Fintech Christmas come early
Kredit is SotW 🚀 in the credit rehabilitation space
Tweet of the week 🦉
This week has been a joyous one on many fronts. The UK was the first country to approve the Pfizer covid vaccine. Bitcoin hit an all time high. The Fed extended four backstop lending programs. Stripe launched BaaS and lending-as-a-servie. But most importantly Cash App unveiled apparel for your fintech nearest and dearest as the holiday season approaches.
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Recent News 📰
🇪🇺 Sifted put together a list of Europe’s unicorns, which included 16 fintechs with combined valuation of €44bn.
🇬🇧 Augmentum, the UK’s only publicly listed fintech investment company, announced its half year report to 30 September 2020, some notable highlights below;
Largest £ investment return for its top holdings from March to September was BullionValut.
Invested £5.1m in seven of their 16 investments which included Grover (£0.9m), Farewill (£2.6m), Monese (£1m), Zopa (£0.5).
2.8% increase in NAV from end of March 2020.
🇬🇧 AltFi announced its nominee’s for its 2020 People’s Choice award which include Chip, Curve, Plaid, nCino, Railsbank, Raisin, Thought Machine and Yolt. Vote here.
🇬🇧 With Sequoia launching its London office, Sifted sat down with the firms only European partner, Luciana Lixandru.
Funding 💸
🇪🇺 Target Global has raised a €300m new fund to invest in fintech, SaaS and wellness.
🇪🇺 ReceiptHero raised €2m seed from Lifeline Ventures, Superhero Capital and Vidici Ventures for its turnkey digital receipts solution.
🇬🇧 UK challenger bank Monzo has picked up £60m in funding at the same £1.2bn valuation as its previous down round.
🇬🇧 Pockit, a bank targeting the underbanked raised £15m from new and existing investors.
🇬🇧 Updraft has raised £16m in debt and equity from the UK Government’s Future Fund and Quilam Capital for its lower cost loan consolidation solution to help consumers “break up with credit cards”.
🇺🇸 Amount, a technology provider for financial institutions has raised $81m in a Series C from new lead investor Goldman Sachs.
🇺🇸 Open-source fintech infrastructure library Moov.io announced a $27m investment from Andresseen Horowitz. Read a16z’s comments on the funding here.
🇺🇸 BNPL giant Affirm is buying Canadian BNPL firm PayBright as the sector starts to consolidate in a quest for global scale.
🇺🇸 Teen challenger bank Step raised $50m in a round led by Coatue which also included Stripe and celebrities Will Smith, Charli D’Ameio, Justin Timberlake, The Chainsmokers, Eli Manning and exec’s from Facebook, Square, Venmo and Visa as investors. One to watch with such a star cast of investors.
🇺🇸 Paceline, the fitness rewards platform, raised $7.13m from investors including Montage Ventures, Propel Ventures and Clocktower Technology.
🇺🇸 NerdWallet raised $54m in a round led by SVB.
🇺🇸 55ip was acquired by JPMorgan Asset Managment for an undisclosed sum. The company provides a digital platform for financial advisors
Embedded Finance
🇺🇸 Christmas came early for the fintech community this week with Stripe announcing both surprisingly and not surprisingly both Stripe Treasury (read Banking-as-a-service) and Stripe Capital (embedded lending).
🙌🏻 FATP Take - Ben Thompson covered this and it seems Stripe is aiming to do what it did for payments, to both SME banking and lending, i.e. make it simple to embed financial services with a single integration. Stripe customers can offer their users bank accounts, storage of funds, money movement services and lending. Stripe is partnering with Goldman Sachs, Evolve, Citi and Barclays for Stripe Treasury which is powering Shopify Balance. Stripe has global ambitions for Treasury which is why it is partnering with global banks Citi and Barclays. Crucially, Stripe is looking to power platforms like Shopify and not individual fintechs with both these offerings. So they will not compete directly with other BaaS providers but should grow the overall pie and validate the sector. Stripe could price its suite of products to give discounts to platforms utilising multiple solutions making it a competitive offering.
Challenger Banking
🇪🇺 A great deep dive into Tinkoff Bank by WhiteSight.
🇬🇧 Revolut has been busy launching a web app, an early salary payment feature (enabled by Modulr) and an acquiring solution as it moving further towards becoming a super app. h/t to Chris Gledhill
🇬🇧 UK roboadvisor Nutmeg has joined Starling’s marketplace, allowing Starling customers to see their investments they hold through Nutmeg.
🇺🇸 Ahead Financials, a new challenger bank targeting the emerging middle class, launched this week. The company is a subsidiary of LendUp.
🇺🇸 Automated savings app Digit has launched automated long-term investing goals
🇺🇸 Carta, the cap table management software platform, is launching CartaX, a private share-trading market next year.
🇺🇸 WSJ reports that airline cards are losing their appeal as travel perks are now obsolete. With the travel industry expected to take some time to recover, will credit card users want different rewards and more flexibility going forward?
🇺🇸 Fintech Figure Technologies has applied for a national bank charter with a twist, it does not want to take FDIC-insured deposits, in order to skirt regulation and oversight. If approved, which is far from certain, I think this sets a bad precedent.
🇺🇸 Collectors Universe is being acquired through a SPAC led by Nat Turner, D1 Capital and Steve Cohen. This could have implications for fintech Rally Rd which allows fractional ownership of collectibles.
🇺🇸 General Motors’s lending arm is looking to apply for an industrial loan company charter to grow its auto-finance business.
Traditional Banking 🏦
🇪🇺 Belgium’s four banks are outsourcing their new bank-neutral ATMs to Auriga.
🙌🏻 FATP Take - With cash becoming less used as a payment method, expect this trend to continue. I would also love to see this occur for branches as well but that is unlikely.
🇬🇧 Lloyds is looking to retailers to provide cash services in communities with a lack of ATMs or other means of gaining access to cash.
SME Banking
🇺🇸 Banks are using alternative data to more accurately monitor the health of SMEs which is more up-to-date than financial statements and tax filings according to American Banker. Tom Renwick from Atom Bank shares his thoughts on data driven lending.
🙌🏻 FATP Take - This should be a hot space for fintechs that can provide more real time analysis and data on SMEs. It also provides an opportunity for SME accounting and banking platforms to provide API access to lending banks who need more real-time data.
Fintech Infrastructure 🚧
🇪🇺 Nordigen, the open banking API platform, has switched to a freemium model and is giving open banking APIs for free and offering paid services for analytics and insights on top to drive revenue.
🇺🇸 Modern Treasury has gone self-serve with an easy way to sign up for new corporate bank accounts with payment capabilities to start building right away.
🇺🇸 Merritt Hummer of Bain Capital unpacked some of the rationale behind high valuations for fintech infrastructure companies below.
Payments 💰
🇬🇧 Payment service provider Mollie found a 56% increase in number of BNPL transactions on Black Friday from last year. Some not so great BNPL data below;
🇬🇧 Lloyds Bank is the first in the world to switch on Swift gpi Instant, giving consumers and businesses the ability to send tracked payments across borders nearly instantly. It connects Swift gip, the high speed cross-border rails with the UK’s Faster Payments.
Regulatory Corner 🔎
🇪🇺 Dutch authorities are trying to stop Big Tech companies creeping into the payments space through antitrust rules in what could be seen as a precursor to wider EU restrictions.
🇬🇧 The FCA and City of London are building a digital sandbox to work on issues exacerbated by Covid, such as fraud prevention, SME financing and financial resilience.
🇺🇸 The CFPB issued an update on Earned Wage Access, one of the fastest growing segments in fintech and helps clarify which of the solutions are deemed to be “credit” and thus face regulations. An awesome breakdown below from @regulatorynerd. The FCA clarified that in the UK these Employer Salary Advance Schemes (ESAS) are not considered credit either and are monitoring developments.
Longer reads 📜
Google Plex: The Mobile Banking App Every Bank wants - Ron Shevlin, Forbes
🙌🏻 FATP Take - I agree with Ron’s view that Google does NOT want to become a bank but will become a technology provider to financial institutions. Google has expertise in UX and distribution which appeals to banks, especially community banks that have a smaller reach. Just look at how Google has tried to nudge users to use Google Meet through Google Calendar. Under the assumption that Google will get to see some form of transactions that occurs with these accounts, this will greatly enrich the data it has on individuals and may enhance their advertising capabilities and rewards platform. No other tech company can utilise transaction data as well as Google IMO.
Understanding the limits of fintech in financial inclusion - Nik Milanovic
Embedded Inclusive Fintech - Vikas Raj
What will cashless China mean for the world? - Nicu Calcea
🙌🏻 FATP Take - China is taking the lead on both fintech and digital currencies and as the article notes, will be looking to supplant the West’s dominance of money with its own digital currency. The political risks of dilly dallying by the US and Europe on digital currencies and the fighting for digital currency dominance has the potential to be a huge risk and shaper of the future of the sector and global economy over the long term.
The (Neo) Bank Bundle & Transition to Subscription Revenue - John Street Capital
🙌🏻 FATP Take - Excellent look into what the future of neobank business models might look like. The key question is will consumers be willing to pay monthly for financial services in markets such as the UK where consumer banking is “free” on the face of it.
Building the Marcus brand: Goldman’s 2021 vision for its consumer banking product - Tearsheet
Startup of the Week ⭐🇺🇸🇬🇧🇪🇺
You can check out last month’s featured startups here.
🙋If you are working on any exciting fintech startups, I would love to connect with you so drop me a message.
Kredit is the first free automated credit repair and building solution. It helps consumers to improve their credit profile and their ability to access capital.
Team
Kredit was founded in 2018 by Jacob Singer and Josh Friedman. Jacob has a JD from St. Joh’s University School where he was an Associate Managing Editor of the Law Review and has worked in the consumer protection/credit space for over 10 years while Josh is an experienced founder with a successful prior exit to Shutterfly.
Market
The birth of the consumer credit report industry began in 1970 with the Fair Credit Reporting Act (“FCRA”) and the Fair Debt Collection Practices Act (“FDCPA”, 1977) and was later strengthened in 2003 with the Fair and Accurate Credit Transactions Act, giving Americans free access to their credit reports and the right to a complete, accurate and verified credit report.
More recently Credit Karma has transformed a free credit score as a hook for its broader business of tax filings and the cross-selling of financial products. However, although access to credit information has been democratized, there's still a tremendous void to be filled with what to do with that information in order to help consumers with improving their scores.
Tens of millions of people in the US need that help and Kredit is about leveling the playing field.
The credit repair industry is one place where people turn to as a solution but it can be expensive and doesn’t get to the root of the matter. It isn’t a one time fix and typically can take four to six months at a cost of $500-$750 (consumers also have to sign up for credit monitoring [about $25 per month] so that the credit repair companies can access their complete credit reports). Credit agencies are required by law to fix inaccuracies but they make it very difficult for consumers to do it themselves which is why consumers spent $3bn in 2019 ( banks.com) with credit repair agencies to fix the estimated 40 million errors in credit reports.
The industry is countercyclical so we can expect the coming years to be a boon for the industry given the financial difficulties due to covid. Although mortgage holidays and interest holidays have been given, the reporting of these to agencies could cause an abundance of issues not to mention what happens when they stop.
Product
Kredit is building not just a credit repair solution that upends the traditional credit repair model but a unified platform for long term credit rehabilitation. Think of it as a robo-advisor for credit building. The sauce behind their product is the automation of the credit repair services which allows them to offer the same $750+, for free. For their pilot product, they started with credit repair in order to prove their hypotheses and from there the goal is about focusing on a broader unified credit-building tool that uses all credit-building tools and offers through their unified platform.
Business Model
Each of the over 10 thousand customers they have already helped, pay for the credit monitoring service, and get the credit repair solution free. With that, the company is generating revenues and in fact net positive on a per-user basis. The typical customer has seen a roughly 50pt boost in their credit score and they are also looking at other creditworthy activities that are not currently reported to agencies such as rent payments.
Kredit has turned the industry model on its head, switching from free commoditized credit reports which are limited use in isolation, to a solution customers are paying for straight away because it helps them raise their score
The company, which has bootstrapped to date, now has a proven repeatable, and scalable model, is going to be looking for outside funding to fuel their growth. Users come through B2B partnerships but also 3b FICO reports. Users typically are proactively searching for help with their credit score because of an upcoming loan and look to boost their score in advance of that to get a better rate. This provides not only inbound interest but also a further opportunity for revenue generation from the selling of financial products at a time when they are needed."
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Michael