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Venmo, Zelle, Visa, Mastercard, and you: The fiery fight over the future of swipe fees

Some members of Congress want to regulate the contentious fees that have pitted merchants against credit-card networks. Would consumers even benefit?

Venmo, Zelle, Visa, Mastercard, and you: The fiery fight over the future of swipe fees
[Source Photo: Unsplash]

You may be accustomed to Venmoing your friends to split a check at dinner. But what about using Venmo or Zelle to pay for a soda at a convenience store? Some merchants may ask you to do just that. But know that if you opt to whip out your phone rather than your card, you could be an unwitting participant in a long-simmering and increasingly fiery fight over interchange fees, which has pit many merchants against banks and credit card networks.

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That fight has evidently led at least some small businesses to lean into p2p payment platforms, according to survey data from Business.com. But there are some additional costs, according to Corie Wagner, the site’s senior editor of industry research, that may be pushing small businesses away from credit cards. “Besides a simplified fee structure, there’s the reduced equipment required to accept payments, and the systems that need to be set up can be too cumbersome [for business owners],” Wagner says. The most important thing, though, is that “it’s cheaper and easier,” she adds.

The survey data bears that out: A quarter of small businesses (defined as those with fewer than 100 employees) aren’t accepting credit or debit cards as a form of payment, mostly in an effort to avoid interchange fees, and 56% of smaller companies will accept p2p platforms because the associated fees are often lower than interchange fees.

Swipe fees take center stage

Interchange fees—also called swipe fees or transaction fees—average 2.22% of each transaction, according to the National Retail Federation. These fees do vary, though, depending on the specific credit card, and other variables. The fees are collected by the card-issuing bank, rather than the credit card network itself (like Visa or Mastercard), and are then divided up. Some of the revenue goes to the bank, some to the network, and some makes its way back to consumers in the form of rewards.

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But during a stretch of high prices and rising interest rates, which have combined to put additional financial pressure on many small businesses, interchange fees have served as yet another pain point—one that merchants have grown increasingly vocal about, arguing that the costs are being passed on to consumers, further raising prices.

It’s caught the attention of some policymakers, too. Last month, Senator Dick Durbin, a Democrat from Illinois, introduced the Credit Card Competition Act, which would institute some changes to how transactions are routed in an effort to spur competition and lower prices. Effectively, the proposed amendment to the Electronic Fund Transfer Act would allow merchants to process credit card transactions over different networks. Durbin also spearheaded legislation regulating debit card interchange fees roughly a decade ago, which ultimately passed as a portion of the Dodd-Frank Act. That limited interchange fee amounts to 21 cents plus 0.05% of the transaction total.

While Durbin’s proposed amendment could, eventually, lead to lower costs for merchants and retailers, it’s unclear if any potential savings would make their way to consumers in the form of lower prices, opponents say. A report from the Federal Reserve Bank of Richmond found that the vast majority of merchants did not change their prices to reflect the savings gleaned from the changes to debit card interchange fees, and there’s reason to suspect the same might happen if this new legislation were pushed through.

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It could also upend many credit card rewards programs—something consumers likely wouldn’t take lightly.

‘It has really become out of control’

Interchange fees have become so heavily woven into payment infrastructure that even the sharp rise of p2p platforms has yet to register as more than a blip to the large, incumbent players in the industry, says Doug Kantor, the general counsel for the National Association of Convenience Stores. “The swipe fees merchants are paying are incredibly high,” he says. “Swipe fees on credit cards were up 25% last year, and up even more this year. It has really become out of control.”

Altogether, merchants paid credit card companies more than $137 billion in processing fees (debit and credit) during 2021, according to the Nilson Report.

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But while Kantor says that fees are increasing, others claim the opposite.

“Electronic payments have empowered small business owners across America to grow our economy and better serve our local communities,” says Jeff Tassey, chairman of the Electronic Payments Coalition, a trade group that works with banks and other companies in the financial space, including Visa and Mastercard. “To support this effort, Visa and Mastercard lowered interchange fees this past April for most small businesses. Additionally, the digital payments marketplace is healthy, competitive, and innovative—cultivating mutually beneficial relationships that provide real value for small business owners and their customers.”

A source at a large, credit card-issuing bank tells Fast Company that interchange fees are relatively low, and that the growing total amounts collected through processing fees have much more to do with the fact that more and more people are using credit cards to pay for goods and services, rather than fee increases.

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Merchant groups, credit-card networks, and banks have long been jockeying for positions in an effort to increase their cut from swipe fees, or at least lower their liabilities. With inflation being in the news, it’s opened up an opportunity to bring more attention to swipe fees, and also attach those fees to what end-consumers pay at the cash register.

In effect, merchant groups have been able to politicize it, to an extent, and have found that there are allies on Capitol Hill—many of whom aren’t eager to shy away from a chance to stick it to big financial institutions.

Bringing competition to credit

Though banks and other companies also exist in the payments ecosystem, two companies do tend to catch most of the ire of merchants: Mastercard and Visa. That’s largely because they’re the two most visible brands in the space, and because, combined, they hold the most market power. Fast Company reached out to both Mastercard and Visa for this story, but they declined to comment on the record.

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Leon Buck, the VP of government relations, banking, and financial services at the National Retail Federation, estimates that the two companies control 80% of the market.

Accordingly, Buck and others say that numbers like those from Business.com’s survey should be taken with a grain of salt, because even though p2p payment platforms and others are growing, they’re still relatively small compared to companies like Mastercard and Visa.

The use of p2p platforms in lieu of credit cards “is limited to small businesses on a very small scale,” Buck says. “A lot of businesses are online-only, and they can’t afford to not use credit cards. Many businesses may have a preference to avoid cards, but they don’t refuse them.” Businesses that don’t or try not to accept credit cards can also put themselves at a competitive disadvantage, Buck notes.

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Kantor, too, acknowledges that payment alternatives “can’t compete at all.” He points out that there’s also the issue that some p2p platforms still incorporate customers’ credit cards to complete transactions, which, again, rope interchange fees into the process. The only way around that would be for customers to connect a payment app directly to their bank account, and not all do.

For merchants and merchant groups, the timing may be right to try and bring the swipe fee fight to the public’s attention, but they face a steep uphill battle. Both Buck and Kantor, though, say that the payments space will benefit from an increase in competition, like the kind that Durbin’s bill aims to usher in. That, they say, is the only way to help control transaction costs for businesses.

“There’s potential for disruption in the market—the problem is that the duopoly [Visa and Mastercard] is so strong that it’s not been possible,” Kantor says, “and it’s a question as to whether it could happen without some sort of policy changes.”

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Buck concurs: “We need more regulation, and we need legislation passed that actually brings competition to credit.”

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  • 6:00 am

Why VCs keep investing in the Adam Neumanns of the world

Studies show that VCs prefer to bet on repeat founders—even the ones who fail.

Why VCs keep investing in the Adam Neumanns of the world
Adam Neumann, former CEO of WeWork [Source Images: Ryan Muir/Getty/the New York Times]

Few sentences written about America have been less on the mark than F. Scott Fitzgerald’s famous line: “There are no second acts in American lives.”

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In fact, Americans love second chances, and nowhere is that more true than in Silicon Valley.

So it wasn’t entirely a shock when earlier this week venture capital firm Andreessen Horowitz announced in an open letter from firm cofounder Marc Andreessen that it would be investing $350 million in Flow, a new real estate company focused on apartment rentals founded by Adam Neumann—the entrepreneur whose tumultuous tenure at WeWork (the company he cofounded and then ran into the ground) has already become the subject of books, documentaries, and a Hulu miniseries starring Jared Leto.

In fact, the biggest surprise may have been that it took someone this long.

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That probably sounds absurd. WeWork’s value went from $47 billion to less than $6 billion on Neumann’s watch. And he was fired by the company’s board after his reckless expansion plans and bizarre management practices left the firm losing more than $1 billion a year.

That’s not a track record you’d think would make someone worthy of Andreessen Horowitz’s biggest-ever investment. And while Andreessen’s letter featured a lot of lofty rhetoric about the company reinventing the residential rental market, Flow mostly sounds like a WeWork-style landlord—which doesn’t exactly inspire confidence that it’ll be an enormously profitable business.

On the other hand, unlike with WeWork, this time Neumann is putting up actual assets, in the form of thousands of apartments, as part of the deal. 

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So why is anyone taking a gamble on Neumann again? Because, as it turns out, when it comes to raising VC money, the fact that you founded a company that ended up worth billions matters more than the fact that you destroyed a lot of value in getting there. In fact, Travis Kalanick, the cofounder of Uber, also raised hundreds of millions earlier this year for his startup CloudKitchens, even though he, too, left his company in disgrace.

VCs’ preference for entrepreneurs with previous experience is long-standing and profound. For instance, a 2007 study found that compared with novice entrepreneurs, those who had previously founded venture-backed companies were able to raise venture capital earlier in the process, and that across the board serial founders raised more venture capital in general.

A 2013 study of unicorns (startups valued at more than a billion dollars) by venture capitalist Aileen Lee found that 80% had at least one cofounder who had previously started a company.

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And, according to a 2019 study by Rajarishi Nahata of Baruch College, previous founders get much better terms in their deals with VCs (retaining more board control, having to give up less equity) and get earlier access to capital than first-time entrepreneurs—even when the founders’ earlier ventures were unsuccessful. Perhaps even more striking, previous founders were able to raise more money earlier, and on better terms, than novices, even though the operating performance of the serial entrepreneurs’ companies was, on average, poorer. 

Why is this? Repeat founders likely benefit from having raised money before, not just in the sense that they have connections and preexisting networks, but also in that they have experience dealing with venture capitalists.

For novice entrepreneurs, this creates a variant of the perennial catch-22 of not being able to get a job without experience, and not being able to get experience without a job. So it makes sense that Black and women entrepreneurs—who find it harder to even get a foot in the door—have been vocal in their frustration over Neumann getting a new pile of money. 

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Yet VCs are also generally inclined to bet more on the rider than the horse, and can always convince themselves that even serial entrepreneurs who were unsuccessful at least learned important lessons from the experience. (In his letter explaining the investment in Flow, Andreesen made this exact argument, writing, “[W]e love seeing repeat founders build on past successes by growing from lessons learned.”)

Paradoxically—given the sheer amount of investor capital Neumann vaporized at WeWork—it’s hard to say that he was a failure from the perspective of his original investors.

Benchmark Capital, the VC firm that was the first major investor in WeWork, put money into the company at a valuation of $100 million, which means that it plausibly got a return on its investment of somewhere between 30 and 60 times that (depending on what endpoint you want to choose).

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Neumann destroyed tons of value at WeWork, but the value he destroyed was for the investors who poured money into the company at massively inflated valuations (most notably Softbank). And unlike Theranos (a company linked in the public mind with WeWork), which was a fraud through and through, WeWork ended up as a real company that is currently worth around $4 billion. 

It may seem improbable—and infuriating—that someone can go from being the epitome of a cautionary tale to being handed a billion-dollar valuation overnight. But this is a country that made a guy who ran multiple companies into bankruptcy the star of a TV show about his supposed business acumen, and then put him in the White House.

Of course Adam Neumann got a second chance. But other deserving founders are still waiting for their first shot.

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About the author

James Surowiecki is the author of The Wisdom of Crowds, and has written business columns for The New Yorker and Slate, and written for a wide range of other publications.

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Doctors are drinking on the job at alarming rates, according to a new survey of healthcare workers

We’re in the midst of a mental health crisis, and that includes your healthcare providers. Some doctors refuse help out of fear of losing their licenses.

Doctors are drinking on the job at alarming rates, according to a new survey of healthcare workers
[Source Images: Getty]

In December, U.S. Surgeon General Vivek Murthy declared that we’re in a youth mental health crisis. What he neglected to mention is that we’re also in a healthcare provider mental health crisis. According to a new study from APN, a health company specializing in mental health and addiction treatment, healthcare workers in the United States are at a breaking point, and that breaking point is manifesting as substance abuse. Key findings of APN’s survey of 1,000 healthcare workers include:

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  • Nearly half (49%) of U.S. healthcare workers say they are at a breaking point and 40% say they feel anxiety or dread about going to work. Meanwhile, 64% report increased stress levels in the wake of Roe vs. Wade being overturned.
  • While all healthcare workers are struggling, physicians reported struggling the most: 1 in 7 physicians admitted that they consume alcohol or controlled substances at work, and 1 in 5 say they consume alcohol or controlled substances multiple times a day.
  • While 1 in 5 physicians say they’ve checked into rehab or a detox facility, another 1 in 5 say they don’t know how to get help because the system is too broken or complicated. Another 1 in 5 are afraid of getting their license revoked.
  • On the whole, male healthcare workers are struggling more: 58% reported looking for a new job or being at the brink of burnout compared to 45% of women. This manifests in terms of substance abuse as well. Males are five times more likely to use their position in healthcare to acquire controlled substances, and 4.5 times more likely to consume alcohol or controlled substances at work. Meanwhile, 1/3 men don’t want to admit they have a problem compared to 1/10 women.

“We must put mental health on par with physical health and make it a basic human right, indicator of overall health and an industry standard,” said Noah Nordheimer, founder and CEO of APN, in a statement.

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Adam Neumann thinks we want ‘community-driven’ living, but how has that worked out in the past?

It’s still unclear exactly what Flow will offer that some of its failed predecessors did not.

Adam Neumann thinks we want ‘community-driven’ living, but how has that worked out in the past?
[Source Photos: Getty and Duy Pham/Unsplash]

Everybody’s curious: What exactly is Flow, Adam Neumann’s new rental-housing startup that’s apparently snagged the largest check ever written by Silicon Valley VC firm Andreessen Horowitz? The reason for the curiosity is that, so far, Neumann and a16z aren’t saying much, beyond vague gestures at concocting some kind of housing utopia for remote workers: “Exact details of the business plan could not be learned,” the New York Times acknowledged in its story about a16z’s $350 million mega-investment.

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Based on cofounder Marc Andreessen’s blog post—which announced the firm’s involvement on Monday—Flow sounds ambitious: America can’t fix its housing shortage with more multi-decade mortgages (the digital-nomad class doesn’t want to be “stuck”) or “soulless” apartment rentals that create no bonds “between person and place” or “person to person.” Andreessen explains Flow will solve this problem by “combining community-driven, experience-centric service with the latest technology . . . to create a system where renters receive the benefits of owners.”

To wit, Neumann has already acquired some 3,000-plus apartment units in Atlanta, Fort Lauderdale, Miami, and Nashville. They’re now ready to get the Flow brand’s full living-experience treatment. There are, of course, many other components to this plan, but the Flow living experience sounds like the concept that’s been trending for years now, perhaps best described as WeWork meets amenities-packed commune (or kibbutz, on which Neumann grew up, in part).

If that’s where Flow is headed, it’ll have a massive war chest in tow—valued at over $1 billion before doors ever open. And that could come in handy because it will also need to offer a better experience than the one that dozens of its failed or struggling forerunners have. Here’s a few:

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HubHaus

Offering “dorms for grownups,” this startup imploded in 2020, after four years and $13.4 million raised. The model was remarkably WeWork-like: It leased big homes in Los Angeles, Washington, D.C., and San Francisco, decorated and furnished the common areas, then sublet the bedrooms to young working professionals. Its pitch was affordable accommodations in markets where rents were exorbitant, but with extra perks like fast Wi-Fi, cleaning services, and a readymade community of new housemates.

But the pandemic brought months of losses on rent, causing HubHaus to lay off about half of its employees, quit paying its properties’ utility bills, and in fall 2020, finally announced it was closing. Landlords and tenants were told to figure things out on their own. Founder Shruti Merchant blamed HubHaus’s downfall on “two major outside events”: COVID-19 and WeWork’s failed IPO, which she argued was so radioactive that startups in coworking or related niches could no longer raise series B funding.

Campus

Started by a Thiel Foundation fellow named Tom Currier, Campus lasted for two years as a co-living experiment, occupying nearly three dozen properties in New York City and San Francisco. Like HubHaus, the company leased large properties, then sublet rooms to individuals who bought into Campus’s mission of building community by effectively corralling tenants into residences where the people had similar interests. Beyond monthly rent, members were charged a service fee that included perks like toilet paper refills and professional apartment cleaning. Unfortunately, this meant they were paying a premium above market rate to live with roommates—but they still lived with roommates.

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Campus bit the dust in 2015. “Despite continued attempts to alter the company’s current business model and explore alternative ones,” Currier wrote, “we were unable to make Campus into an economically viable business.” At the time, Fast Company’s Sarah Kessler was fresh out of six months of living in one of Campus’s Brooklyn residences, and she concluded: “While Campus, the business, was a failure, Campus, the living situation, was a success.”

Common Living

Among the few communal-living startups to argue it was going to succeed where Adam Neumann failed—then actually manage to survive COVID-19—this venture with more than $100 million in VC backing has since run into problems of its own making. Namely, in May, over a dozen residents told the Daily Beast that living in Common housing is a complete “nightmare.” They described violent altercations among housemates, lingering piles of uncleaned vomit and other maintenance delays, and security so poor that in the mornings they were frequently finding strangers asleep in the common areas. “It’s been probably one of the worst experiences living somewhere I’ve ever had in my 38 years on this planet,” one tenant complained.

Common was founded in 2015 with the goal of giving adults a cheaper group-living setup. It merely acts as property manager for landlords, putting their buildings under the rule of Common’s co-living arrangement. It’s doubled its portfolio in the last two years to 7,000 units under management. “We really want to make the experience of renting better,” cofounder and CEO Brad Hargreaves says.

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Flow Living

Plenty of community-driven rental startups with lesser-known names have come and gone—Krash, Pure House, and a myriad of others that simply went belly-up. But one worth noting, if just because of its coincidentally similar name, is Flow Living. Roger Norton, part of the team that helped start it, said on Twitter that this version dates back to 2017, and describes the premise as “‘club’ living for Gen Z” that provided “Everything you need to live ‘in the flow.'”

At move-in, Norton explains, residents picked a predetermined “style” for their room to come outfitted in. At any time, they could move to another Flow Living building. Meanwhile, private chefs, laundry, coworking space, and movie theaters were at their beck and call, all managed by app. Ultimately, Flow Living struggled to raise funding though, he notes, adding it “ended up pivoting for rental landlords to manage their properties with contracts, rent collection, and ticketing.”

WeLive

Finally, if the branding for this one looks familiar, it’s because this was Neumann’s OG stab at communal living. The concept began in two buildings—one in New York City, the other in northern Virginia—and had a pretty unshakable adult-dorm-room vibe, which WeWork leveraged to market the experience to excitable young professionals: The rooms were indeed teeny tiny studios, yet there was free beer on tap, the laundry room had a pool table, and dinners were cooked for you, and served communally. (Anyone who’s seen WeWork: Or the Making and Breaking of a $47 Billion Unicorn may recall having these experiences described by WeLive resident/official ambassador August Urbish.)

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Neumann once predicted the globe would be scattered with WeLives, and at one point was working to expand into India and Israel. But the concept fizzled after the initial two locations opened and New York City housing officials got interested. They started investigating if WeLive’s units, which were legally required to be rented as apartments, were instead being advertised by WeLive as hotel rooms.

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Derek Jeter, Wayne Gretzky, and Misty Copeland started a sportswear brand

The athletic superstars team up with Untuckit founder Chris Riccobono on a new venture, aptly named Greatness Wins

Derek Jeter, Wayne Gretzky, and Misty Copeland started a sportswear brand
[Photo: Courtesy Greatness Wins]

In the crowded athletic apparel space, perhaps the best and only way for a startup to make waves and capture market share is by significantly upping the ante when it comes to fit and performance. Enter Greatness Wins, a new venture started by Untuckit founder Chris Riccobono, along with MLB hall-of-famer Derek Jeter, ballet dancer Misty Copeland, and ice hockey legend Wayne Gretzky.

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By leveraging pro-athlete insights when it comes to design and construction, Greatness Wins aims to fill a niche in the athletic wear market: producing premium performance apparel with consistent quality control and fit—in an increasingly important aspect of the manufacturing process, especially in today’s direct-to-consumer-centric economy.

“We have a plan to cover everything from soccer to tennis to every sport out there,” Riccobono tells Fast Company. “I’d heard it from athletes, that the quality is not there anymore. With huge athletic brands, the specs are all over the place. And then you have athleisure, where the quality is actually great. The problem with them is they’re not meant to work out in.”

[Photo: Courtesy Greatness Wins]
Greatness Wins debuted online in late July with a men’s collection comprising tops, bottoms, and accessories, including socks and hats. Women’s apparel, which will be created with guidance from Copeland, is scheduled to launch in 2023.

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“I see this collection as an evolution of my dance career, entrepreneurship, and life as a whole,” Copeland says. “The women’s line will focus on designing products that are functional, supportive, stylish, and use high-quality, sustainable materials.”

The brand has kept sustainability top of mind in manufacturing across the board, with 98% of its base materials either Bluesign or Oeko-Tex and 80% of its shorts made with recycled materials.

“All of our products have a focus on fabric performance, sustainability, and quality first and foremost,” Jeter tells Fast Company. “I only wanted to create a brand if I knew we could offer something better than what was already available to shoppers. I’m extremely involved in the design and creative direction for our products, working closely with our leadership and design teams throughout the entire process.”

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[Photo: Courtesy Greatness Wins]
Jeter says the Greatness Wins Core Tech Quarter Zip top as one of his favorites. “We designed the quarter zip to be breathable, moisture-wicking, and quick to dry, and the front zipper allows you to get additional ventilation as you warm up throughout the workout,” he says. “It is an ideal layer for my daily workouts like lifting and cross-training, and honestly for running around after my three daughters.”

Gretzky, who has pivoted his athletic pursuits toward golf since retiring from professional ice hockey in 1999, is especially fond of the brand’s Clubhouse Pants. “They are perfect for spending the day outside, with fabric that is both UPF 40 and water-repellent, ensuring you are comfortable no matter what the weather conditions are,” he tells Fast Company. “The last thing you want to be thinking about in the middle of a round of golf is your clothes, so we made sure the pants look classic, but are lightweight and actually move with you.”

[Photo: Courtesy Greatness Wins]
As for the unconventional brand name, Greatness Wins is a departure from quippy invented monikers of big players in the space, such as Nike, Adidas, Lululemon, and Gymshark—Riccobono says the choice was intentionally literal.

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“When I came up with the name Untuckit, every single person in the world of fashion and design said it’s the worst name you could ever come up with,” he says, but, as it turns out, “it was the greatest thing I’d ever done. I knew if I ever launched a new brand, I was not going to have a simple name where you can’t understand what this is about. When you’re fighting for marketing dollars, you need something that’s going to say, wow what is that? Greatness Wins—it’s an athletic apparel brand.”

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About the author

Danica Lo is a Fast Company contributing editor covering marketing, branding, and communications.

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