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The Lukas Review's avatar

The biggest takeaway is Square is a monster: 80bp!

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Hawkins Entrekin's avatar

Nice article - one thought I had on the opportunity around cutting into the interchange banks are taking is well, is that so great an opportunity? As the banks compete very aggressively for customers with cash back offers etc which chew into those interchange profits. Looking at Capital One's most recent earnings supplement (they are largest bank issuer it appears, or at least one of the largest), their non interest card earnings is about ~$1b/quarter over the last year. However the non interest expenses are $2 to 2.3b / quarter! Obviously this doesn't break down the granular details but it seems like there is a good chance the interchange revenue is actually a loss leader to generate credit card interest income, which is around $3b/ quarter. So I'm wondering if this opportunity may prove to be a very tough nut to crack, as consumers are actually capturing much of this value here in the form of credit card rewards etc, and therefore the incentive for the average person to switch to a new platform may be low. Not to say there aren't other interesting opportunities Lithic can target, but TAM may be far smaller unless they can break into B2B, which does feel very ripe for disruption given backwards ACH/check payments.

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