Bloomberg beat me to the punch with their great article last night on Apple Pay Later and Apple Finance LLC (must read). Well, I was certainly wrong about one big thing in my Project Breakout blog “Apple doesn’t want to be a bank”. Quite frankly I believe even Goldman Sachs was surprised by the scale of what Apple is building. Last night I outlined the key points:
PayPal has been my #1 holding for last 5 yrs, and it has been on a fantastic ride… especially so over the last 18 months! (see MVP – Continued Domination for more).
Paypal announced 2Q21 earnings 2 weeks ago (7.28). TPV growth was 40% with eBay, 48% without out, while sales grew at a 32% clip without 
eBay versus 19% with. Earnings? Not so much as margin erosion has hit the business. One core driver of margin has investors particularly concerned: “Take rate” (net merchant revenue less cost to clear payments) fell from 2.21% in the fourth quarter of 2020 to 2.11% in the first quarter and 2.01% in the second quarter.
I’m back to blogging after a successful exit last month. The Plaid acquisition is a great way for me to jump back in. Why read this? A key to understanding payments, banking and data is to balance historical knowledge with a network of people that know what is really happening behind the scenes. As the former head of two direct banks, former Senior Director of Oracle’s advanced technology solution’s practice and Yodlee’s first customer I have an informed perspective on the market for this one.
Recent issues with Facebook, Equifax, GDPR compliance, … have brought us to a tipping point in data. The basic structure of how data is: permissioned, shared, used, accumulated, analyzed, sold, regulated, … must change. Google and FB operate in a Big Data 1.0 architecture powered by the “virtuous cycle”. Edward Snowden showed us how the NSA also acts in this centralized model as a data vacuum (not so virtuously). Literature and entertainment have created broad awareness of the dangers of centralization and loss of privacy: 1984, the Borg, The Circle, Black Mirror, … etc.
Traditionally the core of bank margin is in risk management. The core of risk management is data.. thus Banks have been the among the best data businesses (as IBM knows). Banks “learn” about their customers through bank interaction: payroll, card transactions, lending. This has helped banks make better risk decisions (both credit and fraud/identity). Within the bank data cycle the traditional use of data is for an internal benefit: risk and cross sale of the bank’s products and services (not that of consumers or merchants). However the “virtuous cycle of banking data” is very different from that enjoyed by Amazon and Google, both in the scale and type of data and consumer facing use.
Great articles yesterday
This year, the iab (interactive advertising bureau) labeled 2017 as the Year of Measurement. Understanding why, and what is changing here is key for retail, banking and advertising. Most of us know the adage “measure what you want to manage”. As an engineer, I view measurement as the key feedback loop in any system or process. In order to gain feedback (close the loop), you must know what happened.
I’m more passionate about this topic than anything I’ve ever written about. As an eternal optimist I don’t see a world dominated by Google, Amazon, Chase and Walmart…. But rather a new economy where millions of small businesses thrive. Where every person can employ their creative talent in collaboration focused on value creation. A world where capital flows to great ideas across geographic boundaries lifting the stifling poverty of most emerging markets.
I’m in a network state of mind… We are in the midst of a massive economic transformation and I can’t quite put my finger on it. What influences how consumers and businesses are organized? What is changing? Who creates value? What new domains, networks and markets are being created? Where is margin flowing to and from? The hypothesis from Paul Graham’s Refragmentation blog has been keeping me awake at nights.
“that all these trends are instances of the same phenomenon. And moreover, that the cause is not some force that’s pulling us apart, but rather the erosion of forces that had been pushing us together.” Refragmentation