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Big news from the Reconcile team and more tech-financial services partnerships

Hey everyone! Wishing you a great start to your day! In light of what should be a busy week for all of us as we cram before a much-needed long weekend ahead, we’ve kept this week’s newsletter short and sweet.

We’re starting with a major announcement and a few important asks:

Reconcile Successes

  • We were approved for Testflight access last week! Therefore, we will start onboarding more beta users off our waitlist starting from today. I will personally help onboard you through your first interaction, ensuring you get a complete overview of the product we’re building for you. Stay tuned!

Reconcile Asks

  • We’re looking for a conversational designer to help us refine our Siri experience. We would love an intro to anyone that’s worked on similar voice-first apps and is located in the US, preferably on the east coast.

  • We’re looking for a content intern to help us scale our newsletter. If you know recent college grads looking for a summer gig, shoot them our way!


Fintech News

  • Another week, another example of tech entering the financial services space. This week Google announced that it would begin offering loans through Google Pay to small business owners in India. India has approximately 60 million small and micro-sized businesses, which means this is potentially a huge opportunity for Google.

    Google Pay has about 75 million transacting users in India, more than any of its competitors. 

  • In other news, Uber announced that it would deprioritize its internal financial services projects. Instead, it will pursue a partnership-first approach to avoid wasting resources on building offerings from scratch. This follows the strategy outlined in last week’s newsletter: tech firms working with longstanding financial institutions to deploy unique business models. As Will Quist, Partner at Slow Ventures, put it:

    I am not sure that this is a sign that consumer-facing companies are abandoning the push into financial services. If anything, I think it highlights that very few companies need to hire internal teams and build their own tools and products. Instead, they can leverage others building best in class solutions.


Thanks for reading!

Jaimin Desai - CEO & Co-Founder of Reconcile

www.getreconcile.com

*P.S. If you have any thoughts on our content, please leave a comment or email me at jaimindesai@reconcilemoney.com!

Banks are cozying up with tech firms

Wall St. and FAANGs will soon run the world hand-in-hand

Hey everyone! I hope all of you were able to enjoy a sunny weekend and celebrate a happy father’s day 🥳

Tech - bank partnerships

Wondering how so many tech companies offer financial services? They partner with banks, of course! If you’re a big fish like Amazon, you call up your counterparty at Goldman Sachs and get a deal done. However, if you’re a new upstart, like Truebill, you call up NBKC bank (we’ll get to this later).

Recently, Amazon partnered with Goldman Sachs to enable its merchants to acquire credit lines up to $1 million. This is a big deal for many reasons:

  1. Merchants can easily acquire business loans in minutes with a digital application and real-time approval (Amazon does user experience really well).

  2. Amazon gets to keep its sellers happy and in business, as well as generate a new stream of revenue from the credit lines.

  3. Goldman Sachs gets to offer high-margin credit lines (6.99% to 20.99% APR) with nearly no acquisition costs.

Essentially, Amazon worked a deal to ensure it’s flywheel (see below) keeps spinning efficiently by locking in sellers with fast and easy loan opportunities. Goldman wins cost-effective business, diversifies its portfolio, and gets to boost its Marcus-lending division’s brand awareness.

In our last newsletter, I mentioned that large tech companies will soon enter the financial services game by offering their own credit lines. In the short term, I think we’ll continue seeing more partnerships between the two industries as banks open themselves to more alternative lending opportunities. Currently, chartered institutions, like NBKC, have pioneered the partnership model. In return for enabling fintechs, like Venmo, Betterment, and SoFi (see others here), with traditional banking products, they acquire low-cost deposits and asset-light fee streams. In the long term, I strongly believe (and this is a pretty bold assumption) that large tech players, like Amazon, will either buy a small bank or seek approval for their own banking charter. This way, they get to own their customers’ end-to-end experience, including all of their data, as well as expand their revenue streams into the lucrative lending industry.


ICYMI

  • American Express entered into a partnership with LianLian DigiTech, a Chinese fintech, last week. This means AMEX can start to process local currency and gain an initial foothold into China’s $45 trillion financial services industry. Read more about it here.

  • If any of you are looking to learn about launching your own startup, you should definitely check out Startup School, a free community-driven program managed by the prolific Y-Combinator. For a list of resources, check out this link.

  • In other news, we pitched in front of four early-stage venture capitalists at the Starta Ventures Pitch Contest and won first place! The judging panel included Delian Asparouhov (Principal at Founders Fund), Robert Harary (Early Stage VC Investor at Evolution VC Partners), Gregg Smith (Founder of Evolution VC Partners), and Nicholas Weber (Early-Stage VC at Capital Factory). In case you’re into social proof, I think these guys just helped validate your decision to join Reconcile 😉. Link to post.


Meme of the Week

RIP to my iPhone 6 and 7 screens 🤦🏽‍♂️


Thanks for reading!

Jaimin Desai - CEO & Co-Founder of Reconcile

www.getreconcile.com

*P.S. If you have any thoughts on our content, please leave a comment or email me at jaimindesai@reconcilemoney.com!

Reconcile, fintech trends, and positivity all before breakfast!

Wishing you a happy and positive week ahead!

Gooood morning! Here’s to hoping this week starts with peace and positivity 🙏🏾

This week I wanted to share insights on Reconcile, fintech, and positivity in difficult times.

Let’s get to it!


Reconcile

During a recent fundraising pitch, I was asked, “what will make this a billion-dollar company?” Honestly, I love this question because it lets me paint the vision that I live, breathe, and dream about every day. I decided to turn it into a blog post so that I can share this with everyone. Here’s a link to view my draft! Feel free to share your thoughts and feedback in case I’m not thinking big or broadly enough. Here’s a quick snippet:

We want to remove the financial friction from our users’ lives so they can focus more time and energy on solving our biggest challenges — climate change, urban mobility, healthcare, sustainable agriculture.


Fintech

Some of my non-finance friends asked me to write a report on fintech trends. I’ve already written about some of them in previous newsletters, but I’ll share a few snapshots in case you’re not up to date! If you would like more information and a copy of the report, leave me an email at jaimindesai@reconcilemoney.com!

Automation is Coming After Personal Finance

The last ten years of fintech has produced some amazing companies working to simplify financial management, chiefly by taking the onus of responsibility away from users. Some examples of startups performing this automation include Digit (taking money out of our paycheck into savings accounts), Acorns (rounding up the difference from our debit and credit card purchases into investment vehicles), Betterment (choosing which funds to invest into for us). 

The key behavioral insight this trend touches upon is the pain most of us feel when managing our money. Our lack of formal education and understanding of complex finance concepts keeps us from actively participating. Therefore, startups helped users become financially healthy without requiring them to do much, if any, work. 

We are seeing this trend touch several sectors of financial management - saving, investing, advising, spending, bookkeeping, etc.

Related reads:

Open Banking is Reshaping Innovation in Financial Services

Open banking is a concept introduced by the European Parliament via PSD2, a rule aimed at promoting the development and use of innovative online and mobile payments. What came out of this is a system that provides third-party access to financial data through the use of application programming interfaces (APIs). In simple terms, banking went from one major provider of services to several providers each connecting into each other. 

This initiative helped startups focus on tackling singular pain points faced by consumers (e.g. signing up for a credit card, transferring money overseas, seeing all accounts in one place). By devoting all resources to fixing one problem, startups could supercharge its innovation efforts to perfecting the end-user experience. In order to broaden its product offerings, a startup could simply tap into a banking API to access data, products, or services. 

This specialization has led to many advancements for consumers who have traditionally fallen victim to the poor product experience designed by big banks. 

Related reads:

Every Company will be a Fintech

This is a common joke floating around the fintech community. However, it makes a lot of sense. Fintech refers to software and other modern technologies used by businesses that provide automated and improved financial services. 

One of the biggest financial services is credit. Traditionally, banks were the main credit providers. They financed cash flow for large and small players through loans, credit cards, etc.

Now, major tech players like Amazon or Uber can enter this space by offering credit directly to its stakeholders. As companies gain more insight into their buyers and suppliers, they can underwrite their own credit deals. For example, Uber can provide its top drivers with an auto-loan with favorable terms. We’ve seen Apple introduce its own credit card with extremely rewarding deals on its own products (e.g. 5% cashback on Apple purchases). 

As we’ve entered this era of mass-consumption, companies have no choice but to enter the financial services space to incentivize buying and retention. 

Related reads:

Banking is Moving Digital

Digital banking, which first started around 1999 using SMS-channels, is set to take over as our primary financial service interface. Traditional banking involved physical branches, paper checks, deposit slips, etc. Now, just about everything we’re used to can be done via a digital interface (mobile, web, voice). The key driver in the shift to digital is enhanced user experiences. We expect the products and services we use to be friendly, simple, and fast. Banking is just now catching up to this reality. The winners of tomorrow will be determined by the cleanliness of their digital interfaces and the accessibility of their applications.  

We’re already in the midst of this evolution. Challenger banks (what we call new up and coming entrants) have exploded in the last five years because of their digital-first approach. They’ve reallocated resources traditionally set for brick and mortar for software engineering and design. Therefore, they are better able to compete against mainstream banking technology departments and introduce innovation at a faster clip. 

Here’s an example in the context of opening a bank account. Traditionally, we would need to spend hours reviewing paperwork with a bank manager and then wait weeks to finalize the account. In the new digital banking era, we can open an account in minutes and begin using it in just a few days. 

Related reads:


Positivity

Our health and wellness are coming under direct fire in these last four months. Frankly, 2020 feels like it can’t get much worse than it is already. I keep reminding my family and team that our objective should be to survive the mental challenge most of us are facing.

As a team, we’ve started doing weekly meditations over a video conference to help ground us. If you want to join, leave your email and a preferred time slot here!

Here are handpicked resources to help get you through these troubled times:

I am fundamentally an optimist. Whether that comes from nature or nurture, I cannot say. Part of being optimistic is keeping one’s head pointed toward the sun, one’s feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lay defeat and death. - Nelson Mandela


Thanks for reading!

Jaimin Desai - CEO & Co-Founder of Reconcile

www.getreconcile.com

*P.S. If you have any thoughts on our content, please leave a comment or email me at jaimindesai@reconcilemoney.com!

Our support for the BLM movement

Our solutions to contribute to financial freedom for all!

Hey everyone, apologies for skipping last week’s newsletter. The team needed a mental break to manage our emotions and headspace regarding the current racial climate in America. As a founding team comprised of minorities, we justifiably felt the anger, helplessness, and shame that many of us around the world feel. The terror we see and feel, watching law enforcement clash with protestors, is truly sickening.

Be the change that you wish to see in the world. - Mahatma Gandhi

Reconcile’s mission has always been to enable financial freedom, which disproportionately is harder for blacks and other minority groups to achieve.

In 2016, the average wealth of households with a head identifying as black was $140,000, while the corresponding level for white-headed households was $901,000, nearly 6.5 times greater. - Cleveland Fed Report

To enact the change we wish to see, we need to do more than to dream big. Here are some short-term solutions that we’re putting in place (and we’ll continue to add more as we grow):

  • Making the team available for any of your business optimization (we’ve helped startups and Fortune 50 companies grow and scale) or personal finance questions. If we can’t directly help you out, we’ll be sure to reach out to our network to give you the best advice.

  • Helping you develop your professional skills through mentorship and technical challenges. For anyone looking to enter software engineering, consulting, and managerial roles, feel free to reach out!

  • Supporting local minority entrepreneurship groups with financial literacy training.

Help us make this list even longer and more impactful by recommending your own solutions!

And to be clear, we wholly believe in the Black Lives Matters movement.

Never, never be afraid to do what’s right, especially if the well-being of a person or animal is at stake. Society’s punishments are small compared to the wounds we inflict on our soul when we look the other way. - Martin Luther King


Here are some links and readings that we’ve come across from the last two weeks:

Educate yourself on black history in America (from David Perell)

Wondering about the future of payments? Here’s a piece on the merchants POV:

Stepping back if you think about what a merchant really wants, it's all about revenue. They just want one company to handle this for them, one single provider that abstracts all this away and increases its revenue i.e a full-stack global merchant acquirer.

For all of you individual creators out there, check out a solution to monetize better:

  • Buymeacoffee helps creators create a page that their audience can view to purchase different products and services.

In case you want a good laugh to start your morning:


Thanks for reading!

Jaimin Desai - CEO & Co-Founder of Reconcile

www.getreconcile.com

*P.S. If you have any thoughts on our content, please leave a comment or email me at jaimindesai@reconcilemoney.com!

Credit Card Rewards and B2C Distribution

A perfect storm for consumer brands to work with credit card issuers

Hey everyone! This week, we’re talking about credit card rewards and distribution strategy!

How are credit card rewards updating to meet our new lifestyles?

Credit card rewards are a large reason why we sign up for them year after year. About 40% of us cite rewards and bonuses as the main reason to open a new account. We’re essentially signing up for free money because of the U.S. tax policy, which categorizes rewards as tax-free “rebates,” thereby making a rebate of 2% or 3% more like a 5% raise at work.

Credit card companies compete with each other primarily on the benefits they offer, especially for the higher income demographics. American Express spent $10 billion in 2018 alone on card member rewards. Rewards and sign up bonuses are effectively an issuer’s strategy to keep customer acquisition costs manageable and to win their cardholder’s wallet share. It’s kind of like a casino giving people free rooms to come play at their venue. As long as we can control our spending, we can game the system in our favor at the expense of issuers.

However, in this new COVID environment, many of our rewards are becoming increasingly useless (e.g. premium frequent flyer status, $300 travel allowance, free TSA pre-check, etc.). To win new customers and keep existing cardholders happy, issuers need to adapt their reward benefits to meet our new needs.

Here’s how some big players are updating their rewards:

Amex

  • Consumer and Business Platinum cardholders get up to $20 a month (up to a total of $320) in statement credits on most streaming and wireless phone service purchases through December. Green cardholders get up to $10 a month (up to a total of $80) in credits.

Chase

  • Through the end of May, Chase Sapphire and Freedom cardholders will earn 5x rewards on up to $500 in DoorDash or Tock purchases.

  • Sapphire Preferred and United Club, Club Infinite and Presidential Plus cardholders earn 5X points per $1 spent on grocery purchases — including online pickup and delivery orders — up to $1,500 a month

Citi

  • Current Citi Prestige cardholders can apply their 2020 $250 annual travel credit to grocery store and restaurant purchases in addition to travel.

Impact on distribution strategies

There are approximately 180 million credit card users with more than one billion open credit card accounts in the US. Every consumer-focused brand should start thinking about ways to partner with issuers to tap into a large audience for a fraction of their acquisition costs.

Traditionally, issuers will buy discounted benefits from brands and then offer them to their cardholders. Delta forecasted $7 billion in yearly revenue coming from AMEX buying airline miles (pre-COVID forecast of course). For Calm, they can expect a huge chunk in revenue from their partnership with AMEX as well, no matter the wholesale discount. Calm charges $70 for a yearly membership. So AMEX stands to pay up to $3.3 billion, not factoring in offer sign-ups and the discount rate.

For issuers, they’ll have to continue locking-in smart deals with popular brands to incentivize cardholders to sign-up and continue using their cards.

For brands, they’ll have to search for issuers, both large and small, to push their products onto existing cardholders. Instead of focusing on direct acquisition, brands can instead work to partner with an issuer that shares a similar customer base. This way, a brand can guarantee revenue and acquire millions of users without spending a fortune.

This strategy favors larger brands with the negotiating power to entertain the big players. However, smaller brands can try engaging with neo-banks as symbiotic partners serving the same niche customer. For example, a new neo-bank like Point that targets young, urban millennials can work with a brand like Kith by offering 5% cashback, exclusive deals, or special VIP events.

Bottom line: issuers and brands of all sizes should start working together as soon as possible to avoid wasting acquisition dollars on paid advertisements. The best way to grow is through user referrals, and the optimal way to get them is through a great value proposition (e.g. a free year of guided meditations to help deal with my COVID-induced anxiety).


Thanks for reading!

Jaimin Desai - CEO & Co-Founder of Reconcile

www.getreconcile.com

*P.S. If you have any thoughts on our content, please leave a comment or email me at jaimindesai@reconcilemoney.com!

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