168: Money Talks #46 | What a Year | Eoin and Pete's Top Stories of 2021

Eoin Fitzgerald and Pete Townsend are back with their last Money Talks segment of the year with their review of their top stories for 2021.  From GameStop and Wallstreetbets, to Roblox and Coinbase going public, to Chamath and SPACs, to Charlie Munger on Bitcoin, to BNPL with Klarna, Square and Afterpay, to our spinning of the fintech flywheel, to CryptoPunks, stablecoins, the metaverse, Techstars in Ireland and Web3 and finally, Eoin’s new hope for Monzo, we’ve got it covered one last time for 2021.

This episode of MoneyNeverSleeps is sponsored by Philip Lee, one of Ireland’s fastest-growing corporate law firms and expert advisors at the heart of the Dublin and London start-up, fintech and crypto communities.

OUR STORIES OF THE YEAR (chronologically):

EP 121: What the Hell Is Going On With GameStop’s Stock? (Slate, 26-Jan-21)

What does it mean for the future of publicly traded equities where you have groups like WallStreetBets who can turn against you and drive the stock up or down, and trigger a short squeeze where hedge funds lose billions? When a market is 24/7, whether that’s in crypto or with after-hours trading on public equities, you’ve got to get your head around all of these new channels where market sentiment is effectively created and observable in real-time.

The hedge funds need to get smarter, because the crowd now has the ability to move the price, almost on its own whim.  The run-up of GameStop by the WallStreetBets Reddit group is only just the beginning, and there are many more companies and asset classes susceptible to this kind of activism.

EP 124: Fintech valuation multiples with SPACs (Fintech Blueprint/Long Take Newsletter, Lex Sokolin, 15-Feb-21)

What company is going to turn down an approach from the likes of a Chamath Palihapitiya with a SPAC and the funding to bring it public, as opposed to traditional routes.  The valuations on the upcoming fintechs going the SPAC route are very high, but comparing the market valuations to those of a bank is non-sensical, and here’s why:

Eoin’s thought’s: “Where's the real upside with a traditional bank?  When you look at some of the fintechs, they’ve got far more upside as they grow and build out functionality because they’re software companies.  It’s the ability to adapt and pivot that the banks don’t have.”

Pete nodding his head: “When you get out of that old-school banking model, based on paper and old pipes and plumbing and fax machines, into a digital environment with real-time data and APIs, you're creating so many more monetization opportunities for what you're doing and for the data you're generating. There's just far more upside than with traditional banks.”

EP127: Roblox direct listing gets $45 reference price from NYSE (Marketwatch, 9-Mar-21)

Pete’s musings: “Simon Taylor said ‘Everything is fintech’, but is everything crypto?  Roblox developers can get paid in Robux, and are now making a living off of this, as you can convert Robux back into fiat in a game with 36 million average users up from 13 million in 2019.”

Eoin goes down the metaverse rabbit hole channeling Packy McCormick: “In the metaverse products will be developed purely online in a gaming setting and lots of money will be flowing towards that. When you have a metaverse like Roblox with 32 million users every day, the opportunity to build new products has massive potential.”

Eoin’s parallel between Robux and crypto: “Something like Robux, which is the in-game currency, to me is the prime example of a digital currency's potential usage. You see Bitcoin becoming more widely adopted, but here's a currency within a game that's being used by 32 million people every day – it’s the potential for that, and to me, is what digital currency could become.”

EP134:  Coinbase Goes Public

Eoin zooms out on the bellwether moment for crypto: “One of the most important things about it is this is a company that's only nine years old. It’s only taken 10 or 12 years for cryptocurrency to go mainstream.  It's incredible when you think of how far we've come with even fintech, and then you have something of this magnitude happening in a short period of time.”

Pete talking about upside of fintech “Chamath (Palihapitiya) looked at some of the numbers and said if you take Stripe out of the fintech unicorns (still in the private market), you're in the tens of billions of dollars in market cap for fintech. I looked at the top fintech unicorns and it was a lot more than tens of billions – it was closer to $300 billion. That's about 125 fintech companies that are north of a billion dollar valuation. If you look at the S&P 500 US Financials index, that’s $4 trillion.”

“What we're saying is that for those providing fintech propositions, whether they're tech or they're regulated financial services players operating as a fintech, there’s a lot of room to grow from $300 billion up to $4 trillion – and that’s just the US players.  That’s the upside in this space.”

EP 137: Klarna storms ahead of rivals across Europe and US, counting 16m+ new users in 2020 (Sifted, 4-May-21)

Eoin asking the big questions on Klarna: “Whatever happens with the regulation of BNPL, well, it happens.  Then the question is how do Klarna move into other product offerings? How do they move upstream or downstream? Because this is just point of sale lending. How does Klarna sell you more products?”

Pete speculates on a different angle for Klarna: “I think it’s a data play. They could take this data that they have been amassing with 200,000 retail partners, 64 million-plus users and turn that into a pretty good indicator of retail sales and revenue projections.  Then, they can get their heads around offering credit to the retailers and go from a B2C offering to a B2B offering.”

EP147: Square’s Crossover

Square to Create New Bitcoin Platform for Financial Services (CoinDesk, 15-Jul-21)

Square to take on incumbents with business banking accounts (Finextra, 21-Jul-21)

Eoin’s take on Square’s strategy: “I think they're making a play on the creator economy.  When we looked at their Tidal deal, it was on the basis that they were giving financial services to creators, artists, singers, musicians, whatever.  Their open developer platform for bitcoin could be an extension of that. It's giving people the full control over their financial life and their financial products, everything they need to have full ownership, and specifically addressing the unbanked as well.”

Pete on the crossover into solving problems in the crypto space: “For those in the creator economy, it can be so goddamned hard to get a bank account. By Square getting into business banking, they can solve that problem for creators.  It’s also really hard for crypto businesses to get bank accounts, and that’s a problem Square can now solve as well.”

EP149:  Square’s big move into BNPL with Afterpay

Why Square is shelling out $29B to snag BNPL player Afterpay (TechCrunch, 2-Aug-21)

When Fintech Meets Marketplaces (a16z Fintech Newsletter, July 2021)

Pete’s initial thoughts on the Square-Afterpay deal: “In the a16z fintech newsletter, Angela Strange was writing about how fintech players take advantage of micro-moments in people’s lives to bring on board new customers at a lower cost of acquisition, i.e., buy a new TV with Afterpay and open a Cash App account. This I think is just one of the first plain-as-day observations out of the deal with that nice little symmetry between Afterpay and Cash App.”

Pete’s breakdown of what drives a flywheel: “First, you need to identify what is that one thing you do well. Then, with that next part of the flywheel, does it increase your TAM (Total Addressable Market)? Is it logical that the market will keep moving with you no matter what part of the flywheel they get on?”

“And like Amazon and Shopify, is there a B2C to B2B crossover point that means you’re bringing consumers to businesses and businesses to consumers?”

Eoin’s response: “There’s also that point about any acquisition you make should reinforce your flywheel.  It’s going to be really interesting to see what acquisitions that Shopify or even Stripe make in the future in terms of accelerating that spin for Shopify and closing that loop for Stripe.”

Pete’s view on the B2C to B2B bridge: “How do we get to this self-reinforcing momentum with a business? When I looked at Amazon and Shopify and I saw clearly that B2C to B2B bridge standing out in both of their flywheels, which have been incredibly successful, I then saw where it fit into Square. If you plot any of these players intelligently and think about what could be their B2C to B2B crossover point, that’s how you start to see a self-sustaining spin of a flywheel and project where the acquisitions are going to be.”

EP157:  Techstars to hold blockchain-focused accelerator in Dublin (Charlie Taylor, Irish Times, 27-Sep-21)

Pete Townsend on Web3: “Web 1.0 gave us back-and-forth messaging on a bulletin board. Web 2.0 moved us into the Netscape universe, e-commerce, social media, and building fintech and SaaS platforms.  Web 3.0 is the decentralized web where you’re building these massive online experiences and people living in the metaverse.”

"That may seem like a fantasy today, but go read the book, Ready Player One by Ernest Cline.  It was really helpful for me to paint the picture of where Web3 is taking us. That being said, is this accelerator all about gaming? No, it's not. It's recognizing that tools like crypto, DeFi, NFTs, and blockchain itself are all building blocks of the next frontier, where money meets the metaverse.”

“Blockchain, digital assets, crypto, DeFi. This is all the digitalization of finance, and these are the building blocks you need to make this online metaverse ecosystem possible so that people can engage with it. We see snippets of that already happening with Axie Infinity, where kids in the Philippines are earning three times more than what they could earn in a job in the real world with this play-to-earn game.”

“We’re at the beginning of all that, but everything we’ve seen over the last 10 years, with cryptocurrencies, with blockchain in the public realm, with blockchain in the private realm, all of those are just the building blocks of Web3.”

HONORABLE MENTIONS:

1 – Our multi-episode on-air development of the Fintech Flywheel thesis forming the basis of Pete’s Web3 thesis

2 – Nubank goes public (CNBC, 9-Dec-21)

3 - Monzo’s fresh valuation round (Simon Taylor’s Fintech Brain Food, 12-Dec-21)

4 - Stablecoins & Cryptopunks – EP153

5 – Charlie Munger’s bitcoin rant (CNBC, 1-May-21)

6 – How much fun it is to quote Lex Sokolin (from the Fintech Blueprint) on Web3 and the metaverse:

“In the first world of finance, time ticks linearly. In the second world of fintech, we go 10x the speed of the old machines. In the third world of crypto, ideation, invention, and evolution disappear instantly into the event horizon of the singularity.

“There are some truly strange things going on in 2021. We say this constantly and try to find the right words to explain it. And yet, every week it feels that we are at some precipice. Like something has been unleashed that almost nobody else can see, but is profoundly reformatting the nature of the world. The tentacles flash into view occasionally, but we mistake them for shadows, or even worse, hallucinations of the insane.”

LINKS:

Episode title inspired by ‘What a Year’ by Big Sean featuring Pharrell and Detail

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