Wesley Cash

Stanford GSB, Harvard, former Head of Prouduct @ Clair. Avid skier ⛷️ and scuba diver 🤿. I used em dashes before the bots.

[Wesley Cash @wescash11]

@heysamir_ @pitdesi @devahaz When I request no dairy in a dish that contains mayo, ~half of the time I am asked if mayo is okay

People may not be asking for this primer, but we need it

¯\_(ツ)_/¯

[Ben Horwitz @horwitzben]

I made the anti-Grammarly. Mess up your emails with AI.

https://t.co/R6kdTpoc0W

[Wesley Cash @wescash11]

@ankurnagpal Would love a copy

[Samir @heysamir_]

7/ So remember, when Robinhood "surprises" the Street with an AI-powered investing launch, you heard it here first. Eager to see how this gets Robinhood even further on the road to being the modern all-in-one investing platform.

That's a wrap! If you liked this post, please repost for reach and follow me or check out https://t.co/ot33tpAjde for more fintech, tech and stratfin nerdery.

[Wesley Cash @wescash11]

@RoryOReilly @AmericanExpress @KnotAPIs Huge! Congrats Rory and team!

[Wesley Cash @wescash11]

@mercash22 This is punny

[Wesley Cash @wescash11]

@mikulaja 👀

[Wesley Cash @wescash11]

Not “little known” in my circles. Wild to see Synapse’s failure get NYT push notification!

[Wesley Cash @wescash11]

So excited for this read! Order it now - it's a must!

[Jason Mikula @mikulaja]

🚨The cat is officially out of the bag: I WROTE A BOOK!

Featuring a foreword by the one and only @sytaylor

Official publication date isn't til end of the year, but you can PRE-ORDER NOW

Get 20% off with promo code "BaaSIsland" when you order direct from publisher Kogan Page

[Wesley Cash @wescash11]

@mikulaja @AlexH_Johnson Eager for it!

[Sahil Bloom @SahilBloom]

Seeing your friends win >>>

[Alex Johnson @AlexH_Johnson]

Let's take a minute and show some ❤️ to my Fintech Recap co-host and intrepid BaaS Island reporter @mikulaja.

Dude takes a ton of undeserved shit while breaking news and reporting on the most important sector in fintech while that sector undergoes a CRAZY amount of change.

[Wesley Cash @wescash11]

So far, looking like no days off for @mikulaja in 2024

[Wesley Cash @wescash11]

@alexsongis Still John’s of Bleeker Street — yet to be beat imo

[Alex Gillette @CallMeGillette]

If you’re not subscribing to @mikulaja this would be a really good week to do so.

He’s putting in overtime so that we can all pretend we know what’s going on.

[Samir @heysamir_]

I have a lot of respect for consumer fintechs that make a business out of selling a product for free. The only way to be able to do that successfully is for companies to fully understand the underlying unit economics of the business and what levers there are to increase margins so companies can offer even more without charging more.

Cash App made fast, free P2P work profitably for consumers and changed how we think about the value of instant payments. Chime launched SpotMe to enable free overdraft and got the entire bank industry to start reducing or eliminating overdraft fees. And Robinhood ushered in the era of zero free stock trading that ultimately caused every major brokerage to eliminate them as well.

So I find it somewhat confusing that even despite every fintech nerd understanding that modern fintechs have been making businesses work under the price of free, when Robinhood introduces a 3% cash back credit card after acquiring X1 (@drao, @shreyshahi), they seem to forget everything and deem it impossible to make high cash back rewards work profitably.

They’re almost eager to assume that this can only work as an acquisition driver or a lever to drive cross-sell on other products on their platform. And I think folks relied on a great, but simplistic view of the equation from @mttjon that shows that if credit card rewards of 3% are greater than interchange rate of 2.20%, the math won't math (see image).

@MahdiRazaMR makes a great case for the economics of the card as a whole, but it does rely on some revenue from revolving balances and some generous merchant-funded rewards, so fintech nerds might still conclude the 3% cashback is unsustainable.

But I actually think Robinhood can make a more bold claim. I think it’s possible for them to pay for the 3% cashback entirely from the standalone business model. The reality is it's not as simple as 3% cashback is > their interchange so the math doesn't math. There’s more to this unit economics story, and I’ve got the breakdown of the 4 elements that make it possible for Robinhood to pay for 3% cash back with just the standalone business alone, and they can probably get to a ~40% or more margin.

I went on another fintech deep dive to figure this all out and the post with all the details and backup is in the comments, but here's the high-level math:

The right side of the equation (i.e. interchange):
(1) Interchange Fee: Everyone thinks this is 2.20% but I think they're using an average based on the average credit card (which I think is probably something like a Chase Freedom Unlimited). But Robinhood's card is at least a Visa Signature card and perhaps even a Visa Signature Preferred card, which means interchange rates are probably closer to 2.60%

(2) Network Incentives: Select high-volume clients get access to Network Incentives that payment networks pay to grow payments volume and increase product acceptance. Visa pays out 0.10% on average on its purchase volume, so I think it's reasonable to assume a large issuer like Robinhood that's trying to take business from other premium cards like Amex, can get at least 2-3x the average or at least 0.20%

So my right side is now already at 2.80% (vs. 2.20%)

The left side of the equation (i.e. cashback):
(3) Merchant-funded rewards: The reality is Robinhood isn't paying for cashback all by itself - it gets merchants to fund some cashback. We can triangulate top-down and bottom-up but I think it's not unreasonable that 10% of spend volume goes through merchants who fund rewards and they give at least a 3% discount resulting in at least 0.30% of merchant-funded cashback

(4) Redemptions: Believe it or not, Robinhood's cashback card isn't actually a cashback card - it's a points card. And between unused redemptions (0.60% offset), redemption offsets of 0.07% (via travel and shopping commissions and gift card margins) and Robinhood's ability to monetize deposits into the brokerage account (0.08%), we can get another 0.75% of cashback offsets.

So my left side is now down to 1.95% net cashback.

And on the standalone business alone, we’re getting a ~43% margin on 3% cashback.

Not bad for the business of free.

[Wesley Cash @wescash11]

@hotmeteor To the next chapter! I’m rooting for you

[Wesley Cash @wescash11]

@floinkyy Please make public. I’d like to retweet

[Samir @heysamir_]

This is, by far, the best primer on BaaS and a current state of the union on the ecosystem. 10/10 no notes.

If you're in this space, tired of hearing about it or highly interested in it, this is a must read from @AlexH_Johnson:

https://t.co/uyJCJW0Lud

[Wesley Cash @wescash11]

@heysamir_ Must be my long lost cousin! 🌱🌿

[Wesley Cash @wescash11]

Get yourself a girl who gets interchange