The Opportunity in US Digital Banking with Current
Stuart Sopp is the Founder and CEO of Current, a leading US digital bank.
Current has over a million users, with a focus on young, financially excluded Americans.
In this conversation, we discuss how Current achieves profitable unit economics, what differentiates Current from competitors and more.
For all of our past episodes and to sign up for our newsletter, please visit www.rebank.cc.
Thank you very much for joining us today. Please welcome, Stuart Sopp.
Full transcript:
Will Beeson:
Stuart Sopp, welcome to Rebank.
Stuart Sopp:
Hi Will. Thanks for having me.
Will Beeson:
Thanks for joining. This is a perfect time I feel like, for us to have this conversation. You're the founder and CEO of Current, one of the leading digital banks in the US and we're broadly speaking on lock-down in the midst of what continues to be this very pervasive COVID pandemic, and there've been some interesting dynamics, a lot of which have touched many of your core demographic, your users and your company, and we'll dive into all that, but to kick off, I have to ask you to tell me a little bit about yourself and your background because your accent is not the type of accent that I would have expected from the founder and CEO of one of the leading US digital banks.
Stuart Sopp:
Absolutely. Yes. Very topical times, especially for everyone at Current and our members. As you can hear my accent, I'm not American, I'm from England and my previous life before starting Current was for an exchange trading. Short term interest rate trading that was a lot better 15, 20 years ago. When I started it was definitely perceived in a different light to many people and you know, post 2008 quite rightly banks were on the back foot of regulation and all this other stuff that was needed and as I approached middle age and I had lived in a bunch of countries, so I was very fortunate enough to work and live in Australia, Singapore and Hong Kong. Hong Kong being fairly topical right now and with big banks like Morgan Stanley, Citibank, and Deutsche Bank. So primarily American... And Bank of New York way back when.
Stuart Sopp:
So primarily American banks and a personal consumer of financial products in countries that had really leapfrogged the infrastructure sort of tech debt that America has right now. So I came here 10 years ago now with Morgan Stanley and it was sort of the end of one career and focusing on making money for banks and all this other stuff, and myself approaching midlife, realizing that maybe I should turn my attentions and really try and make a difference in the world and see if I could at least help people here in America around financial services and so that all sort of started five years ago. I think, five years ago last week.
Will Beeson:
Congrats on the anniversary.
Stuart Sopp:
Thank you very much. Yeah. And we have a newborn son. I'm married and a newborn son three months ago in the middle of COVID-19. So he was born in New York city. Bless him. So we have-
Will Beeson:
Congratulations.
Stuart Sopp:
Thank you.
Will Beeson:
I have a daughter who was born in London.
Stuart Sopp:
There we go. Fantastic. We're just two ships in the night there, those kids.
Will Beeson:
Well, excellent. I mean, wow. Talk about exciting. Seen the world, worked all over financial services and it's great the way that you're bringing a new angle, an angle that I guess because we're extremely FinTech focused because we connect with people week in and week out who are operating in this space. An angle which we've explored a few times on the podcast initially in the UK with the likes of Monzo and Tandem and others as we were based over there and now more recently Chime and Varo and a handful of others, and now Stateside. Perhaps to help place this conversation with the audience and also as an intro to Current, you could describe the company and I guess it would be helpful to the extent possible to also highlight some of the differences with those other digital banks.
Stuart Sopp:
Yeah, absolutely. So very high level if I described the problem so I can go into what Current is solving for, and that may be helpful. So banks all over the world, but you know in America there's 4,700 of them, 5,000 credit unions. So a decent playing field, some may say. So tons of competition, lots of balance sheet out there in every state and so that core KPI, the thing that they're focused on doing is acquiring deposits and they want to acquire those deposits so that they can lend that money out, take that net interest margin, right. So everyone knows this business model on your podcast I'm sure and it's been an old business and so what's happened over about 20 some years is wealth inequality, and a bunch of other macro forces have sort of sprung about.
Stuart Sopp:
Since 2009, we've had QE and the Fed due to various things and we've just seen another renewed vow of this very recently due to the pandemic this year and so what that's done is that if you had an asset it's inflated, it's gone up, equities have gone up, house price has gone up, all those things, rare collectible things have gone up, hard assets and so if you've had debts, while interest rates have trended lower, but you've probably had wage deflation due to other forces. A lot of that money coming, recirculating into tech and such and so you're seeing the (striation 00:05:19), of America.
Stuart Sopp:
You're seeing people without money or without being able to accumulate wealth effectively being held down there and able to take more and more debt because the cost of services is much lower and also technology innovation and such and so what you're seeing here is that banks are going, okay, we only focus on people with deposits, because if you live paycheck to paycheck, even an aggregate like millions of people who live in this way, and there's now 130 million people, about $50,000, $55,000 and below HHI, banks really aren't able to monetize you in an effective way and so what they've done is they've created overdraft fees, fixed fees, minimum deposits, and really the unit economics just don't add up and that's also the same for young people, teenagers for example, who their accounts get collateralized and frequently and so the banking problem here has been archaic.
Stuart Sopp:
You know, just aging legacy architecture. You know 80% of the world's code is COBOL and that's traffic lights in banking systems and so you can imagine there's a lot of... And we've just seen another round of COBOL programs as an aside come out with the unemployment systems in New Jersey and such. Just really highlighting the aging problem there and so you're seeing banks really through no real fault of their own, other than the fact that they haven't had technology innovation, they've outsourced it since the nineties. Not being able to service an ever-growing, an ever desperate segment of America and of course five years ago coming from various parts of the world, having one eye on Europe where I'm from, seeing some of the challenger banks spring up before anything really happened here by this bank, simple (Shamil 00:07:06) did that first, but really no one else focusing on this. I was like, hold on.
Stuart Sopp:
Let's have a look at this problem set if there are any sort of big retail bank problems and so came out with this idea that if you are deposit agnostic and you could build a new banking sort of infrastructure core, you could then service a massive sector of America in a healthy way, which aligns yourself with the customer, but also maybe you can make a profit too and so Current was born. So basically Current banks people without much money, that's really what we do. We focus on people who have been left behind by the financial system and I use that term overarchingly and we focused on that problem by building our own banking core and that took us about two and a half years, 2015 to 2017 and a bit. Of course there's continued development in all the rest and so that's enabled us to do a few things. One is materially lower cost of servicing customers.
Stuart Sopp:
So if you look at the average sort of credit union or regional bank, the cost of technology for them with Fiserv, Jack Henry or however they are sort of solving that problem. It's about $10 to $12 a month per open account. Costs us around 15 cents per open account. So you can imagine for a gig economy worker, the nature of work is changing fundamentally especially over this pandemic. You know you get... You collateralize, your account infrequently. Maybe you're only working two months a year. You would have had your account closed at a traditional bank, and they wouldn't have been able to make any money on you and of course those changing forces need a different solution and so that's how we've solved this problem. Compared to other competitors, I mean, the European challenge events whilst I kept an eye on them, they were very much solving a different problem. You know, my foreign exchange heritage, I was like, "Oh, I was so desperate."
Stuart Sopp:
I'll be honest with you. I was so desperate to apply it to retail banking. I so desperately wanted to make an FX component because I just know it inside out, but there is no FX problem in America and that's the problem that you'll see in number 26 and revolute, and a few others coming over. Of course there are affluent people, affluent millennials who travel and will have that, but there's no real core currency problem whereby migrant workers are moving across borders and such and have receivables around businesses from Scandinavia to Europe and to the UK. So those wedges just don't work over here in America and so we never really focused on them and then if you look at some of the names you just mentioned Varo and Chime, of course, well-respected competent competition. Varo very much focusing on getting a banking license, but I would suggest probably more affluent users. Again, if you're going after a banking license, it probably means your core KPI changes to deposits just like a bank.
Stuart Sopp:
So that means that you have to acquire deposits. It means you're going after the same people, all the banks are going after and then Chime of course, very similar to us, deposit agnostic and focusing on liquidity management just like us as well. We're a little younger, we're about two years younger than them and we focus on what I call technology enabled demographic differentiation. That was a mouthful and so our technology enables us to go after a fundamentally different age compared to someone like John who's into change only, and doesn't necessarily own all their tech and so average age on Current is about 27 years old. So compared to many, many of the other challenger banks that you'll see average age somewhere in the region of late thirties to mid forties, believe it or not. Probably a surprise to some. So that's where we sit and then you've got some other competitors, I call them FinTech tourists. You know, they stick a card on it, have a third party contract, but really it's a secondary or tertiary business to them and no real edge in the market.
Will Beeson:
Okay. So you talked about deposit agnostic a few times, and I guess by that you mean you're not running a balance sheet. Presumably there's some component of rev share on deposit interest and then I guess what the other main revenue item is interchange, or is the business model different at all?
Stuart Sopp:
Yeah, so deposit agnostic to us, or at least to me is that we don't focus on accumulating deposits to lend out. That's not the core revenue model. Of course we do have some deposits, but that's not our core focus and we do have various economic splits with the issuing banks that we work with, but the real unit economics and revenue drivers for Current is the interchange model. Focusing on that. You know, debit card interchange, which is very specific to America compared to Europe and all that other stuff and then we differentiate again with a subscription model for our premium accounts. So we have sort of a totally free account and we have a premium account, which has various bells and whistles attached to it.
Will Beeson:
Would you describe the current iteration of Current as a step in the journey to a fully fledged business model, or is this a fully functional, fully viable profitable at scale business model, which you need to do nothing to other than just ramp up customer numbers in order to build a long term successful, sustainable business?
Stuart Sopp:
Yeah. Very topical for me right now, where the... We're post series be about looking at our future going down the alphabet Series C and such, which is for equity. So I know this inside out and so yes, we're at the point I can confirm that this business model is at the sort of mature end whereby you just sort of poured gasoline on the farm and away it goes. It's quite phenomenal at scale and has at times surprised us even in our muddling and our forecasting from last year to this year. Of course volatility was massive given what happened this year, but we continue to beat model and plan a month to month in terms of engagement, activity, acquisition and the rest.
Will Beeson:
Yep. So I don't disagree actually. Like based on the modeling that if you earn whatever percentage it is of the transaction spend that's flowing through your cards and you multiply that by X number of customers and the more traction you build with your existing users and new users you are bringing on the more of their banking they shift to you, the more confidence you build in their minds as a real bank, their main financial institution and now if you just do the math, like X percentage of Y monthly spend times Z customers, and you definitely get to a point where you're covering something well in excess of the cost of running the model.
Will Beeson:
That's the economic side, which is very important and it is I guess, then a bit of a head scratcher as to why there is all this conversation in the market right now about the inability of digital banks to be profitable almost regardless of scale and admittedly it's difficult to dig into private financial information for all these companies and strip out like growth marketing spend and actually look at unit economics at a customer level, that's the economic side and we can probably come back to that, but assuming you solve that problem and assuming that the economics of interchange, plus whatever deposit interest share you're earning, do you cover the cost of running the business? Then you have the wonderful opportunity to look around and say, okay, how can we completely and fully enrich the lives of our members in ways that support economics? When you start to have that sort of brainstorming session with your team, what are the routes that you see Current potentially going over time? You know, new products, new services that you can bring in to just enrich the offering and the business model.
Stuart Sopp:
Yeah. I think just to go back to that economics question, I mean, there is without doubt at least for us at Current, the unit economics work even at scale, which is very exciting. In fact, they get better. I think just to touch upon the other challenger banks, like I mentioned those Europeans, they're going after more affluent customers, typically affluent millennials. There is no affluent millennial banking problem and so your cost of acquisition is very high or you're effectively acquiring them as a secondary account user, which means in times of like distress they're just not using you at all and also then I think finally a lot of challenger banks got to market very quickly by using B2B services, which effectively extract most of the unit economics out of your business model and so what they've left with is a marketing machine and when they sort of all look around and go, okay, we've raised some money, it's time to build.
Stuart Sopp:
They don't have the DNA or the knowledge to be quite Frank to go and build and solve some of these problems, which are fairly, fairly technical. So that's the reason why you're not seeing too many people getting extremely profitable from the sort of first class of the first wave of banking FinTech. In terms of how we look at things, we look at our customers... We look at servicing our demographic... We call it our demographics movement, this can be other people's. Impoverished, low household income like this, is like a bank will go, okay, we just need deposits. We got 2000 products. We're going to wash as many people through this system and then we would be able to pick a mix buffet and they just going to go in and then we'll monetize them at the cross sale and all this other stuff. That means that you have a brand for no one, right? So it's a faceless brand of banks and marketing, and you have a product that's really not suited to anyone, right?
Stuart Sopp:
So if you turn the paper 90 degrees and squint a bit, we were like, okay, this just solve a problem for people in this economic band and go, okay, what do they need and what do they only need? And we'll go from 13 on the team bank account all the way up to 80 and at the moment, since we've been building our products... You know, the average age, like I mentioned was 27, we range in between sort of 13 to sort of 50 years old is the bracket and we really start to taper off in those mid thirties and so that's important why? It's because when you're looking at products and what people need when they're young adults, there are different from when they're a little bit older, when they're married and they need mortgages and such and so the financial product demand is much lower. So if you were to build your own banking core, that would make sense, right? You start at the beginning as early as you can. The demand for fairly complex products is low. You can grow along with your customers and as they get older and you start to build more functionality, you can start servicing a more sort of customer in a more complete way.
Stuart Sopp:
So for us it's been liquidity management, paying the payroll early. Most of our users, our members get paid hourly. They have an hourly rate and they get paid on a weekly basis, I should say and so getting that payroll, you know that middle of the week, Wednesday, Thursday is very important because it means that they can start paying their receivables. They can pay off their bills, they can pay their friends back and it means they're not incurring any late penalty fees, not just like the old banking fees, but there's telecoms and all these other guys who find you and then overdraft facilities and things like that.
Stuart Sopp:
So we've focused very much on liquidity management, and that has been a great product wedge for us. Of course, this mobile acquisition marketing or other stuff being relevant to a young adult. I mean, just banks are just not relevant and so there's other stuff that if you're to draw straight lines, liquidity management really morphs into sort of where can we be tactical with credit? And so going forward over the next few years, we'll be focusing on credit building in the short term making sure that we can help our members build their credit so that we can then offer appropriate levels of credits to make sure it's all done right and then installment loans maybe even a personal loan and things like that. So definitely the next wave of challenger bank or Neo bank debit is very much the future is looking like credit in my view.
Will Beeson:
Do you intend to offer credit via the same sorts of partnerships you currently offer banking or is there some grand vision at a later date to get a banking license?
Stuart Sopp:
Yeah. I get this question quite a lot as you can imagine. So it's almost like religion banking licenses at the moment. I think while the DFS and the OCC are in the aspiring over who owns what we'll keep out and you know, happened to Square and Varo for diving in and spending tens of millions of dollars in multiple years trying to get those things, but they really just do pave the way for everyone else with no particular advantage unless you're diving into the lending side immediately and so for us we want to continue to focus on our demographic and we want to focus on their problems and make sure that we're not focusing on accumulating deposits for the banking license.
Stuart Sopp:
I think what will probably happen over the next three, four years is that companies like Current and some of our competitors will get so big that the discussion will be reversed. I think regulators will start coming to us and saying, Hey, we're going to make this license and make it good for you and for us to have like a narrative between each other, not just through issuing banks. So I expect that to happen over the next few years.
Will Beeson:
Interesting. Interesting. Now that's not a view that I'd heard expressed before, but you know it's logical on some level,
Stuart Sopp:
Yeah, the regulator... At the moment banks are very quite rightly defensive of over their turf and like they do everything right, and all the rest of it. They spend a lot of money on those licenses and being regulatory compliant and so it's a defensive as much as a offensive move for them and so for us we do everything via an issuing bank and that works out just fine, but I suspect as we get to sizes that resemble top 10 banks, I think that narrative will change whereby the regulators is just going to say, "Hey, there's a lot of risk over here. They're doing everything right, but like why are we talking to a third party? Here let's have this discussion."
Will Beeson:
What's your gut feeling about the Durbin exemption as there's opportunity in the US FinTech right now, the uncapped interchange at smaller asset sized banks. It's amazing because it's driving so much innovation in the space, is your sense that that's here to stay, or does that any sort of regulatory risk keep you up at night?
Stuart Sopp:
None that keeps me up at night. I think if you just pull back and sort of look at the high level and go, well, unintended consequence was Current, Chime, Varo coming through and serving primarily under served impoverished people of America up to 130 million. Most regulators should go, okay, we've been telling banks to do this for years. They just don't have the business model on the unit economics and technology to do it. If this gets the job done then what's the problem, right? So I think I kind of take that approach assuming we have rational actors and cool heads and such, which is you never know and so in Europe for example, they have much lower interchange in debit products, but they also have pure socialism, right? It's like a bunch of socialist countries with varying degrees stuck together and of course, safety nets are much bigger. Unemployment benefits are massive. Minimum wages are protected and high and of course the top end is capped as well. It's like trimmed mean CPI, right?
Stuart Sopp:
You're good at the bottom and you chunk the top and so everyone's living in a less volatile safer environment, which means that the necessity for an opportunity to be quite Frank, to bank people in the same way is just not there and so you come to America and it's like a pure capitalist society with minimum wages really below livable conditions and that's another discussion for another time, but they really should be higher in my view and you have the 50 state system with one federal sort of system lumped on top, and everyone has different rules and money transmission license, all of a sudden, it's just this... You know, the feature is now a bug when it comes to a holistic financial infrastructure, right? And so I think in some ways, and of course, co-capitalist society, meaning like the benefits are so low and all the rest of it means that someone does need to step in and use their balance sheet. Someone does need through the capital capitalist sort of mechanism like a private company like Current to come and solve these problems and so I think we're doing a great job firstly, and I think it's just very American
Will Beeson:
Interesting. We'll see if the likes of Google entering with some sort of spending card type model. I think the risk is not if Current and Chime and other FinTechs have success, I think the risk is if suddenly Facebook launches a checking account and debit card, leveraging this Durbin exemption and just like clearly flies in the face of the intention of the rules, but hopefully it's some time before we ever have to worry too much about that because again, it's driving a tremendous amount of innovation right now.
Stuart Sopp:
Yeah. Well, it wouldn't be the first time that say Google launched the card. I remember the first time round, remember Google wallet and everyone panicked and then of course, Marcus with Apple everyone panicked, but like every time this happens, you start to realize that if it's a tertiary product line, yes functionally you can do things, but realistically there is a narrative right for the consumer's mind and so you saw for example, I would just unfairly pick on T-Mobile, right? T-Mobile or Verizon, they've just launched one as well. Well, let's do Uber. Right. So any of those names. Let's do any of them.
Stuart Sopp:
So T-Mobile launches you know, whichever third party they launched with, I can't remember now that I looked at it maybe Green Dot and they said, okay, we're a cell phone carrier, but now you come back with us and that on the surface makes so much sense, right? Like as a strategy, you're just like, Oh, it makes total sense. You've already got customer. There's no customer acquisition. The point is, is that if I'm not going to pay my cell phone bill or I want to switch my cell phone bill, which a lot of people do, well, hell I don't want my bank there. I don't want them to have access to my money. I don't want them to know what I'm doing. There needs to be this third party, there needs to be... That's why banks are so good. They're so independent custodians of cash and so there's just this narrative break and of course the R & D budget, the guy who's or the girl in charge of banking at T-Mobile and Uber's just like begging for resources and money because it's not their core business.
Stuart Sopp:
So there's no product development and they're relying on these third parties that as we've seen priority goes down and so you know, not really worried about... And you've just seen a retreat by Uber and pre IPO saying they're doing it now the same. They are outsourcing and so really not that worried and of course Google, I mean, they have a less than... They're great at search and cloud, but I've yet to see many other products that I'd be afraid of and I think the technology firms that are sort of have some punches Square clearly, and Facebook they've proven time and time again to execute at scale and of course, both of those companies come with pretty large regulatory oversight and they have their own problems in other things. All right, so again, I don't think they want to stir up trouble, which is black and white in the law against phytic or OCC or the SEC for example, because those laws will be enacted and whilst you can argue about whether you should be doing this, that, and the other with speech into an election, when it comes to money it's pretty easy.
Will Beeson:
Well, maybe we'll come back to Square, but looking specifically at customer acquisition have you seen anything of like a tipping point, where that becomes a bit more word of mouth like hits a certain scale or resonates with a certain seam in the population and it becomes the bank for X group of people? Have you seen that at all? And if you know, to an extent you have, it'd be interesting to hear about it and to the extent not. Like, do you expect that to come?
Stuart Sopp:
Yes. The short answer is, yes. We've started to see it right now, which is super exciting for everyone at Current including myself four and a half years, five years in. You know the network effect, I guess we're sort of angling at is this a product and network dependent growth angle that you typically can't... It's very hard to model in finance. In social apps and such, it's actually much easier to think everyone is well understood what numbers you have to hit and at what velocity acceleration, all that stuff. In finance it is a little tricky because we have so much friction, we have KYC and all this other stuff and also it's just damn weird for a lot of people to say, Hey, you should check out my bank, right? It's like how many times does that happen to you? And so you really need a problem that is being solved by a FinTech for you to actually say that to someone else and so typically what we have focused on has been the sort of family nucleus.
Stuart Sopp:
So we've got a P2P Current Pay and that focuses on like paying friends and family back and such and so we saw that and learned off Venmo back in the day and they had that angle, but typically what you're trying to do is build trust and if you were sort of have less money, you're living paycheck to paycheck, your trust of financial institutions has been materially broken over the last 10, 20 years and so for us to build that trust takes a lot longer than it would say for someone who has more affluence and who can afford to take a risk with a new financial service. So you can imagine it being much harder to gain that critical mass, but we are starting to see it right now and it's pretty exciting to be honest. I think, you know... I mean, us being facetious, but like kind of took a pandemic in some way for the public to work out who got their back and who hasn't right and so in that pandemic we got the stimulus checks first out to our members.
Stuart Sopp:
We got the first time deposit checks with Trump's signature on them to our members first, once they came in. We focused on unemployment and information centered around unemployment benefits state by state in our app and in our advertising. We're focusing on minimum wage right now. So all these things I think build trust and when you're sort of a tourist FinTech, or you're a bank that hasn't been able to move that quickly, your trust is being eroded just by sitting still. If you haven't done anything, your trust is being eroded and we're building it by being active and responsive, trust gets thrown out that way it gets around so much in banking, doesn't it? But it's true and so that has enabled us to sort of stick out and we've seen the flywheel effect over the last three months, which has been phenomenal.
Will Beeson:
I obviously have no insight into your guys' growth rates and customer acquisition statistics, and the real granular details of the demographic that you guys are appealing to, but I like about Current, the fact that if I go to your website as opposed to even any other digital bank, like I have a clear sense of how you position yourself, who you're looking to serve and just more of a brand identity than like choose the color plastic that you want on your debit card and I have to imagine that that's... You know, especially in a market where there are now perhaps growing number of options, like that has to be really valuable.
Stuart Sopp:
Yeah. So I appreciate you spotting that and so it's obviously intentional and by design and we spent almost too long at the inception of Current focusing on how we would enter the market plus how we would build that trust and that narrative and make it super easy. It should do what it says on the tin banking, finances, overly complicated, even at the best of times. And so the brand should evoke certain qualities to our members and so I think a good analogy, and at least this is the one I've been using for the years. I think it was a book Shoe Dog about Nike back in the early days and it's just useful because of course Nike is a great marketing powerhouse and other the staff and you know we look... I'm sure our marketing department looks up to them and just like everyone else does, but the real learning for me was this is that, you know shoes just like banking there are a ton of ways of doing that. A lot of people can build shoes for not much money.
Stuart Sopp:
The real innovation for them was the outsource to China in the eighties. So their material cost of production was just so much cheaper, right? So they had a cost advantage. They had the technology advantage effectively, which was all manpower and then they reinvested that advantage into grassroots influence, right? They sponsored NBA, rising stars, high school stars, college basketball into the more formal leagues and so they built a brand and they focused heavily on marketing into that flywheel and so there was a younger generation that just grew up wanting to be like those stars and it was all relevant and all that other stuff was relevant to the product that they were selling.
Stuart Sopp:
You think about current and you know 40, 50% of our marketing's on YouTube influencers, lifestyle bloggers, people like that, tik-tok-ers, Instagram influencers and so we've built a pretty decent brand at the moment. It will get better and better and of course, we've got the teenage product where we focus on the grassroots stuff and so reinvesting that competitive cost advantage that we have right now with mobile acquisition and development into a brand that will differentiate us when the market starts closing in three to four years time,
Will Beeson:
We talked a little bit about the Varos and Chimes of the world and the perceived competition there and I'm sure it's real competition, but if you look at what sounds like the core demographic of your customer base against the core demographic of Cash App’s customer base Square's digital banking offering effectively. It sounds like there's a lot of overlap and potentially even in some of the brand positioning. Do you view Cash App as an important competitor for you guys and if so, how do you feel like you're positioned vis-a-vis them?
Stuart Sopp:
Yeah, I think it's a good question. They have recently... And I use this word cautiously pivoted from SMB business to a fault challenger bank effectively. That was their last earnings call. That's what it read like to me. I wasn't in on it. They utilize... They sort of used the pandemic to launch... You know, for routing an account numbers and things like this, which is I understand they need to survive and they need to do those things. The problem is for them is that they started in P2P and it's not insurmountable, but remember I mentioned a little earlier, once you sort of signaled to a customer what you are, it's very hard for them to think of you as something else. Now we have a lot of customers, members and currently connect Cash App, Zelle, Venmo to pay their friends and family back, but typically it's small dollar amounts.
Stuart Sopp:
They have low limits and again it's been a secondary tertiary line in Square for a long time, and now it's starting to be taken more seriously. So I think in terms of absolute numbers, their network effects are just different, right? So if you're trying to pay friends back and family back and you have an onboarding KYC funnel like they do, of course the friction is less, but I would say this is that P2P reminds me of like social networks. Meaning, so like social networks can come and go because it's almost like who's cool? Who's in the club or the restaurant? And that coolness changes when there's too many people and social networks are very similar to that, that's why you can always invent another one if you have the right people and then P2P is almost a subset of that and so when Venmo came through, they looked absolutely the most dominating force in America in terms of FinTech and of course Zelle and Square Cash proved that you could just take them down if you did things a little differently, a little cooler and spent some money on marketing.
Stuart Sopp:
So to me it feels like a direct correlation with marketing for that product, it doesn't feel like there are other options solving that problem. So they will need to quickly get into solving real problems and they don't own any of the tech. I mean, don't quote me on it, but like from things I can tell and my business intelligence, it looks like they're all third parties and so their unit economics will be vastly different to us. So it'll enable us to do slightly different things and also have the DNA to capitalize on our core technology. So respect them, they're a public company. They can... Like I already sort of said they can execute at scale, which is very, very dangerous for everyone, but that position is not insurmountable, at least not yet.
Will Beeson:
To me that's something of an open question. Like I'm with you, there's value in starting with like the hardest ask for your customers, which is the users says you are a main bank and then it takes a lot of work, but once you clear that hurdle then you're good and you've done the hard work and you can grow from there versus starting with like a lighter touch product and P2P payments is kind of one that's managed to scale over time with both Venmo and Cash app, and then almost like ask then a massive group of users to... You know, some portion of them to opt in to use enhanced enriched features and use you as kind of a full bank.
Will Beeson:
You know, it's meaningful I think that Cash App has something like... I'm going to get the numbers wrong here, but maybe like 60 million users or something of which maybe a third are active users, even if that's just peer to peer payments. Like that gives them a large pool to then build full banking into, especially if you think that the pool of users that they have are people that are either under banked or unbanked, and they're not needing to displace another trusted bank from the equation, but again, I think there's a lot to be said for leading with the hardest task and you know, really working hard early on to build a core customer base, and then let word of mouth advertising start to kick in and help you scale.
Stuart Sopp:
Yeah, absolutely. I think... Well, at least that's what the position we've taken the hardest ask first. One thing we don't know, at least I've not seen, and I've heard the same numbers, 20, 25 million monthly actives in P2P is how much of that is fraud and how much does it cost them to build that? I'm unsure, right. So much harder when you've got a full KYC process and all the rest of it. We know for example, in the Venmo early days, they were under some legal problems, hence they sold to Braintree and then they were really built by the Braintree under that brand into PayPal and so it was capital intensive, it was regulatory and compliance intensive and I don't think it's any sort of mistake that the... Actually all three P2P FinTechs, Zelle, which is a conglomerate, obviously early morning of the banks. Venmo and Square were built under the hood of some other profitable business. Right. So like, okay, if you want to get into that, you need something else to make money and I would challenge whether... Not that I know anything, but I would challenge whether these were really good businesses. They need to convert those users pretty quickly.
Will Beeson:
Interesting. Interesting. There's so... So much will unfold as we move forward and you Stuart and Current are phenomenally positioned I think to outperform going forward. It's an exciting time.
Stuart Sopp:
Yeah, absolutely. Very exciting time for everyone in the company and all our members. We have a lot of exciting things coming this year as well.
Will Beeson:
Excellent. Stuart Sopp, thank you very much for joining us today.
Stuart Sopp:
Thank you Will. It's a pleasure.
