At Least 11 Ex-Goldman & Apple Workers Have Joined Walmart's Fintech Project

Varo Update, Fintech Layoffs Mount, Stripe & Affirm Team Up, NFT Insider Trading, FT Partners' Monthly Deck

Jun 05, 2022

Hey all, it’s Jason.

It’s been a bit of a chaotic week — we embarked on our first major home renovation project since buying our house here in the Netherlands a year and half ago. Replacing the floors necessitated juggling furniture and finding somewhere else to stay for a few days while they dried. But it’s (almost) done, and they look great!

I’m looking forward to Money2020 Europe this week — I already have quite a few meetings lined up. Stay tuned for a read out on my top takeaways from the event in next Sunday’s newsletter.

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At Least 11 Former Goldman and Apple Employees Have Joined Walmart’s Fintech Project

Things have been pretty quiet since January’s announcement that “Hazel”, the Walmart- and Ribbit-backed fintech startup, would acquire neobank ONE Finance and earned wage access platform Even. The combined entity announced it would retain the ONE name and branding.

But it looks like things have been plenty active behind the scenes. ONE, which is helmed by Omer Ismail, former head of Goldman Sachs’ retail business Marcus, has been busy scooping up talent — including from Ismail’s former employer. [Disclosure: I worked at Goldman Sachs from 2015 to 2017, including indirectly with Ismail.]

Since news broke that Ismail and fellow Goldman partner and Marcus alum Dave Stark would leave the firm to join Walmart’s fintech project, at least 11 former Goldman and Apple employees have joined the project, analysis of LinkedIn profiles reveals.

In just April and May, seven former Marcus employees joined ONE, according to updates to their LinkedIn profiles. Six of the joiners worked in software engineering roles at Goldman, including on the Apple Card, while one worked at Goldman in credit risk for the Apple and GM credit cards.

Industry insiders suggest it was this kind of poaching that led Goldman in February to take the unprecedented step of clawing back vested stock bonuses from Ismail and Stark. Given the sensitivity, it is possible other Goldman employees have joined ONE but chose not to update their online profiles.

Most of the former Apple employees who have joined ONE come from the retail side of Apple and, at ONE, work in customer experience or operations functions, according to their LinkedIn profiles.

These hires hint at a focus on a physical, retail experience tied to ONE, which presumably would capitalize on Walmart’s bricks and mortar footprint.

What’s ONE Up To?

We’ve covered aspects of Walmart’s historic and present efforts in financial services previously (here, here, here, and here).

At various times, Walmart has pursued different strategic objectives, including lowering its own payment processing costs and offering financial services as a mechanism to drive foot traffic to its stores.

Despite a mixed record in executing on its financial services strategy, Walmart is committed to continuing to try; on the cover of its 2022 annual report, the company identifies financial services as a key element of its “flywheel:”

Historically, revenue directly tied to financial services has been de minimis, at less than 1% of Walmart’s revenue.

Instead, for Walmart, offering financial services makes the most sense as an enabling function — an adjacent set of products and services that encourage customers to interact more frequently with Walmart and to spend more money at the store.

And, indeed, compared to Amazon, Walmart retains one huge competitive advantage: its retail footprint. As bank branches continue to shutter, the appeal of Walmart’s in-store financial services, particularly in the suburban, exurban, and rural areas in which Walmart dominates, has the potential to increase.

Features based on a review of companies’ websites as of June 3, 2022

The benefit of physical locations — both to acquire and serve customers — coupled with the features of ONE and Even just might give Walmart’s fintech ambitions a fighting chance.

Affirm Partners with Stripe on BNPL Distribution

Payments giant Stripe is teaming up with US buy now, pay later leader Affirm. The two announced last week that US customers of Stripe would be able to offer their end consumers access to financing via Affirm.

According to the release, eligible buyers will be able to finance purchases from $50 to $30,000 (max of $17,5000 financing + down payment). Affirm offers both pay-in-four style and longer-term, interest-bearing financing options.

Affirm is far from the only BNPL provider with which Stripe partners. According to its documentation, Stripe already partners to offer financing via Afterpay and Klarna in the US, though these options have lower transaction limits. Afterpay offers financing for transactions up to $2,000, while Klarna supports purchases up to $5,000, depending on borrower eligibility.

While unlocking distribution via Stripe is no doubt a win, how big of an impact it will make on Affirm’s origination volume and financials remains to be seen.

Former OpenSea Employee Indicted In First-Ever Digital Asset Insider Trading Case

Front running and insider trading are understood to be pretty common in world of digital assets. But just because NFTs are maybe not securities doesn’t mean it’s okay to profit from material non-public information.

At least, that seems to be what the Department of Justice is trying to get across with its indictment of OpenSea’s former head of product, Nate Chastain, on wire fraud and money laundering charges.

Chastain was responsible for selecting NFTs that would be featured on OpenSea’s homepage.

He’s alleged to have taken advantage of this information by purchasing NFTs before they were featured on the site and then selling them at prices 250% to 300% higher, once they appeared on OpenSea’s homepage. Chastain is alleged to have done this approximately 45 times, netting him about $33,200 in profits.

Chastain is alleged to have worked to conceal this activity through the use of anonymous OpenSea accounts and crypto wallets.

Via the DOJ’s statement on the case (emphasis added):

U.S. Attorney Damian Williams said: “NFTs might be new, but this type of criminal scheme is not. As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading – whether it occurs on the stock market or the blockchain.”
FBI Assistant Director-in-Charge Michael J. Driscoll said: “In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage. With the emergence of any new investment tool, such as blockchain supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”

For its part, OpenSea said, once it learned of Chastain’s actions, that it investigated and ultimately “asked him to leave the company.” Via Forbes:

“As the world’s leading web3 marketplace for NFTs, trust and integrity are core to everything we do,” an OpenSea spokesperson said after the indictment was unsealed. “When we learned of Nate’s behavior, we initiated an investigation and ultimately asked him to leave the company. His behavior was in violation of our employee policies and in direct conflict with our core values and principles.”

A Quick Update on Varo

I wanted to included a brief update on last week’s analysis of Varo’s call report data to correct an error.

While I always strive to ensure the accuracy of data and analysis I share, mistakes are a reality of writing and learning in public!

I misunderstood some of the data presented in call reports to be quarterly, when it was, in fact, year-to-date. This impacted income- and expense- related data and calculations for Q4 2020, Q2-4 2021.

Corrected Quarterly Data Based on Call Reports

The corrected metrics don’t materially change my analysis or conclusions, and, in some ways, paint a worse picture — revenue per user has dropped while CAC has increased.

At the same time, Varo’s losses have been steadily climbing, doubling from about $42 million per quarter in Q4 2020 to $84 million in losses in the most recent quarter.

Ballooning losses have been driven by increased compensation and marketing expenses. And, while both of these can be cut, reducing marketing expenses will slow account and revenue growth, while the fixed costs of maintaining a bank charter are likely to remain high.

Varo CEO Colin Walsh told Banking Dive, “We remain very well capitalized and have sufficient capital to reach profitability, without having to raise additional capital.”

It is accurate that, with Varo’s limited assets of $665 million, it remains “well capitalized” in the sense of equity vs. assets.

What’s not clear is how Varo can grow and reach profitability with the runway it has remaining, while, presumably, cutting staff and slashing marketing spend.

Fintech Layoffs Mount as Fear Spreads

The pace of layoffs across fintech, insuretech, and crypto has accelerated in the face of cratering valuations for publicly traded companies in these sectors, a tightening fundraising environment, and fears of an imminent recession.

While most companies trimmed relatively modest proportions of their workforce, there may be more pain to come, if current trends intensify.

Mortgage-related fintechs like Better and Blend have been especially hard hit, as rising rates have quickly slowed refinance activity. Klarna, which has seen escalating losses as it has aggressively pursued growth in recent years, trimmed some 700 employees as it pivots from growth to focusing on profitability.

Coinbase even controversially “rescinded” offers from candidates who had already accepted and has enacted a total hiring freeze.

FT Partners: Monthly CEO Update

FT Partner’s monthly update is my go-to resource for understanding the direction of the investing climate for fintech — something that is more important now than ever.

Deals are still being announced, and both funding and deal count remain elevated compared to pre-pandemic.

But there is a pronounced downward trend in the amount of money raised each month since January — a trend that seems likely to continue, given the latency of when deals get announced and the still-elevated level compared to pre-pandemic.

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