This isn't about an "app". This is about a business that initiates transfers of money from one account to another. The people behind this didn't realize what business they were in.
If you want to initiate transactions in the financial system, you have to work through what happens when things go wrong, and be prepared, financially and operationally, to handle them. How does the money get from the parent's account to the kid's account? Note that if the kid can get cash out, you can't fund this with a credit card. Visa and MasterCard don't let you buy money with a credit card; that's too fraud-prone.
So, as someone pointed out, you're back to ACH debits. Getting set up for those is hard, for good reasons. It gives you a connection to other people's bank accounts. So you need financial strength, bonding, and good references.
Note that the chore list has to be secure, too. Otherwise the kid can add "Mow lawn, $1000", check off the item, and drain the parent's account.
If you try to do this by having the parent transfer money to you in advance, and you then release it to the kid later, you're now a depository institution. In most states, you have to be a bank or a money transmitter to do that. (It's so tempting to take the money and run, and that's happened enough times that such businesses are regulated.) Also, that's a pain for the parent. They might as well use Venmo.
PayPal was successful partly because, back when they were above the bike shop on University Avenue in Palo Alto, they started as a security token maker. So they had security people and were familiar with the problems. A big portion of PayPal's operating costs come from dealing with fraud. The legit transactions are fully automated; the problems require a big call center.
I don't understand why they couldn't simply release the app without the money transfer part, and it would just keep a tab of how much the parent owes the kid. Then, when the parent gave cash or whatever, the debt would just be wiped.
Right on. If you're getting into the ACH debit business there's also a set of rules established by NACHA (aka 'NACHA compliance') which regulates the transactions and controls them to the point where you have to obtain payees explicit approval to move the funds.
Which is why if you pay your credit card statement by phone for example, you'll hear the service rep read the consent form for you to say 'yes' once they are done before they can withdraw the funds.
Right. And yet, it is an app. They wanted to start a money transmitting business so they could provide the questionable value of a chore list app. And that is a big part of why this was a bad idea.
I feel that there are structural problems with this business concept that wouldn't be solved by a bank partner / additional capital / etc. Note that I am not a parent.
The fact is that kids should not be paid for chores on a chore-by-chore basis. This is perhaps the way that you should do things if you just need labor from your children, and want someone who will rake the leaves for cheaper than a hired gardener. But most parents also want to teach their children good values, and one of the most important social things to learn is about reciprocity in relationships. In transactional relationships, where you will perhaps never see the person again, reciprocity must be established immediately (paying for a cab ride, tipping a pizza delivery person). But in social relationships, immediate 1-for-1 reciprocity actually damages the relationship. If you were invited to a dinner party, would you try to pay the host for the cost of your food? Of course not. If it's casual friends, you might bring a bottle of wine, and if it's very close friends, you may not even do that, as you know you will be inviting them over at some point. Paying a child per chore teaches them to treat their family obligations as transactional obligations, rather than teaching them about the nature of reciprocity in a close personal relationship.
Also, when teaching kids about money, I think that many parents prefer to teach kids about "the value of a dollar" with cash, rather than with a bank balance. My parents opened a bank account for me in 4th grade, which was very unusual at the time, to encourage me to save my money, but even then I found that spending money was and is a lot easier when it's a number on a screen than when it's paper money that you take out of your wallet. By first finding pennies and nickels on the street, then getting $5 bills from their parents, and then graduating into a bank account, people learn to appreicate just how many found nickels it takes to buy a flatscreen TV.
I'm not entirely sure why there needs to be a financial services or banking contract to build this app and startup. What's wrong with PayPal? Or bank accounts? Or Stripe/Square/Braintree? Paper checks?
This might be a little harsh for what seems like a sincerely useful app and startup, but the problem with the "Yo" startups is that it's just raking leaves (money) to compost them or light it on fire. If the value is in the app, sell the app. If the value is in other people's products and services, then there's no value in it. And if the value is in the "idea" then it's hopeless. If the value is in the fundraising, then we're lost.
What I don't see is why the idea, PiggyBank, couldn't be functional in the first week. Just like I don't see why a company needs $X billion with no imaginable costs or expenses to put that money toward.
Let's say it isn't possible to do mobile-to-mobile payments (which I think it is), or online payments, without owning a bank — then why not release the same app and when you do the chores for your parents or your uncle they put money in a jar? Beyond not making revenue, having users is at least some sort of reward. When you have the revolutionary breakthrough, add that to the app.
And finally, don't leave your job over something you think is a good idea. Make it a reality, and if it takes all of your time and it can support you, then make the jump.
Obviously these aren't things any founder wants to hear, but someone with a greater risk aversion might be able to be as productive with a more realistic focus than the average SV press release.
Edit: Obviously this is a little naïve considering all things, but I'd still like to see the payments possible on a "small business" scale of things.
I'm also curious about the bank integration issue, but I'm tired of people saying things like why app x or website y "couldn't be functional in the first week".
have you launched an app that you expect to build a company out of? it takes a lot more work than most people think. people love to over-simplify building software by saying 'its just an app', oh, twitter is just a list of sorted strings, seriously try building a solid, fleshed out product you expect thousands of users to use in 1 week. it's not that easy.
PayPal, Stripe, Square, and Braintree (which is PayPal) are interested in helping merchants accept payments for goods and services. Dunno about Square, but PayPal and Stripe explicitly disallow the use of their platform to build any other money-sending service.
In generally children need to be driven to the bank by their parents, so why we'd also loop in a 3rd party (instead of the parent writing the child a check) is unclear.
My family solved this problem by maintaining an informal ledger and settling by transfer between our (linked) accounts at the same bank, but there's no way a random startup would get that kind of API from all the major banks - AFAIK even Mint is still screen scraping.
I agree with all of this except the one week thing.
But the thing is, these deadlines were self-imposed. It wasn't like someone else was imminently about to release a similar app and they had to race to get it working. At least spend the time to get it working and fully-functional before really shopping it around. Rather they wanted to churn out some half-baked, random "good sounding" idea and then when they got funding race to make it work.
In my experience when I'm building an app or something, I learn a lot about what features make sense and what's going to be really hard to implement while building it out privately or with a small team. I/we address those issues and look for solutions or other ways around and aren't on a schedule to ship some product and hire some backend database developer to fill some huge knowledge/experience gap on short notice.
Of course hindsight is 20/20, but I think not jumping the gun like this should be good business practice.
Really I see no reason why someone had to quit their job for something that wasn't even functional. If it's functional and getting some traction and has funding, great, quit your job and do it full time, imo.
As an aside and maybe an unpopular opinion, I really doubt the founder's long-haired look was helping the brand's perceived legitimacy. Though I don't have a problem with it personally, I know the "out there" look can turn a lot of people off.
> having users is at least some sort of reward. When you have the revolutionary breakthrough, add that to the app
Actually this approach "MVP" works well with web applications, but it doesn't work too well with mobile apps. In fact, it's quite the opposite. With mobile apps, you have to make a big splash in your launch, get most things right, and just minor tweaks once you're launched.
The alternative approach is to launch your MVP in a small and/or isolated market (a non-US country), hash it out there, and once you have your approach all figured out and your "revolutionary breakthrough" working, then do your main release worldwide.
Long story short here is this app isn't acting as a "merchant" rather as an intermediary between counterparties in financial transactions which requires banking relationships to be established to drive the flow of the funds.
Also keep in mind that Stripe/Square/Braintree etc are processors not banks. They will help you move the funds around but as far as where those are moved from/to that's on you even if you're a Merchant. Once you get into the "middle man" business the plot thickens quite a bit.
Some people here are commenting on how bad the idea is. There are worse ideas out there that did and continue to do so much better.
The problem here I think was defining the MVP with a timeline. They could have just started with some virtual currency (like a point system) ... kids don't care about money or points as long as they accumulate something. This virtual currency or point system could have been used by parents to say to their kids "if you get 20 points I'll hand you a $20 bill".
You can make an app like that pretty fast, independent of any "partner ecosystem" and then if the idea lifts off then invite the big players into your ecosystem.
> If you need to raise money to launch your product do that first. Don’t even think about building out your product outside of a very simplistic prototype.
There are products that need initial cash, but this isn't one of them. If they had a fully functional MVP that people could use and enjoy, funding would come to them.
My comment is late, but the thing I take away from this (and I'm biased) is that the VC-first track is as terrible as it's been made out to be for years. Now they have a real business, helping people for money, and all the crazy shit they had to deal with as a start-up isn't a factor now. They've bootstrapped, successfully, and NOW would be the time to start working on a product.
I get it, opening another consultancy isn't the most glamorous thing, but man it gets you to solvent quickly. Then you build a product in your off time WHILE being your own boss. The flexibility is awesome.
That's what we did. Somewhat accidentally, but it's awesome. Now we are a product company with no investors and 100% equity.
Now that's not to say that someone shouldn't take money - but do it now, after you're a business, after you stop wondering where the next dollar is coming from.
So basically this was a 'to-do' app like you can find on any beginners tutorial (quick Google example: https://www.thepolyglotdeveloper.com/2015/03/create-todo-lis...) the only difference was banking integration which would have been trivial to add in, they could use paypal, stripe, take the payment themselves and pay the kids out in apple credits etc
Somehow not only did they convince some poor sap to give them $100,000 for it, but that wasn't enough, they had to keep 'fund raising'. They had no outlay at all, just build the app and deploy.
I'm really struggling to understand the mindset here, not just of the developers who didn't need any investment to write that app, but the people who actually dumped money into it.
The app is reasonably simple, except of course it's a little more involved than a to-do list from the get go since you have to maintain user's accounts, assigned tasks with mutable states, transaction history etc etc.
But yea no rocket science.
Banking integration for this flow would be reasonably involved though. To get set up with a merchant account to take the funds is reasonably simple although you'd have to figure out how the payers tie their payment instruments to your system so you can actually charge them and then develop the functionality to drive that (more dev work). OK.
So now you have the funds that you need to be able to move to recipient's accounts. THIS is where the fun begins.
Provided that you have the registration flow for the recipients in place (which means more dev work but anyway) now you have to be able to disperse the funds to their accounts, track payment statuses, reconcile data across multiple sources so you are aware of the current state of the payment etc etc ad nauseam.
And if you're touching a credit card number don't forget about PCI compliance :)
I agree with the sentiment of convincing someone to give them money and then continuing to fundraise without a plan, but I think this is getting downvoted because you're acting like all this integration is trivial. It's really not. There are a million little things that take much longer to build/integrate than expected. But my contention is that even if it took a while to build/integrate/"pivot", there was no rush to do this part before seeking initial funding.
I love these type's of posts. Very raw, very honest. Sure it's a pitch for their new business but they deserve the free ad since they got me to read to the end.
I may be totally out of touch, but why would someone give someone else $100,000 for an app? And why wouldn't $100k be enough? By the end they needed $700,000 "bare minimum."
I just don't get how this can cost so much.
Making something like this in one's spare time while getting paid with a salaried "real" job seems like it would totally be sufficient to get moving.
But assuming it really takes $700k on hand to get these bank sponsors, why not just change the model slightly. For example, integrate with Square cash or something similar. Square is dead simple to use and the money arrives instantly, not sure if it's integrate-able in this manner though, but the concept stands.
And then maybe when the company is really successful with tens of thousands of subscribers, partner with someone to add direct bank account integration.
Sorry if this sounds callous because I really don't mean it to be, I'm just flabbergasted the amount of money involved for some app someone came up with randomly.
Two comments
1) If the investor had another idea of how to make the product work, why did that not come up earlier? You should be working "with" your angel investor, not selling your work to him so he can run it.
2) You took the wrong lesson from this. "Don't even think about building your product" is the wrong mentality. Build it quick and get a few people using it. Figure out what you need to do to get people using it. The MVP for piggybank didn't include payments (possibly) or it had something else.
The founders here didn't find a way to make this product work. It's a great idea (I think) and now the first Angel investor is going to take it and make it work because for some strange reason the founders saw the hard road, the one which could break them and destroy their dreams and they decided to run straight into that wall with their eyes closed instead of finding a different route around.
They got really screwed by their first banking partner. This is when having a good lawyer would have helped.
The correct course of action would have been to politely tell the bank that they would not free the bank from their duties under the contract but would welcome any new introductions. Under their duty to limit their damages, the startup would do everything possible to find a new bank partner, and if they did the original bank partner would be free from their obligations without paying any damages.
This way you get the bank to help you but still be liable under the contract if things do not work out.
Of course nothing here is legal advice, every situation is different, so do consult a lawyer for your own situation.
Echoing what many others on this thread have said - FinTech isn't just hard, it's insanely fucking hard. The technology piece is truly the easy part. Build the app, design a nice interface, and so on.
Then you have to deal with the banks, and yes, you absolutely must deal with the banks. There is simply no way around it. Anything having to do with money is heavily regulated and for good reason.
The first rule of creating a product that involves money is that people will look for ways to exploit it (read: fraud). There are many great FinTech startups out there right now wanting to do great things and the simple truth is that it is orders of magnitude harder than just about anything else. Barring, maybe, sending people to Mars or disrupting the car industry. :)
I worked for a startup where we had to take credit card payments.
The first bank we dealt with let us sign up for a merchant account, even knowing the kind of business we were in would require 'cashing out' winnings, without batting an eye.
Then in the first weekend with our shiny new merchant account [1] we racked up 5 figures in sales and they froze the account. They said they suspected fraud. It was an insane hassle to get people their money back.
I assume the guy got a commission for signing us up; no loss to him if the merchant account didn't actually work for us. ¯\_(ツ)_/¯
Later on we found another way to pay people out, and signed up with a better merchant account that has redundancy,[2] i.e. it is backed by two merchant accounts behind the scenes, so we can switch to another one if one of them get's 'upset.'
Credit card merchant accounts can be shut down on you for any reason at any time, we've learned, leaving a complicated mess to sort out.
[1][2] After a considerable amount of development work to integrate with their API.
Just seems a bit absurd to me the amount of effort put into an idea that can be replicated in your own home by putting money in a jar for the kid and then when it's full enough to buy skyrim or whatever put the money in your pocket and order it off amazon for them.
Get to engage with your child on a person to person basis too… not parent via an app and servers.
Not to mention I really don't understand where all the investor money went with no product to show for it. Seen as the payment part never got fully fleshed out we're left with a several thousand dollar todo list...
It seems like they concentrated on the easy stuff (design, app, marketing), and ignored the hard stuff (banking). You need to do the opposite. Work out what is hard, get that started asap. Visit it every single day. When you are blocked and waiting, then you do the easy stuff.
This sounds like a neat concept but then again is this something that really needs to be automated with an app?
A friend of mine made a kanban board for chores. There's some chores that have to be done within a week, and there's some that are optional. The optional one has money clipped to it and when the card for that chore is done the child can take the money. And the mother is the one that moves the card to done.
So kind of the same thing as this app, but a physical board. And I don't see how moving this to an app really enhances or disrupts the physical board.
This app is basically a todo list app with financial transactions just for the hell of it. A simple points system would have been enough and then the kid would show the score to the parents to get the money.
No better way to ruin children's motivation to do something for its own sake, than paying them for chores. Nothing personal, but I'm glad thjs project flopped. So many children are better off without external monetary motivators. Those will lead to disaster in their lives and 9-5 jobs they hate.
Not really. Kickstarter for a software play is a fool's errand in the first place.
Kickstarter works best as a marketplace for things that don't yet exist.
How does software that is "free" (I'm guessing they planned on taking a fee off of transactions) have a value proposition for people on kickstarter?
Their big mistake was not having the payments backend as a secondary stage goal. They should have built the chore tracking sans payment integration (or using a typical payment processor like Stripe/Dwolla/PayPal to process), and got that up and running with real people. If they had a proven model for everything short of the debit card, fundraising would have been much easier than "we promise guys, this is totally going to work."
No MVP.
No talking to users.
No strategy.
No surprise they failed.
MVP - build an app with parent login, child login and a points system for chores.
Talk to users (parents) by having chat in the app.
Find how to acquire users cheap, retain them, and make them pay. Go for a bank partnership when it is a compelling business proposition. Banks like money, not startups with no profits and no users.
A former Googler just launched www.nickel.co, which is an app for kids to manage their allowance. Their backing bank is Sutton Bank.
My guess is one of the partners that they were referring to is CorePro (http://corepro.io/) which was spun out of SmartyPig (https://www.smartypig.com/). Their backing bank was Lincoln Savings Bank.
One of the consumers of CorePro was Qapital (qapital.com). It seemed like recently, they switched models from Lincoln Savings Bank's individual account to Wells Fargo's custodial account.
In any case, if you're doing anything in consumer FinTech, the technology/product is the easy part. Banking partnership, customer acquisition, and unit economics is the hard part. Focus on solving the hard part first before building the technology.
Edit:
One thing that they could have done for an MVP is a bring-your-own-bank-account model.
1) Parents would open a bank account for their kids (or the kid may already have their own bank account)
2) Integrate with Plaid Connect to get ACH info.
3) Use Dwolla ACH API (free) to transfer funds between parent's bank account to kid's bank account. (The downside of this is that this is a 2 legged ACH transfer which may take up to a week -- but for this use case, it shouldn't be a problem.)
This will get them the same value proposition that they would have had with bank integration. Once they prove out the demand, they can then optimize:
1) [Reduce ACH lag] Use an actual ACH processor that will handle the transfer between accounts. The downside is that this is expensive.
2) [Reduce ACH cost) Use a real bank (Wells Fargo, Chase, Citi) as an ACH processor -- this cuts out the lag in transfers. The catch to this is that to work with these banks, they want to see sufficient activity
3) [Eliminate need to bring your own bank] Partner with existing bank to provide account opening service. If you can prove sufficient activity and traction, many regional banks are interested in a lower cost customer acquisition channel and innovative products. Alternatively, use custodial accounts and they can earn float on the deposits.
What they were trying to do is jump to #3 before proving out the demand. Secondly, banks are approached all the time by startups to do these types of "partnerships". To banks, unless you can show traction or sufficient volume, it's not worth their time to work with you. The large banks (WF, Chase, etc) don't see much business from this area. The small banks don't have the resources or risk tolerance to do this. So you need to find the sweet spot of banks to establish these relationships. There are a number of regional banks that are willing to work with startups (tip: scout the ToS of these fintech startups to see who they have partnership with)
I'm not sure what their monetization strategy was going to be, but the unit economics here don't really work out for low deposit amounts.
(I've spent a lot of time research this area in FinTech)
Good points on batching ACH transactions cheaply. I think part of their pitch or spin was that it would be "instant" which quickly increased the required capital from something reasonable to something astronomical.
Exactly. They were too beholden to the goal of the debit card to just bump that to a phase 2 feature and finish out the core of the app (chore tracking). If they were able to get actual end users with regular usage and a sub-par payment model, they could have kept the momentum going to get to the goal.
The real takeaway here is get people using your stuff as early as possible, and add to that product incrementally - don't wait for everything to be perfect before launching (the enemy of good is perfect).
Yep, they could set up a regular or white-label Dwolla for their platform. https://www.dwolla.com/pricing
Why would you be directly involved in money transfer if you don't absolutely need to???
Bank partnership for a kid's allowance app???????
One of the things I see a lot of people screw up on is trying to get "traction" and buzz and virality going BEFORE they actually have something that is fully functional in people's hands. Seems to me that if your buzz dies out before the product is actually ready to be used in it's basic form...you're screwed.
In the UK we have gohenry.co.uk. They partnered with Visa and the kids get a debit card, chip&pin and all, that I as a parent can set how and where they can spend their money, auto weekly allowances, chores and the payoff for them etc.
Its works quite well, and I pay a few quid a month for the privilege.
They're just on a prepaid card program provided by IDT Financial Services (if scroll to the bottom you can see it listed).
Same company that provides prepaid cards to Osper.
There's a half dozen prepaid card providers in the UK.
There's also Marqeta in the US (used by doordash to by food on your behalf) who they could have used also well as a dozen other prepaid card providers.
[+] [-] Animats|10 years ago|reply
If you want to initiate transactions in the financial system, you have to work through what happens when things go wrong, and be prepared, financially and operationally, to handle them. How does the money get from the parent's account to the kid's account? Note that if the kid can get cash out, you can't fund this with a credit card. Visa and MasterCard don't let you buy money with a credit card; that's too fraud-prone.
So, as someone pointed out, you're back to ACH debits. Getting set up for those is hard, for good reasons. It gives you a connection to other people's bank accounts. So you need financial strength, bonding, and good references.
Note that the chore list has to be secure, too. Otherwise the kid can add "Mow lawn, $1000", check off the item, and drain the parent's account.
If you try to do this by having the parent transfer money to you in advance, and you then release it to the kid later, you're now a depository institution. In most states, you have to be a bank or a money transmitter to do that. (It's so tempting to take the money and run, and that's happened enough times that such businesses are regulated.) Also, that's a pain for the parent. They might as well use Venmo.
PayPal was successful partly because, back when they were above the bike shop on University Avenue in Palo Alto, they started as a security token maker. So they had security people and were familiar with the problems. A big portion of PayPal's operating costs come from dealing with fraud. The legit transactions are fully automated; the problems require a big call center.
[+] [-] StavrosK|10 years ago|reply
Pretty much "freshbooks for chores".
[+] [-] ChemicalWarfare|10 years ago|reply
Which is why if you pay your credit card statement by phone for example, you'll hear the service rep read the consent form for you to say 'yes' once they are done before they can withdraw the funds.
[+] [-] 55555|10 years ago|reply
[+] [-] qq66|10 years ago|reply
The fact is that kids should not be paid for chores on a chore-by-chore basis. This is perhaps the way that you should do things if you just need labor from your children, and want someone who will rake the leaves for cheaper than a hired gardener. But most parents also want to teach their children good values, and one of the most important social things to learn is about reciprocity in relationships. In transactional relationships, where you will perhaps never see the person again, reciprocity must be established immediately (paying for a cab ride, tipping a pizza delivery person). But in social relationships, immediate 1-for-1 reciprocity actually damages the relationship. If you were invited to a dinner party, would you try to pay the host for the cost of your food? Of course not. If it's casual friends, you might bring a bottle of wine, and if it's very close friends, you may not even do that, as you know you will be inviting them over at some point. Paying a child per chore teaches them to treat their family obligations as transactional obligations, rather than teaching them about the nature of reciprocity in a close personal relationship.
Also, when teaching kids about money, I think that many parents prefer to teach kids about "the value of a dollar" with cash, rather than with a bank balance. My parents opened a bank account for me in 4th grade, which was very unusual at the time, to encourage me to save my money, but even then I found that spending money was and is a lot easier when it's a number on a screen than when it's paper money that you take out of your wallet. By first finding pennies and nickels on the street, then getting $5 bills from their parents, and then graduating into a bank account, people learn to appreicate just how many found nickels it takes to buy a flatscreen TV.
[+] [-] xigency|10 years ago|reply
This might be a little harsh for what seems like a sincerely useful app and startup, but the problem with the "Yo" startups is that it's just raking leaves (money) to compost them or light it on fire. If the value is in the app, sell the app. If the value is in other people's products and services, then there's no value in it. And if the value is in the "idea" then it's hopeless. If the value is in the fundraising, then we're lost.
What I don't see is why the idea, PiggyBank, couldn't be functional in the first week. Just like I don't see why a company needs $X billion with no imaginable costs or expenses to put that money toward.
Let's say it isn't possible to do mobile-to-mobile payments (which I think it is), or online payments, without owning a bank — then why not release the same app and when you do the chores for your parents or your uncle they put money in a jar? Beyond not making revenue, having users is at least some sort of reward. When you have the revolutionary breakthrough, add that to the app.
And finally, don't leave your job over something you think is a good idea. Make it a reality, and if it takes all of your time and it can support you, then make the jump.
Obviously these aren't things any founder wants to hear, but someone with a greater risk aversion might be able to be as productive with a more realistic focus than the average SV press release.
Edit: Obviously this is a little naïve considering all things, but I'd still like to see the payments possible on a "small business" scale of things.
[+] [-] Xyik|10 years ago|reply
have you launched an app that you expect to build a company out of? it takes a lot more work than most people think. people love to over-simplify building software by saying 'its just an app', oh, twitter is just a list of sorted strings, seriously try building a solid, fleshed out product you expect thousands of users to use in 1 week. it's not that easy.
[+] [-] superuser2|10 years ago|reply
In generally children need to be driven to the bank by their parents, so why we'd also loop in a 3rd party (instead of the parent writing the child a check) is unclear.
My family solved this problem by maintaining an informal ledger and settling by transfer between our (linked) accounts at the same bank, but there's no way a random startup would get that kind of API from all the major banks - AFAIK even Mint is still screen scraping.
[+] [-] MOARDONGZPLZ|10 years ago|reply
But the thing is, these deadlines were self-imposed. It wasn't like someone else was imminently about to release a similar app and they had to race to get it working. At least spend the time to get it working and fully-functional before really shopping it around. Rather they wanted to churn out some half-baked, random "good sounding" idea and then when they got funding race to make it work.
In my experience when I'm building an app or something, I learn a lot about what features make sense and what's going to be really hard to implement while building it out privately or with a small team. I/we address those issues and look for solutions or other ways around and aren't on a schedule to ship some product and hire some backend database developer to fill some huge knowledge/experience gap on short notice.
Of course hindsight is 20/20, but I think not jumping the gun like this should be good business practice.
Really I see no reason why someone had to quit their job for something that wasn't even functional. If it's functional and getting some traction and has funding, great, quit your job and do it full time, imo.
As an aside and maybe an unpopular opinion, I really doubt the founder's long-haired look was helping the brand's perceived legitimacy. Though I don't have a problem with it personally, I know the "out there" look can turn a lot of people off.
[+] [-] hrabago|10 years ago|reply
Actually this approach "MVP" works well with web applications, but it doesn't work too well with mobile apps. In fact, it's quite the opposite. With mobile apps, you have to make a big splash in your launch, get most things right, and just minor tweaks once you're launched.
The alternative approach is to launch your MVP in a small and/or isolated market (a non-US country), hash it out there, and once you have your approach all figured out and your "revolutionary breakthrough" working, then do your main release worldwide.
[+] [-] ChemicalWarfare|10 years ago|reply
Also keep in mind that Stripe/Square/Braintree etc are processors not banks. They will help you move the funds around but as far as where those are moved from/to that's on you even if you're a Merchant. Once you get into the "middle man" business the plot thickens quite a bit.
[+] [-] madelinecameron|10 years ago|reply
You would think coming from a bank startup would make you acutely aware of these problems. Apparently not.
[+] [-] pookeh|10 years ago|reply
The problem here I think was defining the MVP with a timeline. They could have just started with some virtual currency (like a point system) ... kids don't care about money or points as long as they accumulate something. This virtual currency or point system could have been used by parents to say to their kids "if you get 20 points I'll hand you a $20 bill".
You can make an app like that pretty fast, independent of any "partner ecosystem" and then if the idea lifts off then invite the big players into your ecosystem.
Everything they did was opposite.
[+] [-] swagasaurus-rex|10 years ago|reply
> If you need to raise money to launch your product do that first. Don’t even think about building out your product outside of a very simplistic prototype.
There are products that need initial cash, but this isn't one of them. If they had a fully functional MVP that people could use and enjoy, funding would come to them.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] themartorana|10 years ago|reply
I get it, opening another consultancy isn't the most glamorous thing, but man it gets you to solvent quickly. Then you build a product in your off time WHILE being your own boss. The flexibility is awesome.
That's what we did. Somewhat accidentally, but it's awesome. Now we are a product company with no investors and 100% equity.
Now that's not to say that someone shouldn't take money - but do it now, after you're a business, after you stop wondering where the next dollar is coming from.
It's not a bad way to go.
[+] [-] Cozumel|10 years ago|reply
Somehow not only did they convince some poor sap to give them $100,000 for it, but that wasn't enough, they had to keep 'fund raising'. They had no outlay at all, just build the app and deploy.
I'm really struggling to understand the mindset here, not just of the developers who didn't need any investment to write that app, but the people who actually dumped money into it.
[+] [-] ChemicalWarfare|10 years ago|reply
Banking integration for this flow would be reasonably involved though. To get set up with a merchant account to take the funds is reasonably simple although you'd have to figure out how the payers tie their payment instruments to your system so you can actually charge them and then develop the functionality to drive that (more dev work). OK.
So now you have the funds that you need to be able to move to recipient's accounts. THIS is where the fun begins.
Provided that you have the registration flow for the recipients in place (which means more dev work but anyway) now you have to be able to disperse the funds to their accounts, track payment statuses, reconcile data across multiple sources so you are aware of the current state of the payment etc etc ad nauseam.
And if you're touching a credit card number don't forget about PCI compliance :)
[+] [-] MOARDONGZPLZ|10 years ago|reply
[+] [-] giarc|10 years ago|reply
[+] [-] amiraliakbari|10 years ago|reply
[+] [-] andreasklinger|10 years ago|reply
[+] [-] getmetheswan|10 years ago|reply
[+] [-] MOARDONGZPLZ|10 years ago|reply
I just don't get how this can cost so much.
Making something like this in one's spare time while getting paid with a salaried "real" job seems like it would totally be sufficient to get moving.
But assuming it really takes $700k on hand to get these bank sponsors, why not just change the model slightly. For example, integrate with Square cash or something similar. Square is dead simple to use and the money arrives instantly, not sure if it's integrate-able in this manner though, but the concept stands.
And then maybe when the company is really successful with tens of thousands of subscribers, partner with someone to add direct bank account integration.
Sorry if this sounds callous because I really don't mean it to be, I'm just flabbergasted the amount of money involved for some app someone came up with randomly.
[+] [-] pedalpete|10 years ago|reply
2) You took the wrong lesson from this. "Don't even think about building your product" is the wrong mentality. Build it quick and get a few people using it. Figure out what you need to do to get people using it. The MVP for piggybank didn't include payments (possibly) or it had something else.
The founders here didn't find a way to make this product work. It's a great idea (I think) and now the first Angel investor is going to take it and make it work because for some strange reason the founders saw the hard road, the one which could break them and destroy their dreams and they decided to run straight into that wall with their eyes closed instead of finding a different route around.
[+] [-] hristov|10 years ago|reply
The correct course of action would have been to politely tell the bank that they would not free the bank from their duties under the contract but would welcome any new introductions. Under their duty to limit their damages, the startup would do everything possible to find a new bank partner, and if they did the original bank partner would be free from their obligations without paying any damages.
This way you get the bank to help you but still be liable under the contract if things do not work out.
Of course nothing here is legal advice, every situation is different, so do consult a lawyer for your own situation.
[+] [-] brianwawok|10 years ago|reply
[+] [-] paloaltokid|10 years ago|reply
Then you have to deal with the banks, and yes, you absolutely must deal with the banks. There is simply no way around it. Anything having to do with money is heavily regulated and for good reason.
The first rule of creating a product that involves money is that people will look for ways to exploit it (read: fraud). There are many great FinTech startups out there right now wanting to do great things and the simple truth is that it is orders of magnitude harder than just about anything else. Barring, maybe, sending people to Mars or disrupting the car industry. :)
[+] [-] gerbilly|10 years ago|reply
The first bank we dealt with let us sign up for a merchant account, even knowing the kind of business we were in would require 'cashing out' winnings, without batting an eye.
Then in the first weekend with our shiny new merchant account [1] we racked up 5 figures in sales and they froze the account. They said they suspected fraud. It was an insane hassle to get people their money back.
I assume the guy got a commission for signing us up; no loss to him if the merchant account didn't actually work for us. ¯\_(ツ)_/¯
Later on we found another way to pay people out, and signed up with a better merchant account that has redundancy,[2] i.e. it is backed by two merchant accounts behind the scenes, so we can switch to another one if one of them get's 'upset.'
Credit card merchant accounts can be shut down on you for any reason at any time, we've learned, leaving a complicated mess to sort out.
[1][2] After a considerable amount of development work to integrate with their API.
[+] [-] mianos|10 years ago|reply
[+] [-] theinternetman|10 years ago|reply
Get to engage with your child on a person to person basis too… not parent via an app and servers.
Not to mention I really don't understand where all the investor money went with no product to show for it. Seen as the payment part never got fully fleshed out we're left with a several thousand dollar todo list...
[+] [-] getmetheswan|10 years ago|reply
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.
[+] [-] megablast|10 years ago|reply
[+] [-] kromem|10 years ago|reply
The debit card is a nice add-on to the concept, but not at all essential to execute the concept.
[+] [-] jhwhite|10 years ago|reply
A friend of mine made a kanban board for chores. There's some chores that have to be done within a week, and there's some that are optional. The optional one has money clipped to it and when the card for that chore is done the child can take the money. And the mother is the one that moves the card to done.
So kind of the same thing as this app, but a physical board. And I don't see how moving this to an app really enhances or disrupts the physical board.
[+] [-] imtringued|10 years ago|reply
[+] [-] Zelmor|10 years ago|reply
[+] [-] orasis|10 years ago|reply
[+] [-] kromem|10 years ago|reply
Kickstarter works best as a marketplace for things that don't yet exist.
How does software that is "free" (I'm guessing they planned on taking a fee off of transactions) have a value proposition for people on kickstarter?
Their big mistake was not having the payments backend as a secondary stage goal. They should have built the chore tracking sans payment integration (or using a typical payment processor like Stripe/Dwolla/PayPal to process), and got that up and running with real people. If they had a proven model for everything short of the debit card, fundraising would have been much easier than "we promise guys, this is totally going to work."
[+] [-] ultimatejman|10 years ago|reply
MVP - build an app with parent login, child login and a points system for chores.
Talk to users (parents) by having chat in the app.
Find how to acquire users cheap, retain them, and make them pay. Go for a bank partnership when it is a compelling business proposition. Banks like money, not startups with no profits and no users.
[+] [-] Johnie|10 years ago|reply
My guess is one of the partners that they were referring to is CorePro (http://corepro.io/) which was spun out of SmartyPig (https://www.smartypig.com/). Their backing bank was Lincoln Savings Bank.
One of the consumers of CorePro was Qapital (qapital.com). It seemed like recently, they switched models from Lincoln Savings Bank's individual account to Wells Fargo's custodial account.
In any case, if you're doing anything in consumer FinTech, the technology/product is the easy part. Banking partnership, customer acquisition, and unit economics is the hard part. Focus on solving the hard part first before building the technology.
Edit:
One thing that they could have done for an MVP is a bring-your-own-bank-account model.
1) Parents would open a bank account for their kids (or the kid may already have their own bank account)
2) Integrate with Plaid Connect to get ACH info.
3) Use Dwolla ACH API (free) to transfer funds between parent's bank account to kid's bank account. (The downside of this is that this is a 2 legged ACH transfer which may take up to a week -- but for this use case, it shouldn't be a problem.)
This will get them the same value proposition that they would have had with bank integration. Once they prove out the demand, they can then optimize:
1) [Reduce ACH lag] Use an actual ACH processor that will handle the transfer between accounts. The downside is that this is expensive.
2) [Reduce ACH cost) Use a real bank (Wells Fargo, Chase, Citi) as an ACH processor -- this cuts out the lag in transfers. The catch to this is that to work with these banks, they want to see sufficient activity
3) [Eliminate need to bring your own bank] Partner with existing bank to provide account opening service. If you can prove sufficient activity and traction, many regional banks are interested in a lower cost customer acquisition channel and innovative products. Alternatively, use custodial accounts and they can earn float on the deposits.
What they were trying to do is jump to #3 before proving out the demand. Secondly, banks are approached all the time by startups to do these types of "partnerships". To banks, unless you can show traction or sufficient volume, it's not worth their time to work with you. The large banks (WF, Chase, etc) don't see much business from this area. The small banks don't have the resources or risk tolerance to do this. So you need to find the sweet spot of banks to establish these relationships. There are a number of regional banks that are willing to work with startups (tip: scout the ToS of these fintech startups to see who they have partnership with)
I'm not sure what their monetization strategy was going to be, but the unit economics here don't really work out for low deposit amounts.
(I've spent a lot of time research this area in FinTech)
[+] [-] xigency|10 years ago|reply
[+] [-] kromem|10 years ago|reply
The real takeaway here is get people using your stuff as early as possible, and add to that product incrementally - don't wait for everything to be perfect before launching (the enemy of good is perfect).
[+] [-] phonon|10 years ago|reply
[+] [-] getmetheswan|10 years ago|reply
Any chance we could chat? I am NY based and sounds like we tread similar territory. This analysis is scarily on point!
G
[+] [-] rjbwork|10 years ago|reply
[+] [-] harel|10 years ago|reply
[+] [-] BukhariH|10 years ago|reply
They're just on a prepaid card program provided by IDT Financial Services (if scroll to the bottom you can see it listed).
Same company that provides prepaid cards to Osper.
There's a half dozen prepaid card providers in the UK.
There's also Marqeta in the US (used by doordash to by food on your behalf) who they could have used also well as a dozen other prepaid card providers.
They just made it hard for no reason.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] twic|10 years ago|reply
https://osper.com/
Which is MasterCard rather than Visa.