Issue #34: The Curious Case Of PFM Apps, Google Pay Runs Into Issues In India And The Battle To Be China's Top Fintech Platform Heats Up

👋 Hi, FR fam. I hope you’re all having an awesome week.

Let’s get things going with this great thread from @sairarahman on how banks break down the interest rate they charge.


💸 The Curious Case Of PFM Apps

Personal financial management (PFM) is a strange segment in fintech.

In some ways, it intuitively feels like the place to start if you’re building a consumer-facing fintech company. I mean, everyone wants to better understand how they spend their money, right? As a startup, you might rationally assume that knowledge is power, and being the company that provides that to a consumer is a great place to start if you want to be the centre of their financial universe.

Usually, the gameplan goes something like this; you acquire customers cheaply by providing them insights into their financial life through your PFM app, you then monetise via affiliates, and from there, you layer on other financial products until ultimately you offer accounts — because every fintech startup ends up offering a debit card.

Boom, time to cash in those secondaries because your startup just became a unicorn!

However, in reality, it rarely plays out that way. In fact, the PFM space is littered with acquihires of companies that built great products but couldn’t reach escape velocity.

If you speak to anyone that has tried to build a company in the PFM space, they’ll tell you how expensive customer acquisition is and practically how little revenue you’ll be able to generate from your customers. It also turns out customers don’t want to pay for PFM apps. Beyond this, most banks have improved their PFM capabilities to the point where they’re good enough. For a more detailed blow-by-blow analysis of the challenges you’ll face when building a PFM startup check out this thread from Alex Cohen.

Yep, PFM startups don’t all turn out to be Mint.com outcomes — which by today’s venture standards isn’t all that large an outcome anyway.

Having said all this, if you look at the reviews for some of the more established PFM apps out there, you’ll quickly find that people absolutely love them. Here’s a small sample:

  • Cleo scores 4.7 stars in the App Store with 49k reviews;

  • Truebill has a rating of 4.5 stars in the App Store with 17K reviews;

  • Copilot is currently on 4.8 stars in the App Store, having been reviewed 1.2k times; and

  • Plum has 4.7 stars in the App Store with 20.6K reviews.

So what’s the disconnect?

Aspirationally, most people want to be more aware of their financial position. The best version of ourselves is keen to make sure we’re living within our financial means, contributing to our retirement nest egg, and making our money work for us. However, there’s a difference between knowing we should do something and actually doing it. This is where I think we’ve historically seen the disconnect. Many are happy to download the app and engage with it for a short period of time, but most don’t stick with them for the long run — which is when the real compounding returns kick in. In part, this is because most apps have tended to focus on telling you what has happened vs. telling you what to actually do about it and, in the best case actually just doing stuff for you. I’m sure we’ve all had a “you’ve spent $200 on coffee this month” notification pop up on our screen. Thanks PFM app, but what do I do with that piece of information?

Having said all this, there is a new crop of PFM startups trying to go beyond telling you that you’re $5 over your budget for the month. Companies like Astra, Digit, Tally, and Albert are taking that next step and automating money movement to ensure that you’re being your best financial self.

It’s still early days in the world of self-driving money, and there are a bunch of challenges in making it work the way we imagine it could/should work (check out this excellent piece from Alex Johnson on the topic), but the signs are there that it could be an important step forward for the PFM space.

It’ll be interesting to see what happens in this segment over the coming years, specifically whether the commonly held wisdom you can’t build a big standalone business in the PFM space continues to hold true. Personally, I’m optimistic about the space and think the rising interest in financial literacy by Gen-Z combined with products that do more autonomously is going to bring about the promise that PFM apps have always held.

🥡 Takeaway: Historically, building a large company in the PFM space has been extremely hard. However, the current iteration of PFM companies might provide an insight into how the sector could evolve over the coming years. The clear trend seems to be one of more automation of money movements and a growing base of Gen-Z customers who actually care about their financial wellness.


📣 The News In Brief

Finally, some good news. If you have a Netflix account, it might help improve your credit score. There’s a new(ish) fintech-focused VC fund that just closed its first fund. Pablo Escobar’s brother isn’t happy with Klarna. There’s a fin-fluencer boom on (ps. I’m waiting for my cheque). Are subscriptions the future of fintech? More fintechs are looking to ring that IPO bell. Who’s building the “Plaid for payroll data” - turns out it might be Plaid. Afterpay looks crossborder as it continues to eat payments. Live commerce isn’t coming; it’s already here. Apparently, Joe Biden might be big for bitcoin. How are banks responding to the digital (r)evolution?


📈 Notable Funding Announcements

Fundraising numbers were up this week, with fintech companies globally raising a total of $644m across 36 deals.

🏦 Railsbank Raises $37m

Last week Railsbank announced that they’d raised $37m in growth funding. The round was led by MiddleGame Ventures and Ventura Capital with participation from Anthos Capital, Global Brain, Clocktower Technology Ventures, Moneta VC, Mitsui Fudosan, and Firestartr.

🤓 My Take: Railsbank has quietly been working away at building a global BaaS platform for the last 4 years. They’re probably not all that well known outside of Europe, but this round of funding is definitely going to shine some light on what they’re up to.

It’ll be interesting to see how Railsbanks go with their international expansion. If you look globally, BaaS inbounders have tended to struggle to crack the code of a new market. For example, most BaaS players entering the Aussie market have tended to find it hard to build banking relationships due to the tightly held market. While in the US, competition levels have risen sharply as VCs continue to pour money into this white-hot segment of the fintech market. Having said this, Railsbank is a formidable company, and I’m excited to see more BaaS players looking to extend their global presence.

🧾 Truebill Raises A $17m Series C

PFM app Truebill, last week announced that they’d closed their $17m series C round of financing. The round was led by Bessemer Venture Partners, with participation from existing investors Eldridge, Cota Capital, Firebolt Ventures, and Day One Ventures.

🤓 My Take: As noted above, the PFM market has historically been a hard nut to crack. However, a few players seem to be able to continuously raise capital, and Truebill is definitely one of them — suggesting there must be something there. To date, they’ve been able to raise $40m, which is a big chunk of change for a PFM app.

For context, Truebill focuses on saving its customers money by negotiating lower rates on bills for them — of which they take a 40% cut of the savings. It’s an interesting model that clearly adds a ton of value for customers. Having said this, companies that provide these types of switching services tend to require a large stable of staff to do the actual switching by hand, as few service providers allow you to do this programmatically. As you can imagine, this tends to be a drag on the economics of the business.

It’s an interesting time for PFM startups as more and more go down the self-driving money route. The move from telling you to want to do with your money to just doing it is in full flight, and it’ll be interesting to see where companies like Truebill end up as this trend accelerates.


☝️ Things You Should Read About

🇮🇳 India Opens Antitrust Case Against Google Over Its Payments App

According to filings, Google is being investigated by the Indian competition regulator over allegations that it’s misusing its market power to push their Google Pay product ahead of competing products. The investigation is directing its efforts into looking at whether Google promotes its payment method (Google Pay) above other similar services during the initial setup of an Andriod smartphone.

Google holds a strong position in India when it comes to payments on the UPI payment rails. They are closely followed by Walmarts PhonePe, which, according to reports, is closing the gap on Google and has ~40% market share of transactions.

This has created some tension with regulators, with the NPCI recently releasing guidance on volume caps for Third-Party App Providers (TPAPs) running on the UPI rails. Essentially, the guidance note provides that no TPAPs will initiate more than 30% of the overall volume of transactions processed on the UPI. Although this won’t affect the likes of Google Pay for another two years — to provide them time to ratchet down their volumes — it does point to a somewhat challenging landscape ahead for Google’s payments business in India.

🥡 Takeaway: Google’s payments business is facing a tough time in India. Between the Competition regulator coming after them in this recent filling and the introduction of caps on transaction volumes a TPAP can make through the UPI, it’s shaping up to be a challenging market for the tech giant. It’ll be fascinating to see how they handle this over the coming years.

🇨🇳 The Race To Be China’s Top Fintech Platform: Ant vs. Tencent

I thought this was a really interesting comparison piece between Ant and Tencent. Now that Ant Group’s IPO has been kiboshed, I think the spotlight will turn to the fintech empire that Tencent has built.

One thing that has always struck me about Tencent’s fintech offering is how they’ve embedded it deep into the WeChat app (and their other chat app QQ). In many ways, this reflects the central role these apps play in consumers’ lives in China, but I think it also speaks to how Tecent have thought about financial services being a deeply embedded part of their customers’ lives. In fact, when you open WeChat, it’s very striking that their insurance offering sits a row above food delivery in the app.

Ant vs.Tencent’s fintech businesses. Sources for the figures are companies’ quarterly reports, third-party research, and TechCrunch estimates.

🥡 Takeaways: Given the recent axing of Ant Group’s IPO, I think the attention will turn to Tencent and the fintech business they’ve built in China. It’ll also be interesting to see if Ant’s reported issues with regulators will have a broader impact on China's fintech ecosystem.


🎧 Podcast Recommendations

Another week, another set of podcast recommendations for you to bathe your ears in.

Product lessons from Cash App & Carbon Health — Ayo Omojola on going “unreasonably deep” → I never tire of hearing the Cash App story. In this ‘pod Ayo Omojola (whose blog you should definitely check out) talks about his time working on Cash App. I particularly enjoyed the discussion about some of the frameworks he uses to better understand regulated industries. Well worth a listen.

Bo Jiang on Secure Virtual Cards → The origin story of a lot of B2B fintech startups goes something like this; we started building a consumer-facing fintech app and realised that it’s tough to do because the infrastructure solutions out there are horrible… so we pivoted into being a B2B company. Privacy.com’s origin story is sort of similar in this regard. They started as a disposable virtual card company and have expanded into the issuing space — which I think is an incredibly smart move. In this ‘pod their founder, Bo Jiang, talks about why they’ve started providing card issuing services and, more importantly, how they got that badass domain.


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