Tag: banking

AI, on repeat

AI has sparked diverse opinions in the financial sector — it’s like something that’s too tough to swallow yet too crucial to discard. Whether embraced or resisted, AI is now a tough bullet to dodge — and the banking industry is gradually coming to terms with it.

The country’s largest lender is one of the prominent cases of major banks integrating AI capabilities. Tearsheet has been following JPMorgan Chase’s AI growth trajectory since last year, with CEO Jamie Dimon championing AI and Gen AI, leading its integration into the bank’s operational framework.

JPMorgan isn’t the only traditional bank in the game when it comes to embracing this technology; its peers — Morgan Stanley and Goldman Sachs — have also swiftly adapted, to stay competitive in the technological race. 

Over the last year and up until now, there has been a steady stream of news about financial firms implementing advanced AI in multiple aspects — from back-end office operations and employee assistance to new chatbots for consumer inquiries and AI-enhanced products. While AI is now a constant topic, we look at some of the recent developments that have stood out this week.

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Is it really a win-win together?

Like marriage, partnerships can either strengthen or weaken a bond. In fact, Will Stredwick, Senior VP and General Manager at Amex Global Network Services North America compares these relationships to dating dynamics, highlighting that trust is fundamental, compatibility is crucial, and strong partnerships last when there is alignment in chemistry and values.

The good, bad, and ugly partnerships

Some notable examples of successful bank-fintech partnerships have stood the test of time, such as Goldman Sachs-Stripe, Citi-IntraFi, and Cross River Bank-Revolut. But others haven’t been as smooth sailing; the Goldman-Apple partnership, for example, has faced more challenges than successes.

Another partnership formed in 2022 between Wells Fargo and Bilt appears to be teetering on the brink of trouble. Though not apparent on the surface, behind-the-scenes issues are coming to light through damning reports.

The Wells Fargo and Bilt saga: The evident and underlying realities

Wells Fargo and Bilt launched a co-branded Mastercard credit card that enables users to pay rent, earn rewards points, and count it toward their credit scores without incurring extra fees from landlords.

Launched in 2021, the Bilt Rewards loyalty program allows members to earn rewards on activities that typically don’t qualify for rewards, achieving immediate success. Earlier this year, Bilt secured $200 million in funding, increasing its valuation to $3.1 billion from $350 million in 2021, with Wells Fargo, Mastercard, and Blackstone among its financiers.

Bilt generates nearly $20 billion in annual spending with profitable unit economics. The firm engages with three networks including property owners, local merchants and businesses, and redemption partners. Its earnings are closely tied to the spending and loyalty it cultivates and interchange fees represent just a portion of Bilt’s revenue sources. 

Although the success of Bilt Rewards and its potential to help Wells Fargo attract new, younger customers likely influenced the bank’s decision to launch the co-branded credit card, the results have not aligned with the bank’s expectations. Despite bringing a novel feature to the market through the co-branded card, Wells Fargo is losing money on the deal.

According to the Wall Street Journal, Wells Fargo reportedly faces losses of up to $10 million per month from the program.

The effectiveness of targeting a new and younger customer base who value reward programs was mixed.

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What does an atypical partnership look like?

US consumers are increasingly turning to digital wallets, with a significant 64% now indicating that they use them as frequently as traditional payment methods such as cash or cards, according to a survey. Meanwhile, over half [53%], report using digital wallets even more frequently than traditional methods.

These compelling figures have sparked conversations about the future landscape of transactions, with many asserting that digital wallets represent the future. Amid this fervor, a pertinent question emerges: Is buy now, pay later set to join credit and debit cards as a mainstream payment option? This query gains momentum, particularly in light of the recent partnership announcement between BNPL provider Affirm and Big Tech firm Apple.

The news: In yet another subtle move, Apple has expanded its range of installment loan options for Apple Pay users, opting for quiet implementation over flashy advertising. 

This latest move sees Affirm scoring another victory as its buy now, pay later service extends to Apple device users this fall. Those in the US can apply for loans through Affirm directly within the Apple Pay checkout process. “The news is a big positive for AFRM, especially since the stock traded down several times in the past when Apple announced its entry into BNPL,” said Mizuho analyst, Dan Dolev.

Additionally, installment options via credit and debit cards will soon be accessible on Apple Pay in the US through partnerships with Citigroup, Synchrony, and Fiserv-related issuers. 

What’s in it for Affirm?

In joining forces with Apple, Affirm aims to enrich its user experience by providing additional payment choices to Apple Pay users who were previously confined to Apple’s native Pay Later option to pay in installments when making purchases online or within apps on their iPhones and iPads. Now they can use Apple Pay for transactions while also tapping into Affirm’s flexible installment payment solutions at checkout.

What happens to Apple Pay Later?

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Should banking be boring? Yes, says PNC

 

You know what’s brilliant? Boring, says PNC Bank’s new brand campaign.

Headquartered in Pittsburgh with over $500 billion in assets, PNC offers loans, credit cards, and business and commercial banking services.

Mastering the marketing game

Just as fintechs would come out on top compared to banks regarding their personalization capabilities, the same can be said about their marketing efforts. For a bank to develop contemporary marketing strategies reflects the institution’s readiness to evolve and remain competitive. While fintechs and payment companies, such as Mastercard, are promoting their sonic branding, PNC has positioned itself as a strong contender with its latest brand campaign ‘Brilliantly Boring’.

PNC’s Brilliantly Boring campaign highlights its checking, savings, and digital banking tools — but with a twist.

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The trend of intertwining retail more deeply with financial services

by SARA KHAIRI

While it’s often said that matches are made in heaven, some surprising combinations come to life right here on Earth. Just as pineapples on pizza spark debate, these unexpected pairings can evoke different reactions. The latest trend shaking up the industry is the increasing convergence of shopping and financial services.

The trend

BNPL solutions are a prime example of merging shopping with financial services, effectively integrating financial firms into the consumer’s purchase journey.

Another emerging trend is the move by banks and financial firms into the advertising sector to diversify their revenue streams. This shift could be in response to recent industry developments, including the impact of higher-for-longer interest rates on banks’ net interest income (NII), rising regulatory compliance costs, and increasing pressures on interchange revenues affecting nearly all financial firms.

JPMorgan Chase surprised everyone by embracing an unexpected, modern strategy. The bank introduced a retail media network in April this year, venturing into a market already under the sway of major retailers.

Joining the fray after Chase is PayPal, the newest entrant in this market. It plans to establish a new advertising platform, PayPal Ads, centered around transaction data from its nearly 400 million active accounts. 

“PayPal Ads”

To kickstart the platform, PayPal has brought on board notable talents.

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Delving deeper into JPM’s recent AI implementation strategy, recruitment, and investment plans.

by SARA KHAIRI

When the internet first emerged, people’s reactions varied widely. Some feared the unknown, labeling it as malevolent, while others took a more pragmatic approach, leveraging its potential to gain a competitive edge and establish themselves as pioneers. A third group remained skeptical, adopting a wait-and-see approach without committing to either side.

Historically, these three types of reactions are the most commonly observed among humans in response to technological breakthroughs. This pattern is now repeating itself with advanced AI and Generative AI solutions. In the banking sector, most institutions are displaying the third type of reaction, opting for a cautious and observant approach. However, there is one traditional bank CEO who leans more toward the second type of reaction. [Any guesses who?]

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The question of profitability has long loomed over neobanks. Many grapple with issues such as low retention rates and challenging unit economics. A contributing factor is that many of their customers do not use neobanks as their main accounts. Exacerbated by their dependence on slim interchange fees as the main revenue source, cheaper rates, and no monthly fee payments that cut into their profits, neobanks have historically struggled to become profitable.

However, last year witnessed a performance turnaround as neobanks began expanding their services with a wide range of bundled services. Neobank Dave achieved profitability in the last quarter of 2023, while MoneyLion, initially a neobank but now transitioning into a marketplace-first model, recorded its first positive Adjusted EBITDA in the first quarter of the same year.

MoneyLion acquired two businesses which now function as an embedded banking product platform and an influencer content studio. Last week the firm reported its first-quarter results for this year. It was a strong quarter, with $121 million in revenue, representing a 29% YoY growth, and up 19% from the prior quarter, while the Adjusted EBITDA margin in Q1 was +19.4%.

“The top factor in our results can be attributed to our diversified business model,” Dee Choubey, CEO of MoneyLion told me. “We continued to scale our consumer reach to record levels, further developed our marketplace, and enhanced our personal financial management (PFM) experience.”

Behind-the-scenes strategies

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Love them or loathe them, Buy Now, Pay Later [BNPL] services have cemented their presence in the modern financial landscape. Despite the outcry over its regulation and the growing burden of consumer debts, it’s the ‘consumers‘ who are propelling its momentum forward. 

In fact, Buy Now, Pay Later firms are scaling and adopting a multi-product strategy. They’re shifting away from single product and conventional B2B interactions, and instead, focusing on diversifying their product ranges and fostering direct relationships with consumers. This could also suggest that relying solely on the traditional BNPL model may not be adequate and now needs shoring up, especially considering the increasing cost of capital for non-bank lenders and fintechs — or simply establishing a safety net around the business.

Affirm presents a similar scenario. Expanding its scope beyond lending, BNPL options with various installment plans, Point of Sale (POS) integration at checkout, Affirm also offers savings accounts, a virtual card, and its own Affirm card.

Wednesday saw the release of Affirm’s earnings report for the quarter ending March 2024. Affirm substantially increased its revenue, growing 51% YoY to $576 million, exceeding expectations. This surge was largely attributed to a strong focus on the Affirm card and positive metrics in gross merchandise volume [GMV] that saw a 36% uptick.

“This is the fourth consecutive quarter of accelerating GMV growth for Affirm,” said CEO Max Levchin in the shareholder letter.

While these figures were indeed reported, we delve into some of the recent behind-the-scenes strategies that the firm has likely been and continues to be mindful of, contributing to its successful quarter.

1) Affirm Card: How has it fared over the quarter?

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Litigation and class actions are common in financial services, but, payments firm Block is feeling the heat.

The Department of Justice has launched an investigation following allegations from a former employee regarding widespread compliance failures within Block’s Cash App and Square, stretching back several years.

According to the ex-employee, “From the ground up, everything in the compliance section was flawed,” adding, “It is led by people who should not be in charge of a regulated compliance program.”

The individual has reportedly provided prosecutors with documents indicating that the business’ mobile payments platform, Cash App, and merchant financial services platform, Square, have been deficient in collecting customer information necessary to assess risks. Furthermore, other documents suggest that Square has processed transactions involving countries under economic sanctions, and Block has facilitated cryptocurrency transactions for terrorist groups.

A loop of allegations and class actions
Block is under the legal microscope, adding to a series of investigations the firm has faced in recent years.…

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CEO John Caplan on the firm’s direction 3 years after its SPAC listing.

by SARA KHAIRI

As the global economy evolves into a borderless, digital landscape, small and medium-sized businesses [SMBs] are trying to keep pace and expand their reach on a global scale. Research shows that 72% of these SMBs view cross-border expansion as essential for growing their customer base and revenues.

While embracing digital e-commerce platforms offers a pathway for SMBs to transcend geographical limitations and expand their businesses, tapping into these global networks to access broader markets presents significant challenges, particularly in terms of cross-border payments.

In my recent discussion with John Caplan, CEO of Payoneer, we delved into the hurdles of cross-border payments for SMBs, the dynamics between new and established money transfer firms, and Payoneer’s strategy for penetrating emerging markets.

John, now one year into his role as CEO of Payoneer, comes from a background in global e-commerce, having most recently served as president of Alibaba North America & Europe. At Payoneer, he is focused on scaling the cross-border payments platform to expand into emerging markets.

What obstacles do e-commerce businesses face with cross-border payments, and how do you plan to expand Payoneer’s reach into emerging markets?

John Caplan: If you’re an entrepreneur or operating a small consumer or service business in an emerging market like…

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