Banking on Status

> Hello
> My name is Julian
> This is my lifelog and digital playground

How Neobanks Should Monetize Status Signaling

If you’ve been following this blog for a while, you probably know by now that one of my favorite topics to think and write about is “status signaling”.

Signaling explains most of our everyday actions: what clothes we wear, which universities we pick and which religion we subscribe to. Everything has a hidden signaling component with which we communicate our desired tribal affiliation.

In Signaling-as-a-Service, I described the implications signaling has on the monetization of software businesses. For many traditional industries, monetizing the display of status is not a new concept. A Rolex watch, for example, is not better at telling the time than a cheap Casio watch. But a Rolex reveals something about its owners’ wealth and, thus, their status in society. It’s that status message that explains the difference in price.

Similarly, driving a Prius says something about your views on climate change. A Make America Great Again cap reveals something about your political affiliations. And Nike athletic wear signals a healthy, pro-active lifestyle.

Software is at a crucial disadvantage compared to these physical products because of its intangibility. A fitness app also signals a healthy, pro-active lifestyle, but no one can see it because it only lives on your phone. Everyone can see your Nike gear whenever you wear it in public. Software can’t offer the same benefit. It doesn’t have a signaling distribution channel.

This is why there is no software equivalent of a Rolex watch or a Louis Vuitton handbag. People aren’t willing to spend money on things other people can’t see they spent money on.

But it doesn’t have to be that way. As software is eating the world, the lines between physical and digital products are becoming increasingly blurry. As I have pointed out in my original essay, one way for software companies to solve the signaling distribution problem is to add a physical element to their software product.

In this post I want to explore this idea a little bit further. Specifically, we’ll look at neobanks – and their opportunity to monetize credit card signaling.

In the last couple of years we have witnessed the birth and rise of a new startup vertical: neobanks.

Neobanks differ from traditional banks in two ways:

1) Rather than relying on a physical branch network, the entire banking experience is managed via an app

2) Instead of the “how do you do, fellow kids”-cringiness that ad campaigns of traditional banks usually invoke when they try to appeal to a younger audience, neobanks are actually perceived as cool. In fact, many of them feel more like lifestyle brands than banks or tech companies.

Interestingly though, neobanks still use one very traditional banking element: physical cards.

At first glance, this might seem counterintuitive. If you are building a mobile-first bank, why not offer virtual cards and let users pay with their phone? Why go through the hassle of producing and shipping physical cards?

The answer is – you guessed it – signaling.

Think about it: Paying for things (offline) is a social activity. It’s an interaction between at least you and a cashier or waiter. But ideally, in a dinner scenario for example, you are surrounded by other people you want to impress: a date, a group of friends, or work colleagues.

This makes the moment you take out your card to pay the bill a great opportunity to make a statement and build social capital.

If you look at neobanks out there today, it’s pretty obvious that signaling is in fact one of the main benefits they offer – and almost the only thing they monetize (apart from interchange, of course):

• The premium subscriptions neobanks offer usually don’t win on features but solely on nicer looking cards. The N26 or Revolut Metal plans, for example, don’t offer any additional features that really justify the ~€15 / month price tag. They do include a nice looking metal card though – that’s what people pay for.
• Relatedly, it seems like most of the innovation in the industry is happening in card design. The actual banking products are more or less interchangeable, what differs is whether the card comes in titanium, wood, or glow-in-the-dark yellow.
• You may have noticed that the credit card number has moved from the front to the back of the card. This makes it easier for users to share photos of their cards on social media as an additional signaling distribution channel.

Neobanks are popping up like mushrooms after the rain at the moment and it’s unlikely that this trend will end any time soon. Thanks to banking-as-a-service providers, we’ll likely see a lot of non-banking-companies add banking functionalities and cards to their product offering.

There’s an old Twitter joke that every app evolves until it eventually becomes a chat app. The 2020 version of that joke is that every app evolves until it eventually becomes a bank.

When I did some research on credit card designs recently, I was surprised by the sheer amount of different neobanks already in existance. And yet, even though almost all of them offer well-designed cards, it’s shocking how similar they all are. It seems like all of them are focusing on the same target audience instead of differentiating their signaling messages.

Let me explain.

03 In-Groups, Out-Groups and Artificial Scarcity

In every signaling scenario there are two possible target audiences: An in-group and an out-group.

The in-group is the tribe you want to join and signal your affiliation to. The out-group is everyone else – people you want to distance yourself from.

iMessage is a great illustration of this: the chat bubble colors clearly indicate who belongs to the in-group (blue = iOS) and who is part of the out-group (green = Android).

It’s important to note that signaling in iMessage is limited to the in-group since these color codes are only visible for iOS users – Android users can’t see who in the group is using which operating system.

Signaling, however, grows stronger the larger the out-group is – as long as the out-group knows about the in-group. This is why luxury car manufacturers deliberately extend their advertising campaigns to people who will never be able to afford their cars: they are increasing the size of the out-group by educating people about the in-group.

At the same time, brands need to control the size of the in-group. The more exclusive the in-group, the higher the signaling strength and, thus, the monetization potential of a customer.

The easiest control mechanism for the size of the in-group is price. If you set the price high enough, few people will be able to afford the product. Ironically, this, in turn, justifies the high price.

Alternatively, companies create artificial scarcity by setting a hard number on supply. Limited supply creates FOMO and hype which increases the size of the out-group and results in higher social status for members of the in-group. Artificial scarcity explains the price of Bitcoin, Pokémon trading cards and why people spend hours queuing in front of Supreme shops.

The problem with keeping the in-group small is that it also limits the number of potential customers and, thus, overall revenue potential. Companies need to walk a fine line between maximizing the number of customers while simultaneously maximizing the number of people they can (afford to) exclude.

The problem with neobanks today is that they all focus on the same in-group. Here are the premium cards of some of the largest European challenger banks – notice any difference?

It seems like everyone is trying to become the Apple of Banking – including Apple itself. The signaling messages are all about displaying economic power.

But we are slowly seeing new banking apps that are focusing on different audiences. For example, there are now a handful of “green” neobanks that help users signal environmental altruism.

Or how about this Razer Card targeted at the gamer community?

The question for these companies and their investors is whether the in-group is big enough to justify building an entire bank around it. Making the unit economics of a bank work requires a certain amount of users, but as we discussed earlier, the signaling strength decreases as the size of in-group increases.

So how do you solve this problem?
By introducing multiple in-groups.

See, the current model looks like this:

(In fact, given how undifferentiated most of the offerings and cards are, there are actually multiple neobanks within the same small in-group bubble.)

But what if one bank would target multiple, different in-groups?

For example, what if N26 had dedicated cards for soccer fans, hip-hop enthusiasts and gamers? Instead of focusing on just one signaling audience, their total addressable market would massively increase.

The way they would target these audiences is via brand collaborations. N26 does not have the necessary reputation in any of the above-mentioned areas to build credible signaling messages. It would not be able to build attractive in-groups on its own – but other brands could lend N26 their social capital.

Apple has long worked with RED, IKEA recently teamed up with Virgil Abloh, and Nike partners with Headspace. Why wouldn’t this concept work for neobanks?

What would N26 x Manchester United look like?
Or Chime x Supreme?
Or Revolut x 100 Thieves?

Because of a bigger target audience overall, individual in-groups could be kept smaller. Cards could be released as limited edition drops transforming them into collectibles, which would justify a higher price tag per card.

It’s worth noting that different signaling audiences are not mutually exclusive. We don’t just subscribe to a single in-group – our identities are prismatic. This means that some users might purchase multiple cards to signal to different in- and out-groups resulting in even higher expected LTV per user.

A few neobanks have already started to experiment with brand collaborations and limited edition cards (see Cash App x Hood By Air or Point x Laura Berger). I expect there will be a lot more once neobanks realize what most of them really are: Signaling-as-a-Service companies.

What card designs and neobank collaborations would you like to see? Let me know in this Twitter thread – I’d love to hear your ideas!

And if you’re an (aspiring) 3D artist or designer: Would you like to bring some of these card ideas to life? There will be a follow-up post to this essay featuring the best card mock-ups. Send me a Twitter DM or email (hello at julianlehr dot com) if you want to learn more.

Thanks to Brandon Jacoby, Jan König, Mario Gabriele, Max Cutler and Zack Hargett for reading drafts of this post.

> Hello
> My name is Julian
> This is my lifelog and digital playground

Today marks the 77th day since I got onboarded to Clubhouse.

Clubhouse, for those not familiar with it, is essentially an audio-first social network. It’s kind of a mix between Reddit and a podcast. An interactive radio show. The app lets you jump into different chat rooms and participate in – or just listen to – live audio conversations around different topics.

It’s an exciting product.
And yet, in these last 77 days, I have actively used Clubhouse exactly three times.

The problem with Clubhouse is that you can only listen to conversations live as they happen. Given that the majority of the current user base is in North America, the most interesting conversations usually happen in the middle of the (European) night when I’m asleep.

The first thing I see on my phone after I wake up are a handful of Clubhouse notifications telling me about the all the interesting conversations I missed. I wish I could just download these conversations as podcasts and listen to them later.

Some have pointed out that the live nature of Clubhouse is exactly what makes it so special, comparing it to the ephemerality of Snapchat. And while I disagree on the Snapchat comparison (ephemerality ≠ synchronous creation and consumption), I do think it makes sense for Clubhouse to find its own native format rather than compete with podcasts directly.

While Clubhouse feels like live podcasts at the moment, I think over time it will probably evolve into something else. Something more unique.

The current state of Clubhouse reminds me of the early days of Twitter: People knew it was a unique new form factor, but they didn’t know how to use it yet. Most tweets were just short status updates. It took some time until the platform found its current form and use cases.

One of those use cases is “Twitter as a second screen”: Live commenting TV shows and sports events. I strongly suspect that this will become one of Clubhouse’s main uses cases as well.

As I pointed out in Airpods as a Platform, I see audio primarily as a secondary interface: You listen to music while you’re working out, for example. You consume podcasts while you are driving or commuting. You talk on Discord while you’re playing a game.

Audio is a medium that supports and augments other activities.

So instead of thinking about whether Clubhouse should make conversations available as downloads, a perhaps more interesting question is what activities could best be augmented with live audio? What does Clubhouse as an audio layer for other content look like?

The most obvious use case seems to be sports (and other events that have to be consumed live). I would love to replace the audio track of my TV sports broadcasters with a select group of (Clubhouse) experts whose opinions I’m actually interested in.

I wonder what other events or activities this would work for.
Do you have any ideas?

I set myself 24 goals for this year and completed 9 of them (38%), which is a significantly lower success rate compared to my 2019 and 2018 lists (60% and 56%, respectively).

• Publish 52 blog posts
  This was my number one goal for this year and even though I ended up publishing only 39 posts, I managed to make writing a weekly habit. Starting to write on a regular basis has been one of best decisions I’ve ever made. Over the last 366 days, my essays have been read by more than 100,000 people, my Twitter follower base grew by more than 10x and I’ve met so many incredible and interesting people in the process. The internet is amazing.
• █████ ██ ███████ ██ ███
• Read 20 books
  Ended up reading 21 books. The Glass Hotel was the best fiction book I read this year, History Has Begun was my favorite non-fiction book.
  
• Watch less TV
  I spent more than 160 hours watching TV this year – up more than 28% YoY. I blame the pandemic. And The Sopranos.
  
• Swim a total distance of 120km
  Due to covid-19 I only managed to swim 72 kilometers this year.
• Go for a swim at least once a week
  
• Back exercise every second day
  Did my exercises on 59.29% of all days.
  
• ██████ ████ ████
  
• ████████ ████
  
• ██ ████████████
  
• Ship a redesign of this blog
  Still playing around with different mock-ups.
  
• Finish work on my daily uniform
  
• Conduct a 2020 Quantified Self Project
  
• Publish my 2019 Quantified Self Report before end of Jan
  Didn’t find time to do this.
  
• Limit meat consumption to 24 days
  
• No alcohol if I have to work the next day
  My beer consumption decreased by more than 69% and I had 13% less cocktails. I had a few more glasses of wine though (+31%)
• Visit 1 country I haven’t been to before
  
• Explore more new places
  I measure this in form of Swarm check-ins at locations I haven’t been to before. My goal for this year was to make every 4th check-in a new place (25%). I ended up at a 26% rate.
• Build a Personal CRM system
  While I didn’t do what I originally set out to do (building a CRM system myself), I found a pretty good solution in Clay, which does pretty much exactly what I was looking to build.
• Keep phone screen time below 1h per day
  This was a way too ambitious goal.
• Meditate 1h per week
  
• Do a 3 day silent retreat
  
• █████████ ████ ████████
  
• ██████████ █
  

• Read 5 books (1164 min, +15% MoM) and 48 long-form articles (+200%)
• Listened to 639 songs (+43%) and 23 podcasts (1321 min, +148%)
• Watched 2 movies (232 min, -56%), 8 soccer games (840 min, -15%) and 16 TV episodes (771 min, -25%)
• Played 3 board games (895 min, +∞%) and 1 video game (50 min, +∞%)

Breasts and Eggs (Mieko Kawakami)
░▓░░░░░░░░░░░░░ Progress: 6-16%

Working in Public (Nadia Eghbal)
░░▓▓▓▓▓░░░░░░░░ Progress: 12-49%

Sharks in the Time of Saviors (Kawai Strong Washburn)
▓▓▓▓▓▓▓▓▓▓▓▓▓░░ Progress: 0-84%

Stripe: Platform of Platforms (Stratechery)

Fundraising for Space Elevators (Daniel Gross)

Tobi Lütke (The Observer Effect)

Platforms, bundling and kill zones (Benedict Evans)

Shigeru Miyamoto Wants to Create a Kinder World (The New Yorker)

Endnotes on 2020: Crypto and Beyond (Vitalik Buterin)

Washington’s Secret to the Perfect Zoom Bookshelf (Politico)

The Last Question (Isaac Asimov)

The Fable of the Dragon-Tyrant (Nick Bostrom)

Metamuse Podcast
↳ No particular episode recommendation, I found all of them super interesting.

Sam Hinkie – Find Your People (Invest Like the Best)

Top Artists: Sufjan Stevens (35 plays), Billie Eilish (33), Max Richter (28), Charlie Parker (24), Radiohead (21)

• Read 11 books (2456 min, +111% MoM) and 26 articles (-46%)
• Listened to 263 songs (-59%) and 15 podcasts (749 min, -43%)
• Watched 1 movie (107 min, -54%), 7 soccer games (835 min, -.6%) and 21 TV episodes (1079 min, +40%)
• Played 0 board games (0 min, -100%) and 1 video game (25 min, -50%)

Sharks in the Time of Saviors (Kawai Strong Washburn)
░░░░░░░░░░░░░▓▓ Progress: 84-100%

Breasts and Eggs (Mieko Kawakami)
░░▓▓▓▓▓▓▓▓▓▓▓▓▓ Progress: 16-100%

Atomic Habits (James Clear)
▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓ Progress: 0-100%

The Outsiders (William N. Thorndike Jr.)
▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓ Progress: 0-100%

The Shortest History of Germany (James Hawes)
▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓ Progress: 0-100%

Earthlings (Sayaka Murata)
▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓ Progress: 0-100%

Platform Revolution (Parker, Van Alstyne, Choudary)
▓▓▓▓░░░░░░░░░░░ Progress: 0-24% (stopped reading)

Albert Speer: His Battle with the Truth (Gitta Sereny)
▓░░░░░░░░░░░░░░ Progress: 0-9%

Notes on technology in the 2020s (Eli Dourado)

The Roleplaying Coup (Bruno Maçães)

Welcome to the Government-IT Infrastructure Complex (Albert Wenger)

Why can’t I write code inside my browser? (Tom Critchlow)

Still Alive (Scott Alexander)

Frameworks v0.1 (Chris Paik)

Noubar Afeyan on the Permission to Leap (Conversations with Tyler)

Top Artists: Abel Korzeniowski (11 plays), Paul Kalkbrenner (11), Tame Impala (9), Travi$ Scott (9), Muse (8)

• Read 3 books (2202 min, -10% MoM) and 22 articles (-15%)
• Listened to 364 songs (+38%) and 15 podcasts (749 min, same)
• Watched 8 movies (885 min, +727%), 7 soccer games (965 min, +16%) and 7 TV episodes (405 min, -62%)
• Played 0 board games (0 min, same) and 1 video game (120 min, +380%)

Thinking in Systems (Donella H. Meadows)
▓▓▓▓▓▓▓▓▓░░░░░░ Progress: 0-62%

My Struggle (Book 1) (Karl Ove Knausgård)
▓▓▓▓▓▓▓▓▓░░░░░░ Progress: 0-62%

Creeping as a Service (Fadeke Adegbuyi)

Concept: Some ways Apple can avoid antitrust concerns (9to5Mac)

Apple, Its Control Over the iPhone, The Internet, And The Metaverse (Matthew Ball)

NFTs and a Thousand True Fans (Chris Dixon)

An Interview with Eric Seufert about Apple, Facebook, and Mobile Advertising (Stratechery Podcast)

Top Artists: Daft Punk (28 plays), Keane (25), Mikel (15), Imogen Heap (14), Arctic Monkeys (13)

• Read 6 books (1664 min, -24% MoM) and 43 articles (+95%)
• Listened to 596 songs (+64%) and 17 podcasts (747 min, -.3%)
• Watched 2 movies (251 min, -72%), 5 soccer games (680 min, -30%) and 15 TV episodes (944 min, +133%)
• Played 0 board games (0 min, same) and 0 video games (0 min, -100%)

My Struggle (Book 1) (Karl Ove Knausgård)
░░░░░░░░░▓▓▓▓▓▓ Progress: 62-100%

The Human Use of Human Beings (Norbert Wiener)
▓▓▓▓▓▓▓▓▓░░░░░░ Progress: 0-61%

Titan: The Life of John D. Rockefeller, Sr. (Ron Chernow)
▓░░░░░░░░░░░░░░ Progress: 0-1%

Noah Smith interviews Patrick Collison (Noahpinion)

You merely adopted dark mode (Jonathan Libov)

You Can’t Kill the Bloomberg Terminal. But If You Were Going to Try, Here’s How. (Byrne Hobart)

What If? (The Rest is History)

Kanyi Maqubela – Dawn of the 21st Century (Invest Like the Best)

Top Artists: Hans Zimmer (96 plays), Slut (38), Sufjan Steven (31), Element of Crime (29), Bloc Party (25)