getmetheswan

I am new to posting here - can't see your email. I've put mine in my profile. Just pop me a note and will take it from there.

Johnie,

Any chance we could chat? I am NY based and sounds like we tread similar territory. This analysis is scarily on point!

G

I can't comment on the UK eco-system, but things are definitely more difficult in the US.

You first have to convince a prepaid provider to work with you. You'll need runway for this. You then have to convince a bank to back your card program. For this you also need runway. And if you get through that and start developing, you are immediately on a clock since card program fees are substantial when they kick in.

Let's say it takes you 6 months to get from scratch to launch and fees are waived up to that point. I'd guesstimate you now need a minimum of 25K retained users on your card program to cover costs. If you have a conversion rate of 5%, that means 500K downloads. And that's before factoring in churn.

The PiggyBank team raised 100K. They were two people and iOS only. It is a stretch to think they could achieve all of this before running out of cash.

I am with Johnie and a few others - the lesson is to try something less ambitious first and use success there to raise money to build something more ambitious.

'They just made it hard for no reason'. LOL. Osper has raised over 11MM. It takes a lot more than a kickstarter campaign to fire up a card program like Osper or GoHenry. Give Marqeta a call and check out their fee structure.

If there is constructive feedback here, it is that there were smaller, cheaper hops PiggyBank could have taken to get a smaller product out there earlier to validate assumptions. And if they had taken a few of these hops, they would have learned along the way, and maybe one day would have had a chance to pitch for a 10MM raise. But they didn't.

It feels like a typical 'first startup' experience - as founders, not employee. At least there is some really great collective feedback in this thread about how they could approach things differently if they were to try again. Unfortunately, little of it is on tap when there are just two people in a room trying to navigate a path.

Thanks for sharing Oscar.

Agree.

The fact is that the solution needs to evolve as the kid gets older. This specific solution - a card based one - is best suited for teens.

What if your 14 year old is going to soccer camp in another state for a month? Handing them a jar stuffed with $400 of cash is not a great solution.

The challenge is storing money, legally, on behalf of a customer. No normal startup can afford to get licensed.

So you need to legitimately work around the 'stored value' problem, i.e. you need to find a 3rd party with a legal solution. That's either a real bank account or a prepaid card. And the 3rd party has to have an API that allows you to open accounts, execute transactions, etc.

The card program requires a bank partner too. And card programs cost 10K+ a month to run, regardless of whether or not you have 1 card issued or 250,000. Lots of cash burn early.

So that's the target state. Johnie outlined some nice interim steps below, but this is not simple. Oscar took on a challenging business problem.

Yes. Amazon for example was a normal merchant for years and did not need a money-transfer license. However, as soon as they decided to open a marketplace for 3rd party stores, they required licenses. And they got them.

The rule is simple - if you take and hold on to customer funds, you need to be licensed for money transfer in all the states you operate in.

Today, a few services like Braintree and Stripe offer a middle ground solution. Essentially, they will open an escrow account for your merchant customers, and you move any money your holding into the escrow. They will then hold the funds until you release them. This approach is clever, but still a legal grey area.