Here’s a selection of what I found most interesting recently.
Unlike prior editions of Tidbits where I had a clear narrative or theme laid out before writing, this time was different. However, after I wrote everything below, the narrative easily fell into place…the world (both physically and digitally) continue to shift along existing fault lines. This shift continues to open up new territory, and all that land is now up for grabs, especially in fintech.
🌎 Geopolitics
Obama is currently on a press tour to talk up his Presidential autobiography / memoir, The Promised Land. He’s given a number of interviews already. If you’re looking for one to read, consider the one he did with The Atlantic below.
Most of it is quite interesting, including reasons to be concerned about the health of the US’ democratic system, but the most relevant piece of information for our current state of the world and markets is likely this excerpt below on China trade:
#1 Why Obama Fears for Our Democracy
One of the things I was reminded of in writing the book was just how many of my earliest choices were premised on the very specific circumstances of being in a global financial meltdown and trying to avert a depression and the political costs I paid. I would probably make those same choices again, because averting a depression is a good thing. But it did hamstring me. For example, I actually think that it is entirely legitimate to push China much harder on trade issues. I didn’t come into office as a knee-jerk anti-trade guy, but if you looked at the facts, China consistently ran mercantilist policies that violated international trade rules to help build up their economy from the late ’80s through today. And if we hadn’t been going through a financial crisis, my posture toward China would have been more explicitly contentious around trade issues. But I couldn’t have a trade war in 2009 or 2010. At that point I needed the cooperation of China as well as Europe as well as every other potential engine, just to restart the global economy.
Source: The Atlantic
Of course, this is his recollection of his own thoughts from a decade ago. Hard to say whether there is some hindsight bias here…but it is very interesting to read that Obama considered some version of a trade war with China but felt unable to do so because of the weak state of the world due to the 2008 financial crisis.
This is particularly interesting because it could inform us about how Biden wants to approach China, too. Did Biden share Obama’s views a decade ago? Does he still share them now?
#2 Mapped: The Top Export in Every Country
Source: Visual Capitalist
The Visual Capitalist published a series of interesting export charts (more in the link). In addition to being visually pleasing, there’s one important point to pay attention to: The US’ top export today is petroleum.
The US exports a good many things, including agricultural goods, planes, weapons, high tech hardware and software…but the largest one today is oil and oil derivatives.
This was not the case a few decades ago, in which the US was dependent on foreign oil for its existence. And that oil often came from places at least somewhat hostile to the US. And it is that very oil dependence for both the US and its allies that the whole US global system was structured (in addition to being an important bulwark against the spread of Communism).
But in the last 15 years, the US has experienced an internal oil production boom. The US is now the world’s largest oil producing nation (more than Saudi Arabia and Russia) and is able to produce so much of it that it has become the country’s largest export product. The Middle East no longer means anything to the US. It still means a lot to its allies, and now it’s a question of whether the US wants to defend that system for the sake of its allies. It is also a question of whether our allies / Europe increasingly breaks rank with the US because they have to in order to secure their own energy needs (e.g. Europe’s desire to normalize relations with Russia, while the US continues to maintain sanctions on Russia).
The other big change since the 1970s is that the US is no longer a major manufacturing nation. Industry and manufacturing exists on oil. But since the 1970s, the US has shed most of its industrial base. The economy is largely services oriented and increasingly digital. And hence US dependence on oil has also declined.
These two changes are and will have enormous destabilizing effects on the post-World War II world that everyone has grown up in.
💰 Fintech
#3 Square CFO Interview: The future of payments is frictionless—now more than ever
Square continues to be one of the most fascinating companies out there. While Square has accomplished a lot since its founding a decade ago, Square’s positioning has become sharper and more relevant following the lightning success of the Cash App.
This interview with Square’s CFO touches on a few key points, including Square’s enormous opportunity with SMEs and bottom-of-the-pyramid individuals, areas that traditional banks have largely failed to serve well over the last few decades:
Amrita Ahuja: We offer entrepreneurs and merchants tools and services that allow them to successfully start up and then grow their businesses. It’s a critical market because about 90 percent of businesses worldwide are small and medium-size companies, and they represent 50 percent of employment worldwide. They account for a major portion of the job creation and economic development that happens worldwide, and recent government data show the fastest rates of growth for new starts than we have seen in a decade. We think that small and medium-size businesses—and these new starts—can really contribute to a strong recovery.
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Amrita Ahuja: We know we are serving the little guys who often, frankly, don’t have another option. So we remain focused on fast product innovation, like the on-demand-delivery, order-ahead, and pick-up options that have kept many of our customers in business during a really volatile time. People are using our Cash App to inbound stimulus funds or unemployment checks, or to send funds to friends or family members in need, or to facilitate social giving—online tipping or donations, for instance. Despite the turmoil, we’re continuing to experiment and learn in a disciplined way. We’ve formed an independent open-source team called Square Crypto that we believe is going to help us explore and enhance the bitcoin landscape and the cryptocurrency landscape. We also launched the Cryptocurrency Open Patent Alliance, which is meant to benefit the broader market and drive innovation in the space. And more recently, we made a $50 million investment in bitcoin as a show of support to the community and our belief in the long-term sustainability of bitcoin.
This except on how businesses are evolving and becoming more dynamic was also highly fascinating:
We’re also seeing more vertical blending, as we call it, which really just refers to the entrepreneurial hustle: it’s the high-end restaurant that can’t serve customers during shelter-in-place scenarios, and they’ve now become a grocer. It’s the bakery that’s now selling bread and cookies online. Or the flower shop that’s scheduling in-store visits using an appointments system that a hair salon might have used. Those are the kinds of entrepreneurial pivots companies are making to adapt to this new environment. And they’re doing it quickly—what might’ve taken three years, we’ve seen happen in three months. That is something we think could have a lasting impact even post-COVID.
Source: McKinsey
If businesses continue to exhibit this type of dynamism, the US economy should respond well in the future.
One of the most important skills the US economy seems to have lost over the last few decades is the ability to be flexible and dynamic. Businesses (outside of tech) have become ossified and static. This was not the case decades ago. The US largely helped Allied Powers win World War II because the US manufacturing base was extremely dynamic. Auto manufacturing plants were able to quickly convert into tank, planes, and ship manufacturing facilities. Consumer good factories were quickly converted into guns, munition, and other standard military-issue goods factories. And that dynamism drove the US economy for three decades following the end of World War II.
Yet, today, our highest tech factories cannot even convert to manufacturing ventilators at scale without overwhelming work. People think tech and software is winning because there is some inherent magic to them…maybe there is, but at the very least tech companies, especially software companies still exhibit the mid-century American dynamism that made this country what it is today. What companies other than software companies can rapidly gather customer feedback and iterate on the fly in a continually improving process?
But maybe this dynamism is starting to return to the US physical world, again. Partly with the help of software…and together the economy should be stronger because of it.
#4 Payment company Affirm files to go public with revenues doubling year-over-year
Payments company Affirm filed its IPO prospectus with the Securities and Exchange Commission on Wednesday, and plans to list on the Nasdaq under the symbol “AFRM.”
The San Francisco-based company, founded and led by PayPal co-founder Max Levchin, offers online installment loans. Affirm has been one of the more popular start-ups in the space. It announced a partnership with Shopify earlier this year, allowing merchants to offer installment loans on products they sell, and works with 6,500 merchants including Peloton, Expedia and Walmart.
Source: CNBC
A number of highly attractive companies have gone public recently, but the pace does not seem to be slowing down. After a lull around elections, the pace is picking back up, again, with Affirm filing to go public a few days ago. Affirm is interesting not only because it operates in a new, dynamic space, but also because it was founded by Max Levchin, one of the founders of PayPal.
Affirm is one of the leading players in the “buy-now-pay-later” (BNPL) space. BNPL is essentially an alternative form of credit where consumers repay the loan via several installments. Unlike revolving credit facilities (like credit cards), BNPL is often offered at the point of sale attached to the purchase of a large ticket item.
Many consumers, especially younger folks, have sworn off credit cards over the last decade after seeing how spiraling credit card debt have led so many people into inescapable debt prisons. BNPL tends to be more borrower friendly and much easier to understand in terms of debt obligation and repayment requirements.
Affirm should be an interesting one to keep an eye on.
In the meantime, this post from Fintech Business Weekly does a good job discussing BNPL vs other forms of credit, including this nifty chart illustrating how quickly BNPL is becoming the dominant form of credit for younger consumers in some geographies:
#5 Buy Now, Pay Later vs POS Lending, a Crash Course
Source: Fintech Business Weekly
The folks over at The Generalist also have some interesting things to say with respect to BNPL, including how different BNPL players are differentiating themselves:
#6 The Checkout as Territory
How do you win the checkout? Increasingly, the answer is to move upstream. BNPL companies are engaging in a range of tactics to ensure that customers have already made their selection when it comes time to pay.
The primary method BNPL companies use is to make their site a destination in and of itself. The positioning of Affirm, Afterpay, Klarna, Quadpay, and Sezzle, per their websites, is remarkably similar. They present as a shopping website, allowing customers to browse by category before redirecting to a merchant page. Whether they realize it or not, the consumer has selected their method of purchase. When it comes time to pay, the site defaults to offering the BNPL provider-in-question.
Source: The Generalist
Since BNPL loans are offered right at the point of sale, it becomes increasingly hard to stand out to consumers at the point of sale given how many different payment options we now have (including the rising number of BNPL players directly competing with each other).
The Generalist highlights that one of the emerging ways for BNPL players to differentiate themselves is to move up the funnel and to increasingly become shopping platforms. This allows BNPL players to insert themselves earlier on in the shopping process so that consumers pick the BNPL option before they decide what they want to buy and get to the checkout screen.
This is highly worth noting because I believe it provides growing evidence of what I wrote recently in Square, Fintechs, and Our Changing Economy: Banks (and credit) is getting disaggregated…and instead is being consumed by the players that control each vertical and the data that is associated with those verticals. Even modern fintechs like BNPL players that are digital first is struggling to insert themselves into the value chain because the platforms control the customer and the associated data. BNPL can work successfully with traditional merchants that are not digital first, but increasingly even these fintechs will need to get closer to the consumer and / or become platforms in order to stay relevant.
Otherwise, in the long run, the players that control the verticals are the players that control credit. For example, Square’s control over restaurants and other SMEs means Square is best positioned to offer credit, not only to the supply side (merchant) but also to the consumer. The same can be said about Shopify’s control over SME e-commerce.
How do I know this is probably true? Because if Affirm (and all BNPL players in general) actually had much bargaining power against platforms that control verticals, Affirm would not have been compelled to give Shopify a 5% stake in the company earlier this year in order to gain access to Shopify’s platform:
#7 Shopify poised for up to $500M US windfall from stake in payment firm Affirm about to go public in IPO
Ottawa’s Shopify has the option to buy 20,297,595 shares in Affirm, a San Francisco-based company that let’s people pay for goods and services by instalment, instead of the fees and interest rates associated with credit cards. Affirm filed paperwork this week for an initial public offering that could value the company at up to $10 billion US.
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Affirm granted Shopify those warrants in exchange for giving the San Francisco company access to the network of U.S. retailers that sell things via Shopify’s system. “By partnering with Shopify, the gold standard of commerce platforms for businesses that want to sell direct-to-consumers, we can help merchants seamlessly enable a pay-over-time option at checkout,” Affirm’s CEO Max Levchin said this summer. “In doing so, we’re helping them reach new customers, particularly Gen Z and Millennials, who are looking for more transparent and flexible ways to pay.”
Source: CBC
If you want more evidence, look at Adyen. Adyen is probably one of the two best (other being Stripe) and most important merchant acquiring / processing companies out there, yet even Adyen gave Ebay a 5% stake to gain access to that platform 2 years ago. And this is Ebay of 2018, not 2008. Ebay isn’t even particularly relevant anymore.
Not all fintech is the same. Fintech is beating the banks. But the real winners will be the platforms that control the verticals and the associated consumers and data.
Speaking of consumers…
#8 PayPal’s ‘Pay In 4’ Expands Installment Credit Options For PayPal Users
With Pay in 4, PayPal customers have an option to pay 25 percent of an item’s price upfront, then pay the rest over six weeks through three equal payments. This program is for purchases between $30 and $600 and there are no interest charges or other fees (except for late fees if someone doesn’t pay on time). For consumers, Bland said, Pay in 4 offers a near-ubiquitous online installment payment experience given PayPal’s penetration of online merchants (79 percent of the top internet 100).
“What we continuously hear from businesses of all sizes is that they are looking for trusted ways to help drive sales [and] attract customers without taking on additional costs,” Bland said. “At the same time, what we hear from our consumers is they are looking for flexible and responsible ways to pay when they shop. This has all accelerated during the pandemic, and this economic uncertainty has created additional stress for the retailers and for consumers.”
Source: Pymnts
This piece of news actually came out back in August. I had it on my desk, but never thought it was “big enough” to put it into any of the recent Tidbits, especially since each edition of Tidbits has been getting a little longer each time.
But better late than never.
What’s interesting is that PayPal has exactly what other BNPL players are attempting to create – A direct relationship with consumers. PayPal doesn’t control a vertical, but its wallet is directly used by over 300 million users. PayPal has greater control over the consumer decision process because of this and can drive greater adoption of PayPal BNPL when it makes sense.
Shifting gears a bit and away from BNPL, the most interesting news in fintech space recently was perhaps Google’s relaunch of Google Pay:
#9 Google Pay’s Massive Relaunch Makes It An All-Encompassing Money App
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Today,Today, Google Pay for both Android and iOS is relaunching with a giant array of new features. It turns the app from something that most people think of as a tap-to-pay card repository or peer-to-peer payment system into a much more ambitious service. The new app begins rolling out across the United States today.
The new version of the app will have three new tabs: “Pay,” which includes peer-to-peer payments as well as your transaction history using tap-to-pay; “Explore,” which will be a place where Google will offer deals and discounts; and finally, “Insights,” which will allow you to connect your bank accounts to get a searchable overview of your finances.
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In 2021, Google will partner with some banks to directly offer fully online checking and savings accounts inside Google Pay — a service Google is calling “Plex.”
Source: The Verge
I dunk on Google a lot and having done that publicly on Capital Flywheels for 4 years and at least 8 years in private (though I think people are starting to agree with me and see what I see), it gets tiring…but it seems like Google has actually done something very interesting with Google Pay.
The most interesting aspect of the relaunch is something called Plex. It positions Google Pay to not only be a digital wallet for your credit cards and stored funds, but also to potentially aggregate your bank accounts into a single easy view to manage all of your finances. Plex also allows consumers to open new checking or savings accounts with select partners where Google Pay acts as the mobile banking interface but with the actual banking functions outsourced to banking partners.
This is a de facto consumer aggregation move and is much more aggressive than what others have attempted. For example, Apple Pay is part partner and part competitor to banks. But it doesn’t really act as an aggregator on the consumer side since it does not completely disintermediate the banking relationship. But here, Google does. Google becomes your bank but with the underlying banking processes outsourced. This is a highly interesting and aggressive move.
I am very curious where this goes. However, as with all things Google, it’s not the ideas that they have trouble with, it’s usually execution. If this starts to work, the risk is that others like Apple, PayPal, and Square / Cash App will quickly adjust and potentially out-execute Google.
Gavin Baker, the very thoughtful managing partner / CIO at Atreides Management (and formerly PM at Fidelity), had some interesting thoughts on this. Make sure you click the link…the whole thread is worth a read:
#10 Gavin Baker’s Take on Google Pay Revamp
🛍 Commerce
#11 Microsoft Brings New Shopping Tools to its Edge Browser
Microsoft announced a few updates to its Edge browser today that are all about shopping. In addition to expanding the price comparison feature the team announced last month, Edge can now also automatically find coupons for you. In addition, the company is launching a new shopping hub in its Bing search engine. The timing here is undoubtedly driven by the holiday shopping season — though this year, it feels like Black Friday-style deals already started weeks ago.
Source: TechCrunch
Does anyone actually use Edge?
Anyway, the main reason this is interesting is because it continues to highlight how the digital landscape is shifting. Whereas payment players are increasingly trying to move up the funnel and earlier into the buying process, other players like Microsoft are trying to see if they can muscle their way in to relevance through their control over the “windows” in which consumers access the digital world. The browser is a good place to start.
Nothing they announced is actually all that unique…many similar features have already been available as add-ons on other browsers like Chrome.
But it does tell an interesting story about what is possible, especially if you think about the players that control smartphone operating systems like iOS and Android. Where can the OS players like Apple and Google become more relevant in terms of e-commerce and payments simply because they control the entire “window” in which users interact with their digital worlds?
🖥 Technology
The industry buzz around Apple’s M1 continues to reverberate…and for good reasons because there’s more surprises up Apple’s sleeves.
#12 Apple’s M1 SoC Shreds GeForce GTX 1050 Ti in New Graphics Benchmark
In a clear victory, the Apple M1 bested the GeForce GTX 1050 Ti by a good margin. The Radeon RX 560 didn’t stand a chance, either. Admittedly, the two discrete gaming graphics cards are pretty old by today’s standards, but that shouldn’t overshadow the fact that M1’s integrated graphics outperformed both 75W desktop graphics cards, but within a pretty tight TDP range of its own.
Source: Tom’s Hardware
The M1’s stellar CPU performance vs Intel and AMD’s latest chips is already incredibly impressive, but it turns out Apple’s GPU technology is also impressive in its own right.
The M1’s integrated GPU handily beats Nvidia’s GeForce GTX 1050 Ti and AMD’s Radeon RX 560, both of which are discrete GPUs.
Both of these GPUs are a few years old (1050 Ti launched in late 2016, RX 560 in 2017) and were on the lower end of the spectrum, but Apple’s M1 is a tiny chip that requires limited cooling, while Nvidia and AMD’s GPUs are massive bricks that require fans to run.
Is this a turning point? Will we look back in 3-5 years and see that the the M1 not only flipped the tables in the CPU space but also in GPU space as well? How quickly can Apple improve the GPU?
What’s even more interesting is that there were rumors this summer about Apple launching its own GPUs in 2021 with the potential to replace AMD GPUs currently used in Apple’s Macs:
#13 Apple Reportedly Preparing 5nm GPUs For 2H 2021
If you think Apple was going to stop at producing its own CPUs, then you have another thing coming. As spotted by @chiakokhua, Chinese publication Commercial Times reported that the U.S. tech giant is presently working on its in-house GPUs as well with a planned launch in the second half of 2021.
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Apple has always prided itself for its ecosystem. The tech giant already employs home-made CPUs in the majority of its devices, such as the iPad, iPhone or Apple Watch. Apple Silicon represented another step for Apple towards self-sufficiency and to stop depending on Intel for CPUs. While Apple was a fan of Intel CPUs, the company was more faithful to AMD in regards of GPUs. With Lifuka, it looks like AMD will ultimately lose some of Apple’s GPU business.
Source: Tom’s Hardware
I didn’t make much of it when it came out this summer because…it’s a rumor. But, is the M1’s GPU what that rumor was referring to? Or does Apple have more up its sleeve?
Apple’s team has been on a media blitz, capitalizing on the industry buzz at the moment. This interview over at ArsTechnica is worth a read and explains how the GPU can perform so well:
#14 “We are giddy”—interviewing Apple about its Mac silicon revolution
We not only got the great advantage of just the raw performance of our GPU, but just as important was the fact that with the unified memory architecture, we weren’t moving data constantly back and forth and changing formats that slowed it down. And we got a huge increase in performance.
And so I think workloads in the past where it’s like, come up with the triangles you want to draw, ship them off to the discrete GPU and let it do its thing and never look back—that’s not what a modern computer rendering pipeline looks like today. These things are moving back and forth between many different execution units to accomplish these effects.
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Where old-school GPUs would basically operate on the entire frame at once, we operate on tiles that we can move into extremely fast on-chip memory, and then perform a huge sequence of operations with all the different execution units on that tile. It’s incredibly bandwidth-efficient in a way that these discrete GPUs are not. And then you just combine that with the massive width of our pipeline to RAM and the other efficiencies of the chip, and it’s a better architecture.
Source: ArsTechnica
The interview also includes a few interesting points following up on the recent CPU buzz and this specific chart that Apple showed a few months ago when they announced the move to their own silicon for the Mac:
Federighi said that anyone looking at the chart can see where the MacBook Air fits on the scale, “but you saw that line kept going out to the right, and when it did, the performance went up. That area to the right of that 10-watt line is the difference between being in a MacBook Air and being in a MacBook Pro.”
“And it gets bigger,” Srouji added.
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The implication seems to be that this is merely the opening volley. These might be some of the fastest Macs yet released, but they are likely the slowest Macs with Apple Silicon the company will ever introduce. Unless huge changes are coming to the basic structure of the Mac product line, it only goes up from here.
Source: ArsTechnica
When Apple launched the Macbook Air and low-end MacBook Pro with the M1 a few weeks ago, many potential customers wondered why anyone would buy higher end Macs given that the M1 outperforms all of Apple’s Intel Macs already. In addition, if all of the Macs carry the same M1, what would differentiate the higher end models from the lower end models in terms of performance?
The discussion above explains that the performance chart Apple showed off is not marketing, but reality. The gap in performance vs Intel widens as the power consumption grows. Apple effectively confirmed that if people are impressed now, they will likely be even more impressed when the higher end models (which can sustain higher power consumption) are released.
Indeed, land up for grabs.
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