US merchants vs interchange fees; Stripe is serious about crypto; Go-to-market strategy for social, culture, and art DAOs;
Perspective for today:
- Biden’s executive order divides crypto enthusiasts into two
- Opportunity for banks through super apps
- US merchants vs interchange fees
- Stripe is serious about crypto
- Go-to-market strategy for social, cultural, and art DAO
- Square’s path to the super app
Biden’s executive order divides crypto enthusiasts into two
President Biden today made a step toward doing that, signing the Executive Order on Ensuring Responsible Development of Digital Assets. The stated purposes of the order are to find ways to mitigate risks to both individual consumers and the global financial system, while also preventing crypto’s “misuse” for criminal activities, all while cementing the United States’ role as a leader in technological innovation so Americans who are “underserved by the traditional banking system” can gain more financial access.
The bill gives an alphabet soup of agencies three to seven months to report back to the president on a variety of issues. Intelligence, State Department and Treasury officials have 90 days, for instance, to return a strategy for limiting cryptocurrency’s use in illicit and terrorist financing. The SEC, FTC, and CFTC and other government banking bodies will have 180 days to produce a report recommending consumer protection issues.
Jeremy Allaire, the CEO of USDC stablecoin issuer Circle, says the White House’s decisions to use a “whole-of-government approach to at once harness opportunities while controlling and mitigating inherent risks in responsible innovation is encouraging.”
Denelle Dixon, CEO of the Stellar Development Foundation (SDF), writes that the order “recognizes the need for clarity so the industry can continue to evolve, grow, and meet the ever-increasing enthusiasm and momentum we see for the sector.”
Blockchain Association Head of Governmental Relations Dave Grimaldi is also optimistic: “We were fearing a heavier hand, and possibly some tougher proclamations, but for an emerging industry, this is a sensible step toward protection, law enforcement, and education.”
Still others hope that the executive order might lead to some unintended consequences. Messari founder Ryan Selkis, pointing to what he sees as inequalities in regulated crypto markets, says the order might give President Biden an opportunity to “look at the failures of [SEC Chair Gary Gensler] in protecting investors, promoting fair crypto markets in the US, and promoting capital formation” — the very objectives the executive order lays out.
US merchants vs interchange fees
The Merchants Payments Coalition (MPC) has called on Congress to investigate Visa and Mastercard’s anticompetitive interchange fees and dominance over the US credit and debit card markets, citing President Biden’s call in his State of the Union address to fight inflation by increasing competition.
“The two giant card networks and their partner mega-banks routinely use their market power to stifle competition and charge merchants the highest swipe fees in the industrialized world,” MPC said.
Biden last week said “demanding more competition” is a key to addressing inflation. “Capitalism without competition isn’t capitalism,” Biden said. “It’s exploitation — and it drives up prices.”
Interchange fees for Visa and Mastercard credit cards average 2.22% of the purchase price and totalled $61.6 billion in 2020, up 137% over the previous decade, according to the Nilson Report.
When all types and brands of cards are included, processing fees totalled $110.3 billion in 2020, up 70% over 10 years.
Interchange fees mean merchants receive less than 98 cents on the dollar when customers pay by credit card, and merchants have to set prices higher to make up for the loss. The fees amount to an estimated $724 a year for the average US family.
Because the fees are a percentage of the transaction amount, the amount collected rises as prices rise, the letter said. When a $100 item increases to $107 based on the 7% inflation seen in 2021, swipe fees increase from $2.22 to $2.38, for example.
“This structure ensures greater profits for banks and card networks as prices rise,” MPC said. “The compounding multiplier effect of inflation is guaranteeing mega-banks massive profits paid for by American consumers and Main Street merchants.”
The fees are set to rise even higher when $1.2 billion in increases planned by Visa and Mastercard takes full effect in April. The increases were delayed from a year ago after members of Congress said they would “undermine efforts to help the economy recover.”
Meanwhile, Mastercard plans to double its “Digital Enablement Fee” for online transactions while bunding a number of existing add-on services under the fee.
That means merchants who use services from Mastercard competitors would end up paying twice, potentially undermining the competing firms.
In addition, Mastercard plans to automatically enable merchants to accept its new buy now, pay later program, subjecting merchants to high BNPL fees on top of swipe fees and giving Mastercard an unfair advantage over competing BNPL providers.
Stripe is serious about crypto
The global payments giant launched its crypto services, offering businesses the ability to use Stripe as a payment method for crypto and NFT transactions. Stripe is offering payout services for Web3 companies as well as know-your-customer (KYC) and fraud prevention.
The company’s co-founder John Collison tweeted out the news Thursday, sharing the range of different ways Stripe plans to support Web3 companies with its crypto APIs — the interfaces that companies use to connect to Stripe’s platform.
Currently, Stripe’s crypto services are only available to businesses in the U.S., the U.K., and the European Union. Its NFT services for marketplaces are supported in these regions as well as Japan.
Stripe now supports crypto businesses: exchanges, on-ramps, wallets, and NFT marketplaces. Not just pay-ins but payouts, KYC and identity verification, fraud prevention, and lots more.
To facilitate its Web3 services, Stripe announced that it has deals in place with FTX, FTX U.S., Nifty Gateway, Just Mining, and Blockchain.com. It also launched its own NFT collection called Cube Thingies as a part of today’s announcement, with proceeds going to the healthcare nonprofit Watsi. NFTs are unique blockchain-based tokens that can be used to signify ownership over digital assets, such as art.
Go-to-market strategy for social, cultural, and art DAOs
For social, cultural, and art DAOs, go-to-market means building a community with a specific purpose — sometimes even starting as a text chat between friends — and growing it organically by finding other people who believe in that same purpose. But isn’t this “just a group chat” or just like traditional crowdfunding on Kickstarter, for instance?
No, because while organizers of traditional web2 crowdfunding projects may also have a clear purpose, they have to be much more clear about the means of achieving that purpose top-down. The project originators typically outline a detailed breakdown of how funds raised will be used, a clear product roadmap, and a comprehensive timeline. In the web3 model, the purpose is paramount, but the methods are often figured out later — including how funds will be used, the product roadmap, and the timeline.
For instance, with ConstitutionDAO, the purpose was buying a copy of the U.S. Constitution; for Krause House, the purpose is buying an NBA team and pioneering fan governance of a team; for LinksDAO, it is creating a virtual country club with a community of golf enthusiasts; and for PleasrDAO, it is for collecting, displaying, and creatively adding/sharing back to the community NFTs to represent culturally significant ideas and movements.
Friends with Benefits is a token-gated social DAO that started as a token-gated Discord server for web3 creatives. In addition to a minimum buy-in of $FWB tokens, which represents membership in the DAO, potential members must apply to FWB through a written application. The community grew, connected in various Discord channels, ran IRL events, and eventually realized that one of the products they could build was a token-gated events app.
Go-to-market metrics for social DAOs.
One of the key measures of health of a DAO is quality engagement of the community, which can be measured through the primary communications and governance platforms it uses. For example, a DAO can track channel activity on Discord; member activation and retention; attendance on community calls, governance participation (who is voting on what, and how often); and actual work being done (number of paid contributors).
Other metrics might be net-new relationships built, or measuring trust developed among DAO community members. Although some tools and frameworks do exist here, social DAO metrics are still an emerging space, so we’ll see more tools emerge and evolve here as the space evolves.
Square’s path to the super app
Square began by revolutionizing payments for micro merchants and other small businesses. The Company enabled these merchants to accept card payments without having to pay the hefty costs typically associated with POS infrastructure and compliance. Instead, businesses could use a Square Reader to turn their mobile device into a POS system and sign up as a sub merchant under Square’s master merchant account.
Over time, Square developed additional services and eventually expanded to serving consumers directly with Cash App, a consumer-focused mobile wallet. During Q2 2021, Cash App comprised 48% of the Company’s gross profit, generating ~$546 million in gross profit for the quarter.
Cash App growth is continuing to outpace the Company’s seller ecosystem, as it benefited greatly from US stimulus payments during the pandemic and the build out of additional products, including crypto and stock investing.
Square has built two significant ecosystems that pave the way for a valuable closed-loop ecosystem. Its $29 billion acquisition of leading Buy Now Pay Later provider Afterpay, announced in August 2021, will further diversify the Company’s offerings and aid in its efforts to become a Super App.
Opportunity for banks through super apps
Imagine a scenario where a bank has a platform already in place across global markets — super app for B2C, marketplace for B2B enablement (logistics, distribution, manufacturing, marketing etc.), financial backbone offerings that support B2C, B2B and B2B2C models. Let’s say this bank has a SME client with a sales turnover of 10 million pounds annually — a boutique shoemaker with traditional brick-and-mortar outlets only in London.
Using the bank’s platform (super app for B2C, marketplace for B2B) the SME can migrate to the new e-commerce business model swiftly and subsequently expand to other markets tapping on bank’s mass affluent customer base in hub cities such as London, Singapore, New York, Dubai, Hong Kong, and Mumbai etc.
Super apps and impact on consumer banking.
Like a disguised catalyst on steroids, the pandemic amplified an unprecedented adoptionthat made digital shift paradigms a sudden necessity. Until 2019, Gen Z (Born after 1995) & Gen Y (1981–1995) were the torchbearers leading the path. Today, digital adoption is being widely accepted by Gen X (1961–1980) and even Baby Boomers (1945–1960).
In a recently published report, Oracle Global Retail Banking Consumer Trends Report, key trends were identified in the survey of 2,845 millennial respondents.
- 20% are very likely to use an alternative method for all payments in the next 12 months
- 47% are ready to change to another bank if they better rates, recommendations and plans
- 56% are ready to shift to a solution from Big Tech like Apple or Google
- 60% chose their primary bank for their first mortgage, but just 32% use them for their next home loan
All trends suggest a highly personal, meaningful experience that is lacking across most banking institutions. Traditionally, banks anchored customer retention and growth with the strategy of a differentiated card to offer a cross-industry lifestyle experience (beyond the regular financial products). However, Neobanks & Fintechs are consistently evolving to disrupt the conventional banking streams to establish customer affinity through a new ecosystem with a central strategy pivoted around super apps.
Super apps and impact on corporate banking segment.
Global Systemically Important Banks (G-SIBs) established a financial backbone through centuries of gradual expansion globally with a strong network through a global presence across continents. This unique global network gave G-SIBs an advantage that also created a penetration barrier for local players.
Through super apps, G-SIBs could advantage further by creating marketplaces. It could help corporate customers of G-SIBs extend themselves in the loyal consumer banking customer base & vice versa. Thus, creating a new business model ecosystem with a solid fundamental digital shift.
