FTT+ Issue 2: Airbnb & Fintech — NYC Happy Hour—Varo—Finix CEO Q&A
Hey everyone! First off, happy, February; thanks so much for subscribing. We’ve been working a lot on the product side to iron out some kinks: we’re technically using Substack but processing payments through Stripe, and using some automation tools in the middle. We finally figured out a manual fix for now.
We’re also going to be updating the publishing scheduling a bit to better align with some products we’re rolling out; I’m particularly excited about our community product. We’re also working on a more centralized way to publish newsletter, which should help scale our content and publish more too. We’re looking for reporting and publishing interns to help with content writing and publishing, as well as analysts to help with more freelance content and B2B content for fintech startups (both are paid per project.)
If you missed our first post, our 2020 fintech predictions, check it out below:
For now, we’re going to try and roll out 2 additional newsletters per month. One of them will be a research report similar to last month’s 2020 predictions article. Our next research report is going to be focused on bank charters, which I’m really excited about. Perfect timing too, with Varo’s news about obtaining FDIC approval for a US bank charter. We’re going to be adding more content to the FTT+ tier as we hire more writing help, but me doing all the content and
Up Next: This month, we have a lotta fun things planned:
-NYC Happy Hour: we’re planning a happy hour for the end of February in NYC. Tentatively schedule for the 26th or 27th, reply to this email if you want to attend and which date works!
-Podcast: The first podcast episode, with Lolli CEO Alex Adelman, will be in your inbox’s next week. Publicly, it’ll launch in March, but FTT+ members get access to podcast (and other content down the line) ahead of time.
-Merch Store: Stay tuned for that next week too!
-Community product launch for FTT+ members: We’re aiming to launch this by the end of the month. I’m really excited about this-the FTT Slack is going really well, but I’ve wanted to create a more accessible way to foster the FTT community too. It’s kinda like a combination between Facebook Groups and Quora, and will be a fun place to have both on and off topic conversations with each other. The reason that I’ve restricted access to the Slack beyond Early Backers is because Slack groups can get really tricky to manage really quickly (if you’re an Early Backer who’s not in the Slack yet, please let me know ASAP!) This will be a scalable, sustainable, way to develop the FTT+ community.
Airbnb & Fintech
My buddy Alex Cohen (who’s now working on a really interesting productivity company…) wrote a FTT Guest Post for us about Airbnb’s potential around developing fintech products. Alex was the first person I went to talk about the job posting for director of loyalty, and is an expert in how loyalty systems and credit cards work together. Read it here:
Here’s my summary:
Job Posting Breakdown: Alex goes into great detail on just how intricate this role is. I particularly liked the part about how cross-functional a loyalty program would be inside a company like Airbnb; and his breakdown of how a director of loyalty role would interact with different departments, especially finance and operations.
Loyalty Program’s Importance to Airbnb: Airbnb is on pace to go public this year, but its interest in loyalty program goes beyond that, Alex argues. One reason is just that the timing is right, with Experiences taking off and hotel bookings becoming more popular post-Hotel Tonight acquisition. Another reason is a robust loyalty program keeps users engaged with Airbnb, using different products and spending in the Airbnb ecosystem.
How I’d Build This: This was my favorite part; not only is Alex a friend of mine, but he’s also brilliant when it comes to consumer product. His approach around starting with status and perks—similar to Uber—and wait to see what the best rewards strategy would be is a great way for a consumer company like Airbnb to slowly develop a fintech product while adding value to users immediately.
Deeper Dive: Varo’s US Bank Charter
I tweeted about this yesterday, but I wanted to dive into the Varo bank charter news a bit more. My report on bank charters is going to analyze how different partnerships with fintech startups and banks work, what kind of startups are aiming to make that relationship easier, why some startups are looking to obtain bank charters, etc etc.
The coverage around Varo seems to imply that it’ll now be a lot easier for fintech startups to get bank charters. I don’t think that’ll be the case. If anything it might get even tough.
Varo had the capital and the experienced banking team to pull off getting a charter. Capital in some cases is the easy part—considering how easy it is to raise large funding rounds nowadays, but finding an experienced team that has the know-how to pull it off is the difficult part. Based on my assessment, there haven’t been any major regulatory changes that has made the process easier for Varo. (It should be noted that Grasshopper Bank received a charter from the OCC about 10 years ago, but for a commercial bank, not a consumer one.)
There doesn’t seem to be much movement on making bank charters for tech companies easier to obtain either. A few months ago, I wrote about a Politico piece talking about Rakuten looking into a bank charter in the US. Since then, my research hasn’t really found much pressure on making the charter process easier. I’ve been wondering if the underlying issue is actually lobbying power; tech companies aren’t spending their lobbying clout on this problem, and banks are. So, there aren’t many folks in DC that are advocating for fintech startups and innovation in financial services (if you know of anyone, let me know! I’m at iankar874@gmail.com.)
Now, this isn’t a problem for most fintech companies. Partnerships between banks and fintech startups are becoming more commonplace and much more innovation-friendly. But long term focused companies, like Varo and others, understand that at a certain point, the long term investment needed into obtaining a bank charter is necessary for their business.
It’s hard to tell what Varo thinks a charter will be best for—it seems like, based on interviews I’ve read, that they initially see it as a way to reduce Varo’s cost of capital by being able to hold deposits and lend those directly. They also could innovate faster on the product side too; they don’t need to rely on partner banks to develop new financial products. The problem is now they need to be much more methodical and figure out how to handle the compliance side of product development too, either through partnerships or dealing with it in-house.
Varo also sees the bank charter as a “moat,” so its unlikely they want to take the banking-as-a-service route and work alongside other fintech startups (though, that depends. They may end up finding that by enabling fintech innovation and becoming a partner bank might be a better business.)
But in either case, I’m really excited to see where Varo goes from here, and especially excited to see which companies follow suit.
Sneak Peak: Q&A of the Week:
Finix raised a $35 million Series B led by Sequoia, just a few months after they raised a $18 million Series A led by Bain Capital.
We did a brief email Q&A with CEO Richie Serna about Finix. We’re publishing it for all subscribers in this week’s issue, but here’s a sneak peak:
For the fintech person, what problems does Finix aim to solve in the payment processing world?
Historically, if you were a platform–meaning you broker transactions between two parties–that wanted to add a seamless payments experience to your product, you had two paths:
Build it from scratch on top of legacy payments systems
Completely outsource your payments to a 3rd-party provider
Each path has its own issues and tradeoffs. For example, Uber built its payments stack from scratch, which they cited as a strategic advantage in their S-1 but it was incredibly time-consuming, resource-intensive and resulted in over 600 engineers dedicated exclusively to payments. Lyft took the other path and outsourced their payments completely. The initial convenience eventually wore off and based on Lyft's S-1, they are adding an additional processor.
Finix presents a third option: Just as software companies have come to rely on Amazon or Microsoft to manage their general web services, software companies can use Finix’s payments infrastructure to customize, manage and monetize their payments stacks.
You just raised two rounds pretty quickly: strategically, what was some of the reasoning behind that? Where do you plan on devoting your resources?
The opportunity we're going after is MASSIVE. To put it in context, companies like Google and Facebook operate in a ~$300B global advertising market. Global payments is a $2T market and growing. I think you should only raise money if it will help you do things faster or do more things in parallel. Given the size of the opportunity, we felt now was the right time to accelerate our ambitious plans by adding more resources and some fantastic investors. Specifically, we'll use the funds to accelerate hiring in (especially in engineering), continue to expand internationally, and invest heavily in product development.
Your background is super interesting-you’re a self-taught coder and you’re the CEO of a payment infrastructure startup. How important is it to be technical if you’re the founder of a fintech startup?
When I left consulting to get into tech, my friends thought I was crazy. They told me I didn't come from a rich family, I couldn't code, and I had never worked for a rocketship startup, so it wasn't likely some VC would just write me a check. My dad is a bus driver so I couldn't do much about how much money my family had but I could try to work for a growing startup and I could definitely teach myself to code. So that's what I did. Having a technical understanding has been super helpful starting and running Finix, but I’ve also studied payment systems. Once you understand how and why these systems were built the way they are, you're more able to think about how to fix them. At Finix, we don't expect everyone to code but every new employee and investor receives Payments Systems in the U.S. a great payments primer by Glenbrook Partners.
Where are things headed for Finix product-wise? The goal around helping software companies become their own payment facilitators is clear, but what other areas can you grow next?
We believe in a future where nearly every software company will derive the majority of their revenue from payments and other financial services. There are a lot of things needed to make that vision a reality. I won’t get too into specifics but we fundamentally see ourselves as a fintech infrastructure provider. So things like automating certain back-office functions like compliance and accounting is an interesting area. We also folded in a fintech consulting firm last summer so we could offer our customers more legal, compliance, and risk expertise.
Are you hiring? Where can we find more details about jobs at Finix?
Yes, always! You can find more on our jobs page: https://learn.finixpayments.com/jobs