All Roads Lead to Liquidity

Issuing FinTech features are commoditized. Any FinTech can open accounts, facilitate transactions, issue cards, etc.

Differentiation becomes difficult and switching costs decrease. Customers — whether consumers or businesses — have little incentive to maintain their banking provider, especially as “data” (e.g.; lists of users, bill pay payees, vendors, etc.) becomes less of a sticky point as they can download/upload/bridge across accounts.

It is why I believe all roads lead to providing liquidity as a form of differentiation. Giving customers access to more or faster cash wins.

But even this is becoming commoditized

• Interest on cash deposits: Most business and consumer banks are offering 4%+ in this current environment, with customers moving money to earn 25 extra bps.
• Faster access to cash: 48 hour early access to payroll deposits for consumers is a short, (almost) riskless float on funds in transit over the ACH network
• Receivable loans: Apps like Chime and Dave offer loans or invoice factoring is becoming standard as a low-risk loan against known receivables (e.g.; payroll for consumers or invoices for businesses)

So where can liquidity differentiation be found:

• Better business underwriting algorithms: Using a company like Uplinq to embed better underwriting for SMBs/SMEs or Zest AI for consumer loans to offer important cash with preferred terms. (You’ll still need the capital to lend, preferably a wholesale line of debt or a direct lender who will pay you for the lead generation.)
• Revolving credit to subprime consumers: A company like Arro offers a true revolving credit card (as opposed to BNPL) that gamifies spend and offers financial literacy to grow unsecured credit lines over time
• Proprietary cash back networks funded by merchants like Aspiration’s Green Marketplace.
• Attach robo-advisors that “beat the market” (hard to do!) but also lock in capital gains that create tax events upon withdrawals
• Preferred margin rates like Robinhood offers for stock trading (though this feels like it will be shortly commoditized)

There are other, vertical specific ways to differentiate, but with embedded financial features becoming so easy to integrate, a vertical SaaS company may quickly offer the same financial features as their competitors making embedded finance a must-have foundational feature and differentiation coming from non-financial features.

Offering liquidity is a winning formula. FinTechs should be thinking about how to provide liquidity in ways that minimize risk and optimize P&Ls.