The Pomp Podcast - 332: Julie VerHage On The State Of FinTech

Episode Date: July 10, 2020

Julie VerHage is the Senior Correspondent at FinTech Today. She also serves as a fintech analyst for a number of well known Silicon Valley venture capital funds after having spent a number of years as a journalist at Bloomberg. In this conversation, we discuss Square, Robinhood, Apple, Uber, Stripe, Brigit, Libra, neo-banks, streaming payments, the lending industry, technology companies helping distribute PPP money, what is next for fintech companies, and how incumbents are likely to respond to these upstarts. Julie also writes a weekly newsletter covering product strategy and analysis on the fintech industry. Check out Fintech Today to learn more. =========================== LVL is a mobile banking app that provides an integrated Bitcoin and traditional bank account experience for a flat $9 monthly fee. They have no trading commission like Coinbase and no hidden spread like Robinhood. Your cash is held in a private, FDIC-insured checking account and you can buy and sell Bitcoin as many times as you want and only pay the monthly $9 flat fee. Legendary Bitcoiners Jimmy Song and Willy Woo are already advisors and we liked it so much that we invested in the company. This is a no brainer and it will save you an incredible amount of money, so go sign up at lvl.co/pomp or use promo code "pomp". ========================== The Trends premium weekly report helps you understand market trends poised to skyrocket and how you can pounce. Join the private network of 5k+ builders, founders, and investors spotting tomorrow’s trends. Expand your network, and discover the next big business idea before it explodes: https://trends.co/pomp/

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Julie Verhage is the senior correspondent at FinTech Today. She also serves as a FinTech analyst for a number of well-known Silicon Valley venture capital funds after having spent a number of years as a journalist at Bloomberg. In this conversation, we discuss Square, Robinhood, Apple, Uber, Stripe, Bridget, Libra, Neobanks, streaming payments, the lending industry, technology companies helping distribute PPP money, what is next for fintech companies, and how incumbents are likely to respond to these upstarts. I really enjoyed this conversation with

Julie, and I hope you do as well. Before we get into the episode, though, I want to tell you about two new sponsors that's right these are new ones level spelled lvl is a mobile banking app that provides an integrated bitcoin and traditional bank account experience for a flat nine dollar monthly fee they have no trading commissions like coinbase and no hidden spreads like robinhood your cash is held in a private fdic insured checking account and you can buy and sell bitcoin as many times as you want and you only pay the monthly nine dollar flat fee that's right there's no trading commissions and no hidden spreads nine bucks trade your heart out legendary bitcoiners jimmy song and willie woo are already advisors and we liked it so much that we invested

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in your couch. Go get the two-week trial for one buck, trends.co slash Pomp. I'll see you on the inside. That's it. Let's get into the episode with Julie. I hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Julie here. Thanks so much for doing this.

Yeah, it's nice to see you again, even if it's virtually. For sure. So for those that don't know you, let's just start with your background and kind of what you did prior to getting to Bloomberg and then eventually leaving? Yeah. So I started at Bloomberg back in like 2015. And originally I was just a markets reporter. So I covered everything from like analyst notes on specific companies or the broader S&P 500 in general, things on currencies, commodities. Good for me because I was a finance major. I just liked the creative aspect of journalism versus just going into iBanking or asset management. So I did that for about two years. And then I kind of casually started covering FinTech. I think there were some of

the robo-advisors that were big around the time, some things like Lending Club, they had just gone public. And we didn't have anyone at Bloomberg that was focused on just FinTech, which kind of blew my mind in the sense that if you think about it, Bloomberg is one of the original FinTech companies. So around Thanksgiving that year, I like wrote this big memo and sent it to the head of the newsroom. Like, Hey, we don't have anyone covering this. You have a lot of people covering markets right now. And here's some stories that I've done on it in my free time and why I think our customers would care about it. Our audience would care about it. And in general, like there's a lot going on here. And if we don't have anyone covering it, we're going to look really behind

because the New York times has Nathaniel Popper. The journal has Peter Rudiger and other people. so um within like a month they moved me over to the tech team to start covering that uh which was amazing i spent around two and a half years on that team covering everything from a lot of robin hood stories a lot of um still some more robo advisor story a lot of crypto stuff hence why we ended up meeting um because i was right when i started was around the um crazy Bitcoin bubble. Um, I think, yeah, it was like, it was a December, 2017 where Bitcoin hit its, um, all time higher, like started getting there. And in November of that year, so that Thanksgiving was the one where I had emailed. So crypto was another reason they're like, Oh, we actually

probably should have someone covering this. This is a good idea. Um, and so it would all, it was always kind of changing a little bit in terms of what companies I would focus on just because the space is so huge as you know. So you kind of just had to follow the news flow a little bit. So the two public companies I covered a lot were PayPal and Square. Lending, I did a little bit. And then like after the lending club fiasco and things kind of like just got boring in this space a little bit, you kind of shifted your priorities to things like Robinhood, because that was heating up in terms of reader interest and things like that. And then right before COVID hit, as we were saying in the warm up here was when I ended up leaving Bloomberg. And it was

like I loved journalism I just was ready to try something new and kind of like I was a finance major so I don't know that I ever thought journalism was like the career I was going to retire in um and much like you and your fiance I have kind of that entrepreneurial spirit and wanted to try my own thing too so I left on March 3rd March 4th it was like the Tuesday of the first week of March um and I just kind of like I had talked to a few VCs and stuff before and I knew they're looking for people to help them with content, help their startups with different like research and whatnot. Like the nice thing about being a journalist is you have a lot of different skills. So that's great. Um, and then I also, Ian Carr from FinTech Today reached out

to now I do a premium newsletter that he was planning to start and was looking for someone to do. I was like, Hey, you should bring me on. I'm happy to do that. I love writing a newsletter was one of my favorite things to do at Bloomberg. Cause it's kind of, it's just like, I don't know, as you know, it's like really good stuff in it, but you just get to like talk to your audience. It doesn't have to be so professional and buttoned up and everything. You just have fun with it. So each time I write that every week, it's just like me having a conversation about what's going on in FinTech, why it's important and what people are saying it means for the future. So we talked about like PPP, a bunch of other things. And then I'm also helping a venture firm right now as an

analyst covering FinTech and health tech, just because on the side, I teach fitness classes and have a personal training certification. So when people look at FinTech, I think that people in it know exactly what we're talking about. People who don't are like, what the hell is that? And so maybe talk a little bit about, since you've covered so much of it, how do you think about that intersection between finance and technology and basically like what falls in FinTech versus maybe, oh, that's just like traditional finance and you know they're using cloud service but that's not true fintech so so where's kind of that line or how do you think about that everyone's going to give you a different answer for this too like real estate sometimes is fintech sometimes and it isn't and

health tech is sometimes fintech sometimes isn't because you have like health insurance aspect of it um so a lot of it is just kind of like figuring out like how much finance is actually involved in because there's pieces of real estate um tech that is very financed right like title insurance i would think of as a very um fintech type thing but or like getting a mortgage i think of as a very fintech type thing you have companies like blend and quicken and all these guys that are thought of as fintech companies but there's also other pieces of it where like i don't know there's probably like design tech that's involved or like pure real estate like broker tech that's kind of like i don't really know if that's fintech it's getting kind of close to the line um but i think

the main things that i always focus on lending is very much fintech payments is very much fintech crypto is but it's almost like so massive and in itself that part of me thinks of it like the separate sector of fintech um same thing with like blockchain i kind of put in that a little bit too which some people will get mad at me about some people won't get mad at me about uh i mean what else am i missing in there those are kind of like the big ones that i see don't focused on a lot because like i said like square paypal trading and um brokerages i also thought of as fintech um but that's something it was very hard to figure out as someone as a journalist figuring out what they should and shouldn't cover because like i said everyone's going to give you

a different answer and you kind of just have to make your choice and stick your ground because no one can really argue for sure one way or the other on most of it. Yeah. And I guess as you kind of look through the space, there's large companies that started out as technology companies working in finance. There's the challenger banks and all that kind of stuff that are still startups and doing that. But then also now we're starting to see more and more large traditional finance companies from Wall Street start to build things, right? Obviously, Marcus and things like that. And so maybe I'll throw out a couple of companies and you can just walk us through like your understanding of what are they doing? How's it going? And kind of where they fit in the ecosystem. We could start with Robinhood. That's one that I know you've covered extensively. And maybe just kind of talk about like, what exactly are they doing? And kind of how do you look at them in the fintech industry? yeah so i mean they're obviously very well known and have done very well as uh starting trading

platforms someone that's more of a um advanced trader that wants to do things like uh like limit orders and like really like technicals and all like wants to chart things robin hood's not for them but it's for someone like it's really easy user interface for someone like you just have it in the palm of your hand it takes you like five seconds to buy 10 shares of mcdonald's if you want to whatever and it's it's free obviously but that's becoming less of a advantage just given that like I have a Schwab account and I don't trade for my trades on that either they were just the first to do that and that was their first mover advantage in that space but right now they still have a very good user interface and everything I think the tough thing for them and

it's across the board in terms of fintech is cross-selling into other products like I just when I think of Robinhood, I don't think of someone that's going to be my bank account, even though they're trying to do that too. I don't think of someone that I'm going to go get a loan from. I don't think of someone that I'm going to go get a mortgage from. I don't think of someone that I'm going to get insurance from, which doesn't necessarily mean that they won't be successful. I just think they have a choice to make in terms of where, like how broad they want to be. And I think a lot of that also just depends on their revenue stream. Like obviously right now, you've seen the numbers from the public companies in terms of how many people

are trading stocks right now. So Robinhood is doing really good. But how long does that last? And how do they maintain the growth that they've been seeing now that they don't have that advantage of being the only player in the game with no fee trading? Yeah, and it feels like Square has taken the opposite approach of starting with the bank and the payment technologies and then adding in kind of the brokerage services. So maybe talk a little bit about that and then we can compare the two and kind of which one's the more sustainable strategy. Yeah. So one thing you hit on there that I want to make sure we aren't missing is just like the rebundling. So the start of FinTech years ago is people just picked the one thing to start with. And now everyone's trying

to be the exact same thing, right? Everyone just wants to be like the Amazon of financial services where everyone just goes to this one-stop shop and gets everything they need. And that's really hard to do. Cause like I said, with Robin hood, I don't, I don't know that I would ever think of them as someone I would go get a mortgage with, or just like have my debit card for my checking account with, um, square has been able to do it fairly well. You've seen the numbers on cash app and now it's starting to generate revenue much like, um, PayPal's doing with Venmo. Um, and the advantages that square has it's it's seller network that it started out with obviously is like that dongle that you'd put in your phone for businesses. Cause a lot of cash app users are also

just small businesses that have accounts on there too they've just expanded and launched products to get more consumers like you and me using it with a personal debit card and now they have trading on there which is also free um and also has a pretty good user interface like robin hood too there's pros and cons to each of them that we don't need to get into same thing with all the other ones but they they picked a good time to do that because they did that late last year and that's right around when trading started picking up again too and one of the reason that square stock is above $100. And when COVID was at its worst, I think it was $30 or $40. And I remember a few of my friends and I debating on buying it. And we're all kicking ourselves now because it

surged like 200%, 300% in the past few months. And a lot of that's because of things like Cash App and showing growth in places that people hadn't thought there was going to be this strong growth before. Yeah, I think Square's now like a $50 billion company, if I remember correctly, looking the other day. And when you look at that, it feels like this whole idea of rebundling, right? When I compare Robinhood and Square, it feels like Robinhood starting with brokerage. To your point, it's very hard to add other things. Square though, it feels like they can add anything, right? They've got deposits. And if you have deposits, that's kind of feels like the foundational core. Do you agree with that or disagree? Yeah. No, I think so too. And

it's weird. I don't know exactly why there's some firms that we can think of as adding different things and we would be more apt to use them or not. I think Robinhood is just so known for its brokerage that it's just, it's hard. It almost would be like if Betterment tried to launch, I don't even know what, not like a credit card or something, but like something so different from robo-advisor that you're like, well, this is weird. I don't think of Betterment as that. I think of them as like maybe trading stocks they could get into, but largely like long-term investing maybe a debit card so you have like a cash account in there and stuff too and Square's just been really good at picking good times to launch into new things they have

Square Capital they have their online network they made the acquisition of what was it Weebly where now a lot of their sellers can use that to build websites and take photos of products and all these things so that's another thing like everything as we mentioned before was moving online so that's also helped out companies like Square and PayPal etc because now instead of paying with cash or your visa card or whatever, even if you're using that, but like it's online payments that are happening versus going into a store where you might not be using that. Yeah. And I guess how does something like what Square is actually building right now? And I think what Robinhood aspires to, how does that differ from like these neo banks or challenger

banks? Like people who are putting the flag in the ground and saying like, I want to be a bank. Right. I mean, there's a lot of similarities. I think Square is always going to be more known payments than what a neobank would be like neobanks i don't see them ever having a big network like a stripe or whatever where it's just like an online platform for processing payments um but there are a lot of other things like whatever square cash app is going for that's something that a neobank would go for too in a sense cash app is kind of like the largest neobank that no one ever really talks about we talk about chime revolut monzo like new bank in brazil whatever. No one mentioned Square, even though it has way more users than most of them.

Nubank in Brazil might have more. I'd have to go double check, but I think Square still has more monthly active users than what they would. So in that sense, anything cash up goes after something a neobank would want to go after too. Yeah. And I remember Jack Dorsey gave an interview one time and he really talked about this idea of like, the reason why he's so bullish on Bitcoin is every time he goes to open a new geography, there's just a bunch of obstacles, right? There's regulation around banking. And when you use that word bank, you know, everyone wants a piece of your business. Everyone wants to tax you. Everyone wants to regulate you. And so I guess part of this is how do these companies do international expansion, right? In the US, like it's heavily

regulated and it's pretty well understood. It's just going to take capital and time. But how does that look going international? I know Robinhood is trying to go international, obviously Square is trying now, but like, what does that look like? It depends on which section of FinTech that you want to go into, whether it's payments or lending or banking, I think a lot of it is going to be like white labeled through APIs and whatnot. So this is kind of an example. It's not perfect for international, but think of what Goldman is doing with its partnerships with Apple and Amazon, right? Like you don't think of Goldman as the one that you're doing everything with, but that's just Goldman white labeling its product and using the distribution of Apple

and Amazon, right? So there's going to come a time where Goldman might partner with someone like Target. We can go to Target and get a mortgage through Goldman Sachs. And that's good for both of them. One, because it makes Target have more users coming in and they can use data, get a piece of whatever they're selling. And Goldman gets massive distribution without having to do a huge amount of marketing. And customer acquisition cost is huge in financial services. And you also have extra data points that Target would have on that consumer to have a better idea of whether they're going to pay that mortgage back or not and how reliable they are. So I think the same thing is going to happen in terms of international, where there's going to

be a lot of white labeling, probably some M&A. You've seen PayPal do a lot of M&A overseas in China, India, Mexico, LATAM, in order to get more flow over there too. Because if you look at for payments in particular, a lot of the cash flow overseas is still literally cash and not some sort of digital payment. So the growth for someone like that is going to come from overseas rather than the United States barring like, I mean, COVID obviously resulted in a lot of growth right now, but in a normal world, in a normal environment, the growth coming from places other than US, India, and China. What do the legacy players do to kind of either combat, mitigate the threat from the neobanks and some of these fintech type companies, especially as they see

them kind of already, not maybe tapping out penetration of the US, but having enough penetration to then be interested or intrigued by international expansion? Right. So I think a lot of it is going to be end up being mna last year you saw um visa by plaid is a good example of a way to kind of mitigate anything that they might have done to um dismantle or kind of like hurt them in the process because they are players that are getting bigger um same thing with intuit and credit karma and i should mention that like those aren't like officially done yet but they're announced they're just undergoing like regulatory approval and stuff um so that one as well is one where you just see so much of the potential now

that you're starting to see big, good acquisitions. Most of them aren't going to be that big. They're going to be much smaller and it could be another fintech buying another fintech versus an incumbent buying a fintech. So I think that's one trend that's going to help with that. A lot of these firms in the past like five years or so have opened venture arms

that are continuously getting more aggressive in terms of funding and partnering with a lot of the firms that they can get information from. um and then really just like helping add more uh of their money towards revenue research and other things to kind of figure out where the ball is going next um i think it's jamie diamond usually mentions this is in his annual shareholder letter talking about how much money jp morgan is spending on innovation all these other things now and that if you look over the past few years like it's significantly picked up and it's because of fintech and all the stuff that we see every day

going on behind the scenes like there's a reason now all of a sudden more of our friends have apps from venmo or cash app or chime or whoever on our phone and don't have like a chase app on our phone and stuff right um so like that's not a trend banks like to see and they're going to do everything in their power to make sure that they don't get disintermediated how does stripe fit into all this Stripe. Stripe could do a lot too. That's another one like Square that I think there's a lot of room for them to expand in different things. And the thing Stripe has going for them is, like I said, most transactions overseas now are still taking place on cash. There's a lot of room to bring those online. And Stripe's big motto is increasing the GDP of the internet. That's literally what

they say. So if you go after these markets where they're not using the internet for a bunch of Everything's been selling online and processing these payments online. Guess what? Stripe can come in and go do a bunch of that stuff. They've expanded more recently having like a Brex type credit card for companies. They've started lending. Stripe even has a VC arm itself. I think there's a lot they could end up doing.

And I mean, even the two founders, there's a lot of room for them to do things politically and everything too, in terms of just like fundraising and speaking a lot for the space in general. Stripe and Square both obviously have payment data and they're starting to kind of flex their muscles there. We also see Amazon doing this where people are saying, wait a second, if I understand your payment data, then I can probably better predict lending to you or providing capital to your business or organization. How do you think about that and the evolution of just like what people can do with the data and to create other business lines in the future? Yeah. I mean, if you sell it, you should make sure that it's all tokenized, anonymized, et cetera, to make sure it's safe and your customers don't get freaked out by that because

trust in financial services is extremely important. But otherwise, there's a lot of room for companies, especially in an environment as hard to lend in right now, where you can sell some of that data that makes it so they're that much more likely to make the right loans and know what kind of loans people would be looking for and target the right customers. Whether that's good or not is debatable. And I can see both sides of it. But in any case, there's a lot of room to use that right now. Because if you think about it, everything from like a credit score is getting so much more complicated with all the things that are going on around. It's not just these basic things now, like how many credit accounts you have and how up to date on payments

you have been on them. There's like all these other little things around there. Alternative data big data whatever um so there's there's going to be a lot that's going on there and there's a lot of both smaller and medium-sized startups in the space that are trying to um have api products that can sort of analyze that and help firms um better understand their customers and who they're lending to market reason obviously famously said uh software is eating the world it feels almost like uh software is like really eating finance right now and they're kind of walking down feature by feature or product by product that a traditional bank would offer is there a world in the future where companies just use a stripe or a square and that is their financial services

provider everything from accounts to credit cards to lending i mean just like the entire suite of services you would get out of bank are replaced by these kind of digitally native uh offerings 100 i would think you get there sooner rather than later too i think like the target example I mentioned, or there's going to be a time where you can walk into Apple and get a mortgage and they might do something where like, Hey, like we can give you this right now. But if you buy a new iPhone and you make the payments for another year, we can give you a discount on your mortgage at a better rate. And like all these little things based on the extra data that they're going to have around you. Um, and I, that's me saying, Apple's not going to become a bank itself,

but it's going to partner with someone like a Goldman, JP Morgan or whoever, um, and be able to offer that 100 in the next five to 10 years 100 that's going to happen and when you talk about apple it almost feels like apple um i'll make a very crazy connection to uh trump where trump kind of went from developer uh real estate developer to wait a second i'm just gonna use my name and i'm gonna license it and put it on all these buildings and like now i have a bunch of buildings it feels like apple's doing that a little bit in finance right where they originally started out building products themselves usually hardware they're now moving into services but in finance specifically they're just using the ip of the apple name and slapping it on to all of these

services obviously they vetted but that's really what their strategy seems to be is like let's use our brand but use other people as partners to deliver this and just take a piece of the business yeah essentially and i'm gonna do two comparisons here to kind of help viewers understand like there's different paths to this so apple has pretty much entirely around finance gone with the partnership angle, whoever it might be with. Whereas Uber, we've read in recent weeks, very much tried to build a lot of this in-house. And a week ago, they got rid of a lot of people on their Uber money team. And like the head of it left, they're scaling it down and they're going to do things through partnerships instead. And that just shows to me that building things

internally is hard. It's expensive. It's time consuming. And you're probably not going to end up with a product that is as good as partnering with a firm that focuses on that. And that's their core competency, right? Uber's core competency is never going to be financial services. It's just going to do that through partnerships now. And I think that's the smarter route for a lot of these companies. I don't think they should end up building a bunch of FinTech internally. I think they should do it through partnerships if they haven't started building finance already. And even in some cases, if they already have. Help me understand, like, why is Uber interested in financial services? Like what's the, what's the advantage for somebody who I wouldn't think

as a bank or financial service provider? Why do they want to get into that? A lot of it isn't for you and me. It's for their drivers. They could definitely do stuff for you and me in the future too. But in some foreign countries, their Uber drivers are still paid in cash a lot. And it's really dangerous because people will try to rob and kill those drivers because they know there's going to be a lot of money in the car. Um, other things is getting your payments either right after the drive is done or at the end of the day, rather than having to wait one, two, three weeks to get your paycheck. And that's huge for a lot of them in the sense like they might have to go get a payday loan

if they don't get that money right away. So real-time payments is another reason that that's a big thing. And I don't know that they ever found it as a massive revenue driver. It's just such a competitive market with Lyft and others out there that it was a good differentiating factor for them as well. and a safety factor for their drivers which is something that you really you don't want lawsuits around stuff like that that just looks really bad for sure uh what you're talking about is something i call streaming payments right this whole idea of like get paid at the end of the day

um and i was shocked there's a company that we invested in called bridget and basically their whole idea was uh the top four banks i think it has made like eight billion dollars last year and overdraft fees and so they're you know tell us about it i'm like well why is that and they're like well basically what ends up happening is most people who get hit with overdrafts it's not that you don't have the money it's that there's a misalignment between you know netflix bill comes on the 12th you go grocery shopping on the 13th car payment on the 14th paycheck hits the 15th you actually have the money on the 15th but it was just literally the dates uh are misaligned and so what people do is they just budget into their monthly budget overdraft fees and like

that's pretty insane so uh what they do is they do i think it's ten dollars a month subscription and like they'll use machine learning to prevent you from ever overdrafting but one of the things they said is like look the holy grail actually is just pay people at the end of the day right don't wait they're kind of every two weeks and it feels like that's much more of a technology problem than it is uh companies don't want to do it or regulations in the way or anything like that is that accurate or in kind of just like how do you think about paying people at the end of each day yeah no it's regulation has a little bit to do with it but regulation usually catches up afterwards. There's no reason that a regulator that I can think of would say, no, we actually

don't want you paying people every single day. There would be a lot of backlash for something like that if the CFPB decided, no, this isn't a good idea. A lot of it is just that when the payment networks that we used were built, people had one bank account. People didn't need to move money around all the time. Now there's just so much more urgency around moving your money where it needs to be getting the money in a timely fashion. And these old networks just weren't built for stuff like that. So you kind of have to build things around the networks to make it so that can happen. So one example of kind of in this area is Chime pays you two days early and it's not really, it's kind of giving you a loan, but not really. It's just that the payment takes so long

to go through at the bank that the bank's just holding onto it for two days before it shows up in your account. So they're just taking away that lag time. So it's not like they're doing anything magical or whatever. It's just they've built around the rails and give you the money faster. And I think you're going to be seeing more of that, both from the company level, as well as some government agencies, both in the U.S. and international, are focusing a lot on real-time payments as well. And it feels like maybe Venmo's doing something similar where you can basically not pay anything and take three to five business days to take money from your account into your bank account, but you could pay one or two bucks and they'll do it instantaneously.

And so is that kind of similar in terms of just trying to remove friction from the legacy system through these fintech companies? Yeah, that's very similar. And I think that fee that Venmo and other charge will get super competitive and it won't go down completely to zero, but it'll basically be at cost for whatever it costs Venmo and others to make it. So it gets there within a few hours versus waiting, like you said, two, three, four business days. um lending what are you seeing there and kind of who are the players lending the last few months has been intense just like in terms of thinking about who you lend to and everything no one can underwrite in this environment not for businesses not for people nobody like what do you any credit model you had before covid hit you might as well just throw that out the window because it does not matter right now with like 30 plus million people unemployed

no restaurants able to open in a lot of markets and even if they do they can only open at certain capacity and whatnot you can't underwrite in that and company square stopped underwriting loans the only loans they've been doing are ppp loans for the past few months because their internal signals were like it sends like this red signal out when it's like the system's saying like you know what it's getting really hard to underwrite based on these signals right now you might think about slowing down a bit they ended up having to completely stop same thing with cabbage cabbage to end up laying off or furloughing a bunch of their staff and just doing PPP loans. Because it's just like, there's no way to tell right now. You also have to remember in lending,

there's a lot of questions you're not allowed to ask. If you could walk into a room, not even see the person that you're lending to, but ask all the questions you'd really want to ask, putting regulation aside, it would be a lot easier to underwrite than what it is right now. And that's both good and bad things so like race really shouldn't matter what kind of job you have whether it's service or not really shouldn't matter but like service in particular right now it matters because that person if they're a waitress they might have a good credit store from working a lot before but right now they're not making a lot of money and you can't really underwrite to that because you aren't going to be able to tell as quickly that they're not earning

money right now like the credit score is not going to factor that in if they've paid off their credit cards and paid off a mortgage before because they were making money um but you're not allowed to know if they're serviced now certain you can't know what zip code they're you got you can know what zip code they're in but there's certain rules like zoning laws where you can't be like well you know what this is a really bad area it's got like government housing and everything you really want to be careful about lending them you can't use that so like there's just so many factors right now making lending very hard that I think some of the alternative data and big data that we talked about earlier is like extremely important right now and even I mean I just feel for people like

immigrants and everything too because it was hard enough for them to get credit scores in the first place and now it's going to be that much harder because you want to be so careful around different things um so yeah lending's a little bit of a mess but I do feel like having gone through a lot of this. It's going to come out stronger on the other side. It's just, there's going to be a lot of them that get weaned out along the way. Yeah. It's really interesting to hear you talk about it because it almost feels like, I don't know, 20 years ago, there was very little data and people were basically having to rely on the person who wanted to borrow money, what information they gave them. Maybe they could verify some of it, but like super bureaucratic, super slow. There was this like

big swing towards, oh my God, now we have all this data on the internet, like give it all to me. And now it almost feels like we're kind of getting back to some level of equilibrium where people are being told, hey, I know you have access to all that information, but you can only use some of it for the underwriting process. Is that accurate? Yeah. Yep. You can't use everything you know about the person for the underwriting process. Yeah. And I guess, how does that change today, right? So like, what are the regulations that some of these lenders are facing in terms of, you mentioned alternative data, like every day it feels like there's some new source, some genius somewhere comes up. with like, oh, well, if I, you know, get the zip code and then I get this piece of data and get this piece of data and my machine learning model comes up with, you know, this ranking and they

start to use it, like how does that regulation work and kind of what do you see as the frustration from the fintech company side in terms of interacting with that regulation? Yeah, I think you're going to have to have, there's certain firms like Tala and others that focus a lot on alternative data and you can like outsource like white label that software to make it so other places can better underwrite as well other things we this was our topic in fintech today this past week is you've seen the apple card um start a program where if you don't get approved the first time they'll walk you through something and give you tips to improve your credit score and hopefully get approved again in four months time like every week every month i forget what the exact time

is they they email you new tips and everything just like no one fully understands like why their credit score is what it is right and your credits you could have two people with the same credit score same 800 but if they have four pieces of credit history versus 20 pieces of credit history the 20 piece credit history is way better off than the other one because they've shown 20 times that they can make payments and like manage their finances and everything so in a way like the 800 at um 20 or you could make that like 700 at 20 versus the 800 person at four and the 700 is going to get approved you're like wait a second like my credit score is 100 100 more why am i not the one getting approved so that's why like in the future no one's going to understand how everything works

and you're going to need these firms both to the business and the people like you and me or businesses be like hey like why why am i not getting approved this can you like explain to me help me figure it out so you have programs like apple's doing that chime just rolled that out too um it's sort of so one is to better understand too a lot of their customers a lot of neobank customers are younger and younger people don't like using credit cards so it's a debit card that's disguised as a credit card kind of you put money from your checking account in there and you can only spend that amount of money so you're building credit history by using it but you're also not allowed to go overspend and all of a sudden you have a like $5,000 credit card bill

and you're like oh my god why did I buy all that stuff from Bloomingdale's or whatever it might be so I think those are two separate areas so like alternative data and explaining to both the business and the consumers like both sides of the transaction why things are the way they are and then I think also helping people build their credit is going to be another area that is very beneficial in the future because financial literacy has been a big thing in fintech for a while there's so much more that we can do in it that we aren't doing and to be honest it's almost been helping the wealthy more than it's been helping the non-wealthy because they'll try to charge for their financial literacy and all these kind of things so it's like there's got to be a better

way to do it and i think fintech 2.0 if they want to call it that is going to be an area where that's something that a lot of companies focus on. And it almost feels like it's a win-win, right? In the sense of you're helping the user and then you're also getting them in a position where you have more comfort, whether it's lending to them, having them as a customer, whatever, right? Right. Yeah. I mean, if they're better able to underwrite and they're not going to have as many losses, that's a win for the company. And if the customer has a better experience with them and is able to be more comfortable using more financial services products, then that's a win for them as well. How do you see things like loyalty points and kind of all of the other perks that are

economic in some sense, but really they're kind of marketing schemes? How has that intersected with the fintech world or maybe it hasn't at all? Yeah, that's something I actually haven't thought of too much. I think the fintech last couple of years, our idea of loyalty points was these high interest savings accounts, because after the financial crisis, you get like 0% on your chase checking and savings. And then all of a sudden Marcus and others were like, we can give you two plus percent interest rate on your savings account. Come here. So that was almost our idea of loyalty points the past year is now that interest rates are lower. If they want to have some idea of loyalty points, they're going to have to figure out something else. Cause I think

the best out there right now, my markets account, I think is still like 1.2 or 1.3, but it was all you up to like 2.5. So it's easily been cut in half. And then there's other ones that are even lower than that at this point. So maybe that's something they should be thinking about new ways to get loyalty points. Are they basically putting it up high at like 2.5% to incentivize users to join and then like intentionally bringing it down? Or is that actually tied to things like interest rates and kind of the more macro economy stuff? It's mostly tied to interest rates and macro economy. So I actually didn't know this at first when I started covering this, but you're not allowed. So say I am Marcus and my partner for that is giving me 2% on the money

that I'm giving to them. I can't go lend that out at 2.1. I can lend it out at two and lose money with like all the stuff that goes on behind the scenes, but I can't give the user a higher interest rate than what I'm getting on that product. So it's like other places are just keeping that interest rate money for themselves. So that's why when Marcus lowered it, it wasn't like because they're just like, oh yeah, we got you in, let's lower it now. It was because they literally legally had to lower it. Got it. So obviously that's kind of a negative side effect in some way of this economic kind of shock. Another thing that presented itself was this opportunity around all the PPP money that was going to be handed out. There was plenty of legacy banks that were

kind of primed and ready to help facilitate getting that into the hands of businesses and people, but also fintech companies seem to have stepped in. So like, what did you see in terms of those fintech companies kind of scrambling to try to participate and capture some of that upside? Right. So they scrambled to help with the first round. But if you remember the first round, the money was gone in like two or three days and they basically got approved on the last day. So I don't think if Square and those guys were able to do a loan, it was probably like five loans or something like very negligible. But they, since the money went so fast, they rightly assumed that there's going to be another round of this so they continued building

and making sure everything was ready um and lo and behold i forget what the time frame was in between i think it was like one or two weeks and then the second round kicked in and there's still some money left in that round they just extended it um and they if you go on jackie reese's twitter feed i haven't checked it lately but she tweets out recent updates square will report earnings again in about a month and i'm sure they'll talk about it a lot on there and i mean it was a big scramble behind the scenes but it was also something that was both a smart business decision and a smart decision just for like the U.S. economy as a whole like Square and Jackie are very passionate about the small businesses that they help fueling our economy and like they end

up meeting some of the people that use their product and have helped from it so it's it's both like a business purpose as well as like internally just like feeling good about what they're doing um and employee morale obviously if employees on square capital team are saving small businesses in america through this program they're feeling pretty good about their jobs and they're not going to leave anytime soon um but it was a scramble behind the scenes and something that we didn't realize as consumers is that the guidelines for it were just changing not by the hour but like the day so you'd be building this product and then all of a sudden the guidelines change and it's like all right i guess we basically have to start from ground zero again

And that just happened constantly. And you're redoing a bunch of different things. So they were working weekends. Square even did something where people on other teams could volunteer when they weren't working on their other team to help the Square Capital team. Like that, it was just all hands on deck on this. Because like, in a way, this was kind of FinTech's moment to be like, we're a level playing field with JP Morgan and Citi right now. like we're just we're not just startups that like are over here doing their own thing not a big deal like we are helping save america right now and we are not going to miss this opportunity they weren't going to let that happen so that's like a perfect example of fintech really stepping up to the plate and from what i've seen so far i mean the program's not over people have to like go through repaying and like all this different kind of stuff but in the initial scenes looking at it like, I think they did really well. Yeah, it's, it's really, really fascinating. We've talked a lot about companies based here in the US and kind of going internationally, but what's going on

internationally in terms of companies that started out there may either be trying to come to the US or just kind of staying in their home markets. Depends on what they do. So a lot of the neobanks that started over in the UK are trying to expand or not just UK, but like UK and Eurozone are trying to expand and it's just because the market is pretty small there if you look at asia things like alipay and stuff they're pretty fine just staying over in asia there's some things where they want to make it so alipay users in asia can easily be able to use alipay in the u.s and europe and elsewhere but they don't really need to have big ambitions to like take over the u.s market either um and even the neobanks that are now moving into places like the u.s from

overseas. I don't think they necessarily think that they're going to overtake neobanks that are also here. They just wanted to increase their customer base. And I don't know that it's really working that well, or that there really was that large of a market that they could target here. Just given that the banking system in the US isn't terrible, like it is in a lot of other countries. Like one of the reasons NewBank in Brazil does so well is the banking system is pretty shitty in Brazil. So there's a lot more growth opportunity there. Then they just expanded to Mexico about a year ago. I'm sure they'll try to expand to another market and stuff too. But usually when you start in a certain country, that country is always going to pretty much

be your bread and butter. Makes sense. What about supporting multiple currencies? So a country, obviously, if I start in the United States, I support the US dollar. I don't really have a huge need to support other currencies. But the second I start to go kind of international expansion for my home country, that becomes an issue. What have you seen there? Yeah, so places like Stripe and Add-In and others, they all have to have multiple currencies available for processing on their platform because they're going to have users that are buying things from other countries and businesses they want to support in other countries. Same thing with companies like PayPal and others.

And one thing I've been looking into lately, especially just given the remote work trend, is they might have employees that end up moving to other countries or hiring more in other countries. Cause it's like, well, you're not going to be coming to the office anyway. So if you want to move to Canada, you want to move to Europe, you want to move to Mexico. Like we still want to keep you as an employee. And there's a lot that goes on behind the scenes in terms of moving the money between country and country. Like if you go to your bank in the U S and you want to send money to someone in Mexico, it's like five different banks that end up handling that transaction. It's not just my bank that I directly go to. And then the bank that that

person goes to so that's something i think there's a lot of room for innovation from and you see a lot of um earlier startups in that space looking to be like hire anywhere in the world you want pay your suppliers anywhere where in the world you want like make it fast there's not a ton of fees all these different things i think that's an area of payment that um hasn't seen as much innovation as like online payment processing all right that brings us to uh crypto and bitcoin what uh what what the hell is going on there in the fintech world oh sorry you broke up for one second though say that again i said i said uh that brings us to bitcoin and crypto what uh what the hell is going on there in in the fintech world it's been pretty stable shockingly like i check it like once a week

or whatever because uh what it's so far when they launched crypto said if you bought ten dollars a bitcoin they would give you 25 i think i was like i haven't owned any bitcoin i'll buy ten dollars of and get 25 so i kind of like randomly look to check it out i think my 35 is worth like 45 or 50 now so i'm up on it a little bit um but it i it's stable and i think that's a good thing and i think you would i should ask you this question what's going on in bitcoin and crypto you're gonna have better answer than i would on this one but i think the stability is good because it shows that there is more of like the volatility just made it so it was just gambling and people like the the version of crypto that was happening before was like the stuff on hertz when it was going bankrupt and all

these robin hood traders and day traders were like oh well like we're just gonna buy a bunch of this just in case like that was crypto a few years ago they're like oh like everyone's getting rich on this I'm just gonna pile on it like true crypto believers don't want that to happen um so I think the stability and everything has been good I think something to watch should be Facebook's Libra or um it's renamed or something now too see like I need to focus on they renamed the wallet from Calibra to to Novi I think it is which Mike Novogratz swears it's because they named it after him but uh we'll let him keep thinking that that should be good luck though novagraph has done pretty well in the crypto space so maybe they did as a good omen for the future of it um but yeah i

think that's important to watch both from um an intro a consumer interest in it as well as what governors and regulators across the world end up doing with it too because that i remember one of the final things I did at Bloomberg was help cover that and go down to D.C. to see David Marcus testify and Mark Zuckerberg go testify. And a lot of the skepticism that they faced here is same things that they faced in other countries. But this isn't necessarily a bad thing. I think you should have a lot of skepticism because this is something that could become really big if it indeed worked. And we want to make sure that we do it right. But I think that's kind of what I'm focused on in this space now too you do see more companies adding crypto to their platforms like i

think paypal and venmo added the ability to buy or sell bitcoin on their square did that years ago um robin hood did that a few years ago we did a story on that um and i think it's something that they're realizing might not be like this massive thing for them right away but there's potential for in the future and you don't want to be caught like off balance but oh well we should have been building this two or three years ago and now we have to play a lot of catch up that sucks so we've definitely seen square print i think it's nine figures of revenue on a quarterly basis i believe now we're uh off bitcoin alone um any idea how robin hood is doing uh when it comes to the crypto part of the business and then also if they're doing well and then square kind of doing

very well uh does that serve as kind of this like example where the people say oh well if they're doing so well like we have to get in that game because we don't want them to take all the profits right i don't think it's quite there yet but it definitely those would be ones to watch if all of a sudden it did take off in there you'd 100 see others quickly doing that too rather than kind of passively researching it um for robin hood since they are private it's hard to tell exactly what the numbers are but from my understanding their biggest revenue driver comes from the options trading on their platform and then you have stocks and crypto has never been really huge for them people still think of coinbase and others as their main trading for that

um and i don't know that they ever thought it would be huge maybe since they built it right when bitcoin was going crazy they initially did but i think it became apparent fairly quickly after that like okay this isn't going to replace the revenue from other things it's always going to be a revenue generator but it's not going to be like the same thing as options trading at least at the get-go. I want to play a game of lightning round questions. The first one is, what is the biggest surprise over the last four months during this economic shock? The biggest surprise? Oh, man. I think the biggest surprise for me is the interest in people in trading. In some ways, it shouldn't be that surprising because people can't gamble right now and they're bored and

don't have anything to do and their friends are probably starting to trade. So it's a word of mouth thing, but just the massive amount of trading we've seen, I think it was, forget it was E-Trade or Schwab or who, but in one of their most recent earnings reports or investor releases talked about how in like the past two or three months, they saw more trading than they did all of last year. And that's an established platform. It's not one that's just popping up where like a startup of course you're going to see that kind of growth none of those firms that i just named they're all public companies they're not startups that are gonna see massive growth so that i think that's the biggest shock for me what are the two trends that you're looking at and paying attention

to that people wouldn't expect over the next year i think general so that we both get caught up in like the fintech world so it's hard to imagine what like a person that isn't in the space would get surprised by, but I think the white labeling software thing that we talked about where you could walk into a Target or an Apple and apply for a mortgage, I think that's something that we should watch is going to happen. It would be very surprising. And then the other one I would say is probably, I like the trend of payments overseas with employees, because I think there are going to be a lot of people that maybe if Donald Trump gets reelected and immigration policies stay super strict. And there's a lot of companies that want to hire engineers overseas,

they're going to have to figure out a better way to pay them and have these systems. And even if immigration does get better, and there's people that just want to move to Canada, Mexico, wherever and want to keep working at their company, you're still going to have to figure out a way to pay them. So I think that's the other one that is a trend that I'm watching that you could see a lot of innovation in over the next five to 10 years. Obviously, fintech today is excluded from this question because it's so great, but what is the one place where you get information from or person that you follow online that isn't very well known, but you feel like has a really good pulse on a lot of those? I have to go to bat for my colleague, Jenny Sarain at Bloomberg. No one understands

payments in a number of areas of FinTech better than that girl. There's a data piece that she did for Bloomberg a couple of years ago, explaining how payments work, like the massive system, like the merchant bank and everything. And Stripe literally sent that out to employees to better understand payments at one point. So the fact that this reporter is like doing this little data thing and Stripe, like one of the biggest payments companies in the world is sending that out to their employees. Like she's one that I think has a really good pulse on it and does a lot of good deep dives and not just like fast, quick hitting pieces and stuff too. And she's not like when we think of fintech reporters we think of nathaniel popper rudy gear um all these others

she's not a name that comes up that much and she really should julie you know we'll put the plug in there uh last question for the lightning round before we go to wrap up is uh what has to happen for bitcoin to become more prominent in the eyes of what i will call uh the legacy fintech media i think legacy fintech media you said yeah so like on the media side there's obviously all the crypto dedicated publications but in the more kind of traditional finance publications what what are the things that should happen uh that you think will drive more attention yeah i think the stability has to continue because one of the worst things that happened for like the fintech media coverage of it was the craziness that happened and then all these like

pop-up um online publications that happened around and wrote kind of like crazier stories So I think stability and some more like mainstream usage and everything too. It doesn't have to be like me going to a coffee shop and being able to buy Bitcoin, but just like more use cases that I'm like, all right, like that makes sense. Because Bitcoin, as easy as it is for some to understand, it's still very complicated for others to understand. And they don't realize like why it has any value in the first place. Like if I asked my dad about it, he's like, why is Bitcoin worth more than gold?

Like gold's something I can hold and it has value and everything. so i mean there's just like there needs to be more apparent use cases for many people to be able to understand it and i think that instability is going to be what's going to get us to the next level of bitcoin kind of like being here to stay i finish up every episode with the same two questions then you get to ask me one to end it uh first one is what's the most important book you've ever read most important book i've ever read um how to win friends and influence people that was a really good one and I forget exactly when I read it I think it was like my last year of college and it just really it helped me realize that like people are always willing to help you

but you have to think of what like what their KPIs are what's going to make them look good what's going to make them feel good because if you do that there's a really good chance like if you're empathetic towards them they're going to go to bat for you you're going to do a good job for them that kind of thing same thing like making your boss what just what's gonna make my boss look good because i want to do something that's gonna make my boss look good and you're gonna win every time simple stuff but uh but important aliens believer or non-believer i didn't see this question coming um i don't know if i would call it aliens but like ufo type things or like things the world like hasn't seen or understand 100 yeah what about like intelligent life off of earth

in terms of like maybe i don't know if i think of like people off the earth but like other kind of creatures and animals i would say yeah i feel like uh if there's other humans somewhere we would be really free like we're actually more ready for aliens than just like oh there's humans on this other planet probably probably but weird i mean 2020 has already been weird so maybe that's the next shoe to drop we're gonna find that out what is it eight weeks ago now uh the u.s government confirmed those ufo videos from a while ago and everyone's like wait a minute why are they doing that in the middle of a global pandemic just like oh yeah those were real man i i ended up watching world war z like three to four weeks into the pandemic oh my god like well at least coronavirus

doesn't like make you turn into a zombie in 10 minutes but like this is still pretty pretty crazy stuff i love it uh you could ask me one question to end what uh what question do you have what what are your thoughts on crypto lately i haven't been able to talk to you about it for a while and last time i really asked you anything about it was when it was like goldman sachs was looking at trading it and it was at like 20 grand and all these phrases what do you think makes crypto mainstream what are the use cases you're seeing for it i actually think it's doing exactly what it needs to do which kind of sounds weird because i think everyone uh in the last bull run like kind of came in and was like oh my god price price price price like what's going on at us dollar

value um the two stats that i pay attention to are uh the computing power so the hash rate uh that actually runs the network continues to grow you know pretty exponentially in terms or not actually exponentially but like very very fast um and so it's some uh years it's four to 10x you know type growth like pretty impressive um and so that's just like a security and like the economic incentive to run the software is there and like that's continuing to become more and more attractive to more people uh the other one is how much bitcoin has not moved in the last 12 months and so uh if you think of bitcoin a lot of people i think think of like the use cases to go spend it but because of the inflationary asset like holding it actually is a use case right because you're

protecting your wealth against inflation all this other stuff and so uh at the end of june i think like 61 or 64 of bitcoin that's in circulation has not moved in the last year and that's the most ever and so it's kind of like this thing of like okay like i think that's trending in the right direction now a lot of people will argue like okay if no one's actually spending it then like how does it become a global reserve currency and like there's all of these like second and third order effects of that but to me it's just like i actually look at holding as more important than spending right now uh and it's mainly because if it is going to become important in the world in the way that many people think it will like it's got a lot of growth to go in terms of us dollar

value and so people holding it signal they think it has future value if people weren't holding it then like it's kind of just going to go sideways in us dollar terms like forever right so like okay like now i can spend it and so i i tend to think those are the two metrics and like uh at this point i have i'm so far in the rabbit hole like i could just be super biased i'm like those are two positive data points so like you know i'm like oh those are important uh but i think those are the ones i pay attention to and seem to be going in the right direction cool so i was right on the price stability thing that's good that's reassuring yeah yeah yeah i mean look part of it is uh so i've had people uh jason calcanis uh obviously investor uber also uh when

i told him he's like wait a second you're telling me the last two years like bitcoin's gone from like 3 000 to 10 000 and basically just swings back and forth in a seven thousand dollar range and i looked at that as like that was a negative he was like oh man that's amazing he's like that's way more stable than i thought it was it's like you know so you gotta kind of question like what is stability but i think you and i kind of think of it as like all right if you're you know kind of trending in like a thousand dollar range like that's better than a seven thousand dollar range and so you know we'll be all right uh where can people go find you on the internet and uh where Where do we want to send them?

Do we want to send them to FinTech Today or somewhere else? So my Twitter handle is just at Julie Verhage. It's super simple. And then on there, you'll see a bunch of stuff from FinTech Today. And whenever I tweet out my weekly newsletter, I put in the link to subscribe because I only do the monthly subscription one, which is $25 a month. So not super expensive. You get a lot of good stuff.

I interview VCs and stuff in there to kind of keep a pulse on the space. So your goal is to keep you one step ahead of everybody else. Awesome. Listen, thank you so much for doing this. I think you are one of the leading minds in all of this stuff and I'm happy that you, even though you left Bloomberg, you're still writing about it. So, so thanks so much. I'll have to do it again in the future. Yeah. FinTech can't get away from me for too long. So thank you so much for having me on. This was so much fun.

I look forward to tweeting about it and seeing what the impact is.