Matt Wilcox Pro

A pair of headlines grabbed my attention this week. 

The first came courtesy of Finextra, which reports that Greenlight, the “smart” debit card for kids, just acquired an additional $54 million in working capital. This is thanks largely to dollars put up by Drive Capital, JPMorgan Chase, and Wells Fargo during Greenlight’s Series B fundraising round. The B round generally occurs after a company has reached certain mettle-showing milestones, which Greenlight seems to have pulled off. “Since launching in 2017,” reports Finextra, “half a million parents and kids have signed up.” The card is marketed as a tool for creating financially savvy kids.

The second came courtesy of The Financial Brand. Apparently a good number of Gen Z-ers—for those experiencing difficulty keeping straight which letter goes with whom, that would be people up to about age 24—are “racking up tremendous debt”:

Generation Z has acquired a reputation for being financially conservative, but that’s not the whole picture by any means. This generation began adding on consumer debt as soon as its members became old enough to take out loans and credit lines, and has continued to add more debt ever since, according to research from TransUnion … TransUnion research finds that 14 million Gen Z consumers—44% of this generation—were carrying some type of consumer credit balance as of the second quarter of 2019. That represents an increase of 27% over the second quarter of 2018.

So perhaps smart products aimed at teaching fiscal responsibility to Gen Z and post-Z, aka Generation Alpha, are needful.

Accounts targeting youth are nothing new. But until recently, most were little more than no-fee deposit accounts dressed up in young people’s clothes. More recent iterations, such as Capital One’s Kids Savings Account and others are complemented by an app giving full and limited control, respectively, to parents and kids. Still, most fall short of Greenlight’s functionality. The latter comes rife with parental controls: parents limit stores where the card can be used, link access to chore completion, transfer allowance directly to the card, and receive real-time alerts. 

To wit, the Finextra article noted:

Thomas Richardson, head, strategic partnership investing, Wells Fargo, says: “Greenlight offers parents an opportunity to build that core competency of financial literacy in their child’s formative years, through its innovative, interactive and fully digitized product offering.”

Not that Greenlight is the only “smart” banking product for kids out there. gohenry touts pretty much the same lineup of features, from real-time transfers to alerts and task-linked allowance. So do the likes of FamZoo, TD Bank’s TD Go, and Akimbo. The last, Akimbo, is positioned not just for kids but for any family member—even the family dog—and allows separate cards per budget item. (Quick trivia survey: How many readers know what akimbo means? The product name earns coolness points in my book.)

Digital payment technology has created something of a two-edged sword: with the ability to move funds faster with minimal fuss comes the ability to spend faster than the speed of responsible thought. A rash of products to help consumers better reign in the spending impulse is needful, responsible, and perhaps inevitable.

And, it’s smart marketing. Offering youth accounts is an eminently pragmatic tactic for the financial institution that wants to—pardon my bluntness—survive its oldest customers. And since financial institutions tend to fare better with clients who remain solvent, any account that comes with tools for helping clients better manage finances benefits both sides.

There is no better product category than the one labeled Win-Win.

The cashierless checkout isn’t exactly new. 

By contrast, the cashierless, cardless, cashless variety of checkout is relatively new.

And it may already be be an endangered species.

For an early example of cashierless checkout, look no further than the noble hot coffee vending machine that once graced every cafeteria. You’d drop a nickel in the coin slot and eagerly watch the machine fill a Styrofoam cup with a steaming brew with a flavor to rival the finest industrial sludge. Sometimes the machine would deposit the cup on its side, and, at no extra charge, coffee would pour everywhere except into the cup. Those were the days.

Today’s hot coffee vending machines have undergone vast technological improvements. For instance, they are programmed to laugh derisively if think you’ll get by with a nickel. 

Nonetheless, cashierless-ness found its way from vending machines to large retail outlets, most notably grocery stores. According to Wikipedia, “As of 2013, there were 191,000 self-checkout units worldwide, and the number was estimated to reach 325,000 units by 2019.” Their success is hardly surprising. Self-checkout lanes appeal to retailers because they don’t need health insurance, don’t take cigarette breaks, and don’t demand overtime pay. As for customers, they appeal to those in a hurry, and to those not eager to face a clerk when purchasing personal items such as—well, never mind. 

Another market for self-checkout is, as Fuzzy’s Taco Shop’s former operations VP Briton Smetzer pointed out to RetailExperience.com, “… people such as himself that suffer from hearing loss. ‘I do find myself gravitating towards kiosks because I don’t want to deal with the frustration of communication obstacles,’ he said.”

Upping the ante just shy of three years ago, Amazon Go became the first walk-in store that was cashierless and cashless and cardless. Download the Go app, walk into the store, grab what you want, and leave with it. A confederacy of technologies will keep track and ding your account. Perhaps vying for Obvious Trademark of the Year, Amazon named it “Just Walk Out Technology.”

Amazon operates Go stores in Chicago, New York City, San Francisco, and Seattle. If BrickMeetsClick.com’s informal survey is any indication, customers seem to have embraced the concept. It reported that colleagues “… spent several days studying the operations of the first Amazon Go store in Seattle” and found that:

Amazon Go stores produce more sales per square foot than virtually any other retailer except Apple and a few other specialty stores … we estimate the annual sales per square foot of the selling area was $2,700, even in the early days of operation … Based on the same observations mentioned above, we estimate that the Seatle [sic] Amazon Go store is generating about 50 inventory turns per year—4 to 5 times what’s typical in other retail operations.

If the above figures are to be trusted, then perhaps it’s no wonder that at about the same time CNBC trumpeted, “Amazon [is] reportedly planning 3,000 cashier-less stores by 2021.” 

Yet that word reportedly in reportedly planning left leeway, and it’s a good thing. Now, about a year after the CNBC headline, there are only 18 Amazon Go stores in operation. Speculation is rampant as to reasons behind the slowdown, from logistics, to plans for bigger and better things.

Meanwhile, in a seemingly backward move reminiscent of Apple’s introducing a credit card, Amazon just announced that its cashierless, cashless stores will soon accept cash. 

A few months ago, CNBC reported:

Amazon Go stores, which let customers buy items without waiting in checkout lines, will start accepting cash, amid intensifying criticism that the company is discriminating against the unbanked.

The unbanked represent no trivial demographic. Business Insider estimates two billion unbanked worldwide, and the U.S. Federal Reserve estimates that there are some 55 million unbanked or underbanked domestically. That’s a lot of people who would not be able to shop in a cashless store.

While “intensifying criticism” may surely have been a consideration for Amazon, a trend toward outlawing cashless stores must surely have been one as well. CNBC added that in March of this year, Philadelphia …

… became the first major U.S. city to ban cashless stores despite Amazon’s reported attempt to block the law. The state of New Jersey followed a couple weeks later, and cities like New York, San Francisco and Chicago are considering similar laws. Massachusetts has had a law in place for decades requiring stores to accept cash.

I am, of course, a digital payments devotee. I love the concept of universal cashless-ness and continue to hold out hope for it. But I am also for equal opportunity and equal access, even at such times as might cause Adam Smith to wring his invisible hands. 

Regulations aside, cashless technology continues moving forward. Last week, Finextra reported on a Dutch supermarket chain where “… customers tap their bank card as they enter, pick up their groceries, and walk out.” Cool.

Last week, one day after I posted about the payments aspect of the rapidly growing gig economy, the California State Legislature passed Assembly Bill 5, colloquially known as the “Gig Economy Rights Bill.” The bill will require the likes of Uber, Lyft, and other gig firms to bestow employee status upon gig workers, who are currently treated as independent contractors. Indications are that California Governor Gavin Newsom will sign it into law.

If the idea gains national traction, as trends originating in California have a habit of doing, the gig economy will undergo important, costly changes. Per NPR:

The move is likely to have major ramifications for on-demand delivery and ride-hailing companies such as Uber, DoorDash and Lyft, which classify most of their workers as independent contractors. 

The bill’s fans include no less than Bernie Sanders and Elizabeth Warren. Not surprisingly, labor unions are also on board. Altruism aside, unions surely see in gig workers a large pool of potential members. 

The new law will also have an effect on the payments industry.

Payments are a major feature of gig economy apps. Shifting the burden of payroll accounting and management to gig firms will require overhauling that feature. That’s because contractors receive a fee, not a salary, freeing payers from the morass of calculating and filing income, Social Security (including matching employee contributions), Medicare, and unemployment taxes, and other expenses. As it stands, gig firms need only collect fees, take their cut, and pass on the remainder to workers. At least in California, that’s about to change.

Not to be overlooked is that gig firms needn’t concern themselves with minimum wage laws for independent contractors. Gig firms pay fees, not wages, and there are no minimum fee laws. Don’t like working for what the gig firm pays? No shortage of people will line up to take your place. In that way, some argue, the gig economy exploits a loophole that reintroduces the pre-union, pre-minimum wage era depicted in John Steinbeck’s The Grapes of Wrath. The New York Times commented:

… the bill is as much a starting point as an endgame: It will drive a national debate over how to reshape labor laws fashioned in the industrial era of the 1930s to fit a 21st-century service and knowledge economy … Just as federal labor laws were promulgated to help the country recover from the Depression, the imperative to extend basic guarantees like a minimum wage stems from the staggering income inequality in California, the state with the highest poverty rate in the country.

All of which helps explain why California gig workers tend to be all for the bill. And why, as the Times also observed, “Labor leaders cheered in the balcony and lawmakers embraced on the floor of the California Senate” at the bill’s passage.

Passage of Assembly Bill 5 won’t eliminate costs that gig workers hope to escape.

It will simply remove costs from workers to gig firms. According to the BBC, “Some estimates suggest costs for those firms would increase by 30 percent if they have to treat workers as employees.” And, of course, gig firms will not simply eat the increase. They will pass it on to customers in the form of price increases. 

Assembly Bill 5 has been in the works for some time, and gig firms haven’t been sitting around waiting to be acted upon. In a pre-emptive strike last June, reports CNBC, 

… the CEO of Uber (UBER), Dara Khosrowshahi, and the cofounders of Lyft (LYFT), Logan Green and John Zimmer, wrote an op-ed in the San Francisco Chronicle arguing that being required to classify drivers as employees instead of independent contractors would “pose a risk to their businesses” and ignored two important points.

“First, most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment,” Khosrowshahi wrote. “And second, many drivers are supplementing income from other work.”

And now, CNBC continues, challenges are already in the works:

AB5 has attracted staunch opposition from gig economy companies, as it could upend their traditional business model of hiring inexpensive contractors. In an effort to push back against the bill, Uber and Lyft proposed establishing a $21-an-hour minimum wage for drivers in California. The ride-hailing companies, as well as Doordash, have also pledged $90 million on a ballot initiative for the 2020 election that would exempt them from AB5.

The IRS provides guidelines for distinguishing employees from contractors. They are at best foggy. Criteria include the type and extent of instructions given, evaluation systems, training, financial control, equipment investment, and “… how the worker and business perceive their interaction with one another.” 

So from an IRS standpoint, whether gig workers are employees or contractors falls into a gray area. California seeks to make it black-and-white.

More than a few factors account for the explosion of the gig economy. Perhaps most obvious is the fact that that rapid technological advances in the payments industry have made it possible. Another is the yearning many experience for independence and self-employment. Yet another is the relief the gig economy holds out for the unemployed and the underemployed. And there’s the change of pace it offers the bored-at-home.

Not to be overlooked is the solution the gig economy offers people who aren’t fond of being stiffed. Every year, bad checks alone cost merchants—and, therefore, consumers—an estimated $15 billion. The problem is big enough that some jurisdictions establish their own worthless check units.

But gig workers needn’t worry about bad checks or, for that matter, shoplifters and dine-and-dashers. Gig apps collect payment the moment an order is placed, all but eliminating the danger of being stiffed—not just for gig workers, but also for merchants for whom gig workers deliver. The payments feature of the gig economy lowers the cost of goods sold. Or, to put it another way, it increases profits.

Notwithstanding up-front payments to gig apps, many workers must still wait for payment from their gig app. Delayed payment can present a challenge for workers who rely on their gigs to make ends meet. And it’s a delay that, given the availability of instant payment, needn’t exist.

Which is why a number of gig apps now provide same-day payment to gig workers who want it. These include, among others, Uber, Lyft, Gigwalk, and DoorDash. Altruism may account for part of the offering, but not entirely, for the gig apps take a larger cut in return. Gven the number of gig workers who willingly pay it, the increase appears not to be onerous.

Gig apps aren’t the only ones looking at more timely payment for workers. People who work for companies that have signed on with the app Even can access earned pay prior to payday. Employees pay a monthly membership fee to use the app, but according to Even’s home page there are no other charges:

We do not charge fees outside our monthly subscription … We do not charge interest on money you owe us … We do not sell you credit cards or bank accounts you don’t need. We do not earn interest on any money you’ve saved with Even.

Advances commensurately diminish the amount employees receive when payday finally arrives. The Even app, therefore, is not a means of spending more, but of being able to cover expenses that come due before payday.

To date, the biggest employer to play ball with Even is Walmart. As of this writing, over 300,000 Walmart employees subscribe to the service. The number of subscribers versus active users is likely close, because Even automatically un-enrolls anyone after two months of non-use.

A newer development in the gig economy is the practice of offering advances against anticipated earnings. A survey conducted by PYMTS.com and Mastercard found:

More than 84 percent of workers living paycheck-to-paycheck are interested in pay advances—to the extent that two-thirds of them would consider switching to gig platforms that offered them and more than half would be willing to pay fees of 1 percent or more.

It also found that:

More than 53 percent would use pay advances to cover bills and expenses, however, to a similar degree, they also believe that early payment would reduce overall financial stress and provide greater financial flexibility.

The data are not to be ignored, but one should put only so much stock in the percentages. Of those who claim they would switch, the number who actually would switch remains to be seen. As for gig workers reporting that they are “interested in pay advances,” and that advances would “reduce overall financial stress”—well, one could hardly expect anyone to say otherwise.

If you cannot help but wonder if there’s a resemblance between gig advances and the payday loan business, you’re not alone. PYMTS.com reports that New York State’s Department of Financial Services (NYDFS) “… has announced it will lead a multi-state investigation into alleged violations of state regulations of the short term lending industry, specifically in the area of payroll advances.” Yet:

The firms under investigation at present, however, arguably aren’t payday lenders—at least under the strict legal definition of the term. Instead of “loans,” these firms instead offer “payroll advances” which are designed to give consumers access to wages they have already earned ahead of their next paycheck. The NYDFS, however, is concerned that some of these firms have swapped out high interest for membership fees and “tips” that ultimately add up to being the equivalent of usurious and other illegal interest rates.

The article specifically cites Earnin. NYDFS seems to suspect that Earnin’s tips, membership fees, and charges for access to certain features may amount to onerous usury in a new suit of clothes. This one will be interesting to watch.

I shall open with a rhetorical question:

Is anyone not looking into launching another crypocurrency? 

Right now, CoinMarketCap lists 2,346 of them, from giants like Bitcoin to not-giants like Onedex.

But today’s rhetorical question is more about the fact that, besides Facebook, JP Morgan and Walmart are in, Goldman Sachs is taking a serious look, and speculation is mounting that Amazon will sooner or later have no choice but to jump in as well.

Facebook’s Libra is by now old news. After all, I wrote about it clear back in July, an eternity in crypto-life. Libra is also plagued by critics, among whom U.S. House Financial Services Committee Chair Maxine Waters may be foremost. According to PYMTS.com, Waters …

… met with government officials in Switzerland about Libra, and said she remained concerned about the viability of the currency, according to a report by Reuters. Waters released a statement on Sunday (August 25) saying that despite meeting with the regulatory body for the proposed cryptocurrency, the implications of a large tech company providing a digital currency for billions of people still troubled her.

Yet Quartz’s cryptocurrency reporter Matthew De Silva went so far as to suggest that Facebook is “late to the party.” He pointed out that when WeChat and QQ parent Tencent launched its own QQ Coin in 2005 …

… they were initially designed to pay for online services and games in the Tencent ecosystem … But shortly after Tencent launched its virtual money, QQ Coin escaped its control. In 2006, a year after the digital unit launched, “online game sites beyond Tencent started accepting QQ Coins as payment.

But, as I said, giants are eager to unleash their own cryptocurrency.

Goldman, J.P. Morgan, Walmart … et tu, Amazon?

In an interview with Les Echos reported by TheNextWeb, Goldman Sachs CEO David Solomon said his company is doing “… extensive research on the concept of tokenization.’”

Solomon expressed his belief in the potential of blockchain-based digital currency in enabling frictionless cross-border payments. Similar to J.P. Morgan, Goldman Sachs believes such a currency will need to be backed by actual fiat currencies.

Speaking of which, you may recall that J.P. Morgan announced in February that it was …

… the first U.S. bank to create and successfully test a digital coin representing a fiat currency. The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional clients.

A CNBC report observed, “While J.P. Morgan’s Jamie Dimon has bashed bitcoin as a ‘fraud,’ the bank chief and his managers have consistently said blockchain and regulated digital currencies held promise.”

Despite repeated denials from Amazon Pay VP Patrick Gaulthier, reports Market Realist’s Margaret Patrick, rumors persist that Amazon may enter the cryptocurrency arena: 

The rumors started in November 2017, when Domain Name Wire reported the company had registered three blockchain- and cryptocurrency-related domain names. This news may not necessarily prove the technology giant’s interest in the cryptocurrency field, however. Domain Name Wire proposed the company may have registered the domains to protect its brand name.

Notwithstanding, Patrick continues,

Amazon has launched its own fully managed blockchain service for the development of scalable blockchain networks. The company has also developed a fully managed ledger database, Amazon QLDB, which can be used to develop blockchain applications. This capability, coupled with the company’s broad customer base, makes it one of the most eligible companies to enter the cryptocurrency space.

A game-changer for Amazon may exist in the fact that Walmart has applied for its own digital currency patent. CCN’s P. H. Madore snarked earlier this month …

The only thing that could make this better for the retailer and crypto adoption is if Walmart acquired Facebook … The move might be interpreted as part of the company’s larger strategy to compete with Amazon.com by leveraging its mammoth distribution network. Sorry, Facebook. If you thought creating Libra was a big deal, whatever Walmart does in terms of virtual currency will be much, much bigger.

Market Realist’s Mayur Sontakke wrote:

Based on the patent filing, Walmart Coin looks a lot like Facebook’s Libra. Both are set to be a stable coin. While Walmart Coin is to be pegged to the US dollar, Libra is to be backed by a reserve of high-quality, low-volatility assets denominated in major stable currencies around the world. Both coins target low-income households with little or no access to banking.

The face of Bitcoin, it seems, has launched a thousand ships. Believe it or not, Bitcoin has been around for a decade. During that time, the U.S. dollar value of a single Bitcoin has ranged from .03¢ to $20,000 and everywhere in-between. As of this writing, CoinMarketCap puts a Bitcoin’s value at about $9,500. Of course, by the time I type the period at the end of this sentence, its price will have changed again.