What's up you guys, it's graham here so about a year ago i did the unthinkable. I made a substantial angel investment in a small startup bank that pays people to use it and uh. How should i say this? It quickly became the number one most trending financial app on the google play store over a 3.5 million dollars, so the prizes were paid out across more than 250 000 users. 60 of them opened the app every single day and now could have a valuation in excess of 200 million dollars.

But i wish this story were really just as simple as that, because there have been some considerable issues that i need to address so to bring everyone up to speed. Here's what's happened in august of 2020, it was scrolling youtube and i came across a video by ask sebi who reviewed what was supposed to be the best high interest savings account, but different. Instead of operating like a traditional bank, that pays you a set interest rate and that's it. Yada bank attempts to gamify the experience by turning your savings account into something like a giveaway where they pay.

You a base point two percent interest rate fdic insured through evolve bank and then every 25 dollars you save, gets you one ticket into their weekly, drawing where you could win all the way up to 10 million dollars, and when i saw the average expected payout to Be more than two and a half percent a year, i gave it a shot to see how i would like it and within a week i loved it. It was so much fun that i checked the app every single day when the number was drawn. I shared it with my friends and family and then, when i thanked asebi for his recommendation, it happened. I was put in touch with the founder of yatta bank, adam molis and we instantly hit it off.

He grew up, surrounded by the finance industry. Graduated wharton school of business passed through y combinator, with his concept of yata bank and subsequently was featured in forbes 30 under 30 for his impact in helping everyday americans save more money. By the end of our conversation, i believed in the concept so strongly that i decided to be an early stage angel investor in the company. I've never been involved with the business to this degree and even though adam and his co-founder ben did all the work.

I was just enthusiastic to become a part of it, but little did i know that was just the very beginning. In a moment of excitement, i created a video discussing my investment in the company. My first hand experience as a user and my own concerns in terms of how the platform could be improved, and i got ta say completely unexpectedly that video blew up within a week. It received almost 750 000 views.

Tens of thousands of new users had signed up and, as a result, all the issues were magnified by a hundred immediately. The price length savings account was met with some intense skepticism from people who firmly believed it was a ponzi scheme, and that was disappointing to say the least. The auto business model was built on the report that 40 of americans are unable to cover a 400 emergency. Yet they spend a thousand dollars a year on the lottery.

So yada aims to bridge that gap by incentivizing people to save through a price based system that makes it exciting to put money away. That pays them a higher interest rate than what traditional banks are offering and then brings users back on the app on a regular basis. To check in this is not a new concept either. The united kingdom is a product called premium bonds, where their citizens can save money risk-free and instead of receiving an interest rate.

Random people are selected to win large prizes. It's so popular that 33 of their population uses this and they found it a great way to encourage people to save their money and even though the chance at winning the jackpot is extremely small. It increased the savings rate substantially, whereas otherwise, that money would have been spent, but it became evident that the entire aspect of a prize-based savings account is enough to raise a suspicion that it's got ta be rigged. It has to be a scam because it sounds like a ponzi scheme.

So here's the truth. A ponzi scheme usually promises a high rate of return by creating a non-existent company that pays off early investors with the money generated by new investors. This is highly illegal. It's blatant fraud and if the autobank was a ponzi scheme, posting a video about it on youtube and risking everything i ever have worked for would have been the stupidest thing i ever could have done so.

Instead, yada bank works like this. Just like any other cash management system, yada uses, what's called a sweep account, which means they never have direct access to your money. Instead, when you make a deposit on the app that money is held and managed by evolve, bank and trust, who is fdic insured up to 250 000 from there, a third-party double-blind insurance carrier randomly generates the numbers, and then prices are paid out. Accordingly, all of the smaller payouts are covered by yada's revenue and cash reserves, while the largest 10 million payout is covered through an insurance policy.

In addition to that, in order to comply with u.s regulation across all 50 states, yada bank operates as a sweepstakes, which means there's no purchase necessary. You could mail in an entry if you want to, and the biggest differentiation is that, unlike a lottery, you cannot lose like in the event you deposit, 25 and don't match any numbers. You still keep for 25 and you get paid a higher interest rate than a traditional bank. So that then begs the question: if yata bank is paying out all of this money, where does it come from and how are they able to stay afloat? If it's not a ponzi scheme, well, that is a great question that i asked myself and to do that we got to dive into the inner workings of the business first, they make money by the interest rate paid by evolve bank.

In this case, yadda receives anywhere from point one to point two: five percent interest from the total amount under deposit, and even though that might seem like a lot of money with several hundred million dollars. It's not because all of that money goes back to use the customer in the form of the base point two percent interest rate. So at best it's a break even the second. They recently launched a debit card which generates a 1.4 interchange fee and the total amount spent in this case.

If you spend a thousand dollars on the debit card, the merchant pays a processing fee of which is split between the intermediary and yada bank. However, yada bank recycles most of this money back to their user through a promotion where there's a 1 in 250 chance, your purchase will be automatically reimbursed up to 5 000 and third, they make a small amount through push to card transactions. This is the small one and a half percent fee that banks charge anytime. You want to transfer your money instantaneously without having to wait the standard one to three business days.

Venmo. Does it paypal? Does it and yada does it while getting to make a small profit along the way? Now there are a few other smaller revenue sources here and there that just aren't worth diving into. But by and large you ought to reinvest everything they make back into paying interest to the customers and since they operate on a deficit, meaning they pay out more money than they receive back. That difference is covered by investors, who eventually believe they will be profitable as they continue to grow.

All in all, yada spends in excess of five hundred thousand dollars a month to keep pace with their expansion, overhead marketing and paying interest, but as the company grows, the more valuable they become and the bigger the opportunities are for profit in the future, not to mention When you really begin to average out the interest rate paid across all of their users, it's not as high as what you might expect, especially if you still believe it's. A ponzi scheme, like current analysis based on today's rates, puts the average annual payout at about 1.65 to 1.96 percent when you hold less than 10 000 on the platform now. Obviously, some people are gon na get a lot more or a lot less than this, but as an average, it's still three to four times higher than ally banks, half a percent interest and anything else. Yada pays above that is simply just their cost of marketing.

To keep the customers engaged sure it might seem suspicious to pay people all the way up to 10 million dollars for every 25 they deposit. But when you really look at the mechanics of it, all of the top prizes are insured. Numbers are randomly generated by a third-party company. It's a clever spin on the premium bond in the uk and honestly, if anything, yata bank would love somebody to win that 10 million payout, because let's be real, that publicity is going to be worth a lot more than the cost of the insurance policy.

But secondly, there were also some issues that i would like to address, because it wouldn't be fair for me to talk about something that i'm personally invested in without giving it an objective review. Now that i've had a year to see how things have unfolded at first. As i expected in my previous video, it became too expensive to pay a high interest rate to bank account churners like myself, who move large amounts from bank to bank in order to game the system. Now i put myself in this category because i'm no exception.

I'm always completely open that i will use the terms to my advantage, and that is a good test, because, if i'm able to find a way to make an additional profit, most likely others will too. In this case, when i saw how much they were initially paying, which is over two and a half percent on all amounts, i decided to keep six figures of cash on the app, because that was four times higher than what i was getting paid at ally bank. But after a few months it became apparent that the majority of high balances never interacted with the app they did not care about the product. They only viewed it as a short-term bridge to making extra money on their emergency fund, and that was it so, given that yata was a growing company with a strict budget, they had to make the choice to lower the average payout by reducing the total number of Tickets for accounts above ten thousand dollars now in theory, this does make it more valuable for accounts with less than ten thousand dollars, since the likelihood of splitting a top prize is reduced, but even after the interest rate change on large amounts, very few people left and Still amounts above ten thousand dollars are paying an average of 0.492 percent interest, which is basically the same interest rate that ally bank is paying, so the math still works in your favor.

Second, the customer service is not yet fully built out. The main advantage of ally, bank or really any large financial institution is that you have a phone number to call in the event. You have an issue, however. Yada bank doesn't yet have the finances to pay for a full-on customer support hotline for everyone to call and because of that they're limited to email customer support only in fact after i posted my first video, the ceo himself was personally answering all the customer support emails.

One by one, so for me, i'm not exactly bothered by it, but i do enjoy the peace of mind just knowing that in the event something happens, i have a phone number that i could call. Third, as of right now, it's only a savings account with a debit card, not a full-blown bank. There isn't a web-based interface, you can't wire money from one account to another and it's a bare-bones platform as a way to earn interest and potentially earn prizes. Even though this is just the early stage of growth, it's probably best to use this for short-term savings or an emergency fund rather than money that you plan to use day-to-day.

Fourth, as an investor, i did not realize that the entire banking industry is ripe with people. Looking to take advantage of banking loopholes and yada is no exception. Now, even though this happens across every single bank, at no fault of the company, yada is a growing business, not a 100 billion dollar banking conglomerate. So at this point, any extra cost that they incur is something that takes away from that momentum, although, thankfully it's not all bad and even though they're losing money right now, for the sake of growing the business, there were a few surprising trends that i found quite Interesting one was the launch of the debit card.

Now, i'm sure. As most of you know, i am not a fan of debit cards. In most cases, credit cards have better rewards, better purchase protection and a greater buffer in between the merchant and your money. So i was not expecting a lot from a debit card, even though it is necessary to gain spendable access to your money.

However, the results blew me away. The doctor of credit noted that each ticket is worth 0.07 percent and the one and two fifty chance of having your purchase paid for increases that overall average return by point. Four percent meaning you're getting a half a percent return on every single purchase, uncapped with a debit card and on restaurants. That increases to one point: zero, seven percent, since you have a one in a hundred chance of that purchase being fully reimbursed up to five thousand dollars.

So for a debit card, that's metal, it's not bad, even though, yes, there are some better options out there like the discover it secured, but it does appear as though a lot of people are using this debit card, where credit is not accepted, like with rent payments. Tax payments and through peer-to-peer payment apps like venmo, that means there's a market out there that i didn't even know exists where a debit card fits perfectly and that's led to more overall revenue for you out of bank and two there's a lot of potential to continue Expanding into different products with startups like this profit is nice, but growth is even better. I'm not able to get into too many specifics here, but i will say that there is a credit card in the works and incorporating some cryptocurrencies so stay tuned. As for the future of yada bank, i have learned a lot by watching it grow and seeing the difficulties along the way.

At the end of the day, it's really about reaching a new audience who ordinarily would not have the desire to save money, even though it's not profitable. Yet they have been consistently growing, even without me, mentioning them, which is also the reason why i have not mentioned them in a year. I didn't want their success to be attributed to me, continually shouting them out on a youtube channel, and i knew for this to be a viable business long term. They have to grow organically through word of mouth and that's what they did without even mentioning them.

They've continued to grow their user base completely separate from myself, and that makes me even more confident in their success long term, and this isn't sponsored or anything they're, not asking me to make this video. This is just something that i'm excited about. I think it's great to be able to give you an update on the progress along the way. So with that said, you guys thank you so much for watching.

I really appreciate it as always make sure to destroy the like button. Subscribe button and notification bell also feel free to add me on instagram. I posted pretty much daily. So if you want to be a part of it, there feel free to add me there.

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So if you want to see what i am buying, that link is down below, let me know which stock you get. Thank you so much for watching and until next time.