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How BNPL threatens Visa and Mastercard

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This week in fintech

September 17 · Issue #73 · View online

A weekly summary of the latest news in our world of finance, design, and technology.


Also:
  • 🖼 NFT Hype cycle
  • 🏦 Crypto moving into the world of banking
  • 🆕 Why are all fintechs renaming?
  • 📄 More fiction has been written in Excel than in Word

🖼 NFT Hype cycle
Each year Gartner places emerging technologies on their Hype Cycle. Naturally, NFTs, a topic we often come back to, is at the top of the Peak of Inflated Expectations.. If Gartner is including NFTs on their Hype Cycle, it means that companies are thinking about how to incorporate them. Visa is at the forefront here buying a crypto punk for $150 000. Visa’s head of crypto, Cuy Sheffield, said in a blog post that the primary purpose behind their purchase was to learn more about the growing market. For now, it looks more like a (successful) marketing stunt.
It is easy to dismiss NFT’s by asking: “How do they have any value? They’re just jpgs!” But Damien Hirst’s latest project makes an interesting point on how we value art: Hirst created 10 000 actual paintings of dots and put them into a vault, then auctioned NFTs linked to each picture. The fun part of this project is that the owners have to decide whether to keep the NFT or the physical painting after a year. Whichever they choose, the other gets destroyed. Which will be more valuable? A miniature painting of dots you can hang on a wall or an NFT you can own that raises fundamental questions about the nature of art? What would you choose?
Bobby Goodlatte
I’ll just come out and say it: I don’t get NFTs. I don’t understand the JPEGs.

If anyone should get them it should be me. I was early to Bitcoin, a pre-sale buyer of Ethereum, a Coinbase seed investor, early Solana…

And I don’t get it. It feels like the emperor has no clothes.
Ironically enough, Bobby Goodlatte sold this tweet as an NFT for $10 000. ¯\_(ツ)_/¯ The best way to round of this section on NFTs is this quote from Benedict Evans:
The current market looks more like a simple speculative frenzy, with people who made notional fortunes in other crypto-assets swapping them for a new one that might go up more, a lot of other people buying whatever they think might go up, including, yes, pictures of rocks, and all the usual ramping and self-dealing behind the scenes. It’s a pity because NFTs as a concept are interesting and useful, but that’s not why most people are buying them. – Benedict Evans
🏦 Crypto moving into the world of banking
If you allow customers to deposit and withdraw assets, pay interest on holdings, and lends to both individuals and institutions - are you a bank then? Even though you deal exclusively with crypto? BlockFi and Coinbase are currently having public discussions with the SEC regarding crypto regulations.
In general, the thing that is happening now in the crypto world is that it is rapidly recreating the things that exist in the traditional finance world. [..] And of course it would be nice, for crypto companies, to re-create banking without bank regulation. But you can see why regulators wouldn’t like it. Matt Levine
💳 How BNPL threatens Visa and Mastercard
Over the last few months, we’ve written a lot about “Buy Now, Pay Later” (BNPL). But what we haven’t written about is how this is a threat to Visa, MasterCard, and banks.
Behind every card transaction, there are five parties:
  1. consumer
  2. issuing bank
  3. network (V/MA)
  4. acquiring bank
  5. merchant
The middle three get zero data on what items (called “SKUs”) are being bought. Since the merchant acquirer does not see what items are being bought, financing is more complicated.
Alex Rampell
5/ This what makes BNPL so interesting. It’s a **parallel** network, with SKU level information, that bypasses the issuing bank, card network, and merchant acquirer. It’s just the consumer, the merchant, AND (this is exciting!) a new participant: the product manufacturer!
Alex Rampell
6/ Let’s say Samsung wants to create an installment payment plan for their new $1000 phone (b/c lower pricing sells more stuff!). How do they do this at, say, Walmart and Target and Amazon? When everyone has a different kind of credit card and those issuers don’t see SKUs? BNPL!
This parallel network is now being used for installments or other financing, but over time there is no reason why this network can’t be used for f.ex getting discounts or extended warranties on what you are buying.
BNPL is often an example of why people end up in debt. Still, ironically it seems like the record year for BNPL is also the year where Norwegians have received NOK 1.4 billion less in payment remarks according to Dun & Bradstreet, former Bisnode. The reason is that people spend less (f.ex. on vacations) and pay their bills earlier.
🆕 Why are all fintechs renaming?
Mastercard has just acquired Aiia, former Nordic API Gateway, from DNB and Danske Bank. The move can be seen as a direct answer to Visa buying Tink earlier this year. This got me thinking about the naming of fintechs. One of the reasons it’s hard to follow the fintech-space is the constant acquisition and constant renaming. To mention a few on the top of my head from the last year:
  • Nordic API Gateway -> Renamed Aiia -> Bought by Mastercard
  • MiraiEx -> Renamed to Firi
  • Bisnode -> Bought by Dun & Bradstreet and renamed
  • Transferwise -> Renamed to Wise
  • Lunar Way -> Renamed to Lunar
📄 More fiction has been written in Excel than in Word
Why forecasting and estimation is storytelling:
Every forecast takes a number from today and multiplies it by a story about tomorrow. […]
But ask forecasters if they think the majority of what they do is storytelling and you’ll get blank stares. At best. It never seems like storytelling when you’re basing a forecast in data.
That's it for this week 👋
Remember, if you’re enjoying this content, please do tell all your (fintech) friends to hit the subscribe button!
Marius Hauken, partner Stacc X
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