FTT + March 29th: With Stimulus Funds On The Way, A Look At How Consumer Fintech Can Help
Hi all, Julie here.
The government finally passed a stimulus bill aiming to help small business and low to middle income Americans that have been hit hardest by Covid 19. Now comes the question of how it will get the checks to them, and how long it will take.
A number of tech folks were weighing in on Twitter. Jack Dorsey was talking about how Square’s cash app could help, Zach of Plaid gave Jack a RT and said the government should let them help, and one of Gusto’s co-founders was talking about how they could get the money to small businesses more quickly than some other paths.
These are interesting thoughts, since the last time the government sent out any sort of checks, many of these technologies didn’t yet exist. So is it safe? How would it actually work? Are there regulatory reasons they wouldn’t be able to do this? I’d love to hear more from you guys so please email or DM me if you have extra thoughts, but here is what one of my friends that worked at Venmo had to say this weekend:
Gut feeling is nothing off the shelf -- you’d have to tie IRS’ sense of your identity (SSN + address) to something else like a mobile number or email. I don’t think any of these companies have any great way to do it, but I think bringing in fintech to be able to build something quickly and bespoke in order to be able to facilitate this matching is really what I think Zach & Jack are asking for. In my opinion, the biggest challenge is mitigating fraud. But, if you do some verification based on entering a few line items that you know from your tax return along with your SSN, name, address, you can imagine a flow where user is entering their mobile number or email and able to sign up for something like Chime or Cash app where funds can be disbursed. If that provider also has a virtual debit card, folks could use those funds for necessities, add to Apple Pay for in-store transactions, get cash back at purchases, mail a check for expenses.
So, it sounds like the tech might be there, but we’d need to make some other changes before this could work, and that would require the government working together with fintech. If anyone hears of some developments on this end or if people like Zach and Jack are having any luck, let me know. I’ll gladly give out my $cashtag in order to get the stimulus sooner rather than later. Same goes for when I file my taxes every year.
Speaking of Cash App, we’ve all heard a million times that millennials are scared of credit cards, and I think the same behavior’s extending to Gen Z too. There are a few reasons cited for this, like seeing people struggle during the 2008 financial crisis, but I’ve always wondered why they would give up the cash back and other reward offers that credit cards can give you. Lately, we’ve started to see various offers added to some of the debit cards fintechs are offering. Square was the first one that I remember. Boosts like 10% instant cash back at Whole Foods, 5% back on DoorDash, 5% at Chipotle, you get the idea. Apparently it’s working since others are copying them. Most recently, SoFi did a promo with Lyft where I got 20% cash back on all of my rides for something like 2-3 weeks in January. Then this week I got an email from them saying I’ll get cash back on streaming services and select food delivery. Late last year, Venmo launched a rewards offering for its new debit card. Chime is working on adding rewards, and newer neobanks like Point have been focused on debit card reward programs from the beginning. I’m sure there are a slew of others that have either already launched something like this or are working on it as well. This could be a potential boon for card-linked rewards programs and companies in that space, too. Ian mentioned Dosh as one potential beneficiary: the PayPal-backed startup is working to power Venmo’s rewards program, according to the Venmo’s terms of service agreement, and has been courting other debit card programs as well.
A couple of things come to mind here. One: adding the rewards makes more people willing to use it, and use it more often. Two: it also establishes behavior and usage so that when users get more comfortable with debt (mortgage, buying a car, etc), these neobanks will continue to be the first place they turn. My question is, how much do these rewards eat into profits? Are they offset by the increased number of transactions that’s initiating a higher revenue from interchange fees? I think some of that will be a tough balance, especially if for some reason regulations are changed and this interchange arbitrage trade is no longer available (ie: banks partnering with banks that are exempt from the Durbin Amendment and have less than $10B in assets).