Fintech for the Snapchat generation

My good friend Slava of Life.SREDA has just written a book called The First Fintech Bank’s Arrival. You can buy it for 9,99$ on Amazon or download for free on www.ariv.al. He's also shared a chapter with me, and I thought it interesting so here is to sharing.

Fintech for the Snapchat generation by Vladislav Solodkiy

The author is talking about fintech bank – please, do not confuse this fundamental concept with online-, neo- or challenger banks! In principle, online banks provide an interface for opening and managing accounts and deposits, as well as issuing banking cards. However, the financial services spectrum is huge: transfers, micro-\P2P-\P2B-lending, crowdfunding and crowdinvesting, online-trading, personal financial management, etc. In the short term, no player can deliver 10 and more major products in a set for retail and SME clients. Every startup has its piece of the puzzle and piece of the “market pie”. Most exit strategies in the market look like “to be acquired by a major bank, telecom or Internet giant”, which by the way have a profitable core business (with other elements). Just imagine how many products (customers, turnover, etc.) will have a fintech bank built by combining 6-8-10 successful fintech services! It would be very convenient for customers, simplifying the problem of choice and improving the services combined together. Moreover, it would solve many problems of these fintech startups: their market share and “premium for leadership”, a variety of monetization methods, improved cross-sales, increased margins and profitability, integration of services based on new technological platforms (rather than old bank IT infrastructures!). It’s like the introduction of Tesla: a completely new ecosystem of modern services creating new consumer experience! But it’s not just an electric motor inside an old well-known car brand or other services like charging stations, with(out) dealer service and 24-hour customer support based on big data provided by an old market player.

In this chapter, Slava is talking about who can be the first customers for fintech banks. He is highlighting three target audience: Snapchat generation (see text below), “makers and doers” (GIG economy), and unbanked customers.

Money as the new language for communication (not for remittance)

Money transfers are becoming less and less a financial function and more a part of communication, a language you can use to say something. When you are lacking the words you can shoot a movie, sing, dance, cook, paint, have sex… Messengers’ initial function was to transfer important information but over time they have become more and more emotionally intense, with their vocabulary, semantic and social codes. The same will happen to money transfers. You can say “I love you” by a hug, flowers or a burger from a nearby McDonald’s.

“When Sarah Mellema wanted to shoot a quick, encouraging message to her friend Sam, she didn't open Facebook, Instagram, Twitter, Snapchat or WhatsApp. She didn't email, text or call. She used Venmo. "Miss you boo. Here's a kiss and some money," the 26-year-old Chicagoan wrote, attaching a digital payment of 50 cents to the message.”[1] That one note may not seem significant, but it represents Venmo's unlikely status as a thriving, millennial-heavy, emoji-infused social phenomenon. Venmo lets its users make those payments and their associated messages public on social feeds that others can comment on and like.

The Emoji is the birth of a new type of language (no joke). Tyler Schnoebelen has discovered[2] something curious about why people use the skull emoji. Schnoebelen is a linguist and the chief analyst for Idibon, a firm that interprets linguistic data. He analyzed a million social media posts containing those familiar little pictograms and found that when people talk about their phones they’re 11 times more likely to use the skull. Fully 92 percent of all people online use emoji now, and one-third of them do so daily. “When you don’t have access to your phone, or when nobody’s texting you, you’re socially dead,” he says. In essence, we’re watching the birth of a new type of language. Emoji assist in a peculiarly modern task: conveying emotional nuance in short, online utterances.
Interviews with more than a dozen Venmo users showed how they are finding new ways to jury-rig the app into a more social experience, such as using the messages for crude and silly inside jokes ("sex swing for new apt"; "money I stole from your wallet"), cataloging memorable events, sending money for drinks to a missed bachelorette party, or - like with Mellema - making micropayments to friends as a clever way of saying hi. "Venmo is not an inherently social app in the way of Facebook or Twitter, but it offers emotional support and the ability to keep in touch," said Cliff Lampe, a social-media professor at University of Michigan's School of Information. "Young people are good at repurposing feeds and emojis and signals to mean different things and to become social even when it's not intended to be social."

This mashup of payments and social worlds, which launched to the public five years ago this month, doubled its user base last year to nearly 9 million, ahead of all but four US retail banking apps. PayPal said Venmo doubled its total transactions to $17.6B during the same time. And, a whopping 81 percent of Venmo's users are millennials - 10 percentage points higher than millennial darling Snapchat.

Recently fintech companies CurrencyCloud and Toss raised $73M[3] from Google and PayPal. Viva Republica is known for “Korean Venmo” Toss, a financial services platform that started out tackling Korea’s archaic payment system. The pain of cumbersome online payment processes is what drove former dentist SG Lee to start the business two years ago, and today Toss has processed more than $3B in transactions from a base of 6 million registered users. Korea’s population is just 50 million people, but it is the world’s eleventh largest economy. “Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just 1 password and three steps to transfer up to KRW 500,000 ($430),” Lee said in a statement. Over the course of its founding, Toss has gone beyond peer-to-peer transfers and branched into consumer financing. Inspired by the likes of CreditKarma and Mint in the U.S., it launched a financial dashboard, credit scoring and micro-loans (with one-minute decisions) in a bid to make financial services “as frictionless as possible” in Korea. This year Toss will introduce a loan marketplace to provide further credit options, micro-insurance, and TransferWise-style cross-border money transfers. That’s where a large chunk of this new funding will go, as well as helping increase awareness of the Toss service from its current crowd of tech-savvy youngsters to the older demographics in Korea.

Fintech banks for the “Snapchat generation”

Snapchat filed to IPO in February 2017[4]. It was more than double as expensive as Facebook's IPO, and nearly four times as expensive as Google's. But there were several reasons to be cautious about jumping in as an investor: and the first one is about, that you'll be paying 62x trailing sales for this company. It drives the company (and potential investors too) to think more about better monetization through complimentary products and services.

2,5 years ago, Mark Zuckerberg announced an unofficial messengers’ race for better and faster monetization of a customer base by integrating remittances, payments and other fintech-functions. Taking into account that new functions and changes are being introduced every three-six months nowadays, messengers haven’t gone far for the past two years. Those (fewer than all) that have managed to integrate payments, made them available just in one country with only basic functions. Clearly, only Chinese WeChat is far ahead of the competition, but like all other solutions – it is local, for all practical purposes.

In 2016 neobanks and challenger banks raised more than $300M of investments (at the beginning of 2017 Atom bank alone raised £100M in one deal). They complement many other fintech verticals, creating many opportunities for M&A deals and partnerships with a high level of synergy. From challenger banks side, it is interesting now to observe a trend of demographically targeted neobank creation, like British Monese for expats in London, British Loot and GoHenry, Danish LunarWay and Ernit, American Greenlight, Singaporean YoloLite and Neat from Hong Kong are focusing on “Snapchat generation” users[5].

Greenlight, a three-year-old, Atlanta-based startup, is trying[6] to solve a problem that any parent of an elementary or junior high school student can well understand: how to give kids money without worrying that they’ll lose it or spend it on something they shouldn’t. It isn’t the first reloadable, prepaid card. MasterCard, Visa and American Express each offer parent-friendly debit cards, among other outfits.

Danish banking app Lunar Way is one of a plethora of startups in Europe attempting to update the retail banking experience with a mobile-first offering too. To get ready for a full launch, Lunar Way is disclosing €4.2M ($4,4M) in new funding. Aiming to build a banking experience for the “Snapchat generation” the startup offers a mobile banking app that lets you open a banking account, receive a debit card powered by MasterCard, get a real-time transaction feed of your spending, view your transactions by shopping category or retailer and more. You also can set saving goals through the app, and pay bills. Ken Villum Klausen, founder&CEO of the company, also told that 85 percent of its users follow the startup on Snapchat.

Loot, a banking services app pitched at millennials, topped up its seed funding round with an extra £2.5M ($3.1M), taking the total raised this year to £4M. The growth funding comes 5 months after the London startup raised £1.5M to build a banking app for “Generation Snapchat.” Loot is a prepaid card linked to a money management app that lets people track and gain insight from their spending. The new version of its app will also feature savings tools and targeted offers.

Ernit, is a provider of a digital piggy bank for children has been selected as one of the 10 out of 1000 companies to attend the prestigious accelerator program Techstars in NYC with help from tech-giants such as Google, Microsoft and Amazon. The company enables parents to teach children how to give, save, and spend money wisely. It consists of an app and a smart piggy bank. The app enables the children to set savings goals and allows parents and others to contribute money.

British GoHenry, which provides[7] a pre-paid debit card to kids and an app to manage their pocket money, has more than 200,000 members and is growing by 10,000 each month. “We’re delighted to give the parents that love our product a chance to be a part of our future success too. We are a business that was built by parents so it’s only natural that it continues to be owned, managed and grown by parents as well," said GoHenry co-founder and chief operating officer Louise Hill after successful crowdfunding campaign on Crowdcube. "As our economies become increasingly cashless, and as purchasing moves online, children need to be able to manage their money in a digital age," she added.

If Asian countries are not so active in terms neobanking movement, but there are two bright startups in this area for Snapchat generation too. In March 2016, the new bank Neat, co-founded by former Citibank veteran David Rosa, started testing its technologies and receiving guidance and mentorship. Neat operates from a smart budgeting and savings app with a companion card and uses facial recognition technology to authenticate customers at log-in. While the app is certainly open for anyone to use, the company is specifically targeting university students. Not only do they tend to be early adopters, the company’s market research also revealed that university students tend to need more help with budgeting. YoloLite (YOLO – you only live once) from Singapore is doing a similar product like Simple bank, but for kids and their parents.

Online student loans represent another very interesting niche[8]. Such players as Affirm and Credible have already started to expand their product lines to provide not only personal loans, but student loans too. American public company SoFi, a market leader, actively expands its business model to b2c (not only student loans, but mortgages as well) and b2b (Credit Opportunities Fund, created by SoFi, allows institutional and private investors acquire pooled loans from SoFi and other players) segments. The Fund has recently sold a portfolio with AAA rating by Moody’s worth $380M, which sounds like an investment opportunity for pension and insurance funds (which, in turn, would open this newly emerged market to conservative investors).

However, the size of SoFi makes it unwieldy over time – and it opens doors to such players as CommonBond (which has recently acquired PFM startup Gradible), Affirm, ClimbCredit and Earnest (all of them being approximately of the same size). Smaller players follow the leaders – LendKey, Credible and LendEDU, for example, have already launched their student loans’ refinancing programs.

There is a pool of interesting projects focusing on particular needs (and behavioral trends) of some client groups. SelfScore, for example, allows an international student to build a credit history in the US by issuing them credit cards – and this is a niche of up to 1M borrowers a year.

Noteworthy, this sector is actively developing only in the US despite the fact that student loans are a burning issue everywhere. Only British Future Finance (has raised $13M in equity and $143M of working capital to finance credit disbursement and expanded to the German market recently), Indian Buddy and Indonesian Cicil (all of them are very small startups) are developing in this field.  This is strange considering that people from Singapore, Hong Kong, Japan and Korea spend a considerable amount of money for their education.

Fenqile, a Chinese online shopping mall that lets users pay in installments, is planning a U.S. initial public offering[9] that could raise about $600M. The Shenzhen-based startup, founded by former Tencent executive Xiao Wenjie, could list as soon as this year. Fenqile, which means “Happy Installment Payments” in Chinese, targets university students who are eager to buy consumer products yet can’t afford to pay in full. Fenqile, which sells products ranging from laptop computers to concert tickets, has more than 10 million registered users and had 10 billion yuan of revenue in 2015, according to its website. Selling shares would give Fenqile, which is backed by Russian billionaire Yuri Milner’s DST Global, more funding to compete with rivals like Qufenqi, whose investors include Alibaba’s finance affiliate Ant Financial. E-commerce is expected to be the main driver of increased consumption in China, supported by the growth of online shopping in third- and fourth-tier cities. Chinese e-commerce operator JD.com Inc. is also among investors in Fenqile. It most recently received $235M in a private fundraising round in June 2016.

Online-lending service for students SoFi (Social Finance Inc.) is raised[10] $500M in a funding round led by private equity firm SilverLake Partners to bolster the expansion of its online-lending businesses and personal financial services. The investment round should include several Asian investors like Japan’s SoftBank and others. The new international group will purchase SoFi’s loans as well as take an equity stake. The fundraising round values SoFi at $4.3 billion, higher than its previous valuation of $3.2 billion. Closely held SoFi started out in 2011 by refinancing student loans. In 2015, San Francisco-based SoFi issued $5 billion in loans. That had grown to more than $15.5 billion by early this year. It’s since chased a much wider vision, expanding into personal loans, mortgages, wealth management and life insurance. Earlier, SoFi acquired mobile banking startup Zenbanx[11] for about $100M. Expansion and scaling to neobanking as complimentary fintech vertical is the very trendy step right now.

GIG economy is on the rise. Millennials and “Snapchat generation” are native freelancers

It wasn’t that long ago that if you were a freelancer, you felt bad about what you did—like you were somehow less than your peers. It was something that you did as a default move—you went through a life change, or you were trying to break into an industry that wouldn’t have you. That may never have been true; these days, it’s just dead wrong.

The Freelancers Union has partnered with Upwork (formerly Elance-oDesk) to commission our second annual independent study of the freelance workforce. The results are fascinating. Freelancers are a growing workforce. There are now almost 54 million Americans freelancing, an increase of 700,000 over last year. That’s more than a third of the American workforce[12]. Millennials are native freelancers, and it shows: They are freelancing at a higher rate than any other group.

Independent workers are freelancing by choice. Survey respondents told us that they’re freelancing because of the flexibility, freedom, and balance that it offers. In our survey, 60% of respondents said they started freelancing more by choice than by necessity. Critically, half of the freelancers we talked to said that they wouldn’t take a traditional job, no matter how much it paid. And because being a freelancer lets you work from anywhere, a third of freelancers say they have been able to move because of the flexibility their career provides.

Maybe most significantly, we found that full-time freelancers say they actually earn more than the average American worker, and a majority say they’re earning more money than when they had a traditional job. And nearly half predict that their incomes will go up in the coming year, with many directly attributing that to an increase in demand for their services.

The fixation on millennials—how they supposedly do and don't work[13], what they supposedly do and don't want from their careers—is overblown. Why? Because that conversation lacks focus. The oldest millennials are now turning 35—they're hardly the new kids on the block anymore. And they share little (in terms of experience, working styles, and priorities) with Generation Z, the youngest demographic of new workers now entering the workforce. Gen-Z roughly encompasses today's teens and young adults born after 1995, the oldest of whom is 21 years old—next year's entry-level employees.

As one observer writes, summing up recent research, "These are kids who grew up in a post-9/11 world, during a recession, and during a time in which 1 in 4 American children lived in poverty." All that will have a major impact on Gen-Zers' prospects and approach to realizing them.

A recent Northeastern University study on Gen Z concludes that the generation is "entrepreneurial [and] wants to chart its own future," and goes on to point out that:

• They are confident self-starters. They believe entrepreneurship is the best approach, as 42% expect to work for themselves.
• 72% would prefer to design their own college courses and majors altogether. They seek hands-on experiences and practical skills.
• 79% want colleges to integrate work experience with coursework in order to give them a leg up in the workplace. 64% are concerned about being able to get a job.

Some of this trepidation is well-justified, in light of issues like the student debt crisis and college affordability. But many of Gen-Zers' traits seem likely to propel them toward innovation and growth hacking in a wide range of current and emerging industries. The fact is that for independent workers, tomorrow's entry-level employees, entrepreneurs, growing startups, and established corporations, sustainable growth and innovation are never one-time things. It takes a deeply emotional, systemic, and cultural stake in the changing climate, which starts, of course, with an understanding of it.

[1] https://www.cnet.com/news/venmo-paypal-wacky-social-mo-pay-the-rent-get-likes-and-jokes/

[2] http://www.wired.com/2016/04/the-science-of-emoji/

[3] https://medium.com/@slavasolodkiy_67243/online-remittance-hype-fintech-companies-currencycloud-and-toss-raises-73m-from-google-and-paypal-d5a1effb3c01

[4] http://www.forbes.com/sites/ericjackson/2017/02/07/4-reasons-to-be-wary-of-the-snapchat-ipo/

[5] https://e27.co/7-new-banks-snapchat-generation-20170214/

[6] https://techcrunch.com/2017/02/03/greenlight-is-a-debit-card-for-kids-that-parents-manage-from-their-phones/

[7] http://www.cityam.com/242757/fintech-startup-gohenry-just-smashed-crowdfunding-records-and-thats-a-problem

[8] https://letstalkpayments.com/online-lending-for-students-on-the-rise/

[9] https://www.bloomberg.com/news/articles/2017-03-09/dst-backed-chinese-startup-fenqile-said-to-plan-600-million-ipo

[10] http://www.dealstreetasia.com/stories/sofi-close-raising-500m-led-silver-lake-asian-investors-join-65283/

[11] https://www.bloomberg.com/news/articles/2017-02-01/sofi-buys-mobile-banking-startup-zenbanx-for-about-100-million

[12] https://www.fastcompany.com/3051686/the-future-of-work/the-state-of-freelancing-in-the-us-in-2015

[13] https://www.fastcompany.com/3053911/hit-the-ground-running/five-business-trends-to-watch-in-2016-no-matter-how-or-where-you-work