🏦 How Stripe Treasury changes banking


December 8, 2020

PLUS: Hollywood accounting, explained.

December 8, 2020
The Hustle
TOGETHER WITH
monday.com

Bob Dylan has reportedly sold his entire catalog of songs to Universal Music Publishing Group for $300m. In light of the momentous sale, the singer-songwriter may have to rename some of his classics:

  • Blowin’ in the Windfall
  • Tangled Up in Green
  • Knockin’ on My Private Wealth Manager’s Door
  • The Bank Accounts They Are A-Changin’
The Big Idea
fax machine

How Stripe Treasury aims to disrupt banks

“You still use a fax machine” is up there with “call me on your Nokia” as the most cliche way to burn someone for being tech illiterate.

In the bank industry, it’s not a joke… it’s reality.

Here are recent survey results from Stripe, the $100B fintech startup:

  • 23% of businesses have to send a fax to open an account
  • 55% are required to visit a branch in person to open it
  • It takes 7 days on average for an online business to open an account

Actually, it is kind of a joke.

Enter Stripe Treasury…

… which moves at the speed of the internet. It’s a banking-as-a-service (BaaS) API that allows Stripe users to offer their own turnkey banking services.

Stripe has partnered with a number of banks (e.g., Goldman Sachs, Evolve Bank & Trust) to offer key solutions like creating customer accounts, storing money, earning interest, and paying bills.

Crucially, Stripe — widely noted for its ease of use (“just a few lines of code”) — is the touch point with nary a fax machine in sight.

Stripe Treasury is still invite-only

But it does have one big partner: Shopify, which offers Shopify Balance.

On its website, the Canadian ecommerce giant highlights the value-add of a BaaS product vs. going to a traditional bank:

  • Get paid faster
  • No hidden fees 
  • Plenty of perks (e.g., cash back and discounts)
  • No fax machines

Why the opportunity is massive

Take Shopify: It already has millions of customers paying for ecommerce services. With Stripe Treasury, it’s able to layer on another potential revenue stream in the form of banking services.

The larger trend of non-finance internet companies layering on fintech services (e.g., payments, lending, insurance, bank accounts) is called embedded finance.

Per VC firm Andreessen Horowitz, embedding finance for SaaS companies:

  • can increase revenue per user of 2-5x
  • improves margins
  • makes the product stickier

Also last week, Stripe expanded its Stripe Capital product to allow users to build their own lending services. It won’t be long until “wait, you don’t use Stripe” becomes the cliche burn for companies living in the past.

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Snippets

  • Google is beefing with IAC, the conglomerate that’s home to Angie’s List, Investopedia, and The Daily Beast. The fight is over IAC browser extensions in Chrome that Google says are “deceptive.” Google wants to crush IAC like an ant, but has to walk on eggshells because of its antitrust case.
  • It’s all about the Benjamins Maos: China’s central bank created a digital currency in an effort to gain independence from the US-dollar driven global economy. Now, Chinese ecommerce platform JD is now the first online platform to accept digital yuan.
  • What a turnaround: In February, VC firm Sequoia told its portfolio companies to brace for a black swan event. With 2 of them — Airbnb and DoorDash — headed for IPOs, Sequoia is now eyeing 11x returns. (Check our previous Sequoia coverage here.)
  • Stitch Fix is juking! The personalized online clothing company saw its shares increase 30%+ after strong earnings and the announcement that it scored a new CFO, former Amazon vet Dan Jedda.
  • Gotta give it to Uber CEO Dara Khosrowshahi… he made the decision to get rid of Uber’s [email protected] bets and is following through. Last week, he sold Uber’s air taxi biz (LOL); yesterday, he unloaded its self-driving unit to Aurora, but will retain a minority stake.
  • You know that scene in The Fast & The Furious when Vin Diesel hits the NOX and the car goes into overdrive. Apple — fresh off launching its M1 laptop chip — is looking to launch new (FASTER!!!) chips for 2021. #ByeIntel
  • SpaceX just scored $885m from the FCC to provide internet to rural areas with its Starlink service.
 
The Middle Kingdom
Jessie J performing

Jessie J performing in “China Singer” (Source: Youtube)

The company helping celebrities break into China

In 2018, pop star Jessie J was competing in China’s version of “The X Factor” (“China Singer”).

When she ended up winning the competition, Andrew Spalter — a music management exec working with Jessie J — realized there was a massive business opportunity…

… to help Western celebrities blow up in China’s fast-growing entertainment market.

To make it happen, Spalter launched East Goes Global

And, in 2 short years, he’s already put together an impressive roster of celebrities, including Britney Spears, Shawn Mendes, and Will Smith.

“A lot of Western artists don’t realize how big the China opportunity is,” Spalter told The Hustle in a recent conversation.

Spalter helps artists and celebs manage marketing and branding across leading Chinese social networks (Weibo, Douyin, NetEase, QQ, KuGou).

China’s music streaming business is growing rapidly

“A few years ago, China wasn’t even a top 20 music market,” says Spalter. “Today, it’s probably a top 5 market, and artists can get $2-3k per million streams vs. only $100-300 per million streams 2 to 3 years ago.”

Universal Music Group recognized the opportunity and formed a partnership with East Goes Global.

With a staff of 10, Spalter is growing the business quickly: It’s gone from $80k in Year 1 to a projected 7 figures next year.

“There’s a digital influencer in China known as the lipstick king,” per Spalter. “He sold $145m+ on [China’s major shopping event] Single’s Day…and it wasn’t just lipstick. That’s the opportunity for digital influencers.”

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Fixing the numbers
calculator

Hollywood accounting, explained

In Hollywood, top stars typically negotiate back-end profits as a percentage of gross (instead of net) box-office revenue.

Take legend Eddie Murphy: He calls net percentages “monkey points” because he deemed them worthless.

Why is that?

Well, the film industry is so notorious for financial shenanigans that “Hollywood accounting” has become a thing.

Film Studios have to pay lots of stakeholders…

… in the form of taxes, royalties, and profit-share agreements.

They often make payouts based on profits, and there are a myriad of ways Hollywood can reduce profits.

Namely, studios can tack on various overhead costs (production, distribution, marketing) that have no verifiable basis in reality.

The problem could get worse

According to Business Insider, WarnerMedia’s decision to release its 2021 slate of big movies (e.g., The Matrix 4) simultaneously in theaters and on HBO Max is riling Hollywood folk.

Theater chains are understandably up in arms (AMC announced a desperate equity offering to raise cash) — but industry talent is also worried.

HBO Max is licensing the films from sister studio Warner Bros

Presumably, at a market rate.

However, the films will be free to streaming subscribers already paying ~$15/mo.

The fact that streaming money will pale in comparison to box-office receipts makes the specter of Hollywood Accounting as great as ever.

AMC’s official statement captures the mood: “WarnerMedia intends to sacrifice a considerable portion of the profitability of its movie-studio division and that of its production partners and filmmakers to subsidize its HBO Max startup.”

(Author’s note: In a previous life, I optioned a film to Fox and had to deal with my own version of Hollywood accounting)

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The Hustle Says

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TRENDS

One industry mushrooming to $86B…

The Trends team came across an interesting stat:

The global fungi (mushroom) industry is forecast to double in the next five years to a staggering $86B.

This growth will be powered by:

  1. An increase in culinary demand, including utilization of mushrooms in new and interesting ways (coffee alternatives and alcohol-free spirits being two examples).
  2. Rising adoption by the pharmaceutical industry, especially as states (like Oregon) begin to legalize the regulated use of psilocybin ’shrooms as a treatment for anxiety, addiction, and depression.

Our team spent the week picking out the most interesting trends they were seeing around the mushroom market, and compiled them for you to pick through in a new Signals piece.

When you read through, you’ll learn:

  • 👗 How companies like Adidas and Lululemon are using mushroom-based textiles to develop the next generation of sustainable fashion
  • 🔍 How the $117B agritourism industry is taking advantage of the new “Mushroom Hunting” craze
  • 💰Opportunities within this growing market that you can get started on immediately
  • 📈 And much more!

If you’re not already a member of Trends, sign up today for a $1 trial to get access to the full report.

Job application of the day

Jason Kilar is the chief of WarnerMedia and the target of Hollywood’s ire around the controversial decision to make 2021 movies available on HBO Max at the same time as their release in theaters.

Prior to his current role, Kilar put together a pretty ridiculous resume: 

  • Vessel (2013-2017): founded a commercial video service acquired by Verizon
  • Hulu (2007-2013): served as the founding CEO of the streaming service
  • Amazon (1997-2006): played a key role in its early video efforts
  • Harvard Business School (1995-1997): studied at some random business school

The best story, though, might be his first real job after graduating from the University of North Carolina at Chapel Hill.

Kilar — who relayed the story to us via Twitter — wanted to work at Disney so badly that he sent 70 letters to the media giant. He finally broke through with a comic-strip job application (above)… the rest is history.

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