Thredd’s McCarthy: ‘Seismic Shift’ Will Define FinTech Future

The last half-decade of the 2020s looms, and for FinTechs and financial services in general, the dust has just started to be kicked up on Capitol Hill and in the White House in terms of new regulations and even a reshaping of the regulatory agencies themselves.

Consumer Financial Protection Bureau Director Rohit Chopra was removed, and there is a bill in Congress afoot to abolish the agency itself. The Federal Deposit Insurance Corp. issued a slew of consent orders that delve into AML and KYC.

Thredd CEO Jim McCarthy told Karen Webster that a seismic shift will define the sector.

“We’re finally seeing what I would consider to be the real washout,” McCarthy said. “…It’s going to be a case of winners and losers.”

A key reality that will separate the winners from the losers is that “people are willing to pay for value,” he said. “Payments are at the heart of commerce, and people need the ability to obtain liquidity, no matter if it’s a small business or a consumer.”

What regulators are overlooking is that end users are willing to pay for access to something they cannot get through traditional channels — and will use new and innovative services and products with responsibility.

For forward-thinking firms, however, there’s a silver lining. When it comes to innovation and meeting needs that have thus far been unmet, “where there’s a will there’s a way,” McCarthy said. There’s some dry powder on the sidelines in terms of venture capital, and that money will be put to work but only for the companies that have the right business models and a clear path to profitability.

Scale Is Not Enough

Scale has advantages, but scale is not enough, and it can even hamstring innovation, as some of the largest players in financial services with outdated tech stacks have learned, McCarthy said. Thredd, which processes billions of transactions across dozens of countries and enables card issuance, does not compete with the behemoths on price; rather, the battle is won on flexibility and a nimble approach to serving clients’ needs.

“There’s a ton of opportunity in the [total addressable market] in payments that is still out there,” he said. “Though my nickname’s McGrumpy, I’m an optimist … we see nothing but opportunities around the globe.”

“We pride ourselves on the ability to stand up programs that come to use as quickly as possible,” he added, and speed matters when serving FinTech clients.

Thredd is harnessing advanced technology such as artificial intelligence to help automate processes and, by extension, help companies more easily navigate risk and compliance challenges while making recommendations that can improve clients’ platforms and efforts to develop ecosystems, he said.

The Thredd client firms that are proving to be successful are the ones that are dealing adroitly with the pressures on interchange fees (especially in Europe), he said. Many of Thredd’s clients in the region have moved to fee-based models and selling on value-adds tied to the apps and services they provide.

“We have clients that serve the thin file, unbanked, underserved customers … and they’re not making their money on interchange,” he said.

One is NatWest Rooster Money, which sets up family-focused “money apps” and cards to be used by children. Another is Zilch, which has monetized advertising dollars to help underpin its own payments network. Meanwhile, Monzo has made inroads against banks with a strong user interface and technology stack, and it now counts 10 million customers in its installed base.

McCarthy was quick to discount the potential of cryptocurrency as a space for thriving FinTechs, at least for the moment. We’re in an age when meme coins are ascendant again on the promise of a crypto-friendly administration, and he said this question must be asked: “What is the inherent value in this? Who’s on the other side of the transaction that’s bidding this up?”

The economics or the use cases for bitcoin are getting lost in the shuffle, and it all seems a bit like watching those Franklin Mint commercials — hawking a new shiny coin, but in digital form. As for regulating the space, McCarthy said, “I don’t know how you draw a fence around this because it’s pure speculation.”

As he told Webster, “From where we sit, the dust hasn’t settled,” as changes reverberate in Washington and beyond, “so we’re playing straight through it for our clients.”