What is the potential impact of vertical ERPs on neobanks?

I'm still bullish on neobanks, but I do think there is sort of a resetting happening in the market. The first generation neobank saw the success of Chime and Dave and all that, and they said, ‘oh, now you have this infrastructure to build the neobank, and all you need to do is find a segment that's large enough and acquire users.’ 

You can get some decent traction there, but I think you run into this issue of what we were just talking about in funding the account, like it's incredibly hard to get somebody to switch their payroll. Or, it sounds silly, but even to go into Venmo and say “hey, rather than deposit my Venmo balance into my Wells Fargo account, put it in Chime, or whatever it is”.

There are some really interesting companies that are helping to solve that. Pinwheel, for example, is a payroll API that allows you not only to sign in as a consumer–I could sign in to Gusto using my normal Gusto login, for example—that allows whoever I'm signing in for to not only pull my payroll data to see how much I make, and things like that, which are maybe interesting for credit scoring and risk evaluation, but it makes it easy to switch the destination of your payroll.

Rather than me having to write a letter to HR to say, ‘Hey, please, instead of depositing here, deposit there,’ they can programmatically split 50 percent of my payroll into this account, and 50 percent into that account or whatever it is. Folks are realizing the activation of neobanks is so tough that the unit economics are not as rosy as they thought. Activation is tough, number one. Then number two, it’s tough to build a real business exclusively on interchange.

There’s a new generation of neobanks coming out that are a version of ERPs, but who are realizing that you can offer banking as a core product, but maybe there are SaaS products that you can add onto that, that are higher margin and increase the stage or the value of the bank account itself. 

Again, banking products alone are relative commodities and banking products, even for a very attractive segment of users, also aren’t very compelling. I'm still bullish, but I think the companies that will continue to be successful are going to have to evolve past the Chime and Dave model and not only go after a large segment of consumers, but think about monetizing in other ways that probably converge on SaaS in some way.