How banking became cool
The new world of finance looks like gaming. Rivian is the new Normal.
Welcome to People vs Algorithms #5.
I look for patterns in media, business and culture. My POV is informed by 30 years of leadership in media and advertising businesses, most recently as global President of Hearst Magazines, one of the largest publishers in the world.
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Money is the game
If you want to understand where the world is going, play video games. More than 80% of GenZ play them. It is the new dominant culture. These experiences change how they see the world.
Imagine you are playing a multiplayer game, say Fortnite or Roblox or Axie Infinity. You have characters, game play, and the data about your game. These are data rich environments, so there’s lot’s of information — it’s woven into the experience as a metadata layer, presented in windows or dashboards. These interfaces give your real-time readout on health, assets, weapons, currency etc. It’s a lot like financial data in the real world.
How we use financial applications is going through a wave of profound change — the gaming analogy is a useful way to think about the next generation of behaviors. Lines are blurring between payments, banking, and investing and our interfaces to these applications are more connected to our lives. More of our daily activity is recorded and reported here. Investing is shifting from a discrete to a social activity. Moreover, the connection to digital assets on the blockchain will mean financial apps a bigger part of how we manage our digital identity.
Your second most important interface
Let’s look at little closer to see why. First and most obviously, the app is now a wallet, not a bank. Wallets are everyday.
Peer-to-peer (P2P) payments apps like Venmo or Cash App are probably the most important new daily connection point between your money, friends and local community. Social applications like bill splitting, shared saving, fundraising create new shared behaviors.
Second, your financial interface is now your nerve center for everything you spend online and off. Good software makes understanding this information more engaging and game like. Just look at how Apple or software-driven “neobanks” have transformed the interface to money.
Increasingly our wallets become not just a place to track what we’ve bought but a starting point for commerce. Fast growing credit card alternatives like Klarna and Afterpay (known as By Now Pay Later, BNPL) have become a front end to online shopping. Merchants are highly motivated to show up here, a way around dominant consumer interface connection points owned by Amazon, Google and Facebook. The proximity to the wallet provides an opportunity for personalized incentives. And they are a logical place to aggregate loyalty offerings, a hugely important consumer ingredient that has long been part of the credit card value proposition with points programs. We are starting to see this show up in next generation wallet offerings like Bakkt. Think content to commerce in reverse.
Next, wallets are now investment interfaces, in stocks, crypto and digital assets. Investment has shifted from a discrete activity that you do mostly with the aid of an expert to something that looks more like a mix of sports betting and gaming. Robinhood is the most visible example here, whose user friendliness and game-like experience has been criticized for encouraging reckless behavior. This may be true but it seems to me that we are witnessing a generation who’s connection to investing is far more casual than sitting with a registered professional and retirement planning. Crypto, a strange brew of currency, speculative asset, personal expression and political statement, is the instrument of choice. Half of Robinhood’s activity was crypto related in Q2 2021. A million and a half users are on the waiting list for Robinhood’s forthcoming crypto wallet.
Finally, these financial interfaces are becoming the place where we store digital assets, notably NFTs. Here’s where the gaming analogy seems particularly apropos (in Axie Infinity your character is an income earning NFT). Coinbase, the world’s largest Crypto wallet with over 68m users, will debut a NFT marketplace next month. Your wallet will not only contain fiat and crypto balances but all of the digital assets you store on the blockchain, including your NFT profile picture (read about this here). In short it becomes a vault for digital identity.
The collision of functionality
Indeed, it is becoming increasingly difficult to understand the landscape of financial companies that power this market. We have P2P providers that enable direct money exchange - Cash App (Square), Venmo (Paypal), Zelle (banks), Apple Pay and Google Pay. We have investment apps, bank apps, budgeting apps, crypto wallets. The lines are blurring. Today on a service like Cash App you can buy crypto, stocks, connect your paycheck, add a debit card, earn loyalty points and borrow money. They will add BNPL functionality powered by its recent $29B acquisition of AfterPay. Free tax prep services are coming next.
All of this, and the rise of an intensely competitive “neobank” space (challenger banks, software powered, 58 in the US at last count with friendly names like “Dave”) comes thanks to disruptive technological forces that have made banking infrastructure dramatically more accessible to technical innovators. Software is eating banking too.
The point is the world is way different now: 1) cash is digital 2) assets are digital 3) financial applications are converging 4) digital assets are defining identity 5) investing gives it a daily pulse. I might add that digital money and crypto in particular has become more of an abstraction from real world economics resulting in a loosening of spending inhibitions and, perhaps, a partial explanation for nose bleed NFT prices.
We are in the middle of a shift in the battle for attention. The financial aggregator will provide the second most important interface to your digital life, after communication. This evolution will yield new software applications that solve vertical use cases we have not thought of yet. And we will obviously see a wave of consolidation. Cash rich legacy banks (Chase is on track to make more than $40B this year) will be there to sweep up the pieces.
Its hip to be Square
More interestingly will be efforts to build cultural relevance around consumer offerings. Increasingly your bank will reflect your values and personality. We are seeing examples in sustainability positioning with Atmos and Aspiration. Square’s Cash App — one of the great marketing stories of the past decade — tells the story of change in the category. Cash App debuted in 2013, four years after Venmo hit the market.
The first big innovation was the $cashtag, your personal online account address. $cashtag was all you needed to send money to someone. Didn’t matter if you knew them. People started asking strangers for cash – for nails, for haircuts or whatever. In 2017 Square capitalized on an organic trends that surfaced on Twitter called #CashAppFriday. The company started giving money to people that commented on Twitter, leveraging influencers largely from the hip hop community to do so on their behalf. It worked. Cash App has grown out of a largely young and unbanked community in the Southeastern US, outpacing Venmo in search popularity and downloads and rate of growth.
Shiggy’s song “Cash App” became a viral hit on TikTok. Over 500 songs on Spotify feature Cash App in the lyrics. In 2019 Cash App launched a remarkable apparel collection “Cash by Cash App”. This is not the first time a financial services company has embraced culture. Amex has done a ton here, mostly via high end card’s, through dining, travel and music sponsorship. But this feels is surely a standout example in terms of its embrace by digital first youth culture.
Reducing customer acquisition costs (CAC) will separate winners and losers. According to Square CFO Amrita Ahuja, between 2017-2019, the average cost to acquire a net transacting customer on Cash App was $5. To contextualize, traditional banks spend an average of $950 to acquire a retail customer (Ark-Invest). CAC, of course, is the name of the game the insurgents. Many will die trying to build a user-base.
It’s hard not to see Cash App’s influence on Square strategy. In 2019, they surprised the market with the acquisition of struggling streaming service Tidal for $300m, no doubt an effort to stay close to an influential community and a base upon which to build solutions for the music creator class. Tidal’s owner, JayZ, joined the Square board. From Trapital’s Dan Runcie:
Mass-market products need branding. In consumer tech, hip-hop has been the backbone. TikTok had Lil’ Nas X. Snapchat had DJ Khaled. YouTube had Soulja Boy. The list goes on. Hip-hop culture influence continues to grow, and more companies will find their own way to engage fans.
Maybe the connection between the game and the game of money is lost on you. It’s certainly generational. Significantly, Web 3.0 represents a change in digital interface points from centralized and communication-based to decentralized and asset-based. Your financial applications will be the front lines of this shift. They will be spaces where we spend more time and money and should, therefore, be as interesting to media and commerce leaders as they are to financial innovators.
It will be interesting to watch. Have a great weekend…./ Troy
Rivian, the Normal, Illinois based eclectic car company, went public this week with one of the biggest IPOs in years. A skim through the S1 shows just how much the car world has changed. This is the language of a lifestyle technology company. Fascinating to see how the mission of a car company changes when you start with a purpose, a holistic view of the experience, and of course, software.
We design, develop, and manufacture category-defining electric vehicles (“EVs”) and accessories. We sell them directly to customers in the consumer and commercial markets. Our vehicles are complemented by a full suite of proprietary, value-added services that address the entire vehicle lifecycle and deepen our customer relationships. Starting with a clean sheet, we built a vertically integrated ecosystem comprised of our vehicle technology platform, cloud architecture, product development and operations, products, and services. Interconnected by our data and analytics backbone, our ecosystem is designed to deliver fast-paced innovation cycles, structural cost advantages, and exceptional customer experiences, all of which combine to create a self-reinforcing growth dynamic while serving our mission to Keep The World Adventurous Forever.
Complementing our consumer vehicles, our suite of value-added services includes digitally enabled financing, telematics-based insurance, proactive vehicle service (maintenance and repair), flexible membership and software services, comprehensive charging solutions, and a data-driven vehicle resale program. We expect these services to generate long-term brand loyalty while also creating a recurring revenue stream for each vehicle across its lifecycle.