[ a p e r t u r e | Newsletter #23] — July 2019

Dan Colceriu
Jul 19 · 13 min read

Dan Colceriu, curator of a p e r t u r e |Newsletter and head of research at Pangea.

The below has been sent to the email subscribers on the 18th of July 2019.


Since our previous newsletter last month, we have published on our a p e r t u r e| hub two new podcasts and one blog article.

  • For episode #2 of our podcast, “Switzerland, Wake Up!”, we discussed with Martin Naville, CEO of the Swiss-American Chamber of Commerce, whether Switzerland is losing its competitiveness in attracting and retaining multinational companies, which play a crucial role in innovation and productivity.
  • For episode #3, “In Pursuit of Happiness”, we interviewed Mike Nolet, CEO of LiveBetter and co-founder and former CTO of AppNexus (sold to AT&T for nearly $2bn). We discussed about scaling startups, the mental health risks of founding a startup, the ad-based internet, the limits of what society can achieve exclusively through VC-backed startups and if tech can be used to improve mental health and well-being.

For both podcasts, we have full transcripts available, as well as the option to listen on Soundcloud, Apple Podcasts, Spotify, Buzzsprout, TuneIn, Stitcher, Pocket Casts, Overcast.

  • Our latest article, Is Spotify the new MoviePass?, published by my colleague Ben Robinson looks at different digital age business model by comparing and contrasting them with Spotify. Without the power to control the value chain (hence with no pricing power) and with marginal costs increasing as consumption increases, Spotify cannot improve customer experience without risking increased consumption; in other words, its best customers are its worst customers. Like many other businesses, Spotify would benefit from a move to micropayments, but the legacy infrastructure in Europe and the US makes this difficult, handing an advantage to Chinese platforms.

Sticking to this area, the aperture of our lens this month was on articles around banking and fintech. Hence why this digest has a slightly adjusted structure. Next week’s blog is also on the same subject (well, challenger banks).

Hope you enjoy!


They gave millennials a radically different world post 2007

Most millennials still look at the big banks in the Western world as the culprits of the systemic banking crisis that hit the globe in 2007/2008 — when this population bucket was between 10 and 25 years old. Most big banks hoped their brand would heal in time, but the effects of the crisis are still with us today, more than 10 years later, especially for the millennials who were supposed to be in their prime, on the path to build their wealth, and which instead struggle with economic insecurity and anxiety.

So yes, I would say that incumbent banking brands still have a lot to fix, in the eyes of millennials.

Alex Rampell of a16z recently defined banks’ business models as being based on “friction” — “Banks are effectively the biggest “managed marketplaces” out there, between depositors and borrowers. Both sides are getting screwed over by a giant rent-seeker protected by friction (too hard to switch) — with banks earning healthy spreads and record profits. He claims that the biggest opportunity in fintech is to remove this friction, not smarter ways for lead-gen to open up new checking accounts.

Deutsche Bank outlines significant strategic transformation and restructuring plans — As part of its ongoing commitment to improve long-term profitability and returns to shareholders, Deutsche Bank’s Management Board announces a series of measures to restructure the bank’s operations: exit of Global Equities and a significant reduction in Corporate and Investment Banking risk weighted assets, A significant restructuring of businesses and infrastructure underpinned by a massive cost reduction program, including cutting tech spending. Deutsche Bank is dead (at least the brand), but hey, long live Deutsche Bank.

Was Chase Bank’s Digital-Only ‘Finn’ Spinoff a Viable Strategy? — JP Morgan will scrap their mobile banking spin-off Finn, its attempt to lure emoji-loving millennials, with an emoji-based interface. Back when JP Morgan launched Finn, I remember reading that one of the main reasons they claimed for launching a separate mobile-only bank was not the typical one you would think — to keep this venture isolated from the immune system of the main-company — but the brand perception. It would have been too hard for the JP Morgan or Chase brand to attract millennials (see some of the reasons above), so Finn had a better chance, they said. Now, August 10th, all Finn mobile-only customers will be ported over to Chase Bank. This is the same thing HSBC is doing in the UK, closing down its spin-off Connected Money and integrating it into its HSBC mobile banking app. Big banks still miss what the transition from product-centric to customer-centric truly entails, and as Ron Shevlin wrote, Finn had all the support it needed from the main company, it just targeted the wrong audience, faced better competition, and hence it lacked demand. Interestingly, JP Morgan is now in the process of launching a challenger bank in the UK, or maybe a core-banking platform as a service, details are still being kept as secret.

Hopefully the lesson is learned. By personalization at scale and better UX, we don’t mean millennials want emojis and GIFs to go with their transactions. Really, we don’t need that.

Core System Strategy: The Era of the ‘Big Bets’ — Banks also get bashed a lot for their legacy technology, another primary reason for why they can’t innovate and adapt their business model to a networked world. But very few speak about supplier-dynamics in the banking software space. In the US, up until recently, the market was controlled by massive legacy core banking vendors, who would use the stickiness of their product and the ease-of-integration argument to sell to banks an entire suite, mediocre at best. But this is changing, write Bob Roth and Brian Hagan, as core banking systems are now table talk in the banking space. SaaS is changing everything. The days of one-stop shopping by banks appear to be dissipating, and CIOs now view their payments, digital, lending, CRM and analytics vendors as critical as the core, hence look for best-of-breed. Technology banking costs, they argue, will move from a tax on the organization to more of an investment in competitiveness to take on the big boys.

Dutch banks told to stop using payments data for personalised marketing — Banks also get a lot of bashing for their one-size fits all approach to customers, that they sit on a gold pile of data instead of using it to run personalization at scale. The thing is that Dutch regulators seem to think that, well, this is how it should be, for the sake of privacy. When ING announced it plans to use transaction data to send more personalized marketing messages to its customers, the Dutch Data Protection Authority made it clear that banks are “not allowed” to simply send their customers personalised offers based on payment details. So what then, back to emojis?


Challenger banks: utility or social status?

Interestingly enough, JP Morgan’s closure of its mobile-only spin-off in the US comes at a time when fintech, and especially the challenger-banking fintech, is undergoing a Cambrian Explosion of funding and launches. In the week that JPMorgan Chase shut down its millennial-focussed mobile venture Finn, Step, a banking service targeting pre-banked teenagers, pulled $22.5m in funding. Varo Money, a San Francisco based startup applying for a national banking licence, has just raised $100m. European challenger banks (albeit considered to be the most successful ones so far) are heading to the US: UK-based Monzo has launched its offering in the US, as well as Germany’s N26. The other European darling, Revolut, also has plans to launch there, now being busy launching in Australia.

There’s also lots of activity in the aggregation space in Europe. Curve, the UK based credit-card aggregator raised $55m. True-Layer, selling open-banking software, raised $35m. Tink, a B2C bank-account aggregator turned B2B open-banking software provider raised fresh EUR56m funding from PayPal. And so on.

Another space where challenger-banks are active a lot are in the SME banking space, aiming at offering better, online-only services adapted to anything from self-employed to mid-market companies, where we believe that they are delivering a lot of value to an underserved customer demographic (more real value than retail-focused challenger banks, see below). Amy Lewin, of Sifted, does a great landscape analysis of the SME Challenger-Banking space.

Looking at the broader fintech market, Jamie Dimon once claimed that Silicon Valley was going to eat the banks’ lunch. But how are these companies doing?

Dear Fintech Companies, Debit Cards Won’t Solve All Your Problems — Zach Pettet looks at the new offerings and calls it: simply offering a new debit card underpinned by a mobile banking app won’t do it.

A blueprint for scaling a Challenger Bank in America and hitting a $25bn+ valuation as it is getting easier to launch a challenger bank, but harder to scale one, Ben Soppitt writes that strategic differentiation matters. Yes, challenger banks have lower operational costs and new product offerings enabled by newer tech, but they also face challenges: no free customers (hard and expensive to acquire from incumbents), small marketing budgets and limited time. Ben writes that the challenger banks likely to really achieve mass scale will need to meet 4 key principles: 1/ Winning in each of the core products to support Saving, Spending and Investments; 2/ Capable of serving all of a customer’s wealth lifecycle adaptively not a single niche; 3/ Bringing best practice in behavioural science to product design; 4/ Creating holistic value propositions that capture total customer value.

A skeptical look at HK’s 8 new virtual banks — Sukrit Kathri is signalling that the launch of challenger-banks is a global phenomenon. There are 8 of them getting licence in Hong Kong this year alone. However, calling the death of incumbent banks might be premature. If these challenger banks are predicated on technological innovation alone, and not on business model differentiation, or put in other words, if these companies will only digitize existing banking products and services, instead of radically re-thinking consumer and business finance, then they might be in trouble. Furthermore, As Sukrit points out, in placing great importance on stability, HK has given the licences to large, established companies. That’s not to say that the move won’t result in innovation, but it makes it harder.

Challenger banks after a few years: Utility or Social Status? In this absolutely stunning long essay from Eugene Wei, Status as a Service, he looks at social networks and plots them on a utility vs. social capital framework. I think if we look at what most retail-focused challenger banks have delivered so far, using the same 2-axis framework, we would probably agree that they fare much better on delivering social status (i.e. having Revolut makes you cool among your friends), but slightly disappoint when delivering real utility to millennials, especially beyond travel.

Some challenger banking services are also closing shop: Fidor closing UK, RBS-backed Loot entering administration, Circle shutting down its P2P payments app — said to be focusing on crypto.

As we have predicted for a while, we are now starting to see some shake-out in the fintech sector. Jill Petzinger’s article, quoting a PwC study, shows that Hundreds of German fintech startups have gone bust since 2017–233 German fintechs have shut down since 2011, three quarters of them since the beginning of 2017. Probably normal for a maturing industry.

Revolut doesn’t care about you. And neither N26. — at least, as per Stavros Korokithakis, who wrote in detail why Revolut’s customer service is poor. And Oussama’s tweet below shows that Germany’s N26 is also disappointing a lot of customers. And it’s not just the customer experience that they fail at, but apparently some of the challenger banks also underestimate the importance of two of the pillars in the banking business: compliance with regulations and cybsersecurity.

Probably a trade-off of moving fast: breaking some things.


Facebook will make the money now

In the article shared at the beginning of the digest, we made the case that the legacy banking infrastructure of the Western world is hijacking business model innovation. And since incumbent banks have all the interests in maintaining the status-quo, while challenger banks don’t have the power, or the vision yet, to radically upend this infrastructure, it seems like a harder reset button is required.

Hello ≋ from David Marcus, co-creator of Libra, Facebook’s cryptocurrency.
Is Facebook the company to take on the mantle of reinventing payments for the internet age? In doing so, it is competing not only with incumbent banks and China’s Ant Financial and WeChat, but also with central banks. (Incidentally, David Marcus lived in Geneva, and is Romanian. Well, half anyway. Just saying!)

Below are some of the best things I’ve read on the topic:

Libra And The Internet Of Money — Libra is important, but almost the opposite of what it seems at first glance: it has less in common with blockchain, decentralization and banking and more in common with China, centralization and insurance, writes David Galbraith. Libra might as well just be called an ETF, writes Dave Nadig.

Holy moly Hot reaction from our most recent podcast guest, Mike Nolet. Libra claims to be a solution to “meet the daily financial needs of billions of people”, yet the founding consortium fails to properly represent the globe, especially the zones where the actual unbanked population leave. Also, yet another proof that Mark Z underestimates again the fact that criminals will always find a way to abuse any new tech innovation — otherwise why does Libra have no representation among its founding members from either banks, governments, law enforcement or any sort of criminal experts, anti-money-laundering experts, The UN, or any serious global entity?

Facebook Will Make the Money Now — Excellent writing from Matt Levine, explaining the risks of displacing national currencies, central banks, and replacing therefore social-regulatory technology for money creation with simply computing-technology for money creation. Like always, Matt is worth the read.

‘Why pay $10 for that Uber instead of $8? Use Libra’ — Also a great writing from James Waugh, explaining the economic model behind Libra as a discount-token.

Facebook, Libra, and the Long Game — Ben Thompson’s take is also great, as it touches on the trade-offs Facebook had to make, especially because of its tarnished brand value, as otherwise this could have been a simple, centralized Facebook Coin, running on a centralized database.

Facebook’s Crypto Strawman as per Alex Danco, in marketing Libra explicitly as a “cryptocurrency”, even though it could have been called a digital coin — what FB is doing (whether consciously or not) is positioning itself in contrast to actual cryptocurrencies like Bitcoin and Ethereum, and then setting them up as straw men for Facebook to make the case for why Big is Good and why it shouldn’t be broken up in antitrust court.

Libra’s dramatic call to regulatory action — Economist Stephen Cecchetti writes that while the goals of Libra are laudable, it is essential to achieve them without facilitating criminal exploitation of the payments system or reducing the ability of authorities to monitor and mitigate systemic risk. In addition, any broad-based financial innovation should facilitate the stabilization of consumption.


In strategy we trust

So we know that 10 years ago, banks triggered a chain of events that eventually broke the world millennials inherited from the baby-boomers. New technology companies are said to be working on fixing that, through challenger-banks (or entities that take the shape of a bank, despite not being one). Some will succeed, some will survive by maintaining the status-quo as long as possible, the rest will die. Yet, hopefully, change is coming.

In this great podcast between Erik Torenberg, Pete Flint and Alex Taussig, we find that the next wave of marketplace business models are coming to the financial services world, and they require a unique team with a specific set of experiences.

A Study of More Than 250 Platforms Reveals Why Most Fail — This great study from David Yoffe, Annabelle Gawer, Michael Cusumano researched 250 platform companies and grouped the reasons of why they fail into four categories: (1) mispricing on one side of the market, (2) failure to develop trust with users and partners, (3) prematurely dismissing the competition, and (4) entering too late. We have been avid readers of M. Cusumano since his 2004 book “The Business of Software”.

28 ways to grow supply in a marketplace — Another great post from Lenny Rachitsky, ex-Airbnb product leader of Supply Growth, with a view of every tactic and strategy he has seen being used to bootstrap and accelerate supply growth.

Platforming Potential — I also enjoyed this review from Stowe Boyd of Vivaldi’s report “Platformization Potential” — looking at whether traditional pipeline firms can become platform companies, or if they can build a platform business in order to capture exponential growth. As per Stowe, the report defined two ‘lenses’ to analyze companies involved in platforming:

  • the brand relationship between a company and its stakeholders
  • how the company performs across five factors: customer-centricity, value through data, social currency, ecosystem potential, iteration.

To conclude lightly, in doing banking for millennials, the brand is critically important. Technological innovation is important as well, but only if it enables new business models that underpin radical transformation of consumer finance, not digitization of the status quo. But maybe most importantly, it requires value propositions that reflect what millennials actually want. And no, it’s not emojis.



My name is Dan Colceriu, head of research at Pangea, and I hope you enjoyed this read.
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a p e r t u r e is built on the exchange of ideas around technology, strategy and the dynamics of the platform economy. A content hub and a community.

Dan Colceriu

Written by

strategy @ThePangeaEffect | content and community at @aperture_hub

a p e r t u r e

a p e r t u r e is built on the exchange of ideas around technology, strategy and the dynamics of the platform economy. A content hub and a community.

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