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Protocol | Fintech

By focusing on niche communities, these digital banks try to stand out in a crowded field

Banks like Daylight and Purple are serving communities that have been overlooked by big banks.

By focusing on niche communities, these digital banks try to stand out in a crowded field

Upstarts like Purple and Daylight are trying to meet the specific needs of their customers.

Photo: Stephen Phillips/Unsplash

When Billie Simmons and Rob Curtis started the LGBTQ-focused digital bank Daylight last year, they didn't seek to just "stick rainbows" on the product to market to the group. Instead, they decided to focus on building a product that met the specific needs of the population.

Fueled by the growth of plug-and-play banking infrastructure, startup niche banks have cropped up that cater to specific demographic or interest groups, such as people in the LGBTQ community, African Americans, Latinx consumers, immigrants, students, people who are disabled and those interested in climate change. There are even digital banks for gamers.

These startups — which typically have a licensed sponsor bank such as MetaBank or Bancorp as well as banking infrastructure from Galileo, Unit or Marqeta — say they aren't just a marketing front-end but are offering specific products that consumers can't get elsewhere. But many have similar basic features such as mobile-first, free checking and no fees, so they face challenges to stand out in a crowded field of neobanks.

Traditional banks have not met the specific needs of these groups, these upstarts say. Meanwhile, the bigger digital banks such as Chime have grown so large that they are targeting much broader swaths of consumers.

"For LGBT people, money matters are different and left behind by wider incumbent banks," Curtis said.

For example, Daylight has a feature for its debit card and mobile banking app where customers can sign up with their preferred name, regardless of the name on their legal identification. "That's really important for trans and nonbinary folks," Curtis said. "It's a cumbersome process to get legal documentation changed."

Ando, which appeals to those concerned with climate change, shows what percentage of your checking account dollars are being invested in areas such as wind energy, electric batteries or green buildings. "We're improving banking by moving from no transparency or accountability and no direction to better direction" of your money, said Ando CEO JP McNeill.

Others such as Greenwood, co-founded by rapper Killer Mike, focus on Black and Latinx consumers.

Spinning up a bank can take about a month and a half, said Itai Damti, CEO of banking-as-a-service startup Unit, which handles things like account origination, reconciliation, know-your-customer checks and settlement.

"In each case what we're looking for are use case [innovations] more than just the [demographics]," said Ryan Falvey, co-founder and managing partner at Financial Venture Studio, who has invested in startups in this area such as Dave, Propel and Point.

Daylight also has two community features for consumers: peer-to-peer advice from others on the platform as well as advice from financial experts. People in the LGBTQ community often have specific financial questions or concerns that others may not have, from adopting a child to gender confirmation surgeries to just saving for retirement, Simmons said. "It's a community of like-minded individuals to support individuals through what's often a confusing and lonely process," he said.

Community is one way niche banks can differentiate themselves, said Sean Park, founder at venture firm Anthemis. "It's more about the community because the infrastructure and even the products are becoming commoditized," Park said.

Because the banking technology and infrastructure has gotten relatively easier to set up, there's been a flood of competitors. "Usually even if you have something interesting and unique, it's not really defensible. If it catches on, everybody copies it," Park said.

John Ciocca started Purple, which uses Bancorp and Galileo, for people with disabilities. Purple is helping as many as 60 million people in that demographic maintain their disability benefits, because in certain states, if a person's assets exceed $2,000, they can lose those benefits, he said.

"What we consider differentiates us from Chime and others is we tailor the experience and features to the unique needs of people signing up for disability benefits," he said. "We make people feel at home, because we're taking care of your needs like a community bank."

While many of these banks are quick to point out that they aren't just about marketing, many neobanks do have particular expertise in data and user acquisition, and they outsource core banking, said Joe Floyd, a general partner at Emergence Capital. "They have two core competencies: data and user acquisition. Neobanks are here to stay — especially if they focus on niches. They can acquire customers more cheaply and strategically and get top-tier customers for the right products because they have better data."

Distribution, quickly acquiring customers and product differentiation give these banks an advantage over incumbents, Damti said. "The more distinct and tight-knit the population is, the more you can take advantage of this dynamic," he said.

Some believe that challenger banks are unsustainable businesses because they focus on marketing to certain groups and are just a "debit card for X." But Falvey says that's not the case, and many of these startups offer a "fundamentally different user experience."

"What's happening is deep innovation on what the product looks like," Falvey said. "The products are quite different than what incumbents are offering. They're acquiring users at a fraction of the cost that incumbents are."

Still, customer acquisition costs have risen, which makes unit economics challenging unless a bank reaches large scale, Park said. "Unit economics for a lot of these businesses aren't fantastic," he said. "If you can get to 14 million customers like Chime, then yeah, you can figure it out."

Because there are so many competitors now, it's hard to stand out, so not many will make it, Floyd said. "The challenge is not all of them will fulfill their potential," he said. "You'll have a few big horizontal banking platforms. A few will find big enough niches. Most are great seed investments and terrible growth investments."

But some interest groups may not be tight enough or have a "unique financial need" for a business to be built on, Damti said.

The community should have clearly unmet product and emotional needs, and should be self-organizing and viable long term, Curtis said. "Certain groups — freelancers, students, etc. — may be bonded by common functional needs, but it will be tricky to convert that into a community over the long term," he said.

One challenge is turning all those customers into revenue. Many start with checking accounts for their customers, which don't generate much revenue, or credit cards, which generate interchange fees. But the overall goal is to gather customers and eventually sell a range of products, from loans to mortgages to specialized services.

"It's the exact same strategy as Wells Fargo or Citibank in the 1960s: Get the top of the wallet, then grow wallet share," Falvey said. "They're employing a strategy we know is a recipe for success."

Protocol | Workplace

In Silicon Valley, it’s February 2020 all over again

"We'll reopen when it's right, but right now the world is changing too much."

Tech companies are handling the delta variant in differing ways.

Photo: alvarez/Getty Images

It's still 2021, right? Because frankly, it's starting to feel like March 2020 all over again.

Google, Apple, Uber and Lyft have now all told employees they won't have to come back to the office before October as COVID-19 case counts continue to tick back up. Facebook, Google and Uber are now requiring workers to get vaccinated before coming to the office, and Twitter — also requiring vaccines — went so far as to shut down its reopened offices on Wednesday, and put future office reopenings on hold.

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Allison Levitsky
Allison Levitsky is a reporter at Protocol covering workplace issues in tech. She previously covered big tech companies and the tech workforce for the Silicon Valley Business Journal. Allison grew up in the Bay Area and graduated from UC Berkeley.

After a year and a half of living and working through a pandemic, it's no surprise that employees are sending out stress signals at record rates. According to a 2021 study by Indeed, 52% of employees today say they feel burnt out. Over half of employees report working longer hours, and a quarter say they're unable to unplug from work.

The continued swell of reported burnout is a concerning trend for employers everywhere. Not only does it harm mental health and well-being, but it can also impact absenteeism, employee retention and — between the drain on morale and high turnover — your company culture.

Crisis management is one thing, but how do you permanently lower the temperature so your teams can recover sustainably? Companies around the world are now taking larger steps to curb burnout, with industry leaders like LinkedIn, Hootsuite and Bumble shutting down their offices for a full week to allow all employees extra time off. The CEO of Okta, worried about burnout, asked all employees to email him their vacation plans in 2021.

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Protocol | China

Livestreaming ecommerce next battleground for China’s nationalists

Vendors for Nike and even Chinese brands were harassed for not donating enough to Henan.

Nationalists were trolling in the comment sections of livestream sessions selling products by Li-Ning, Adidas and other brands.

Collage: Weibo, Bilibili

The No. 1 rule of sales: Don't praise your competitor's product. Rule No. 2: When you are put to a loyalty test by nationalist trolls, forget the first rule.

While China continues to respond to the catastrophic flooding that has killed 99 and displaced 1.4 million people in the central province of Henan, a large group of trolls was busy doing something else: harassing ordinary sportswear sellers on China's livestream ecommerce platforms. Why? Because they determined that the brands being sold had donated too little, or too late, to the people impacted by floods.

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Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.
Power

The video game industry is bracing for its Netflix and Spotify moment

Subscription gaming promises to upend gaming. The jury's out on whether that's a good thing.

It's not clear what might fall through the cracks if most of the biggest game studios transition away from selling individual games and instead embrace a mix of free-to-play and subscription bundling.

Image: Christopher T. Fong/Protocol

Subscription services are coming for the game industry, and the shift could shake up the largest and most lucrative entertainment sector in the world. These services started as small, closed offerings typically available on only a handful of hardware platforms. Now, they're expanding to mobile phones and smart TVs, and promising to radically change the economics of how games are funded, developed and distributed.

Of the biggest companies in gaming today, Amazon, Apple, Electronic Arts, Google, Microsoft, Nintendo, Nvidia, Sony and Ubisoft all operate some form of game subscription. Far and away the most ambitious of them is Microsoft's Xbox Game Pass, featuring more than 100 games for $9.99 a month and including even brand-new titles the day they release. As of January, Game Pass had more than 18 million subscribers, and Microsoft's aggressive investment in a subscription future has become a catalyst for an industrywide reckoning on the likelihood and viability of such a model becoming standard.

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Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
Protocol | Policy

Lina Khan wants to hear from you

The new FTC chair is trying to get herself, and the sometimes timid tech-regulating agency she oversees, up to speed while she still can.

Lina Khan is trying to push the FTC to corral tech companies

Photo: Graeme Jennings/AFP via Getty Images

"When you're in D.C., it's very easy to lose connection with the very real issues that people are facing," said Lina Khan, the FTC's new chair.

Khan made her debut as chair before the press on Wednesday, showing up to a media event carrying an old maroon book from the agency's library and calling herself a "huge nerd" on FTC history. She launched into explaining how much she enjoys the open commission meetings she's pioneered since taking over in June. That's especially true of the marathon public comment sessions that have wrapped up each of the two meetings so far.

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Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

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