Neobanks often launch without banking licenses and have fewer ways to earn money than big banks. So they often set up marketplaces that promote other financial apps. If a customer signs up for these services, the neobank earns commission revenue. But fintech is also about unbundling financial services. And a startup can operate a platform that’s like a neobank marketplace without offering deposit accounts at all. Stackin’s not exactly a neobank marketplace. It’s more of a personal finance app. But its business model is similar to that of a neobank’s marketplace.
An Early Pivot Into Affiliate Marketing
Stackin is based in Venice Beach, a neighborhood in Los Angeles, and its founders previously worked in the media. So communication is one of this startup’s strong points. Its original plan when it launched in 2017 was publishing short video clips on Facebook. But after Facebook reduced the reach of video clips in 2018, it pivoted to using text messages to reach its audience. And it also switched its revenue generation strategy from video ads to affiliate marketing.
And I think that pivot was a good idea. Financial institutions will pay more money to an affiliate that sells their services for them than they will to a news publisher that just displays their ads. Of course, it’s harder to earn money from affiliate marketing because the financial startup has to convince a buyer to take out their credit card. It can’t just display an ad that gives the company sales leads, shoppers have to buy something. But Stackin may have collected enough data while it was posting videos on Facebook to target its marketing campaigns effectively.
Providing Financial Tips Through Text Messages
Stackin isn’t a financial advisor, a stockbroker, or a bank. So it can’t provide personalized financial advice in the traditional sense, meaning financial advice for a specific person. But it does offer personal finance tips aimed at specific audiences. Stackin users initially pick one of three topics, which are debt, investing, and savings. So if a new user signs up for tips about getting out of debt, the initial Stackin tips and affiliate promotions will focus on that topic. If the user keeps receiving messages from Stackin, they’ll get more personalized financial advice.
Text messages also have another benefit for financial marketing firms. Smartphone users often open every text message they receive. The average open rate for SMS messages may be 80 percent or more. Many of these text messages are immediately deleted afterward, of course. But with other marketing channels, like Facebook ads, it’s unlikely that the majority of the audience is paying attention to the ads.
Owning Its Audience
And by sending text messages instead of posting video clips on Facebook, Stackin also owns its audience. That’s really important for affiliate marketers. A social network can eliminate a startup’s reach at any point, as Stackin has already learned. Whether it occurs in response to a scandal like Cambridge Analytica’s political data mining, or simply because the social network’s changed its business plan, the startup might no longer get any traffic from a previously reliable marketing channel.
A change like that can cause a publisher or a media company to collapse overnight. And I have heard stories about startups that focused on video publishing on Facebook and went under after the video clips lost their visibility. One of the ones I recall was a college humor website.
A Controversial Funding Source
Stackin has experienced some controversy recently. This firm is a venture backed startup that raised $12.6 million during a Series B funding round in 2020. But it also received a loan from the PPP program that the government set up during the pandemic to prevent employers from laying off their workers during the lockdown. Stackin isn’t the only startup that accepted a loan like this, but many startups and established companies have been criticized for accepting the loans. The company received at least $150,000 and possibly as much as $350,000 from the program, reported KnowTechie.
But this startup does have 18 employees in LA. And if accepting a loan from the federal government means that it’ll be able to continue employing engineers in Venice Beach, the loan will benefit the LA region as those engineers shop at local stores. Also, Stackin wasn’t the only company, or the largest company, to accept a loan like this. And it didn’t receive the biggest loan either. So it’s unlikely that the controversy will continue.
Stackin’ has a better business model than some other fintechs, possibly because it was forced to pivot early. It owns its audience so it won’t lose as much reach if social networks’ algorithms change again. And because it’s helping other fintechs instead of competing with them, those firms also have an incentive to help Stackin by promoting the service on their websites and telling their account holders about it. Stackin also demonstrates that neobanks themselves can have their services unbundled, not just major banks.