Open Banking has the potential to generate significant cash flow for Cardlytics with an extremely long runway. Better yet, it is completely ignored by most investors.
First, let me just say that the thoroughness of your research is very impressive, not only on this piece but on all of the pieces in your Substack. You go further than most do, and that is very commendable. Just a couple of questions from me:
1. Nectar Connect appears to have closed its operations around a month ago. Thoughts on this?
2. Looks like the adoption of Open Banking in the US is imminent with the CFPB's new proposal. If Open Banking is adopted in the US, would it not technically lower the Cardlytics' MAUs from US banks as the users are now required to opt-in to the program? Of course it would be possible that the majority of the US customer base opts-in to the program, but I think it would be more realistic and conservative to assume that only a fraction opts-in. Following this, would it not make the Cardlytics' proposition to the advertisers less attractive? I agree with your point that even though the number of enrolled users would be lower with the opt-in requirement, the engagement rate of the enrolled users would be higher. But, I think Cardlytics has said in several earnings call that advertisers in their core US market are most interested in platforms with 100 million+ MAUs. In short, while I agree that Open Banking is an attractive growth opportunity, it seems to me that there might also be a significant threat to Cardlytics' existing US banks user base. What are your thoughts on this?
First, do note this write up was from over 1.5 years ago, so some things have changed.
The biggest change is a completely new management team with new focuses. New management has not discussed Open Banking at all. This was more a focus of the old management, and trying these partnerships outside of the banks to leverage Open Banking. New management though is now focusing on expanding globally, but has not said that they will be leveraging Open Banking or not.
With respect to Open Banking in the U.S., I would not expect any decrease to the current MAUs. These users are already enrolled. It would surprise me if they would opt out all current users due to Open Banking and then require them to opt back in, especially since they have the ability to opt out if they want. Could maybe see opt in required for future / new users, but we have seen the opposite of that occur with Lloyds in the UK who previously required opt in, but now new users will be auto enrolled. Additionally, I would not expect users to opt in if CDLX signs another bank in the U.S. From my understanding, this opt in would more come into play outside of banks, where users have to opt in to give approval to share data from their banks to somewhere outside of the banks.
Hi Austin,
First, let me just say that the thoroughness of your research is very impressive, not only on this piece but on all of the pieces in your Substack. You go further than most do, and that is very commendable. Just a couple of questions from me:
1. Nectar Connect appears to have closed its operations around a month ago. Thoughts on this?
2. Looks like the adoption of Open Banking in the US is imminent with the CFPB's new proposal. If Open Banking is adopted in the US, would it not technically lower the Cardlytics' MAUs from US banks as the users are now required to opt-in to the program? Of course it would be possible that the majority of the US customer base opts-in to the program, but I think it would be more realistic and conservative to assume that only a fraction opts-in. Following this, would it not make the Cardlytics' proposition to the advertisers less attractive? I agree with your point that even though the number of enrolled users would be lower with the opt-in requirement, the engagement rate of the enrolled users would be higher. But, I think Cardlytics has said in several earnings call that advertisers in their core US market are most interested in platforms with 100 million+ MAUs. In short, while I agree that Open Banking is an attractive growth opportunity, it seems to me that there might also be a significant threat to Cardlytics' existing US banks user base. What are your thoughts on this?
Thank you!
Hey Evan,
Thanks for reading and your thoughts.
First, do note this write up was from over 1.5 years ago, so some things have changed.
The biggest change is a completely new management team with new focuses. New management has not discussed Open Banking at all. This was more a focus of the old management, and trying these partnerships outside of the banks to leverage Open Banking. New management though is now focusing on expanding globally, but has not said that they will be leveraging Open Banking or not.
With respect to Open Banking in the U.S., I would not expect any decrease to the current MAUs. These users are already enrolled. It would surprise me if they would opt out all current users due to Open Banking and then require them to opt back in, especially since they have the ability to opt out if they want. Could maybe see opt in required for future / new users, but we have seen the opposite of that occur with Lloyds in the UK who previously required opt in, but now new users will be auto enrolled. Additionally, I would not expect users to opt in if CDLX signs another bank in the U.S. From my understanding, this opt in would more come into play outside of banks, where users have to opt in to give approval to share data from their banks to somewhere outside of the banks.
Let me know if you think differently.
Hi Austin,
Thanks for your reply.
Understood, that makes more sense.