MoneyLion's Earnings; Why N26 Quit the US
LendUp Sells Customers' Data, Goldman's Quiet Rebrand, BlockFi Under SEC Scrutiny
Hey all, Jason here.
For my American readers, happy (early) Thanksgiving! I hope the ongoing supply chain disruptions aren’t interfering with your ability to source ingredients for your favorite holiday dish — mine was always green bean casserole (hey, I’m from the Midwest, OK?).
I’ll be staying here in the Netherlands this year, but hopefully find time to make a few American classics this week!
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Why N26 Quit the US
N26 is kind of like Revolut’s less cool younger brother. It also aspires to global domination, but just doesn’t quite have what it takes.
The German neobank launched in the US in July of 2019, claiming at the time that it had 100,000 interested users who had signed up for its waitlist. About a year later, in August of 2020, it claimed nearly 500,000 customers in the US.
So why quit now?
I suspect that N26 never had anywhere near 500,000 users who had funded their accounts and were actively using them, let alone made it “top of wallet” by moving their direct deposit to the neobank.
In February 2021, survey research from Cornerstone Advisors put the number of customers closer to 100,000 — vs over 12 million at the time for US market leader Chime. Monzo, another would-be foreign import to the US market, recently saw its attempt to get a US bank charter quickly rebuffed by regulators and is still yet to launch a product via partner Sutton Bank.
The core problem facing N26 (and Monzo, and a plethora of homegrown neobanks)? In a market that has 95% banking penetration, to steal market share from competitors, you need some kind of competitive advantage — feature differentiation or pricing.
N26 was late to enter the US market and lacks any meaningful feature differentiation. With neobanks’ reliance on a handful of partner banks, it’s difficult to differentiate on features or economics (I wrote about this a year ago.)
That leaves differentiating based on market segment and customer acquisition strategy — but, unlike domestic neobanks Chime, Current, or Unifimoney, N26 lacked any clear target market.
By ostensibly being for everyone, it was also for no one. As a latecomer in the US market, N26 needed but lacked a defined market niche it could focus on building for and marketing to.
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MoneyLion’s Q3 Earnings: More Than Meets the Eye
MoneyLion, which completed its SPAC combination and began trading in September, released its first quarterly earnings as a public company earlier this month.
If you just glanced through the earnings presentation, the numbers look pretty good! These revenue and gross profit charts are going up and to the right:
And the number of “total customers” continues to grow:
With total originations and total products continuing to grow:
Doing the math using MoneyLion’s stated 6.9m total products and 2.7m customers is an impressive ~2.5 products per customer. Not bad!
Continuing to grow the number of products each customer is using (eg, cross-selling) is key to boosting MoneyLion’s ARPU from an anemic $55 per user across all customers to $235 for “mature cohorts” using two or more products:
But as you start to drill into these metrics, the picture isn’t as rosy. The use of “totals” (all-time aggregate) makes it more difficult to understand performance over time.
According to its 10-Q, MoneyLion defines “total customers” as:
“those customers that have opened at least one account, including banking, membership subscription, secured personal loan, Instacash advance, managed investment account, cryptocurrency account or affiliate product.”
So, MoneyLion is counting any users who have ever signed up (whether or not they’re currently active) and counting users who’ve signed up for “affiliate” products — products and services from other companies that MoneyLion advertises. MoneyLion earned more in revenue from referring its customers to other companies products than it did in net interest income in Q3.
The 10-Q further discloses (emphasis added):
“For the years ended December 31, 2020 and 2019, approximately 33% and 46%, respectively, of our total customers that have opened a banking or managed investment account have funded accounts.
For the years ended December 31, 2020 and 2019, approximately 53% and 57%, respectively, of our total customers have engaged in any activity on our platform.”
Meaning that the proportion of “total customers” who have opened a bank or investment account and actually funded or use that account is only 33% — and it’s declining.
The proportion of “total customers” who did ANYTHING on the platform in 2020 is 53% and is also declining over time.
This suggests that MoneyLion’s active users are, at a maximum, about half of its stated 2.7m number — and that seems to include those using products that don’t generate revenue and third-party affiliate products.
Again from the 10-Q, “total products” includes (emphasis added):
“the total number of products that our total customers have opened including banking, membership subscription, secured personal loan, Instacash advance, managed investment account, cryptocurrency account, affiliate product, or signed up for our financial tracking services (with either credit tracking enabled or external linked accounts), whether or not the customer is still registered for the product.”
The definition is key to contextualizing the average of ~2.5 products per customer. A user who opened a bank account (but never funded it), signed up for financial tracking (which doesn’t directly generate revenue), and used an affiliate product would appear to have three products, even if they weren’t actively using any MoneyLion products.
Revenue Increases, But Expenses Increase Faster
The upshot? Though revenue is increasing, driven especially by a big jump in fee income, operating expenses are increasing more quickly.
Personnel expenses nearly doubled 2021 YTD vs. 2020. This could be forgiven as an investment — MoneyLion has quickly rolled out additional products like crypto and plans to add BNPL shortly. Expanding the scope of products is necessary to sell the vision of increasing ARPU — but that requires users to stick around long enough for MoneyLion to cross-sell them.
Marketing expenses are up 365% in 2021 vs. the same period in 2020. Given the low and declining rate at which customers are funding accounts and the declining proportion of active users, this likely indicates decreasing marginal efficiency of MoneyLion’s marketing spend — the CPA of the next funded, active customer keeps going up.
In Q3 2021, 500,000 newly acquired “total customers” at a marketing spend of $13.5m would equate to a CPA of $27 based only on marketing expense, compared to $14.60 in Q3 2020, an increase in CPA of about 85% year over year.
According to MoneyLion’s own 2020 stats, only 33% fund a bank or investment account, making the CPA of a funded account $81, though users can use the cash advance product without funding a MoneyLion account.
About half of the customers MoneyLion acquires seem to churn from the platform — it’s unclear how many engage with any revenue-generating products before they do so.
An increasing marginal CPA might be tolerable if the unit economics remain positive, but, from how MoneyLion presents its data, it’s hard to tell if that’s the case.
The Bottom line
MoneyLion saw its net loss balloon ~3.7x from about $5.5m in Q3 2020 to $20.3m in Q3 2021 — with no clear route to profitability.
LendUp Is Selling Its Customers’ Data — After Spending Years Promising Not To
[disclosure: I worked at LendUp from 2014-2016 and still hold a small amount of equity in the company]
Troubled fintech lender LendUp ceased writing small-dollar loans several months back, apparently in response to its latest run in with the CFPB. The most recent lawsuit from the CFPB accuses the company of violating a 2016 consent order and “deceiving tens of thousands of borrowers.”
The company, which seems to be aiming for a fresh start with its Ahead neobank product, offered via bank partner Bancorp, seems to be trying to squeeze any revenue out of what’s left of its LendUp business, including by selling its customers’ data — despite its promises not to.
“Marcus by Goldman Sachs” to Rebrand to… “Goldman Sachs Marcus”?
I must’ve missed this tidbit amidst all the meetings and chaos of Money2020 in Vegas. Apparently, Goldman’s consumer unit, Marcus by Goldman Sachs, will be re-branded as “Goldman Sachs Marcus.”
The subtle name change comes after “interviewing thousands of customers,” that suggested consumers had a stronger affinity for the name ‘Goldman Sachs’ and “wanted to be closer to the brand,” according to Scott Harkey writing for Forbes. The brand update is slated to roll out in 2022.
The change in emphasis may end up being a temporary one. The bank went through a similar transition when it acquired the savings and deposit platform of GE Capital Bank, which temporarily became “GS Bank” before joining the lending product as “Marcus by Goldman Sachs,” and, now, “Goldman Sachs Marcus.”
My best guess? I suspect it won’t be too long before the “Marcus” is dropped altogether, and the consumer products are simply “Goldman Sachs.”
BlockFi Under SEC Scrutiny for “Interest Accounts”
The BlockFi Interest Account pays customers interest rates on their crypto (including USD-linked stablecoins) that is substantially higher than what customers can earn on dollar deposits in a traditional bank — as high as 9.5%, according to its website. It achieves the higher yield by taking its users’ deposits and turning around to lend them out — and keeping part of that yield for itself.
State regulators and now the SEC argue that the product constitutes a security, and that BlockFi has failed to register it as such with appropriate regulators. Crypto funds in such interest accounts aren’t protected by deposit nor securities insurance schemes — if BlockFi were to fail, customers would likely lose their funds.
Still, the risk to investors and regulatory uncertainty don’t seem to be slowing BlockFi’s growth. According to Bloomberg:
“Despite the mounting legal questions, BlockFi is growing at a rapid clip. It’s on pace to make $475 million in gross revenue this year, according to Zac Prince, one of the firm’s founders. “Things aren’t slowing down,” he said during a recent interview for the Bloomberg Financial Innovation Summit that aired on Nov. 5.”
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Other Good Reads This Week
iBuy, iRent, iLose (Net Interest)
Intent Matters in Product Development (Fintech Takes)
Digital Wealth: Wealthfront Exploring Sale at Valuation of $1.5 Billion (Fintech Blueprint)
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