For years – centuries, really – banks were the only game in town when it came to money. But over the last decade or so, they’ve been increasingly feeling the heat as financial technology – fintech – disrupts more and more operations that were once the exclusive preserve of the banks.
Personal finance, in particular, is absolutely ripe for disruption, and it’s one of the reasons why the entire sector is expected to be worth $309 billion next year.
Most individuals and families have always had to manage their finances on their own – deposit paychecks, review the accounts, work up budgets, pay bills and taxes, and try and set aside some savings.
The big difference nowadays is fintech companies are innovating ways to automate and integrate those tasks as seamlessly as possible. Most families or individuals can do all of the traditional financial “chores” from their smartphone in a tenth of the time it used to take (at a fraction of the mental bandwidth), and they’re happy to pay a nominal fee – $1, $5, $10 a month – to get it done.
Right now, I’m looking at a $4 billion personal-finance disruptor looking to make overdraft fees – which average nearly $33.50 a pop in the United States – a thing of the past.
From that perspective, it’s not all that different from the way Robinhood put fees, commissions, and market access barriers in the history books.
At the moment, there’s a real ground-floor opportunity to own the company’s stock before it goes public at a tiny fraction of what it could very well be worth in a year or two…
You’ve Got a Friend Named Dave
If you live in the United States, there is a very good chance that you’ve got a friend named Dave. Heck, you could be a Dave yourself – by some measures, David is the sixth-most common name in America.
But the “Dave” I want to get to know is a brand-new, $4 billion fintech startup.
Founder and entrepreneur Jason Wilk, thinking to himself, “everyone’s got a friend named Dave, right?” created the company Dave Inc. – also known as as “Dave” or “Dave.com.”
The fintech launched in 2016, marketing itself as the “friend” you could turn to for a small loan to bump up your balances and avoid pesky overdraft fees – which, as I said, average $33.43 each in the United States.
Now, this is a sound concept for a company, and of course, fintech is a lucrative space to be in, but that’s not the only reason this particular Dave is grabbing headlines right now.
This Is One of the Most Promising SPACs Yet
Dave agreed to merge into the recently listed VPC Impact Acquisition Holdings III (NYSE: VPCC), which valued Dave at a whopping $4 billion.
VPC Impact is one of the so-called “blank-check companies” you’ve probably been reading a lot about lately. These are special purpose acquisition companies (SPACs) that offer individual investors opportunities to buy into startup ventures.
VPCC – soon to be DAVE – is generating a lot of SPAC buzz, and the way I see it, it’s all warranted.
Like I said before, Dave’s raison d’être, its main objective, is to keep you out of overdraft territory and keep your hard-earned money in your pockets, not in the wallets of big banks – but that’s not all it does.
Dave offers non-interest-bearing demand-deposit accounts and debit cards through its partnership with Evolve Bank & Trust. You can open an account at Dave, and you can link an existing bank account to the Dave Mobile app.
With a “Dave Spending Account,” a subscriber can avail themselves of “Advance Services” to get “free advances to cover upcoming expenses up to $100” if linked to another account. That’s perfect for bumping up your checking account balance, so you don’t get hit with those overdraft fees.
The company also uses artificial intelligence (AI) to predict upcoming expenses. Its “Budget” service tracks subscribers’ income and transactions to help pay upcoming bills and expenses.
And Dave offers “Side Hustle,” a network posting site that helps gig-economy jobseekers “discover and apply for work right from your phone.”
Dave Is Using a Very Lucrative Business Model
Like I said, solid concept – but that’s not the only reason you as an investor should back a SPAC. That hinges on several other key factors, one of the biggest being profitability. That said, Dave is a private company, and it’s not obligated to release its financials.
While we don’t know if the company is making money or not, what we do know is that Dave’s principal revenue comes from the $1 a month it charges subscribers, which may seem small, but the subscription/recurring revenue model is an incredibly profitable one, tailor-made for long-term moneymaking in the form of higher and higher revenues. In effect, customers become more and more valuable the longer they subscribe. Over the past few years, subscription has become the predominant model in the $507 billion software segment.
There’s a lot I like here about Dave, and I think this is an irresistible speculative opportunity. Using sensible position sizing, and not betting the farm, I’d take a position in VPCC, the common shares of the SPAC that will become DAVE when and if the transaction is finalized. Fintech is a hard-charging, high-profit sector – just look at the 246%-plus gains PayPal Holdings Inc. (NYSE: PYPL), the fintech gold standard, has turned in since the March 2020 lows. When and if the acquisition goes through, you could be looking at many, many times your original $10 investment.
— Shah Gilani
Source: Money Morning