Comment by baryphonic | Hacker News Reader

Comment by baryphonic | Hacker News Reader

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The report is extremely long, but having gone through the bullet points, the case seems quite overstated.

There are in fact millions of people who use Cash App, though it's probably less popular overall than Venmo. I know this because my wife and her friends will mention it and Venmo when talking about splitting bills. (Given the technical challenges Wells Fargo has had lately, I'm not sure who trusts Zelle.)

A lot of the claims amount to criticisms of Block's address verification functionality. But that doesn't mean Block engaged in fraud, perhaps they just have crappy address verification tech. Short of sending a human investigator out to physically verify that a given person really is located at a given address, I'm not sure what foolproof methods people use to eliminate that kind of fraud. The "let's send you a postcard with a code" method I've seen from legacy banks seems quite easy to exploit as well, just a bit slower.

The last question about merchant fees isn't fraud at all, but regulatory avoidance. Maybe the government will shut this down, or maybe they've found a loophole that Congress may want to close. It's unclear.

The least persuasive part of the report was the implication that rap lyrics imply Cash App facilitates crime.

> The report is extremely long, but having gone through the bullet points, the case seems quite overstated.

I've gone through it fully, not just the tl;dr. It's not overblown. They're not saying Block is doing anything illegal, only Block is valued much too highly.

The bulk of it is Block skirting regulatory requirements to acquire more users easily, and those users doing illegal things with their Cash app accounts. And this is already crashing down as they're now, for example, required to collect full social security numbers for the Cash app debit cards (previously only last 4 digits).

Considering the Cash app is Block's largest consumer user base, and a large reason for Block's high valuation they have a good case for why Block should be valued closer to PayPal than as a disruptive growth stage company.

> I've gone through it fully, not just the tl;dr. It's not overblown. They're not saying Block is doing anything illegal, only Block is valued much too highly.

Hindenberg is accusing Block of committing fraud. That's an allegation of criminal activity.

Block may be overvalued. I probably wouldn't buy it, and have my own beef with how Block operates.

> Hindenberg is accusing Block of committing fraud.

I don't think so unless I missed a big accusation?

They're accusing Block of enabling fraud, and when Block can no longer enable fraud -- say due to higher regulatory oversight -- it'll lose much of its appeal and customer base, which has already dropped significantly post pandemic.

Well they are saying that Block is enabling crime and skirting regulations. Considering the overall regulatory climate change in the wake of SVB there is going to be impact on what they still can dare to do in the future. Growth limit #1. Then they are pretending to be small and thus demand big fees. If that stops profitability will be hit big tome. Growth limit #2. And their user numbers seem to be inflated. Growth limit #3. They are serving criminal niche market and are facing in general markets well capitalized and strongly growing competitors. Growth limit #4.

Now what is a reasonable price earning ratio for such a business?

Ehat did Baum say in the Big Short? Zero? Or at least somewhere close to it.

>Given the technical challenges Wells Fargo has had lately, I'm not sure who trusts Zelle.

I trust Zelle (i.e. the bank itself) more than I trust a third party to ACH money into and out of my account.

Address verification is where the bureaus like Transunion and Experian come in. These vendors have a gold mine of information that should allow a company to verify a host of their users' attributes - not just addresses.

If verifying people is hard and so a company chooses to take the easy route of not bothering and therefore attract lots of customers who do illegal things, surely in any world that's at the very least knowingly facilitating illegal conduct? There are a lot of platforms that do far more than Block to verify people -- Block absolutely could do the same if they wanted to.

This is what Block do: https://www.youtube.com/watch?v=J2uhWTFvug8

I don't think the allegation is that Block doesn't check, it's that the check is vulnerable to fraud. If Block rolled out a better verification system next week, based on off-the-shelf components, would they no longer be a fraud?

> based on off-the-shelf components, would they no longer be a fraud?

Yes. Also, they’d have to re-state their past user numbers and pay fines, both of which would reduce their valuation.

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