoin, at that time, was worth $1,000. So you can multiply by 23 at the moment. 

The year before, they hacked the SWIFT system – they are sort of well-known for compromising financial infrastructure to bypass sanctions on North Korea. And that triggered my interest in that domain. 

Honestly, I was not a bitcoin maximalist. Unfortunately, I didn’t invest in bitcoin in 2010 or in 2011, or anything like that. What basically happened at that point in time, after we did our part of that investigation, I started going down the rabbit hole and learning about the technology. And what I realized is that it’s a transformational technology for finance on one hand, and the second thing that I learned is that there wasn’t infrastructure to work in a transactional way with cryptos and digital assets, which was clearly underpinning all the narrative of what you’re supposed to do with the technology. 

Counterparty risk

I actually divide the world into two different domains. The first domain is actually the pure decentralized finance that honestly was the exception – of Terra Luna – most of that space was functioning very, very well during the stress scenarios that we’ve seen over the last couple of months. And the reason for that is that to be honest, decentralized finance does work. It took a while. The last couple of years were a good kind of testing ground and some of the blue-chip protocols like Uniswap and Compound were battle tested and they survived the different collapses and the stressful situations that the market has thrown at them in the last 12 months.

The part that didn’t function that well, not unsurprisingly, is part of decentralized finance that underpins some of the speculative environment around crypto. If we take a small step back, it’s important to understand that bitcoin is much more of some kind of reserve instrument than all the other public sharing protocols, whether that’s Ethereum, Solana or Avalanche, or Polygon. Some of those things that people are familiar with – the fact that they have a token and the fact that that token is valued or has some kind of dollar price attached to it – are actually a bet on the fact that the underlying blockchain will be the dominant rail to represent assets and run financial infrastructure. 

Fixing things moving forward with technology

We argue at Fireblocks that actually for the last two or two and a half years for our clients (we currently service 1500 clients, which is basically all the big players, financial institutions, fintech companies, hedge funds, web3 companies, and so on in this space) that we want to introduce technical capabilities that they will be able to obtain counterparty risk mitigation against some of the centralized players and counterparties, in the form of on-chain escrow capabilities, you can use blockchain and can actually programmatically create an escrow which is visible for both parties. That reduces counterparty risk that you don’t need to pre-fund, which is what happened at FTX. 

As an example, we introduced the technology that allowed you to actually have a remote view of the positions of your counterparties, which could have saved some of the lenders at 3 Arows, right? For a long period of time, the space was not that interested in adopting that technology, although you would argue that this is kind of the part of the narrative of the space: they prefer to operate using the existing methodologies that you would see in the traditional financial space. And interestingly enough, now, all of this has been washed out. And there is a huge demand for the things that we were proposing and contemplating for a few years already. So, on that front, it is a bit encouraging.

Fireblocks’ model of custody solutions

The narrative that was created with the inception of bitcoin was this thing around ‘unbank yourself’. That was the first narrative. And there is another narrative over there, which is basically ‘not your keys, not your crypto’. Although both of them sort of led you to this self-custody model – the self-custody model that Firelooks provides is effectively some form of the institutional form of custody. We call it ‘direct custody’. So it is a secure non-custodial model for most cases. And the advantage is that you definitely eliminate counterparty risk from relying on anyone else. You’re removing the counterparty risk, you’re removing the operational risk. 

And then that very elementary structure can be evolved using smart contracts and using MPC technology that we deployed to extend the model to create trustless structures between you and the people that you interact in your trade with. And that can be in the most institutional form of how a lender will get visibility into a borrower or how a decentralized clearing can work between multiple counterparties. And it can actually be applied to the most consumer-ish interactions that people have on the internet. 

The best example I always give is: imagine you have a ticket for a concert and you don’t want to go to that concert. And honestly, you don’t want to pay the ridiculous fee that someone like Ticketmaster or StubHub will charge you for canceling that ticket or transferring it to someone else. To sell someone that ticket over Facebook or Instagram or some random messaging platform to someone that you don’t know carries counterparty risk. Who goes first? You send them the ticket and they send you the Venmo? Or, you know, they send you the Venmo and you send the ticket and how do they know even though the ticket is authentic? 

The interesting thing about crypto is that interaction can actually occur in a completely trusted way using atomic swap using an NFT and via a stablecoin. You can create something that would cost a fraction of $1. And the rail is just like a regular internet rail that is agnostic to what application you want to do without any intermediary. 

So I think that, when you give this example to people, they can intuitively understand why there is a breakthrough in the most simplistic interaction that exists between two people. We want to trade with each other. And how do we guarantee that neither of us is going to defraud the other person without having a centralized party that we both trust? You can expand from that. And it actually changes the world in terms of how commerce can be done, and how financial transactions can be done, both on the individual level and the institutional level, I think that it’s super powerful, as more and more of our life becomes virtual and being conducted over the internet rails.

CBDCs vs tokenized deposits

What is much more appealing for the banks at the moment is what we call tokenized deposits. So effectively, they take a cash deposit and tokenize it. It’s still kept under the fractional reserve requirements for the bank. And the advantage for the banks is that it doesn’t reduce the leverage in the system. This is why the central banks liked that model slightly more from a scale standpoint, compared to the fully backed. 

We have a few bank clients, like ANZ Bank and two other banks in Australia, that made it already public. We have non-banks like GMO, which is a huge Japanese brokerage, that is issuing Japanese yen. And it’s a very interesting example because on the back of those structures, and just generally like things like USDC, we’ve been working with the top payment service providers like WorldPay, Checkout.com and so on that are using the stablecoins for cross-border transactions.

The US figuring this stuff out

The main question is how long that friction will last, but it may definitely hurt the US in terms of competitiveness in the global financial markets. The US traditionally has been the innovator in financial technology. It’s the biggest financial market and the most sophisticated.

Unfortunately, I think everything that is coming at the moment from the SEC, the OCC, the Federal Reserve, and so on, is preventing the adoption. The incumbent players are not piling into this technology. They make it much harder for fintechs to try in the United States. And what’s happening is that everywhere abroad, people are moving. And obviously, this technology moves really, really quickly. So at some point, it will start to be difficult to catch up. And that’s, I think, the main concern.

The post ‘You can use blockchain programmatically to reduce counterparty risk’: Fireblocks’ Michael Shaulov appeared first on Tearsheet.

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As inflation rises, financial confidence is tailing off. 

Fewer Americans are feeling savvy about their finances this year (33%) compared to last (43%) in the face of growing financial challenges, according to a recent survey.

However, despite expectations of the continuing economic turmoil and financial stress ahead, Americans have kicked off 2023 with an appetite to grow and leverage financial literacy and digital banking tools to chart a course forward. More than 3 in 4 US adults with financial goals think they’ll make good progress this year on their targets.

In order to provide a new product experience to facilitate the financial journey for its members, Credit Karma has launched a new Net Worth tool within its app to help consumers make more informed decisions regarding their finances by providing them insights into a bigger picture of their money.

Consumers who have already ticked off some of their financial goals plan to embark on the next phase of their financial journeys. To make headway in building wealth and savings, they want to feel confident that they’re making the right decisions in order to maximize and protect what they’ve built.

In light of this, members are notified to link their financial accounts, such as a 401k, brokerage account, assets, and active debts like a mortgage, and other liabilities on opening the Credit Karma app. They then receive insights on things like their spending data, and time until retirement that summarize their total net worth in the form of a real-time snapshot. 

Having all these details in one place eliminates the need to manually log in to various accounts across platforms to know how things stand from a financial point of view. As part of the experience, members also have access to view their money movements through monthly transaction history.

The Net Worth experience launched earlier this month and is gradually rolling out to US consumers with a credit score of 720 or above, with plans to expand to a larger population in due course.

“From our research, we know that this population mostly uses Google sheets to do their financial planning, because no other tool allows for customization with everything all in one place,” said Ryan Steckler, GM of Prime and Mint at Credit Karma.

Helping build the Net Worth experience is the team from Intuit’s Mint, who joined Credit Karma earlier this year in a move to accelerate Credit Karma’s roadmap. Additionally, Intuit Data Exchange (IDX) fast-tracked the launch of Net Worth by serving as the core technology behind net worth accuracy, personalized insights, and financial product recommendations. 

“This next evolution of the product ensures members never outgrow our app, and that we have a compelling product for every American consumer, no matter where they are on their financial journey,” Steckler added.

Over time Credit Karma plans to leverage consumers’ financial data to provide a clearer vision of different opportunities and scenarios they can act on in order to grow their money – ranging from maximizing their credit card rewards based on their spending data or flagging investment fees they might be able to save on. 

Competitive edge?

Lately, many financial institutions have launched products and features to provide cash flow insights to their consumers in a move to better manage their financial operations, processes, and lives. 

Is the Net Worth offering any different?

Unlike its competitors, Credit Karma’s current product ecosystem presents many synergies with other products and features on the platform, including Credit Karma Money and its insurance offerings that span auto, home, and life, according to Steckler.

The company expects these product synergies to grow as consumers’ product experiences evolve, whether through the Net Worth tool, Credit Karma Money Save (HYS) account (3.75% APY), or by way of insurance coverage to protect against financial losses.

Additionally, by providing customization and leveraging consumers’ financial data with the Net Worth offering, the company aims to serve more targeted content, insights, and products over time. 

Reaching the next generation: what’s in it for new-to-credit consumers and Gen Z?

While the Net Worth experience targets consumers who have made significant progress on their credit journey and are looking for that next financial health indicator to track and take action on – this poses the question if it expands beyond that segment of consumers?

Historically, wealth-building mechanisms have been geared toward a smaller population of consumers, but personal finance is much broader and there’s no one-size-fits-all financial journey. On the other side of targeting specific groups of consumers, the personal finance feature can be put to use by consumers who are still new to credit and are working their way up.

Investing and having less-than-stellar credit are not mutually exclusive – a consumer might be in a situation where they have credit card debt and their credit may need work, but they still have the opportunity to invest or contribute money to a 401k, for example.

“For consumers who might be trying to figure out when to prioritize paying down debt and starting to build savings, a product experience like Net Worth, down the road, should help them with that balancing act,” said Steckler.

When it comes to the nearly 40% of the scorable Gen Z US population on the Credit Karma platform – with recent movements like Financial Independence, Retire Early (FIRE) picking up steam combined with Gen Z having greater access to financial information, in all likelihood they will be interested in knowing, growing and protecting their net worth earlier on in life compared to other demographics. 

In fact, recent data shows that 59% of Gen Z have a retirement account, and the generation sets aside a median of 20% of their income for retirement, compared to a median of 15% contribution from millennials.

To reach and cater to this cohort, Credit Karma expects the new offering will assist Gen Z in suggesting ways of managing their spending and leftover money so they are financially stable today, while simultaneously building for their future.

Steps toward financial resilience

As recession fears climb, the unknown of what’s to come is one of the reasons consumers should be familiar with their financial standing, including how much debt they have, how much they have in savings, what their monthly living expenses are, and any potential major life events on the horizon. 

This way, they can recalibrate their budget in an effort to pay down debts and cut back on discretionary spending that can help to free up extra cash to put into an emergency savings fund, according to Steckler.

Consumers should also be cognizant of their spending behaviors, as spending habits are closely tied to emotions. In fact, recent consumer data from Credit Karma found that 39% of Americans identify as emotional spenders, while nearly a quarter of Americans say their emotional spending is leading them to overspend and go into debt (24%).

The post From credit building to wealth building: A closer look at Credit Karma’s new ‘Net Worth’ offering appeared first on Tearsheet.

Remember the meme stock boom? A similar boom in stock trading is brewing right now, as retail investors rally once again and pour more money than at the height of the GameStop era.

This time though, their bets seem to be more spread out. Rather than focusing on small and out-of-favor companies, retail traders are looking favorably at big names like Tesla. Over the past month, small investors have poured in $1.51 billion to work each day during January, according to Vanda Research.

And investment companies like Wealthfront are gearing up to serve this appetite. Rather than sticking to its historical roots as a robo-advisor, the company announced the launch of the Wealthfront Stock Investing Account. Now, investors can buy individual stocks and access curated stock collections on the app. The account can be opened with just $1. These stock collections are a set of stocks designed around an investing theme. While clients are not required to invest in the entire collection but can pick and choose as they please. 

Stock trading apps dwell in a competitive space and Wealthfront’s move towards buying individual stocks represents a philosophical switch within the company away from passive, automated investing. So why the change in gears?

The move comes as part of a larger mission. “This brings us one step closer to making Wealthfront the only app young investors need to manage their money and we’re very excited about what the future holds,” said Elly Stolnitz, head of product communications at Wealthfront. Their clients can now earn 4.05% APY on their savings, as well as create an automated portfolio for general investing and retirement savings. Stock purchases are commission-free.

Looking under the hood: Stock trading with Wealthfront

For its Stock Investing Account, the company began beta testing with a sample of its clients last year. The most popular stock collections from their beta-testing phase, like “Apple’s Supply Chain”, “Inflation Thrivers”, and “Blue Chip Dividend Stocks”, contributed to the new product release this month.

But the company is not just blindly pushing trading – the emphasis is on holding the stock. Each of the curated stock collections includes industry commentary and highlights the advantages of investing in a certain stock and the potential negative impacts on clients’ portfolios. Moreover, the app includes personalized suggestions on how much of a client’s portfolio should be dedicated to stock investing based on their overall investments.

Their curated stock collection was built by Wealthfront’s Investment Team with an eye on customer pain points. “They’re like using discovery playlists to find new music, but for investing. Instead of showing that you might like Lizzo because you also like Beyonce, we’re showing that because you like Tesla, you might like these other companies, too,” said Stolnitz. 

The company wants investors to build alignment in their portfolios because it improves their chances of success. “Over the past 10 years, we found that the chance of losing money when buying 1 stock is around 10%, while the chance of losing money when buying 5 stocks is well under 1%,” she added.

Investing for the long run:

While some new brokers are still pushing gamified stock trading experiences. Wealthfront tries to avoid that noise. p. It doesn’t provide real-time price updates. According to Stolnitz, this is very intentional. Moreover, the product prevents clients from trading the same stock multiple times within a week. “We don’t want our clients focused on the market’s daily or hourly gyrations, we want them focused on the long term,” said Stolnitz.

Their product intentionally builds away from constant monitoring of stocks and ticker movements, and instead focuses on cultivating a culture of structured and purposeful decisions. If you’re looking for some slot machine buzz, you won’t find any graffiti here.

This doesn’t mean that the UX is shabby. The app’s UX consistently earns good reviews from professionals, pointing to its onboarding ease and its use of descriptive headers to counteract client confusion.

Currently, Wealthfront has $40 billion sitting in its external brokerage accounts and manages $35 billion for over 500,00 clients with just 12 product specialists. As the appetite for stock trading continues to grow past its FAD-phase, it is likely that stock trading options that vie for long-term investing like Wealthfront will continue to come out on top. 

The post Philosophical Switch: Wealthfront introduces stock investing and plans to build investing habits for the long run appeared first on Tearsheet.

Covid-19 has accelerated the shift to remote work – for businesses and individuals alike. Additionally, a shortage of top talent and eliminating overhead costs have left businesses to reevaluate the traditional employment structure. As a result, more businesses are turning to freelancers to fill these gaps. 

This shift is afoot with 80% of US companies reporting that they currently lean on a mix of freelance and full-time workers. The same number of US businesses plan to expand their use of freelancers in the next few years. 

However, many of these businesses aren’t prepared to attune to this transformation, lacking the infrastructure required to enable flexible, freelancer payments. Data shows 71% of freelancers have coped with clients paying them late or not at all and 84% of freelancers would work more often if they were paid faster.

To expedite cross-border payments for freelancers and contractors, Wise and G-P (Globalization Partners), a global employment platform, have forged a partnership to enable businesses to offer timely flexible payments.

Currently, 36% or 58 million Americans identify as independent workers – contract, freelance, temporary, or side-hustle gig workers, according to a McKinsey survey. While freelancer payment issues already existed before the pandemic, the recent surge in flexible, remote work has underlined this issue for growing small businesses. 

I spoke with Brian Linthicum, head of Wise Platform North America, and Srinivas Vadhri, vice president of fintech strategy, partnerships, and product at G-P, about how this collaboration aims to resolve pain points and enables businesses to have more control over their cross-border payouts.

How G-P and Wise worked together on this integration and what will it mean for G-P customers — both existing and new?

Brian Linthicum, Wise: In the simplest terms, Wise Platform has built a way for banks, businesses, and platforms to embed the Wise API into their existing infrastructure. That’s what we did with G-P — we integrated our API into their G-P Contractor offering to power cross-border payments for G-P customers. 

Our two companies are aligned in working to provide the strongest solutions to businesses that are growing and scaling globally. Together, we’re powering an innovative, effective, and convenient platform for these businesses to leverage when it comes to paying international employees, freelancers, and contractors.

Srinivas Vadhri, G-P: For both existing and new customers, our partnership with Wise means total flexibility, transparency, and efficiency at a lower cost when paying contractors around the globe.  

Companies can now fully customize their payment methods – from bank transfers to transactions to Wise wallet, ACH equivalent, credit or debit card, and more – and pay on-demand with a clear breakdown of transaction fees in 180 countries and in 50+ currencies. They can also follow every step of the transaction and real-time payment status to know exactly where the money is going, creating a more transparent process for customers and contractors. 

All in all, our partnership offers great benefits to both customers and the everywhere workforce that will help G-P democratize opportunity and Wise further its mission of money without borders.  

How will this partnership add value for Wise and G-P?

Brian Linthicum, Wise: For Wise, we’re continuing to grow the Wise Platform in the US — and North America — and this partnership with G-P is an excellent showcase of how we’re solidifying ourselves as a leading fintech and payments innovator. We are providing faster, more efficient solutions that are making cross-border payments easier, more convenient, and cheaper. This partnership with G-P showcases this front and center with another market-leading provider of solutions for SMB, mid-market, and enterprise businesses.  

Taking a step back, fintech partnerships in particular are massively important in driving growth for the industry overall. For many businesses and fintechs there is a ton of value in making a partnership with a best-in-class player that will build a long-term product that services customer needs. We see that need in the cross-border payments space and are proud to offer a product that fills it.

Srinivas Vadhri, G-P: Wise is a global, well-recognized brand in the money movement space known for transparency, low cost, and a compliant way to transfer money – it also has over 10 million active wallet users. Similarly, G-P is the leading Global Employment Platform and the founder of the employer of record category – fueled by technological innovation, a SaaS-based platform, and unmatched legal, HR, and compliance expertise. 

Delivering flexible payment options is critical to our mission to create a borderless and equitable world of work. This is why we needed an API-driven solution capable of wallet endpoint and bank transfer transactions that could meet the needs of the everywhere workforce.   

How will this collaboration enable businesses to have more control and autonomy over their international payments?

Brian Linthicum, Wise: Businesses will have more control over their international payments by not relying on banks or multiple payroll solutions that are costly and time-consuming. Through G-P and Wise, we’re powering easier, more transparent cross-border payments that give businesses all the information they need to make informed decisions in one single place.

Srinivas Vadhri, G-P: Remote work has become the new normal and companies need to have more control over cross-border payments while being compliant. The world of work has changed, and professionals are demanding more flexibility in terms of working hours, location, and payments.  

Our partnership with Wise lets customers choose the time, frequency, and preferred currency and have a detailed breakdown of transaction stages and real-time payment status with no hidden fees. It allows businesses to oversee the payment process and have unparalleled flexibility and transparency. This also means less time and effort on individual invoices while ensuring timely delivery of the money. 

In the future, with fintech, there will be a myriad of possibilities such as getting into local jurisdictions and local tax authorities and using the bank payment rails for payroll. We’re going to see a lot of digital payroll methods being used through money movement platforms that will increase financial inclusion. At G-P, we will continue to democratize opportunity and unleash the everywhere workforce. 

How important is transparency in international payments for small businesses?

Brian Linthicum, Wise: Small businesses have reported the complexity of making and managing international payments as a major deterrent to expansion. By bringing transparency into international/cross-border payments, businesses have a better understanding of where their money is going and the true cost to hire contractors abroad.

How is this offering different from other offerings of Wise for SMBs? 

Brian Linthicum, Wise: Today, many small businesses have had to rely on a number of tools to run their business. It’s become difficult to have a transparent view of the payments process, which continues to be expensive and difficult with the more tools businesses have in place. 

Our new integration is the same experience customers have relied on with Wise but now can be found where they conduct business in a more convenient way. By connecting the power of Wise into the same technology stack that business owners have come to rely on with G-P, customers can continue to manage their businesses and pay freelancers and contractors across borders in one cohesive manner.

The post Behind Wise, G-P collaboration on cross-border payments for independent workers appeared first on Tearsheet.

Fintech Meetup opens its doors this week in Las Vegas. It’s the first time the event has hosted people in the real world. Started during the pandemic by some of the same people behind Money 20/20, it’s billed as the fintech anti-conference — it’s all about networking. Using a mobile app or the event’s website, attendees can see who’s coming to the show and request a connection. If the other party accepts, the Tinder-like experience culminates in a 15 minute meeting at the show.

Fintech Meetup launched during the pandemic and its first go at it was hosted entirely online. This year, the event claims 3000 attendees will arrive at the Aria Hotel for two and a half days of activities. The in-person version of Fintech Meetup includes hundreds of speakers, including about 10 keynotes. I’ll be interviewing JPMorgan Chase’s Sanjay Saraf, managing director of global head ecommerce and marketplaces on the main stage.

Themes at this year’s event

Hunger for deals: Fintech Meetup has a lot of speakers on the agenda but I would suspect the biggest draw for most people is the format: double opt-in, 1-on-1 15 minute meetings. It’s efficient and it definitely worked during COVID-19 when people couldn’t get together to do business. This pent-up demand shows there’s appetite for these types of focused event formats.

The industry is challenged: With the pullback in funding, the banking system teetering, and a stormy macroeconomic backdrop, the industry is trying to figure out which way to go. It feels like things have been on pause the past few months as this environment has had its impact on spending and layoffs. Getting 3000 people together in any environment is impressive — all the more so now.

High quality speakers: One of the thing that I felt challenged attendees of the content side of Money 20/20 is that it felt like all the speakers were sponsors. That means sitting through some product pitches or at least, what’s-in-it-for-me perspectives. It feels like Fintech Meetup has some really good organic speakers, too.

A first time event but not really: Fintech Meetup was founded by some of the same team that developed the powerful Money 20/20 event. So, while it’s the first time this event has been produced in the real world (if Vegas is real world), it has a longer legacy. A lot of the top talent putting on the event also came through the Money 20/20 system.

FIs still serious about working with the tech community: While the coverage of traditional financial institutions is narrower at Fintech Meetup compared to Money 20/20, there are firms that have a strong presence on the ground. Firms like Amex, JPMorgan, and Goldman Sachs all have assembled executives at the show.

Less of an offsite sideshow: As opposed to Fintech Meetup, one of the most interesting things about Money 20/20 is it has spawned a vibrant ecosystem of side events happening during the conference. Banks, fintechs, PR firms, and investors all have parties. That’s happening at Fintech Meetup, too, but to a smaller extent. I would chalk that up to the fact that it’s a fresh format and with a focus on networking, there’s less hunger to find a way to meet people offsite.

The post Fintech Meetup kicks off this week, showcasing an industry in flux appeared first on Tearsheet.

As the economic boat continues to rock, inflation has hardened into an unyielding reality for most consumers. Even though the past few months have recorded a decrease, inflation numbers are nowhere near pre pandemic levels. In such times, consumers may feel the need to turn to their financial institutions for everything, from crisis management to future planning. But this doesn’t mean that banks are always responsive. A Personetics survey in 2022 showed that 63% of banking customers reported receiving no communication from their banks in the past 3 months about how to deal with the inflation crisis. 

On the other hand, those who heed this call, can bring about big change. In the UK, NatWest, Royal Bank of Scotland, and Ulster Bank contacted eight million personal customers with support and information, with over 600,000 financial health checks carried out in 2022 with customers. These checks in turn provided customers with a much-needed breathing space when it came to loans and repayment plans.

But this is a broad range of services that organizations cannot offer if there isn’t already a holistic plan in place. If done right these plans enable customers to save, but also plan for an uncertain future. And above all, these are accessible to low- and middle-income households which can’t rely on generational wealth. 

Recently, Bank of America was recertified by J.D. Power for outstanding client satisfaction with customer financial health support. Tearsheet spoke to Holly O’Neill, President of Retail Banking at Bank of America to learn how the bank builds solutions for the multifaceted issue of consumer financial health.

1) How does providing support for financial education change for different age demographics – for example, Gen Z?

Holly O’Neil, Bank of America: Each generation has different financial goals and a distinct approach to money. As a bank, it’s critical that we deliver personalized solutions and educational resources to meet our clients’ unique needs for every life stage. 

By way of example, according to our recent research, 73% of Gen Z feel the economic environment has made it more challenging to save. With that in mind, one of our goals is to help Gen Z access the education and tools they need to form saving habits. This includes tools to help them improve their financial knowledge in areas like budgeting, credit, borrowing and investing. One of these resources is Bank of America’s Better Money Habits, which offers free educational tools and information to allow clients to build their financial future and make sense of their money. 

2) Do you expect your work with Operation HOPE to increase or expand over the next few years? What results have you seen so far?

We’re continuously expanding and growing our work with Operation HOPE — including the addition of 180 financial centers in 17 U.S. markets in 2023 — and the program has already delivered significant results. As of the second quarter of 2022, HOPE Inside has provided more than 2,700 counseling services based on Bank of America referrals. The program has also delivered more than 300 financial education workshops. 

On average, participating clients improved their FICO scores by 21 points, increased their yearly savings by $4,313 and reduced their annual debt by $837.

3) What areas and consumer segments need deeper attention and more work when it comes to improving financial health across America?

Each consumer segment has their unique set of financial goals, so our aim is to educate clients and provide the personalized solutions they need to build their financial wellness.  We also understand that individuals in low-to-moderate income communities often start their financial journey on the back foot, caused by a lack of intergenerational wealth and growth/opportunity.

4) How is the oncoming recession expected to impact the everyday consumer? Is Bank of America taking any steps to break their fall?

Even as the rate of spending growth moderates, the Bank of America Institute reported consumer spending remains resilient. There’s no one-size-fits-all approach to preparing for an economic downturn, but we do offer tools and products that can help clients carefully plan their spending and save for an uncertain economic environment. 

For example, our spending and budgeting tool allows clients to take a realistic look at their spending, which is critical to preparing and maintaining an accurate budget. Additionally, our Keep the Change program rounds up the price of every debit card purchase to the next dollar and adds it to your savings account automatically.

5) What kind of results have product integrations like Life Plan and Erica seen? What issues have consumers pointed out and how are these products expected to evolve?

Both Bank of America Life Plan and Erica continue to drive digital engagement among our 56 million verified digital clients, helping them better manage their financial lives. Last year, Erica surpassed 1 billion interactions among 33.5 million clients since its launch in June 2018. Additionally, nearly 10 million clients have created a Life Plan since its debut in late 2020. 

We’re always working to improve our digital offerings and incorporating client feedback and data is a key part of delivering the best services possible. Our team reviews Erica client interactions to understand client needs and requests, helping us identify and implement enhancements. 

The post What it takes to provide support for better consumer financial health: 5 questions with Holly O’Neill, President of Retail Banking at Bank of America appeared first on Tearsheet.

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FinTech and banks typically have a lot more money in their bank accounts than the $250,000 insurance limit set by the FDIC. This puts them in a bit of a pickle. That pickle can sometimes be the size of the SVB debacle. 

As the dust settles on Silicon Valley Bank’s 48 hour downfall, many fintechs are crawling out of the woodwork offering solutions that can help companies avoid losing their funds to an unforeseen bank run. 

One popular solution is sweep networks. The solution is the single point of failure issue that occurred with SVB and allows companies to split their deposits across a network of partner banks. 

For example, if a company has $1 million dollars, it can divide its deposits to four partner banks, with each split being equal to the FDIC insured limit of $250,000. This insures 100% of the money whereas depositing it all in one bank would have only gotten 25% insurance coverage. However, this doesn’t mean that the company then has to liaison with 4 different institutions. Instead it can depend on the sweep network chosen to handle the banking relationships in the background.  

Who’s who of sweep networks:

IntraFI is a popular sweep network, with a network of 3000 banks across the country, where companies can store their money in demand deposit accounts, money market deposit accounts, or CDs. Similar options for companies and banks alike to get more of their deposits insured: 

• Mercury: Mercury is a next generation neobank that competes with SVB for venture-backed startups’ banking business. It works with two partner banks, Evolve Bank & Trust and Choice Financial Group. At the moment its network can offer up to a $3 million FDIC insured deposit limit. Their bank partner network includes Goldman Sachs and Capital One, with 12 banks in total. Mercury clients can omit a particular bank(s) when it comes to their deposits, but this may impact the total amount of insurance that is available to them. 
• Wintrust’s MaxSafe: Similarly with a network of 15 community banks, MaxSafe allows  FDIC insurance of up to $3.75 million.
• Depositors Insurance Fund: This network can help banks protect deposits beyond the FDIC insurance limit.  Note that the DIF is not a government owned organization but an industry sponsored insurance company. In the 1990s, it paid out more than $50 million to protect more than 6,500 depositors in 19 failed member banks. 
• StoneCastle: For banks in its FICA network, the company offers up to $25 million in FDIC insurance.
• Rho: With its Treasury Management Account, the commercial startup offers up to $75 million in FDIC deposit insurance. This product is built on a network of 400 banks, where money can reside insured and earn interest at the same time. 

The rub:

The catch? Redundancies cannot help with system-wide failure. So if there is a widespread crisis (think 2007-2008), there is very little chance these distributed risk strategies will help.

Sweep networks allow companies to build redundancy into their deposits, which negates any chance of a single point of failure like SVB. Rather than managing bank accounts and relationships with 14 banks themselves, businesses can offload this responsibility to the companies mentioned above. Which is great.

Omid Malekan, an adjunct professor at Columbia Business School has a slightly different take on what the recent SVB downfall and its consequent bail out from the government means. “The depositors at SVB and SBNY who were above the FDIC limit should have suffered impairment. But did not, sending a powerful message to the market. If the government backtracks on this now it would erode credibility”. According to him this shows that the government is unwilling to let depositors lose any money.

This doesn’t mean that everyone is now safely out of the woods. Malekan wonders whether introducing more counterparties into the system would introduce greater risk. What if they are fraudulent or make a mistake in routing money? And what if they go out of business?

Understand the fineprint:

Moreover, companies should note that providers of sweep networks like Mercury retain the right to move their funds. This may be done in a manner that helps make the provider more money.

Consider the following two statements from Mercury’s disclosure statement about its network with Evolve Bank & Trust:

• You understand and agree that Evolve, as your agent, may place any or all of your funds on deposit with Evolve at one or more Program Banks in an amount determined in Evolve’s sole discretion based on available capacity at the Program Bank or other criteria, including rates paid on deposits by the Program Bank or fees paid to Evolve.

• You understand and agree that Evolve has no obligation to place funds into Program Banks to maximize the amount of deposit insurance available on your funds or to maximize the interest rates that your funds may earn. Evolve may place your funds without regard to whether such funds may exceed the Deposit Limit at one or more Program Banks, even if your funds could be placed in one or more Program Banks in an amount less than the Deposit Limit.

Companies need to tread carefully when it comes to using sweep networks to insure their accounts. It is prudent not to place all your eggs in one basket. However it is also important to read the fine print very carefully.

The post Sweep up my money, there is a bank run: Sweep networks for banks and fintech appeared first on Tearsheet.

The move to faster payments is happening. When you zoom out and look at things like the real-time payments initiatives that are going to have a real impact, you can see that instant payouts can have a lot of resonance in the insurance and the supply chain. But to do this in B2B, you really need to make it easy and marry identity together with payouts. That’s because a lot more is at stake when things move to real-time.

My guest today on the show is Stephany Kirkpatrick, founder, and CEO of Orum. Orum offers a single API integration for payouts that works over RTP, ACH, and other rails. Stephanie may be a financial planner by training but she’s all in on Orum and payouts.

We discuss what’s driving the move to real-time payments and how disbursements and early wage access are two of the most important first-use cases. Stephanie shares what looking abroad can reflect about the road and impact real-time payments.

She also shares her views on where the market is headed and her plans and goals for Orum in 2023.

Stephany Kirkpatrick is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

Stephany Kirkpatrick, Orum: Orum is the simplest API integration for instant payouts. Our solution delivers payouts through RTP, ACH, same-day ACH, and more. 

Real-time payments

This year, we’re really excited to be launch partners with FedNow with its new faster payments product coming in late spring or early summer. And we’re excited about what we’re doing in that space. Because it’s a time-to-money problem, which is such a powerful human problem that everybody faces at some point, sometimes often, for a variety of reasons.

You can implement an instant payout stack with us via a single API where we can get this up and running in a sprint or less. It positions our customer partners to launch new-powered experiences that attract and monetize new customers. It’s a total differentiator. We are literally in a real-time world, on every front, except with money, at least in the US. And it ultimately allows for diversification of revenue, because there’s now a path to potentially charge and monetize the instant capabilities.

And then we work with our partners to grow beyond just a cloud solution to really thrive in a world of real-time expectations. You know, I laugh about this, but you can get a massage on demand in major cities right now on an app in an hour, and you want to get your bank transfer or your insurance payout, it’s gonna take three or four, maybe even five, days if there’s a holiday in there. And so, we really just think about continuously unlocking new features that continue to press on the necessity of instant and real-time. So whether it’s a financial product that we’re working with, or it’s something in the creator economy, or rewards, incentives, insurance, and the full potential can ultimately be unlocked. So we’re really excited about where we are, as we are getting into 2023.

More about real-time payments

I’m actually a financial planner, by training, and still a CFP. So I don’t think I’m like your classic payments CEO for a variety of reasons. I think that’s actually really powerful because I’m looking to solve a problem at the infrastructure level that doesn’t reach just hundreds of thousands or millions – it reaches hundreds of millions of American households and businesses because we can fundamentally change the way money moves and using the new faster payment vehicles, like RTP and FedNow.

Think beyond that push to a wallet. There are so many different ways now that you could potentially move money from point A to point B – it’s way more complicated than it used to be when it was just checks or wires. And so you need to be able to orchestrate and configure decision-making and allow all those technologies to live in a single place. From my perspective, that’s the starting point and solving for time to money. It’s the reason I care so much about that problem, as a financial planner, and ultimately, as the daughter of an immigrant, where I spent my entire childhood watching my dad really build a life in America where he came with nothing. I’m really passionate about looking at the households that do have less who need to make the smartest, most precise decisions, who really absolutely, it’s the difference between making it or not making it in a given week or month – if some payout doesn’t get to them instantly. 

Disbursements

You can think about earned wage access as an example right now. Those things go on to cards, and then there’s interchange and cost. But if I can go directly into a bank account, how much faster, easier, and cheaper could that be for everybody? When it promotes banking, as opposed to the utilization of cards – now there are actually ways to deliver that value. Think about claims. Whether somebody goes out on disability, they’ve had an injury, a surgery. I just had my appendix out. So I guess surgery is top of mind. Though, luckily, that’s not a long-term disability. You have a baby. And all of a sudden you’re out of the workforce. How do we deliver instant access to money that helps cover and bridge those periods of time? 

I just think the time-to-money problem literally lives everywhere – it’s under every rock, and it’s important to every household and every business for different reasons. I show up every day with a ton of conviction that someday we’ll look back and laugh and say, Wow, I needed my account and routing number and it took five days to send money in or I had to get a check in the mail. And we’ll laugh because someday probably not that far in the future, you’ll use my email or my phone number. And it’ll work just as seamlessly. So I think as the US catches up, and 2023 is a big catch-up year for us, we’re just going to see an entire shift in the adoption of real-time, and instant payments everywhere.

Looking abroad at the power of instant payments

The inspiration from other countries is so incredible, When you look at a country like Brazil, which recently launched Pix, or you look at India with UPI, even within the UK and Europe, the US is really far behind. I think there are some understood reasons why. From a central bank perspective, that hasn’t been a priority in the US. But if you look at Brazil, where the central bank essentially said this is a mandate and we’re doing it, the adoption curve of instant went from zero to like nearly 90%.

And so I think that you can absolutely achieve broad adoption. There are reasons why we look at these other countries to glean insights from what they leapfrogged over, what they ultimately actually never did is a stepping stone, and potentially how it could be pushed further in the US with more of a policy mandate, which might or might not happen (likely won’t happen) versus how it can be pushed further through consumer demand.

Financial institutions’ role in real-time payments 

Well, the traditional financial institutions, certainly some of the largest ones, are out there. Maybe they’re not advocating aggressively, but they’re certainly participating in the new faster payment systems. And that’s critical. If you think about Venmo or Apple Pay – things that today in 2023 feel basically ubiquitous – there was definitely a time when you couldn’t really use those with full ubiquity. 

So for the bigger financial institutions, I think the priority is your institution enabled to receive faster payment. Because the more places you can receive one, the bigger the sender network can ultimately be and the number of senders will grow faster. RTP just published some updates on the number of banks that are live: they have about 200 banks live. Now there are 5000 banks and 11,500 financial institutions, so that’s like a drop in the bucket. But if you think about banking coverage, that’s about 60% to 70%. The coverage is actually really good. 

We hear that coverage isn’t great, so therefore, we shouldn’t use faster payment. Well, what if 70% of the time it can be instant? Why wouldn’t you use it 70% of the time? It’s not all or nothing. And so, to close the gap on the long tail, maybe it will only ever get to 80% for these current systems. But something else like Zelle, which I think is a fantastic example, because it uses phone numbers – it uses an alias like your email. It’s another way to bridge the gap to connect via token, the account you bank with, and the identity that you have elsewhere, and to create a seamless experience. So we might not get RTP and FedNow to 100% of banks. But we might be able to go to 95% or even higher coverage and reach faster payments, just by leveraging the different systems to do that, though. 

Earned Wage Access as RTP use case

I think when you give consideration to the very unique model for wages that’s been created in the advent of what was once called a side hustle or a second job – it’s now like maybe five or six different things pieced together to create a full-time income. Driving for multiple service providers or providing gig services in three or four kinds of platforms, in the aggregate, may be enough income to replace a salary. So it’s a wholly different model. 

Now, besides the every two-week paycheck, the ability for folks to access those dollars that they have earned instantly is crucial, because they’re not generally tied to payroll cadences, like traditional workers. And so they have differing needs – they have different kinds of insurance coverage that they might have to pay for. Being able to streamline early and earned wage access isn’t exclusive to the gig economy. We see it in other industries as well. Doctors, nurses, people who pick up shifts… There are just endless use cases. 

And legally, in some states, there are absolutely things you have to contend with, especially in California, for example, where the last day of someone’s work has to be paid out. Sometimes people are sending wires, or they’re holding checks in a physical location and have to go get that  – that’s just nonsensical for the digital world that we live in today.

Fraud

Fraud is such a hot topic for a variety of reasons. It certainly has had a bigger impact since COVID and the digitization of so much money movement. I think that fraudsters have been able to move quickly with the new technology. Americans are very vulnerable, especially in a post-COVID era, living through digital channels, social channels, and online dating – fraud has definitely increased. 

And with ChatGPT and generative AI, the ability to sound like a friend, a human, it’s getting better and better. And so the schemes are getting richer to socially engineer games where people would send money potentially on an instant platform. I don’t think that is the same kind of fraud as we’re used to seeing historically. Thus, I don’t think it negates the power of instant. What I think it really does is it showcases why we need more education, and why there are probably more controls and checks and balances when you do certain transfers. 

I’m ultimately obviously so bullish on instant that I don’t want fraud to become the reason we don’t do it. I think what needs to happen and is happening already, is that there’s increasing consumer awareness of how to interact, and what not to interact with and that there increasingly are great technology companies who are at the forefront of identity and fraud, because they’re different, although they can be related. And if identity and fraud are being thought of as wholly independent products and services that come before a payment transfer, we’re in much better shape than we were historically, where systems like ACH, you could send it to Donald Duck and give Stephanie’s account routing number and it would go through. 

RTP requires things like a name match. So if the name doesn’t match, it will return back saying the name doesn’t match. There are different things that have been built into the newer systems that contemplate sending a message alongside a transfer, and that alone is a powerful change. There will always be fraud. I think it’s just a changing dynamic and obviously, huge investment to find technology providers who are really working through those fraud issues at hand.

Data aggregation and faster payouts

You’re trying to steal our secret sauce. You’re really pointing towards a big piece of the strategy, which is that a payment network and a data network are very correlated. I think we would be crazy not to be keeping data that comes in as we do transfers about good actors and bad actors. I always landed in the camp that a whitelist is better than a blacklist. I used to love the blue check example. I think that’s gone away for two reasons, now you could just buy the blue check. But there was a signal that if you had a blue check on a social platform, you were approved, and vetted. 

From the Orum perspective, verified by Orum, there was a point of view that we have, and we’re developing right now, more features and capabilities that will be coming out, essentially, to find the good actors and allow the good actors to bypass the bad actors, and maintain ease of access on instant capabilities. 

You always have to inventory and find bad actors as well. But it’s much more interesting, in my opinion, to really index on accounts that are in good standing, transfers that are good transfers and have a history and a bunch of data sets that can correlate to finding more of those in the populations as transactions continue to grow on the platform.

Plans for 2023

One of the biggest priorities is really just continuing to push boundaries into categories where instant payments is a necessity. The core company maybe isn’t a fintech or financial services provider – it’s been embedded finance examples. It’s been really interesting to get out into places where there’s some really new technology happening. I’m going to take logistics, for example. In the logistics world, trucking companies, you get to a platform, you’re going to unload your truck, and you don’t unload it until you get paid. How do we solve the next step in the journey? How do you unlock and gate pieces of the supply chain? 

Factoring is also really interesting. There’s a lot for us going on around gaming, and there’s a ton happening in insurance, which is traditional financial services. But I think what’s unique about it is that there’s certainly more appetite to really find the use cases where a claim can be resolved through technology better, faster, smarter – call it down to like sub 24 hours. But the payments are still really slow. So actually resolving a claim quickly isn’t that interesting, unless you can tie it to a faster payment. 

There are definitely some products forthcoming. We’re going to be launching an API shortly that is useful for finding eligibility and availability on these faster networks. So for folks who don’t do transactions with us yet, but need to identify if it’s even viable to use this account in a faster payment schema? There are going to be a couple of things launching end of this quarter in service of that and then just juicy roadmap stuff. Ultimately 2023 is really shaping up in the first few weeks already to be such a big year for us.

The post ‘You can get a massage on an app in under an hour but ACH still takes days’: Orum’s Stephany Kirkpatrick appeared first on Tearsheet.

Data shows that many tax filers plan to use their refunds to accomplish other financial goals. A new Bankrate survey shows that 3 in 4 Americans expecting tax refunds consider that money important for their finances. 28% of people would utilize their tax refund money to pay down debt and 26% would use the funds to improve their savings portfolio amidst biting inflation.

Filing taxes in America can be a complex and time-consuming process, and there are several pain points that taxpayers may encounter. 

In order to provide a simplified tax filing experience to its customers, MoneyLion has partnered with Column Tax, a personal income tax software company.

The tax code in America is complex and constantly changing, which makes it difficult for taxpayers to understand and use the system. While the intricacy of data collection and validation from multiple sources increases the chances of errors and makes the process slow.

MoneyLion is equipping its new offering of tax filing services with a suite of educational content to help its customers file their taxes smoothly this tax season. The neobank users of the service can get their return paid up to two days early. 

MoneyLion’s product offerings include online checking and investment accounts, cash-back rewards, installment loans, lines of credit, prepaid debit cards, and point-of-sale consumer and merchant financing. 

So how is this partnership in line with its product suite?

“MoneyLion aims to help people organize their financial futures by offering financial guidance through content, and providing easy access to tax filing is a logical next step towards this mission,” said Tim Hong, chief product officer at MoneyLion.

This partnership provides room for Column Tax to expand its total addressable market and explore more possibilities.

“We are given a new opportunity to take the next step for our customers organizing their financial future through MoneyLion’s offerings and easily digestible content,” said Gavin Nachbar, co-founder, and CEO of Column Tax.

Column Tax’s service offering is accessible by MoneyLion customers who have a RoarMoney Banking account, an FDIC-insured online checking account with eligible deposits.

The service is free for RoarMoney users who have direct deposits set up in their accounts. However, MoneyLion app users who are not RoarMoney customers can sign up for a RoarMoney account to get hold of the new offering.

What’s brewing for MoneyLion?

MoneyLion shareholders have had a rough ride lately, as the firm’s share price tumbled 80% last year. Although the past weeks saw a lift for owners of the stock, they’re still in the red over the last year, followed by an 18% decline in the firm’s share price in February this year.

Earlier in September, the neobank’s lending activities came under fire when the Consumer Financial Protection Bureau sued the company, alleging it overstepped the Military Lending Act. 

MoneyLion allegedly charged more than the legally allowable 36% rate cap on loans to servicemembers through a combination of stated interest rates and monthly membership fees. The neobank also often refused to cancel paid memberships, according to a lawsuit filed by the Consumer Financial Protection Bureau.

MoneyLion was at loggerheads with the CFPB over its complaint, claiming it was false allegations.

All things considered, the question then becomes whether the company can gain ground in the long term on the strength of its underlying businesses?

“The company’s strategic acquisitions of MALKA and Even Financial are paying off and in many ways, MoneyLion was ahead of the game in seeing the need for embedded finance, an innovative marketplace, and content as a differentiator,” said Hong.

Besides its acquisitions of MALKA, which is the media arm of the company, and Even Financial, a marketplace technology that connects and matches consumers with personalized financial product recommendations from banks, insurance carriers, and fintech companies on mobile apps, websites, and other digital touchpoints – the new partnership with Column Tax illustrates the neobank’s strategy to create diversified streams that would help it increase revenue.

“It’s important we all work hand-in-hand to bring forward innovation that benefits the consumer and makes a positive impact. Our mission is always to provide better financial outcomes for our customers through products, offerings, and content and we look forward to continuing down that path,” added Hong. 

With the evolving role of partnerships in the open banking and embedded finance landscape, the neobank is shifting its sails to create more value for consumers and its enterprise B2B partners. 

MoneyLion uses machine learning-based algorithms and big-data analytics to programmatically underwrite loans. As automation is gaining momentum, AI is already changing the market and opening up new possibilities for businesses in the coming years. In light of this, the firm plans to build on its machine-learning capabilities to grow its business and deliver value in 2023. 

The post Quick Take: MoneyLion partners with Column Tax – but how does the partnership align with the former’s product suite? appeared first on Tearsheet.

Neobank Dave reported its Q4’22 results recently, indicating factors that helped the company weather the economic downturn financially a year after going public.

The company reported:

• GAAP revenue was $59.6 million during Q4, up 45% from the same period last year. 
• GAAP net loss was $21.5 million compared to $15.2 million in the fourth quarter of 2021 — on a quarterly basis, improved by 55% from Q3 2022.
• Adjusted EBITDA was a loss of $11.8 million compared to a loss of $12.6 million during the year-ago period and up by 59% from Q3 2022.

In Q3 2022, the company’s losses expanded to $47.5 million from $7.9 million in 2021, with a steep 97% decline in its shares in November.

Later the company got caught up in the rolling wave of reports about getting listed in the money-losing companies during the market turbulence after its stocks saw sharp losses in its first year of going public. Moreover, the company was dealt a major blow by the Fed’s strategy of increasing interest rates to combat inflation.

By redirecting its strategies the neobank navigated its way through the challenging fourth quarter and pulled through the bear market in comparison to Q3 2022.

I spoke to Jason Wilk, CEO of Dave about what were the strategy drivers to ride out the market downturn in 2022, and in what ways the neobank is shifting its sails in 2023.

What contributed to increased revenue in Q4 2022?

Jason Wilk, Dave: Our increased revenue in Q4 resulted from an increase in both new customers (543,000 in Q4FY2022) and additional engagement from existing customers, which further increased monthly transacting members (MTMs) to nearly 2 million. 

We also saw a continued acceleration in our Dave Card business with Dave Debit Card spend increasing 34% to $263 million compared to $197 million (vs Q3 2022). Dave’s revenue last quarter grew 45% despite a reduction in our marketing spend. 

What plans/strategies are you undertaking to minimize losses and achieve profitability going forward? 

Jason Wilk, Dave: Dave was profitable in 2018 and 2019, prior to going public in 2022, and we plan to be profitable in 2024. 

Dave was focused on high growth through its IPO and accelerated hiring to meet customer and growth demands in 2021. Dave is now on a strong path to profitability by 2024 and strategically slowed the pace of hiring in 2022. 

We have been adding new services, raising ARPU (average revenue per user), and moderating seasonally adjusted marketing expenses as we move toward profitability. In Q4, we reduced our customer acquisition costs by 31%. 

Did Dave change its existing strategies or adopt new ones to weather the economic storm in FY2022?

Jason Wilk, Dave: We’ve leaned in on our AI development which has helped us in a few ways. 

First, it’s improved our underwriting to safely increase ExtraCash limits for members while reducing default rates. Second, we’ve been able to transition more customer support to AI. The combination is improving revenue and reducing costs, all of which makes us well-suited to weather an economic storm. 

Additionally, we have placed a strong emphasis on driving more usage of our Dave debit card, which saw 90% YOY growth, which is a great source of revenue that doesn’t have credit risk associated with it.

After going public in January 2022, how did the neobank navigate a crowded fintech market and gain ground? 

Jason Wilk, Dave: Dave’s products are in demand by millions of Americans who are underserved by the incumbents and stand apart from our competitors. Our business has excellent unit economics, is capital efficient, and has a bright future ahead. The markets are volatile and we’re prepared to deliver strong results regardless of the market conditions. 

How is Dave leveraging technology and AI for more sophisticated financial transaction capabilities?

Jason Wilk, Dave: At the center of Dave lies powerful AI and machine learning capabilities that enable the company to offer its products at a significant discount to incumbents. AI is used in almost every aspect of the company, most notably in its ExtraCash underwriting model and customer support.

Data is our differentiator – we have deeper insights into macro trends, enabling sounder underwriting decisions. We have real-time cash flow data from over 14,000 financial institutions and continuously revise and retrain our ML/AL models. We can make an instant decision based on income and spending data with a linked bank account. 

• For new members, we leverage their historical bank transaction data to better understand their income and spending patterns to make credit instantly available the day a new member downloads the app. 
• For existing members, we supplement the historical bank account information with their behavior on the Dave app (spending and advance repayment) to make even more accurate underwriting decisions to maximize access to credit for members while simultaneously optimizing for our business objectives.

Since inception, we have dispersed over 65 million advances to members, which has provided us with the unique ability to refine and retrain our underwriting models based on a massive proprietary dataset. We continuously retrain and optimize our AI-based underwriting models to maximize our portfolio economics.

The data we receive allows us to detect in real-time changes in income, cash flow spending, and savings patterns as well as employment status, which we use as a leading indicator to underwrite and automatically settle with our members. 

By contrast, FICO-based underwriting predicates credit decisions on bureau data, which offer lagging indicators of customer risk, with no insight into when customers can afford to make a payment. We believe our usage of AI in underwriting gives Dave a structural advantage in a stressed economic environment.

What are the opportunities and challenges facing neobanks in the current environment of high inflation and looming recession?

Jason Wilk, Dave: In the current economic environment, I believe there are significant sector tailwinds that will benefit demand for Dave. 

With personal balance sheets coming under pressure due to inflation and rising costs, combined with other credit providers cutting back on risk, consumers are more likely to seek short-term liquidity solutions such as ExtraCash to bridge their financial gaps. This supply and demand dynamic leaves us optimistic about our growth prospects and we believe that we’re uniquely positioned to service this demand based on our differentiated underwriting capabilities.

Dave performs well in every macroeconomic environment, aside from a heavy stimulus environment, such as during the onset of the COVID-19 pandemic. The current economic picture for our customers is good, and Dave continues to see fewer defaults on ExtraCash advances. Our customer base is well represented in the record low unemployment rates that keep being reported, and we feel very good about that. 

The challenge with high inflation is the Fed is combating it with high-interest rates, which puts downward pressure on valuations, especially for companies that are not yet profitable. 

What’s next for Dave in 2023?

Jason Wilk, Dave: We will continue to enhance our product platform with a steady stream of banking and credit products to generate additional revenue streams that will allow us to better support our loyal customer base, and introduce tools that will help them build a better financial future. 

We are ultimately working towards becoming a primary destination for our members to deposit their paychecks, putting Dave at the center of their financial lives. We are making meaningful progress towards this objective with card engagement reaching record levels in Q4. 

ExtraCash, our anchor product, has been established as a significant driver of initial card users. As a result, member engagement has continued to improve with the average transaction from MTMs for the fourth quarter growing to 5.2x and Dave Card spending volume increasing 34% quarter-over-quarter and over 50% year-over-year. 

We anticipate these positive trends to continue with ongoing product development focused on capping this opportunity in 2023.

The post ‘Dave performs well in every macroeconomic environment’: Dave’s Jason Wilk on shifting up a gear in 2023 appeared first on Tearsheet.

As part of the $3 trillion deficit-reduction plan, President Joe Biden is proposing that capital gains tax be increased to 39.6% from its rate at 20%. But  who will  a higher capital gains tax impact the most? Let’s find out. 

What is the capital gains tax? 

These types of taxes are levied upon the profits generated from the sales of assets like stocks, real estate, or even crypto. Only applicable after the asset is sold, the capital gains tax is calculated by deducting the original cost of an asset from its sale price. The proposed increase to 39.6% applies to those whose income totals to $1 million or above.

Behind the taxes:

In comparison to the wage and income tax, capital gains tax in the U.S. has historically been kept lower to encourage investor risk taking. Contrary to the arguments that investors need to be incentivized, many consider the unequal tax rates unfair to workers. The taxation system in America is not only the center of a lot of critique and political division but has until recently been relatively opaque. Since the Internal Revenue Service forms don’t ask filers about their race, ethnicity or gender, it is close to impossible to accurately study how taxation impacts different demographics. 

At the start of this year, the US Treasury Department released its first analysis of tax return data by race and ethnicity. Note that that critics have long argued that tax benefits and the current taxation system unfairly favors white filers. But this study is the first tangible evidence and confirmation of this misalignment. 

For example, the study finds that the current 20% long term capital gains tax, advantages those with savings that can be invested. Incidentally, this demographic – those who save and invest – is highly skewed towards White Americans. According to the study, the average white family will have a net benefit of $1086 due to this rate in comparison to the $124 for Black families versus $131 for Hispanic families. 

Similarly misaligned, Black American families which make up 11% of all American families receive just 2% of the benefits from the current capital gains tax rate. 

And these benefits have a big wealth gap to fill in. While overall real family wealth has been growing since 1982, this growth has been more consistent for white families. The gap is significant as well. While non-white families have yet to touch the average $400,000 mark, white families began the race already way ahead of this ceiling. 

The gap between the two groups has been consistent as well, despite overall growth.

What impact can the increase in capital gains tax have? 

Although the increase is expected to have a negative impact on the economy by deterring investors, many investors can avoid paying this tax if they hold on to their investments for longer. Similarly, calls for leveling the playing field between investors and waged workers finally seem to be getting a reply back. This new proposal may realign how tax benefits are distributed across the lines of race and ethnicity in America. 

But what if consumers want to avoid paying capital gains tax altogether? Other than holding on to an asset, one possible move can be trusting an investment portfolio to robo-advisors. The leading robo services leverage strategies like tax-loss harvesting. These can lower the amount investors would have to pay at the end of the tax year by pairing gains with losses automatically.

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Tearsheet’s Acquire Awards are the financial industry’s top awards program focused on marketing, customer acquisition, and growth.

This generation’s financial services and fintech companies are deeply focused on achieving scale, one customer at a time.

The Acquire Awards are intended to identify and celebrate the best customer-facing work in financial services.

Here are the 2023’s winners of Tearsheet’s Acquire Awards:

Best Content Series: SoFi

Personal finance company SoFi is helping customers get their money right with the help of generative AI technology. Harnessing the power of Motivation AI, which is a specialized enterprise-class of generative AI for language, the SoFi Marketing team is finding innovative ways to strengthen customer engagement and relationships with personalized, AI-generated content during a period of credit tightening and high inflation rates.

SoFi leverages Persado’s Motivation AI technology to deliver personalized messages that connect with customers at scale. SoFi gains insights into what messaging performs better; identifies the emotional drivers that resonate best with customers at a particular moment; applies these insights to connect with customers on a personalized 1:1 basis, and meets each customer’s needs and motivators during economic uncertainty.

Best Content Series: Zelle

Zelle piloted a new approach to driving usage with event activations. Zelle had one goal: get more people to actively choose Zelle, more often. Through event activations, the brand incentivized users to transact with Zelle by rewarding them with meaningful real-life experiences. In addition, the payments firm’s media plan focused on growing understanding and consideration. To build favorability, it
integrated into meaningful content. To build trust, it enlisted talent our audience loves, including participating in Conan O’Brien’s podcast and the Pitchfork Music Festival.

Best Product Marketing: Mission Lane

Mission Lane serves people trying to build or rebuild their credit and improve their financial lives. The firm launched a series of real-life customer stories to help reduce the stigma surrounding financial hardship and find powerful paths to healthier financial decisions.

The firm’s articles are 100% told from the customer’s point-of-view to help readers fully understand the circumstances that create financial hardships and credit crises like divorce, job loss, catastrophic medical debt, and more. One story in particular, featuring Randy, shared how medical debt could drastically change the way you live and land in bankruptcy. Mission Lane uses this content series as a platform for customers, by customers – all sharing their stories to lift others up throughout their journeys.

Campaign of the Year: Synchrony Financial x Movable Ink

Synchrony used progressive polling to drive personalized recommendations for cardholders’ DIY projects. When
partnering with Movable Ink, Synchrony had two objectives: driving cardmember spend and personalizing at scale. Research shows a strong correlation between personalized experiences, loyalty, and purchase intent.

Synchrony was focused on finding a way to leverage its treasure troves of customer data, collect and action off even more data, and build engaging visual marketing communications. As consumers spent more time at home, Synchrony leveraged Movable Ink’s polling capability to capture zero-party data to better understand what DIY projects were a priority. The presence of the poll led to an very significant lift in open rate in the follow-up email regardless of whether customers engaged with it.

Most Creative Campaign: Ladder

Ladder’s “Croc” campaign builds on So Good viral sensation with 5M+ views. The life insurance firm’s creative campaign drove 4x awareness in less than 6 months. The marketing team felt its role is to stand out and took a brave and strategic risk. It was rewarded in metrics.

The post Announcing 2023 Tearsheet’s Acquire Award winners appeared first on Tearsheet.

John Anderson has a 20 year career building innovative payments platforms. He left Meta a few months ago to join Plaid to take the firm deeper into payments.

John recently joined us on our podcast to discuss payments trends and where Plaid is headed with payments, given its recent launch of Signal, a tool that assesses and scores risk with ACH payments.

5 questions with Plaid’s John Anderson

What is Plaid up to with payments?

John Anderson, Plaid: Not a lot of people know that Plaid already is deeply powering payments. Even at the time [of the Visa acquisition], people were saying that Plaid is going to get into payments – I think Plaid already was at that point working in payments. We started 10 years ago working on allowing people to have greater financial connectivity and link accounts.

But what has really transpired through that time is a vast chunk of our customers are using Plaid not just for giving people greater capability in fintech apps, but also establishing that connection to understand someone’s bank information to get them facilitating account funding. And so it’s already been the case even today. We’re powering over a billion ACH transactions a year through the connectivity that we’re enabling through partners.

Where does Plaid sit in the payments stack?

John Anderson, Plaid: A lot of people historically know Plaid through our Auth product, which allows people to establish account connectivity. And the vast majority of our customers work together with a lot of our partners to process those payments. So, we work with 50 or more of leading companies that do bank payments, whether that’s Square, Checkout.com, or others. Our customers can bring their own processor, and they use Plaid to do the connectivity in the process. That’s historically where we’ve seen such huge long term growth. 

On top of that, we recently launched Signal, which allows our customers to move that money faster through machine learning and better risk management. We also have a product called Transfer, which is for customers who just want one provider. They can come to Plaid to do their processing, as well as account connectivity.

How is ACH evolving alongside credit and debit?

John Anderson, Plaid: So whether it’s buy now, pay later, or prepaid cards (my last company was in prepaid, so I watch that closely), we see these micro versions of finance start to show up in more day to day use cases for how people end up transacting and living their lives. And those are use cases where we see ACH today, and maybe some future bank rails someday, really becoming more applicable. So at least what we’re seeing today, it isn’t necessarily like stealing share from credit or even debit, but instead, just growing the overall liquidity that people have and the different services they use, and by allowing them to more instantly move the money around between their services.

Are banks getting better at sharing data and leveraging their value in the ecosystem?

John Anderson, Plaid: FIs are absolutely central. Plaid now has connections with over 10,000 different financial institutions. And what has been really fascinating is the level of innovation and development that’s happening there. I think a big power behind that is consumer preference, shifting to being excited about and demanding greater connectivity from their bank or from their financial institution, and then that has kickstarted a whole new world of innovation, where we see a lot of our financial institution customers actually spearheading a lot of the new innovation on how data and privacy work to ultimately unlock a lot more value for customers.

What do you think about crypto payments?

John Anderson, Plaid: I haven’t seen crypto materialize as a viable independent rail. True, the transaction costs were real. Second of all, you always had the on ramp. And so crypto’s native payment method for say commerce, I think is still a reasonable ways out. That said, we’re still pretty early in the value that a lot of crypto can have for people as an asset, in particular. I think it’s going to take awhile before it becomes an actual commerce payment rail

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Sometimes, enterprises are so caught up in making things easier for their customers that they can overlook what their own employees might be struggling with. 

Business travel expenses and reimbursements are one of the many to-dos before closing the financial year, and many employees find them cumbersome.

More than half (52%) of business travelers and over one-third (35%) of travel expense processors provide negative feedback when describing their employer’s current expense management process. 60% of business travelers feel filing their expenses is the most arduous aspect of business travel, according to a new American Express survey.

Expense reports: Necessary but annoying

However, expense reports are a critical component of any business. They’re needed to ensure that expenses are accurately recorded, tracked, and reimbursed, and provide a clear picture of the organization’s financial health. 

From a regulatory standpoint, these reports help to corroborate that all expenses are in compliance with company policies and procedures, as well as local, state, and federal regulations. 

In a move to evolve the way business travel payments are processed, American Express and Microsoft have partnered to develop a portfolio of solutions built on Microsoft Cloud and AI technologies – aimed to minimize the stumbling blocks in business travel for employees and businesses.

Business travelers and expense processors often face challenges in keeping track of their expenses while on the go, leading to missing receipts, lost records, and missed reimbursements.

Additionally, entering data manually can be slow and error-prone, and may result in duplication of effort for expense processors if expense management systems are not fully integrated with other systems, such as travel booking systems and accounting software.

Adding categories via AI

The new solution targets these common pain points related to expense management. The solution works when a business traveler swipes their American Express Corporate Card, next they’ll be prompted to upload a picture of their receipt. The transaction is then categorized by an AI-powered decision engine that assigns a risk score based on transaction details, including the company’s travel and expense (T&E) policy, and the traveler’s purchase and payment history on their American Express Corporate Card. 

The risk score is coded as green (recommended for auto-approval), yellow (needs another look), or red (not recommended for approval) subject to factors like company expense policy, consistency with existing spend patterns, indications of fraud, and more. The information is then passed to an expense management system, along with receipt details to auto-generate reports to assist managers and auditors in their decision-making. 

The new solution basically aims to simplify two areas: 

1. Clients’ existing processes by automating manual expense reporting and approvals
2. Improving compliance for auditors and streamlining reconciliation and reimbursements for accounting teams

American Express and Microsoft have a decades-long strategic relationship which includes Microsoft being an Amex-accepting merchant and using Amex corporate cards. However, the expense management tool is the first solution developed through this relationship.

“We’ll help dramatically reduce the time spent on expense reporting for everyone involved in the process, from the traveler to the auditor, as the process shifts from manual to more automated,” said Gunther Bright, executive vice president, of global commercial services at American Express.

By combining Microsoft’s cloud technology with Amex’s closed-loop data network capabilities, the latter intends to evolve the end-to-end payments experience globally for Amex Corporate clients, according to Bright.

Microsoft’s AI interest in financial services

Microsoft is working to align its developments in AI through Azure to make organizations more productive. Microsoft will be the first one to implement the solution and integrate it into its own internal expense system later this year.

“Machine learning and AI technologies available in Microsoft Azure AI provide powerful, new opportunities to reimagine pervasive, time-consuming manual processes for business travelers and companies,” Bill Borden, corporate vice president of worldwide financial services at Microsoft, told Tearsheet.

Although AI and machine learning solutions are advancing rapidly and are likely to play a significant role in the future by changing the business landscape, they require extensive training in order to produce an algorithm that is highly optimized to perform a single task.

There also exists the issue of machine learning or AI bias. Algorithms trained on data sets that omit certain races and people of color can lead to inaccurate models that can malfunction or become discriminatory. As a result, if an enterprise’s operations are determined by biased models it can run into regulatory and reputational inconveniences.

“We train our solutions on diverse datasets, test and validate the output across various scenarios, gate check the output before it is surfaced to end users, and have failback mechanisms in place,” said Borden.

ChatGPT and the financial industry

Advancing AI solutions have gained considerable momentum lately fueled by the popularity of OpenAI’s ChatGPT since its advent in November 2022. ChatGPT’s impact on the finance industry is an emerging topic of interest for industry leaders. 

While many are eyeing its future use cases in the financial industry that may not be far off, some experts have raised concerns that ChatGPT may have negative implications by disrupting traditional financial services, which include trust and advisory services to customers.

Elon Musk recently tweeted about ChatGPT being a “dangerously strong AI”, which indicates that the more advanced the service, the bigger the scale of (cybersecurity) risks involved.

However, some experts cite that ChatGPT won’t likely replace the need for all-human financial advice as users will always want personalized counsel but it has the potential to push humans up the chain.

“We believe that AI will help transform many categories and inspire curiosity and creativity to explore new applications, but we don’t have anything to share related to that area (ChatGPT in financial services) at this time,” added Borden.

The post How American Express and Microsoft’s new AI-powered solution facilitates business travel payments appeared first on Tearsheet.

The Big Bank Theory Awards by Tearsheet are a premier awards program recognizing and celebrating innovation in finance and banking.

With this awards program, Tearsheet brings together industry leaders, innovative startups, and key incumbent players in the field to acknowledge the companies shaping the future of banking and embedded finance.

The awards program will feature categories that recognize excellence in banking and embedded finance, including:

• Most Innovative Bank
• Best Banking App
• Best New Product
• Partner Bank of the Year
• Best Overall Embedded Finance Platform
• Serving the Underserved
• Best Card Issuing Platform
• Best Rewards and Incentives
• As well as more categories that highlight the achievements of digital banking in areas such as customer experience and digital banking

Whether you’re a big bank, a fintech firm, a challenger bank, a brand, or an embedded finance platform, this awards program is an opportunity to showcase your work and gain recognition from your peers.

Have a story to tell? Apply for The Big Bank Theory Awards now

Past winners of the TBBT Awards

Apply to The Big Bank Theory Awards

The post Introducing Tearsheet’s The Big Bank Theory Awards 2023 appeared first on Tearsheet.