Crypto Companies Spent Millions on Ads But Have Little to Show For It
Goldman May Delay Checking to Cut Costs, Payment Apps Roll Out Fraud Warnings, Block "Slow-walking" CFPB Responses
Hey all, Jason here.
It’s hard to believe it’s already the end of August. It’s been an exceptionally hot and dry summer here in the Netherlands (thanks, climate change!), and I’m looking forward to some cooler, fall-ish weather soon, hopefully.
Conference season also is already kicking off. While I wasn’t able to make it to Denver for Fintech DevCon, I will be at Money20/20 in October — and I have a couple exciting things planned for that. Stay tuned.
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Payment Apps Roll Out New Disclaimers as Fraud Scrutiny Increases
Fraud in P2P payment apps, particularly Zelle, which is used by the largest banks, has been making headlines this summer.
In July, Democratic Senators, including Sherrod Brown (D-OH) and Elizabeth Warren (D-MA), urged the CFPB to update and clarify its rules for peer-to-peer transactions, including liability for fraudulently-induced payments.
The CFPB is expected to issue new guidance on banks’ liability for fraud on payment platforms, including Zelle, potentially setting up a regulatory fight that could drag on for years.
Some industry experts suggest the bureau could undertake a new rulemaking to clarify the liability issue when customers are tricked into making payments — something that can be the result of a number of popular scams, like so-called “me-to-me” fraud and online romance scams.
Some payment apps are rolling out new warnings, including capturing a user’s opt-in acknowledgement, in an effort to mitigate fraud risk — and, perhaps, get out ahead of new rules on fraud liability.
For example, when you first open the “Send Money with Zelle” function on Chase’s mobile app, you’re now greeted with this warning, which requires users’ acknowledgement before they can proceed:
Users can select a recipient for a Zelle transaction from their address book or by entering a phone number or email address. Now, once a user has chosen their intended recipient, they’re greeted with the following warning:
This warning addresses some of the most common scam techniques. It indicates what name is associated with the phone number/email address, explicitly warns users that Chase will never ask users to send money to their own email/phone number (“me-to-me” scam), and cautions users to “only pay recipients you trust, especially if you just added them.”
International remittance service Wise (formerly TransferWise) has also rolled out a new disclaimer informing users of their ability to cancel a transfer within 30 minutes of payment in some circumstances and warning that “fraudulent transactions may result in the loss of money with no recourse” —
A Wise spokesperson confirmed the recent addition of the disclaimer, noting that scams are on the rise and indicating the firm added the US-specific disclosure to help “keep [Wise] compliant with [the] CFPB” and to support and protect Wise customers.
Venmo, Cash App, PayPal Eschew Additional Warnings, For Now
A review of Venmo, Cash App, and PayPal found no similar warnings or disclosures designed to inform or protect users from potentially fraudulent transactions.
Goldman May Delay Checking Rollout to Save On Marketing Spend
More bad news for Goldman’s consumer efforts.
After a series of bruising media reports about mounting losses and executive drama at Marcus, the firm’s upstart consumer bank, Bloomberg is reporting Goldman may significantly scale back its launch plans for a Marcus checking account.
The account, which was originally supposed to launch in 2021, has already faced several delays. While reports indicate it is now being tested internally with Goldman staff, the account may see only a limited rollout this year.
The reason? Cost pressures. With red ink mounting — Marcus has accrued some $4 billion in losses since inception — and a lukewarm reception from shareholders, senior firm execs are facing pressure to rein in spending.
Reports indicate John Waldron, the firm’s President and COO, is now personally overseeing Marcus’ expenses. (Maybe Solomon should have “sold” Marcus to Bobby Axelrod when he had the chance…)
A mass-market launch of a new checking product would entail significant marketing and advertising outlays — potentially including hefty sign-up bonuses to compete with stalwarts like Chase and Citi, which offer new customers hundreds of dollars in bonuses and perks for opening new accounts.
Do “Primary Accounts” Even Matter Anymore?
Checking accounts themselves generate relatively few profits for the banks that offer them. That would presumably be even more true at Goldman, if the firm continues its “no fee” positioning with the new accounts.
The two benefits from offering checking accounts? Cheap deposits and, theoretically, winning the position of being a customer’s “primary” account.
Goldman already has deposits — lots of them — captured from its Marcus online savings platform as well as its transaction banking business. The incremental, less-sticky deposits from offering checking accounts hardly seem worth the effort.
Instead, Goldman is presumably seeking that coveted “primary account” status — a perch from which it can attempt to cross-sell a variety of its other products.
But there’s a couple problems with this approach.
First, Goldman still lacks many of the products to execute this strategy — it doesn’t offer auto loans, mortgages, or even its own credit card (only Apple- and GM-branded ones).
Perhaps more importantly, this approach ignores how consumers’ habits and the creation and distribution of financial products has changed.
Users have grown accustomed to using numerous purpose-built products and apps. For instance, a user with a Chase checking account might use Robinhood for trading, Venmo for P2P transfers, Coinbase for crypto, and SoFi to refinance student loans.
The notion that a Marcus checking account could become a beachhead for Goldman to own the “primary” customer relationship is an anachronism at best, and a costly distraction at worst.
CFPB’s Inquiry into Cash App Complaint Handling “Stymied by Block’s Slow-walking”
The CFPB began looking into how Cash App handles complaints and disputes back in 2020. The inquiry is part of an ongoing investigation to determine if (emphasis added):
“financial technology companies or associated persons, in connection with deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds, or selling, providing, or issuing stored value or payment instruments, or providing payments or other financial data processing products or services, have:
(1) deprived consumers of access to their funds or failed to adequately address customer concerns regarding fraud and errors in a manner that is unfair in violation of Sections 1031 and 1036 of the Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536; or
(2) failed to follow the requirements applicable to resolving errors and liability of consumers for unauthorized transfers in a manner that violates Regulation E, 12 C.F.R. Part 1005, Subpart A, implementing the Electronic Fund Transfer Act, 15 U.S.C. § 1693 et seq., principally 12 C.F.R. §§ 1005.11 and 1005.6, or 12 C.F.R. §§ 1005.18 (d) and 1005.18(e).”
Last week, the bureau filed a petition asking a court to enforce its civil investigative demands (CIDs) and accusing Block, Cash App’s parent company, of “slow-walking” its responses. The CFPB stated in its filing:
“The Bureau cannot sit back while its investigation is stymied by Block’s slow-walking. To date, over one year since the CIDs were served, Block is unable to provide a definitive date by which it expects to respond to the Requests for which it has so far failed to respond entirely and to other Requests for which its responses are deficient.”
According to the CFPB’s petition, Block has been evasive, failing to provide specific dates by which it would produce documents and records. Instead, according to the petition, Block’s responses indicated timeframes in which it “hoped” or “would endeavor” to respond to the requests.
For 35 of the CFPB’s requests, Block refused to provide a date by which it would produce relevant documents, instead saying the timeframe was “to be determined” or “TBD” — presumably not a nod to the company’s bitcoin business unit by the same name.
Crypto Companies Spent Millions on Ads But Have Little to Show For It
What a difference six months makes.
Back in February, crypto companies were riding high — and spending freely.
FTX, Crypto.com, eToro, and Coinbase spent big — an estimated $7 million per 30 seconds — to run ads in this year’s Superbowl.
Coinbase was widely considered to have won the “cryptobowl” with its bouncing QR code advert — portrayed by the press at the time as a resounding success, though a back-of-envelope analysis suggests the cost of customer acquisition for the spot could have approached $400.
Perhaps unsurprisingly given the cost of Superbowl airtime, crypto companies’ spending on TV peaked in February at about $85 million, before quickly dropping off:
Crypto firms have also spent big on sports advertising — some $2.4 billion in sponsorships and naming rights, according to Bloomberg analysis.
Crypto Companies Have Little to Show For Their Extravagant Spending
Despite the heavy spending, understanding and use of crypto has barely budged, according to updated survey data from Pew.
Pew’s survey results find familiarity with crypto has barely budged since a prior survey fielded in September 2021:
Of those respondents who said they had heard “a lot” or “a little” about cryptocurrency, the proportion that reported investing or trading in cryptos remained unchanged from last September to this July:
And of those that had invested in or traded cryptocurrencies, a plurality were disappointed with their returns:
Pew’s research is borne out by quarterly earnings filings from Coinbase — the only major crypto exchange that is publicly traded.
Coinbase’s dismal Q2 report showed a decline in monthly transacting users (MTUs), despite huge advertising outlays from the crypto industry broadly and Coinbase specifically:
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Goldman Sachs Should Kill Its Planned Marcus Checking Account (Ron Shevlin/Forbes)
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