Aug. 27, 2021

152: Money Talks #40: Chime and American Neobanks | Facebook’s Wallet Relaunch | Amazon’s Crypto Journey | LendingClub Turnaround

152: Money Talks #40: Chime and American Neobanks | Facebook’s Wallet Relaunch | Amazon’s Crypto Journey | LendingClub Turnaround

Eoin Fitzgerald and Pete Townsend unpack the shiny new $24bn valuation for Chime in the context of the American neobank landscape, Ron Shevlin’s concept of neobank-driven deposit displacement through the lens of Bank of America, Facebook’s relaunch of their crypto project, the potential impact of Amazon hiring a crypto lead, the LendingClub turnaround and a sampling of Lex Sokolin’s poetic fintech prose.


Chime’s Big Raise

Chime raises $750 million, earns big jump in valuation as another fintech moves closer to IPO (CNBC, 13-Aug-21)

Eoin Fitzgerald on Chime’s ‘hook’: “It seems to be that their hook ultimately is that they're targeting the lower to middle-income earners.  There are a lot more players coming out in the US that are targeting that space, however.”

“For example, low to middle-income earners are Walmart’s bread and butter, they’ve got 240 million customers a week going through Walmart.  They’re working on a super app, and you’d have to assume that if Walmart could roll out financial products, that they'd just mop up a lot of Chime’s customers.”

Bank of America and Deposit Displacement 

Bank Of America is losing its grip on millennials as fintechs reinvent the checking account (Ron Shevlin in Forbes, 16-Aug-21)

Pete Townsend on the leakage of bank deposits from traditional banks to neobanks, i.e., Ron Shevlin’s ‘deposit displacement’: “The majority of baby boomers will still have their accounts with the old traditional banks. That wealth is still growing, but over time, that is going to be depleted. At a certain point, the back end of the leaky Titanic will start to toss upwards”.

“The deposit displacement from Generation Z, Millennials and Generation X moving away from the big banks - as of right now, it's not killing the big banks. The funds that are being drawn away aren't enough of a dent in their side, and they can make up for the losses in other areas, but it will eventually crack.”

Eoin’s thoughts on how long it will take for the leaks to become a problem: “At a certain point, the age profile of their customers flips. Maybe in the next 10 years?  Really though, how much has happened so far?  It’s only been in the last 3 years that the likes of Revolut and other neobanks have built up their numbers, so it could be another 10 years before the customer profile flips.”

Pete’s response: “The customer profile will definitely flip, and I heard Peter McCormack from What Bitcoin Did speaking about crypto adoption in the same light.  There’s a critical mass where once we hit that, it's just going to move very quickly. I think the same thing is going to happen with deposit displacement from the big banks.”

Pete on applying the Banking Battlefield from 11:FS to deposit displacement: “You start out at this lower end of the battlefield where you've got a high number of customers and a low value of deposits.  That’s retail banking, and then you start to move up the battlefield.”

“At the very top of the battlefield is where you've got a small number of customers and a high value of deposits - governments and big institutions.  Moving up the battlefield from retail, you’ve got mass affluent, SMEs, high net worth individuals, then mid-sized corporates, big corporates and then onto institutions.”

“So, the big banks are going to dominate for a long time with those institutional accounts that fintech players can’t reach yet.  But as the technology curve continues to move, we will see more adoption of digital banks at the higher end of the battlefield. Starling is an excellent example of this as they've moved up that battlefield to SMEs.”

“What we're going to see over time is that institutions just won’t need that many options anymore, and the big banks will consolidate until the point comes where there is a scalable, smart, secure technology solution for holding deposits at the institutional level, which might just be central bank digital currency (CBDC).”

Facebook’s Wallet Relaunch

Will Facebook’s Relaunched Digital Wallet [Novi] Alter the Future of Payments? (The Financial Brand, 24-Aug-21)

Eoin on the prospects for Facebook’s Novi wallet in the face of negativity around their crypto journey: “We live in a world where people have multiple wallets and multiple accounts. In the same way that people have different bank cards, people will still use PayPal for certain things. They might end up using Facebook for these things, WhatsApp payments for something else, and they'll still have a Revolut account.  Even if a small portion of Facebook’s 3 billion users use Novi on a regular basis, it's still a big business.”

“Focusing on the 1.7 billion unbanked people in the world, and the 62 million Americans who live in the cash economy, there's a lot of cross-over with Facebook’s 3 billion users. People in remote parts of the world still use WhatsApp and Facebook even if they don't have a bank account.”

“So, you're bringing people into the financial services system, but in a very easy way for them to use it. There’s also the connection within their ecosystem with 90 million businesses on their marketplace platform, and new online lenders in India, for example. In some ways, it's a no brainer to integrate all of these products with the Novi wallet.”

Pete’s response “It doesn't need to be called crypto or digital currency. It's just a way to exchange value.”

Amazon’s Crypto Journey

Beyond the rumors: Amazon's likely direction in crypto (American Banker, 30-Jul-21)

Pete’s view on the potential for Amazon to leverage crypto rails within their ecosystem: “About half of their $400bn revenue is from core e-commerce, so that’s $200 billion. Every single time someone uses Visa or MasterCard, Amazon get hit with a 3% charge that gets chopped up and shared by the card payment networks.”

“Let’s say that 75% of Amazon sales are done this way, and maybe 25% are done through alternative payment mechanisms. So that 3% on top of 75% of their $200 billion in sales is about $4.5 billion each year they could re-use.  That’s a lot of money for Amazon if they can remove their dependence on card payments.”

Lending Club Turnaround

Buying a bank turned LendingClub around. Now the fintech industry is watching (Protocol, 16-Aug-21)

Eoin on LendingClub reversing the trend of fintechs having a hard time once they acquire a banking license: “They announced a profit which surprised the market and their shares went up 50%, and the share price is actually up 500% since mid-2020. Their CEO [Scott Sandborn] is pretty much pinning a lot of that uplift on the acquisition of Radius Bank.”

“This is an interesting play because the market view is that fintechs may not want to go down the fully-licensed bank route because of the added layers of compliance and regulatory costs.”

“Whereas in this scenario, LendingClub had to warehouse their loans as they were fully funded by their investors. They had a $1 billion worth of loans with funding costs of 330 basis points, but because they acquired the bank, they were able to swap investor funding for deposits and they brought their funding costs down to 30 basis points.”


Creating, Transacting, and Storing Value in the Financial Metaverse of NFTs, DAOs, and DeFi (Lex Sokolin, Fintech Blueprint, 23-Aug-21)

Walmart is looking for a crypto product lead (The Block (via Arca) 15-Aug-21)


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Pete TownsendProfile Photo

Pete Townsend


Web3 & fintech investor, MD @Techstars Web3, founder of Norio Ventures, mentor, non-executive director, podcaster and bad guitar player.

Eoin FitzgeraldProfile Photo

Eoin Fitzgerald


Fintech investor, podcaster, wannabe VC