The subscription prescription for making crypto and stock trading profitable
Good morning, and welcome to Protocol Fintech. This Monday: the power of trading subscriptions, Stripe’s stablecoin move, and Gary Gensler speaks at a London conference.
Off the chain
As we send this edition, I’ll be in Northern Virginia, where I grew up and where Protocol has an office. We’re going to run briefer newsletters this week, as the team is gathering to meet in person for the first time since, well, pretty much ever. We’ll still note any business-critical news, of course, and we’re pleased to deliver a series of stories on a topic of keen interest to those in fintech: subscriptions. It’s not just about processing card-on-file transactions — we’re looking at the potential for the subscription model to fuel fintech’s growth.— Owen Thomas (email | twitter)
The subscription prescription
Upstart brokers in crypto and stocks like Coinbase and Robinhood face a dilemma: Their revenue grows when the market rises, but drops in a down or uncertain market. One way to address this is to build out features for which consumers will pay a subscription. While subscriptions aren’t new — monthly fees for online services date back decades — for consumer brokerages, these products are still largely unproven.
There’s a Prime example for how this works. Companies want to increase their subscriber numbers to increase stickiness in the way that, say, Amazon Prime keeps customers coming back with perks, said Brian Graham, partner at Klaros Group. But a bigger reason is to diversify their revenue.
- “Whether it's in the private markets or in the public markets, businesses that have significant amounts of subscription and that are repeatable are worth more,” Graham said. Wall Street has shown it will quickly punish businesses with up-and-down revenue linked to volatile assets like bitcoin or meme stocks.
- "One other thing that we actually didn't talk about in the call, you've probably heard me in the past talk about Robinhood Gold and the subscription opportunity,” Robinhood CFO Jason Warnick said in the company’s fourth-quarter 2021 earnings call, touting the product’s potential to Wall Street
Coinbase and Robinhood’s products are mainly targeted to active traders. For consumers, investment subscription offerings typically promise fuller-featured services that make trading easier, leave them more knowledgeable or keep them more secure.
- Coinbase One, which is still in beta testing, offers free crypto trading for subscribers at a current price of $29.99 per month. In addition, it gives 24/7 phone support, extra tax help with pre-filled forms and $1 million in protection against account-takeover hacks. Coinbase has been pushing subscription services more broadly, including staking and custody, which provide “incremental stability to our revenue base as they grow,” the company said.
- Robinhood already offers free trading through its payment for order flow business model, which it applies to both stocks and crypto. But its subscription service Robinhood Gold, launched in 2016, still appeals to active traders who want to, for example, trade on margin. Now priced at $5 a month, the service lets users have larger instant deposits; professional research from Morningstar; higher-level market data from Nasdaq; and access to margin investing. Robinhood doesn’t break out how many subscribers Robinhood Gold has.
No one seems to have identified a broad-based subscription offering, though — the money equivalent of Netflix or Disney+.
- “For the folks who don't trade these kinds of assets frequently at all, it's not going to make sense,” Graham said. “The folks who are really trading all the time, it may make sense to have multiple [subscription accounts] because it'll lower their cost and not constrain them.”
- Neobank Revolut has tiered subscriptions, with two levels in the U.S. and three in the U.K. The subscriptions give perks such as free international payments, fee-free or no-limit foreign exchange, higher interest rates on savings and lower-fee or free crypto transactions. The highest tiers include Revolut’s Metal card.
- While Revolut’s subscription does offer a crypto trading perk, the service may appeal more to expats living abroad who make international payments or exchange currency, or people with a large savings account.
- That points to a direction these programs could head in: Consumers are used to credit-card style perks like cash back and insurance. So bringing those types of perks to a financial subscription service will likely bring more consumers on board.
Companies shouldn’t rely on subscriptions just to boost immediate revenue, said Melody Brue, principal analyst at Moor Insights & Strategy. “As a business model, the subscription isn't necessarily going to be the revenue driver,” she said. “Loyalty, increased engagement, community and more customer and behavioral data that comes from those things will drive the long-term value of that customer.”Read it here.
A MESSAGE FROM CHECKOUT.COM
The emergence of DeFi is shaking up the way consumers think about how they store value. For reference, Visa saw $2.5 billion of crypto-backed transactions in the first quarter of 2022. We’re seeing consumers really starting to use this in a way that even a year ago was kind of hypothetical.
On the money
On Protocol: Stripe partnered with Twitter to start letting creators get paid in crypto. The payouts will take place on the Polygon network, and creators will initially be paid in USDC, with plans to add support for other types of crypto in the future.
Silk Road’s Ross Ulbricht won’t have to pay any restitution. The creator of the dark web drug market struck a deal with the feds to wipe out his $183 million bill with a $3 billion stash of bitcoins officials seized from the hacker who stole them from Silk Road. Getting Ulbricht to waive any ownership rights to the bitcoin helped the government claim them.
Binance reportedly recovered $5.8 million tied to the Axie Infinity hack. CEO Changpeng Zhao said some of the stolen coins were moved by hackers into over 86 Binance accounts, from which the company recovered the funds.
In addition, the U.S. Treasury sanctioned three more Ethereum addresses tied to the hack. The Office of Foreign Assets Control added three addresses to its Specially Designated Nationals list, all of which were previously flagged as connected to the Axie Infinity hack.
The Ukrainian central bank banned the purchase of crypto with its national fiat currency. The additional measures on “quasi-cash transactions,” which include the purchase of virtual assets, were implemented to “prevent unproductive capital outflows,” the bank said. Individuals can still purchase crypto with foreign currency at a cap of 100,000 hryvnia or $3,400 a month.
The Celsius Network is warning customers that the CEL token could pose “regulatory risks.” The crypto lending company updated its “Risk Disclosure” page, adding “regulatory risks” to its list of risks the CEL rewards token could face.
City Week 2022 starts on Monday. The three-day conference in London features SEC Chair Gary Gensler as a speaker on Day Two, along with European Securities and Markets Authority Chair Verena Ross and Fidelity International CEO Dame Anne Richards.
The Crypto and Digital Assets Summit starts on Tuesday. The two-day hybrid conference will be held in London, and features speakers like Binance CEO Changpeng Zhao, Ethereum co-founder Charles Hoskinson and Ripple head of Public Policy Susan Friedman.
PayPal and Fiserv’s earnings calls are scheduled for Wednesday. PYPL’s average estimated EPS is at $0.58, down 38% from last quarter. FISV’s average estimated EPS is at $1.35, down 13% from last quarter.
There are two U.S. House committee hearings slated for Thursday. A hearing on oversight of FinCEN will take place at 10 a.m. ET, and a review of recent trends in mobile banking and payments will take place at 2 p.m. ET.
Tech regulation beyond Big Tech: Join Protocol’s Ben Brody and a panel of experts on May 5 at 10 a.m. PT/1 p.m. ET to dive into the biggest regulatory priorities of the not-quite-biggest tech companies.
A MESSAGE FROM CHECKOUT.COM
Businesses — whether Web2 or Web3-oriented businesses that don’t want to hold crypto but do want to be able to interact with crypto holders — want to be able to offer that as a payment mechanism to their communities. The other is hands-on, where merchants are comfortable accepting crypto.
Thanks for reading — see you tomorrow!