I immediately assumed these cards are loss-generating and treated as CAC...
As usual super interesting!
Would love to hear your take on:
1. The unit economics of Robinhood's IRA match -> seems like RH gold members get 3% which is crazy for me,
2. The big reveal of Visa's unit economics of scheme fees in a similar way to what you just did with IC... Over the summer I spent quite a couple hours trying to figure it out from their annual reports but the breakdown they have with "service revenues", "data processing", "international transaction revenues", etc. is just so unclear. Maybe this would even require a partnership with a huge scheme fee nerd haha
1. I actually do want to do a deep dive on the IRA match and will probably do something sooner vs later. My high-level view is that it's just a version of CAC to them and the CAC is worth it. Notably the 3% match only applies if you keep your money with Robinhood for at least 2 years, so perhaps it's some combination of knowing the average IRA balance is ~$25K for Millennials so their CAC is $750 and part of that can be made up for in their other monetization rate over the 2 years that you need to hold the money?
2. This is a really good question and it's unfortunately basically impossible to break it out clearly without having an inside look into the fees, which only comes when you're an issuer of Visa or a financial infrastructure provider. Even when I've seen them on both sides (issuer side from Chime and infra provider at Unit), it's still incredibly difficult to decipher, which I've heard is precisely what they're trying to do.
Did I get this wrong. The instruction was to 'apply a haircut to be safe with 15%', but the value was increased by 15% instead of being reduced. Did you mean a markup?
Hey Franklin - I see where you're confused and it's mostly because my wording isn't clear! What I meant was - the true range is anywhere between a 10% markup or a 40% markup to interchange based on what tier you think you could get. So that would average out to at least a 25% markup. I'm taking a haircut to that and only applying a 15% markup.
Actually Hunter, you are 100% correct and I'm wrong - I calculated margins as a percent of the net cashback (aka 2.80 - 1.95 / 1.95) but the denominator should be the 2.80%. I'm adjusting that in the post and clarifying. Thanks for the note!
I immediately assumed these cards are loss-generating and treated as CAC...
As usual super interesting!
Would love to hear your take on:
1. The unit economics of Robinhood's IRA match -> seems like RH gold members get 3% which is crazy for me,
2. The big reveal of Visa's unit economics of scheme fees in a similar way to what you just did with IC... Over the summer I spent quite a couple hours trying to figure it out from their annual reports but the breakdown they have with "service revenues", "data processing", "international transaction revenues", etc. is just so unclear. Maybe this would even require a partnership with a huge scheme fee nerd haha
Great questions!
1. I actually do want to do a deep dive on the IRA match and will probably do something sooner vs later. My high-level view is that it's just a version of CAC to them and the CAC is worth it. Notably the 3% match only applies if you keep your money with Robinhood for at least 2 years, so perhaps it's some combination of knowing the average IRA balance is ~$25K for Millennials so their CAC is $750 and part of that can be made up for in their other monetization rate over the 2 years that you need to hold the money?
2. This is a really good question and it's unfortunately basically impossible to break it out clearly without having an inside look into the fees, which only comes when you're an issuer of Visa or a financial infrastructure provider. Even when I've seen them on both sides (issuer side from Chime and infra provider at Unit), it's still incredibly difficult to decipher, which I've heard is precisely what they're trying to do.
Did I get this wrong. The instruction was to 'apply a haircut to be safe with 15%', but the value was increased by 15% instead of being reduced. Did you mean a markup?
Hey Franklin - I see where you're confused and it's mostly because my wording isn't clear! What I meant was - the true range is anywhere between a 10% markup or a 40% markup to interchange based on what tier you think you could get. So that would average out to at least a 25% markup. I'm taking a haircut to that and only applying a 15% markup.
Does that make sense?
Great article. Thanks. What’s the math behind the 43% margin? I did 1 - (1.95 / 2.80) which was 31% so I must have wrong inputs.
Actually Hunter, you are 100% correct and I'm wrong - I calculated margins as a percent of the net cashback (aka 2.80 - 1.95 / 1.95) but the denominator should be the 2.80%. I'm adjusting that in the post and clarifying. Thanks for the note!
Got it - thanks for follow up.
Insane detail 👏