Bringing Banking to Black Entrepreneurs
Plus, BNPL's brutal week.
Number of the Week: 713% (explanation below)
Bringing Banking to Black Entrepreneurs
One aspect that makes fintech so dynamic is the vast experimentation around reaching communities that traditional banking has ignored—or worse. FIN recently caught up with Kelly Ifill, the founder and CEO of Guava, a soon-to-launch banking hub targeted at Black small business owners.
Growing up in a family that included many small business owners—car dealerships, bakeries, landscaping businesses—Ifill saw firsthand how lack of access to capital held back their ability to grow. Her grandmother ran a successful cleaning business; Robert Redford was one of her clients. But she was a sole proprietor for her entire career, “so when she retired, the business kind of retired, too. It was this opportunity that she just wasn’t able to leverage, for all the reasons we know,” Ifill told FIN.
Ifill sees Guava’s role as not merely providing financial services, but creating a hub where Black entrepreneurs can find mentors and community. Last year Guava was awarded $100,000 in no-strings funding by a COVID recovery consortium that included Google for Startups and Cornell Tech. In late January, Guava entered a “private launch” phase; as Ifill describes it: “We kind of hand-selected a hundred small businesses who've expressed interest, or are in our network in some capacity, to test the platform before we open it up more broadly to our wait list.” Between now and a full launch later this year, Guava plans to complete a fundraising round.
As is almost always the case with fast-moving fintechs, Guava isn’t a chartered bank. Instead, it licenses services through New York-based FDIC member Piermont Bank, which describes itself as “women-founded, entrepreneur-led, technology-fortified,” and makes a priority of providing banking-as-a-service. “Last year we must have talked to hundreds of fintechs,” Wendy Cai-Lee, Piermont’s President and CEO, told FIN. “We have a very keen interest in supporting minority-owned businesses, whether it’s ethnically, by gender—really any segments that have been historically underbanked.”
Somewhat paradoxically, the deep, historical mistrust that many Black Americans feel toward the financial industry could be an advantage for Guava, which she has wrestled with. “It's a double-edged sword, right? There is skepticism, and mistrust, and rightly so. The history is crazy about what has gone in this country with regards to black people and financial services.” She argues that many Black consumers have a fundamentally different mindset that puts a particular burden on the services Guava is trying to sell: “The question isn't necessarily ‘How can this product help me?’ Sometimes you find the question being like ‘What are you trying to get from me?’ And there's a hesitance, because you're part of a community that has been targeted by predatory products historically. So it means that we need to be more transparent. We need to be clear in our language, and building trust is really important for us, in terms acquiring customers and ensuring that we're speaking to folks that we are trying to serve. It's an opportunity, but it's also kind of a responsibility.”
Is BNPL Falling Apart, or Just Growing Up?
If Buy Now, Pay Later (BNPL) was a good friend, this week might have been the occasion to pull her aside and ask “Are you okay?”
The shakeup has been international, with wide-ranging impact. In the UK this week, the Financial Control Authority (FCA) ordered four of the largest BNPL companies—Clearpay, Klarna, Laybuy and Openpay—to refund some late payment fees, and change their terms of agreement to make them less exploitative and easier to understand. The FCA took pains to say that the four companies cooperated; they are savvy enough to see where this is headed. In general the largest UK/European BNPL firms have understood for years that increased regulation was coming.
On the same day, a Barclays survey of 2000 UK residents found some very troubling facts about BNPL and its relation to consumer debt:
A quarter of BNPL users are concerned about their ability to repay their BNPL bills
Over a third chose to pay with BNPL due to insufficient funds in their current or savings account
Nearly a fifth of 18–34-year-old BNPL users have had their credit score impacted due to missed BNPL payments
The average BNPL user is paying off £293 in BNPL loans, and almost half have had loans from different BNPL providers at the same time
A Barclays executive said: “Barclays believes all consumer credit products should be subject to the same level of regulation, to avoid an unnecessary two-tier regulatory framework that goes against the best interests of consumers.” (As a major credit card issuer, Barclays arguably has a business incentive to ding BNPL, but the findings echo those of many other surveys, and not only in the UK.)
In the US, the largest BNPL player, Affirm, continues its stock market slalom run. Granted, tech stocks and the US markets generally are not having a great start to 2022, but Affirm is getting positively hammered. This chart compares Affirm’s stock performance over the last three months to the tech-heavy Nasdaq exchange:
Affirm shares are obviously responding to much more than British regulatory action. The company’s operating losses continue to grow, and Affirm takes a hit whenever Peloton—historically one of Affirm’s biggest merchant partners, although that reliance is less pronounced than it was a year ago—struggles. Some analysts argue that even at 75% off its all-time high, Affirm is still too expensive to buy.
None of this necessarily means the death of BNPL, merely that the growth projections giddily touted a year ago were clearly overblown. Given uneven consumer experiences like those Barclays documented, that continued skyrocketing growth never made sense to FIN to begin with—people try BNPL because it’s new and is heavily marketed through their phones, but once they see it doesn’t magically give them more spending money, they largely fade back to other payment methods. At any rate, BNPL companies should be advocating for greater regulation now, as a way of trying to maintain customer trust.
Turkey and the Inflation Fallout
On a near-daily basis, you can find an article somewhere in the financial press arguing that “Bitcoin is the new gold.” It’s not a useful frame—in part because the equation of the two assets is close to meaningless—but there are instances in which comparing and contrasting crypto and gold can yield some insights.
The Financial Times published a gold story earlier this month with some stimulating details. Most FIN readers will know that Turkey has recently experienced rampant inflation. In 2021, the Turkish lira experienced a 44% drop in value against the US dollar, forcing a wave of emergency government measures designed to prop up the ailing currency. The FT got advance word about a Turkish government effort to get citizens who own gold in their homes to convert it into liras; the FT said that Turks own an estimated $250 billion in gold. (Some estimates put the total Turkish household gold ownership at $300 billion.)
Pause there for a moment. The population of Turkey is about 84 million people; the FT figure implies that the average Turk—including every child—owns about $3000 worth of gold, presumably in the form of jewelry and gold coins. That is a hefty amount in a country where the per capita income is less than $13,000.
At any rate, Turkey’s finance minister hopes he can get 10% of that “under the mattress” gold traded in, and melted down into bullion to bolster the country’s central bank reserves. (Many experts are skeptical that this program will succeed, in part because similar past efforts have foundered on a lack of trust.)
Perhaps unsurprisingly, runaway inflation has also pushed many Turks into cryptocurrency. Intriguingly, the Turkish cryptocurrency of choice seems to be less Bitcoin than the US dollar-denominated Tether stablecoin (perhaps because many Turks hold US dollars in bank accounts). Figures published by the Wall Street Journal in January indicate that a massively disproportionate number of Tether trades take place using Turkish liras; in late 2021 it was well over half. This is all the more remarkable given that using cryptocurrency for real-world purchases is illegal in Turkey, and in September Turkey’s president said “we are at war with cryptocurrency.”
This juxtaposition prompts two thoughts. First, in situations of excessive inflation, many people today will turn to cryptocurrency as a “store of value,” as they have historically done with gold. Importantly, though, the Turkish experience does not suggest a rejection of fiat currency per se; Tether’s relative stability, after all, derives from the US government’s imprimatur on the dollar. Second, instead of pursuing ineffective actions to make people give up gold or stop buying crypto, enlightened governments should enact policies that align with what citizens want to do with their money.
FINvestments
🦈Number of the Week: CB Insights this week published the 2021 State of Blockchain report, showing that global investing in crypto and blockchain companies last year hit $25.2 billion, which is 713% higher than in 2020:
🦈Way back in November, FIN wrote: “‘Bulgaria-based enterprise expense management startup’ is not a phrase one encounters very often. Yet this week Payhawk announced a $112 million Series B round, valuing it at $570 million.” Shockingly, a new round led by Lightspeed this week puts the value at over $1 billion.
🦈According to Tearsheet, the average ad spend on an app store by a finance app rose by 51% between 2020 and 2021, crossing the half-a-million dollars mark.
