Can Tally's Pivot to B2B Jumpstart Its Credit Card Payoff Business?
Plus, Ripple's CEO, walking a legal and business model tightrope, pops off on X.
Number of the Week: $785 million (explanation below)
Can Tally's Pivot to B2B Jumpstart Its Credit Card Payoff Business?
That credit card debt payoff app Tally has decided to pivot from a business-to-consumer (B2C) to a business-to-business (B2B) model is not surprising to those closely following the fintech debt management market, but it caught the San Francisco-based startup’s customers completely off guard, creating added financial stress that the app was supposed to alleviate, not complicate.
Tally, cofounded by CEO Jason Brown and Jasper Platz in 2015, raised $80 million in Series D funding in late 2022 that saw its valuation triple to $855 million. The round was led by Sway Ventures, with participation from Menora Mivtachim, Kleiner Perkins, Andreessen Horowitz, Shasta Ventures and Cowboy Ventures, and brought the company’s total funding to $172 million. The app was intended to help consumers pay off higher-interest credit card debt by gathering their outstanding balances into a Tally dashboard, automating payments for multiple credit card accounts, and tapping the startup’s lower-interest lines of credit so that it could make payments directly on behalf of customers, who would then repay Tally in monthly payments. (Tally+ membership, which cost $300 annually, gave customers access to a larger credit line and monthly discounts for making on-time payments).
Yet by November 2023, customers began reporting that they received an email from Tally that stated: “We’re sorry to let you know that due to circumstances beyond our control we will no longer be able to make new credit card payments from your Tally line of credit, effective immediately. …Unfortunately, the investor that funded your account has informed Tally they will no longer provide funding for any accounts, despite Tally’s efforts to reach a different outcome.” Tally customers were also told that while the company would continue to support customers, it would not be making any future credit card payments on their behalf—transferring that responsibility immediately back to them—and that they would be responsible for repaying their remaining Tally balance, after which the company would close the customer’s account.
The news left some Tally customers confused and many others angry, sparking subreddit threads and complaints to the Better Business Bureau (BBB), almost all claiming “breach of contract” on Tally’s part. One Tally customer, who filed a BBB complaint, said that the notice from Tally came “with almost no warning before I had to pay my credit cards manually AND pay Tally's bill on top of that,” which was “an additional $600+.” Scroll through the complaints and a pattern of similar customer grievances is evident.
Presumably, the investor in question is $8.7 billion-asset Cross River Bank, a Banking-as-a-Service provider that extends loans to fintech partners that, in turn, make loans to consumers. (The bank was cited at the close of Tally’s email notifying customers of its operating changes: “Tally is providing this notice on behalf of Cross River Bank, 2115 Linwood Avenue, Fort Lee, NJ 07024.”) In May 2023, the Federal Deposit Insurance Corp (FDIC) entered into a consent order with Cross River to resolve claims the bank “engaged in unsafe or unsound fair lending compliance practices.” The consent order, however, is more broadly seen as an indicator of the FDIC’s intensifying scrutiny of bank-fintech partnerships. Cross River’s current list of fintech partners includes Stripe, Plaid, DailyPay, Current and Best Egg, among others.
On April 3, Axios exclusively reported that Tally made the decision to “sunset its app,” instead pivoting to a model that will allow “large, publicly traded banks and fintechs” to embed its technology—dubbed the Tally Robot—inside their Android and iOS apps and the web through a white-labeled software development kit (SDK). As part of these efforts, which were reportedly in development for two years, Tally also created an application programming interface (API) that will enable partners to build their own apps, leveraging Tally's capabilities without using the SDK. "My goal has always been to get Tally in the hands of all Americans," Brown told Axios. By partnering with financial institutions to give their customers access to Tally’s solution, he thinks he can get there faster than under his company’s previous model and give them powerful technology that they otherwise lack the capability to build. (Tally’s partially revamped website—there are still traces of its B2C functionality—reinforces this new B2B message: “Your customers get all the benefits of Tally. You get all the credit.”)
This news likely explains why requests by FIN for an interview with Tally’s CEO in August 2023 to discuss the impact of the nation’s staggering credit card debt on Tally’s adoption rate, its traction in the market and projected growth for the consumer-facing app, among other things, went unanswered.
The reasons for Tally’s pivot are many, and it isn’t alone in its struggles as a B2C fintech. From the start, Tally’s high-profile investors had reason to believe that the consumer-facing credit card payoff app had a compelling product/market fit, given Americans’ increasing credit card usage, mounting debt and, more recently, exposure to high interest rates. Total credit card debt in the U.S. hit a record $1.13 trillion in the fourth quarter of 2023, up from $1.08 trillion in the prior quarter, according to the latest consumer debt data from the Federal Reserve Bank of New York. Higher household spending on rent, food and utilities were also significant and growing contributing factors to higher credit card debt. The average American has 3.84 credit cards with an average credit limit of $30,365, according to Experian’s most recent data. The national average card debt of consumers with unpaid bank and retail credit card balances was $6,864 in Q4, down slightly from $6,993 in Q3, according to a LendingTree analysis. Meanwhile, interest rates on credit cards have increased over the past two years, with the national average annual percentage rate (APR) at 20.75% as of April 2024, up from 16.34% two years ago.
With Americans’ growing pile of credit card debt and high APRs, one could argue that an app like Tally should have been highly attractive to consumers. Prior to its recent shift to a B2B model, Brown told Axios that Tally helped users reduce credit card debt by $2 billion. So what went wrong—and will its new model work?
First, the obvious: The field of B2C debt consolidation, reduction and payoff apps and platforms—not just for credit cards, but also personal, car and student loans, etc.—is crowded, with varied levels of approach, sophistication and functionality for debt management and payoff. Besides Tally, which solely targets paying off credit card debt, think also SoFi, Debbie, Penny Finance, Peach, Debt Payoff Planner, Bright Money, Upstart and a host of others. Second, the cost of funding became an issue, as steeper borrowing costs for fintechs like Tally and others in recent years made it difficult to offer customers lower interest rates—their primary competitive advantage over traditional lenders—and forced them to increase fees. For Tally specifically, its “investor/funder” cutting off its loan pipeline was likely the death knell. Plus, even growth-stage fintechs have far less access to venture capital in today’s market environment. Finally, the cost of customer acquisition is too intense, requiring significant annual spending on marketing to pick off customers, some of whom are not app-happy (or savvy, for that matter).
Tally reportedly raised additional funding from existing investors to help it transition to its embedded tech model. Brown said he expects the company’s first B2B partner—"a large, publicly traded FI with 65 million customers," he told Axios— to go live with Tally's embedded technology in its apps in June. (On the wagering-a-guess front, Bank of America has 69 million consumer and small business customers, four million of which are small business households, meaning that it has roughly 65 million consumers as customers.)
Will Tally’s pivot and reliance on financial institutions as partners work? Maybe—but what Brown won’t have to endure in costly customer acquisition and retention, he’ll face in navigating the complex dynamics of highly regulated, slow-moving and politically charged, publicly traded financial institutions. Still, new research, market trends and regulatory headwinds suggest the timing is right for fintechs and financial institutions, particularly banks, to formalize partnerships that allow them to mutually benefit from their respective strengths. For Brown, it could finally mean getting Tally’s technology into the hands of more consumers.
Noted & Noteworthy
Already walking a legal and business model tightrope, Ripple Labs CEO Brad Garlinghouse wasted no time responding to a Consensus Magazine article that suggested the company had essentially “declared the death of XRP” with its plans to launch a U.S. dollar-pegged stablecoin to compete with Tether’s USDT and Circle’s USDC in the $150 billion market. In an X post that’s since been deleted, Garlinghouse reportedly called the story “embarrassing” and that it was “childish antics masquerading under what should be a credible brand that leads coverage of the crypto industry.” Ripple faces a number of regulatory and market challenges right now: The U.S. Securities and Exchange Commission (SEC) has asked a federal judge to impose nearly $2 billion in fines and penalties on Ripple—$876 million in disgorgement, $198 million in prejudgment interest and a $876 million civil penalty—for ongoing and increasing sales of its XRP token to institutional customers, which the SEC has already argued in a 2020 lawsuit violates federal securities laws. (In July, U.S. District Judge Analisa Torres ruled that Ripple’s sale of $728.9 million worth of XRP to hedge funds and other sophisticated investors amounted to unlawful sales of unregistered securities, but that XRP sold on public crypto exchanges did not meet the legal definition of a security, a partial setback for the SEC.) In addition to Ripple’s legal challenges, its XRP token is 85% below its peak price set in January 2018, falling 7% this year (as of April 4, per The Motley Fool), as compared to Bitcoin’s 53% gain and the overall crypto market’s 54% jump.
The happy dance for Bitcoin enthusiasts continues, even if the upcoming halving—expected around April 20—has a different, albeit still positive impact on the trajectory of bitcoin’s price. The strong inflows into spot bitcoin exchange-traded funds (ETFs) have pushed bitcoin to $68,930.88, according to CoinDesk Indices (as of this writing), and 94% of its 21 million coin supply cap. Countdown clocks aside, market observers are keen to see how this Bitcoin halving unfolds, and many market participants contend that mining profitability will be less of an issue this go ‘round. For one thing, Acheron Trading CEO Laurent Benayoun contends that the decrease in mining rewards will be offset by an increase in Bitcoin network fees. “In dollar terms, it’s not obvious that miners would be worse off after the halving, quite the opposite,” he said in an interview with Cointelegraph.
Bitcoin miners have been preparing for the halving’s “near-term” financial strains, according to a recent paper from Grayscale. The bigger thing to watch with this halving: If bitcoin ETF adoption continues and net inflows remain steady, ETF flows could be a “counterbalance to the ongoing sell pressure from mining issuance,” which Grayscale says could “mirror the effects of another halving, fundamentally transforming Bitcoin's market structure in a positive way.” To arrive at this projection, Grayscale’s sensitivity analysis assumed the following: “A Bitcoin price of $43,000, 3.125 Bitcoin issued per block, and 144 blocks mined per day, which constitutes ~$19M of Bitcoin issued by the network. Then, assuming $10 million of daily net inflows into ETF products, if you divide daily net inflows ($10M) by daily amount of issued Bitcoin ($19M), you get roughly 50%, which is similar to the effects of another bitcoin halving.”
Bitcoin spot ETFs recorded a daily net inflow of $203 million on April 5th, the fourth consecutive day of net inflows totaling $569.4 million, according to statistics from crypto trading data platform SoSoValue. BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC) led with $308.8 million and $83 million in single-day inflows, respectively. Grayscale’s Bitcoin Trust ETF (GBTC), however, saw outflows of $198.9 million. As of April 8th, BlackRock and Fidelity’s Bitcoin ETFs have recorded inflows every single day since their launch, according to Bloomberg ETF analyst Eric Balchunas, “becoming two of the top 20 exchange-traded funds with the longest streak of continuous inflows of all time.”
Meanwhile, Ripple chief Brad Garlinghouse thinks the value of the cryptocurrency market could hit $5 trillion by the close of this year, a dramatic jump from its present value of $2.68 trillion, given the spot bitcoin ETFs and the bitcoin halving. “I’ve been around this industry for a long time, and I’ve seen these trends come and go. I’m very optimistic. I think the macro trends, the big-picture things like the ETFs, they’re driving for the first time real institutional money,” he told CNBC.
Seen and Heard…
Despite its desire to focus on use-case development and adoption, U.S. crypto exchange Coinbase just can’t seem to get out from underneath a bunch of lawsuits. A federal appeals court judge revived a class-action lawsuit by Coinbase customers seeking to hold the U.S. crypto exchange and CEO Brian Armstrong accountable for the illegal sale of unregistered securities and failing to register as a broker-dealer. The case, Oberlander et al v Coinbase Global Inc et al, was returned to U.S. District Judge Paul Engelmayer in Manhattan, who had dismissed it in February 2023. …And for those keeping score, ARK Invest chief Cathie Wood sold 25,662 Coinbase shares worth $6.4 million from two of the investment firm’s ETFs—22,690 shares from ARKK, its Innovation ETF, and 2,972 shares from ARKW, its Next Generation Internet ETF. Given Wood’s expectation of continued price appreciation for Coinbase, the sale is in keeping with ARK’s portfolio diversification strategy of rebalancing its fund weightings to limit an individual holding to no more than 10% of an ETF’s portfolio. The latest move comes on the heels of ARK selling $149 million worth of Coinbase stock in early March and another $21 million later in the month. The U.S. crypto exchange remains the largest holding within its ARKK ETF with a weighting of 9.9%; it is the second-largest holding in the ARKW ETF, with a weighting of 10.1%, behind ARK’s own spot Bitcoin ETF (ARKB) at 10.2%, according to the firm’s latest disclosures. …Global fintech funding has declined to a new four-year low with only $7.3 billion invested across 904 deals during Q1, according to CB Insights’ State of Venture report. Geographic breakouts found that U.S. fintechs secured $3.3 billion in funding across 393 deals, followed by European fintechs with $2.2 billion (203 deals) and Asia with $1 billion (210 deals). Latin America, Africa, Oceania, Canada and other smaller regions received only 12% of the total fintech funding, or just under $700 million. The most notable funding deal in the period: U.K.-based Monzo’s $430 million round led by Alphabet. …The SEC started three-week comment periods on spot Ethereum ETF applications by Fidelity Investments, Bitwise Asset Management and Grayscale Investments for a potential rule change that would lead to the approval of the products. BlackRock, Hashdex Asset Management and ARK Invest have also filed applications. The timetable for a decision from the SEC has been pegged to no earlier than next year by most market experts.
FINvestments
🦈 Number of the Week: Tradeweb Markets is acquiring Institutional Cash Distributors (ICD), a multi-fund investment platform for corporate treasury teams, for $785 million. The purchase of ICD marks Tradeweb’s third acquisition in 12 months, following r8fin, an algorithms-based institutional trading and analytics platform, and Yieldbroker, an electronic trading broker.
🦈 In a twofold announcement, Station70, a crypto security and disaster recovery platform founded by Adam Healy, the former chief security officer of now-bankrupt BlockFi, said it raised $5 million in seed funding and launched its first product, called Bunker, a disaster recovery platform to simplify “private key backup and recovery” for digital assets. The round was led by Castle Island Ventures, with participation from Notation Capital, Semantic Ventures, SCB 10X and CoinShares.
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