Happy 4th!
To my American followers, Happy 4th July for tomorrow, a day that marks the start of summer as well as Independence Day.
One 4th July interesting fact is that the Declaration of Independence wasn't signed on 4th July, or in July at all. Most signatures were actually signed in August!
Recent News
After reporting Transferwise’s milestone of £2bn in customer deposits a few weeks ago, reports surfaced this week that Transferwise has received permission from FCA to offer retail investment products to its customers. They will allow users to invest passively in third party funds as a way to earn a return on their cash. I struggle to see how investing fits the company’s product offering and seems more like trend chasing to me. The large size of their customer deposits would suggest that customers are trusting them to hold money as well as transfer it but I would question the turnover of these assets. Deposits made in multi-currency accounts are likely to be earmarked specifically for travel or residual balances from previous trips, unlikely to be money that customers would wnat invested with market risk. The one painpoint with investing for retail consumers in Europe is the availability of passive products is very low, so Transferwise could allow users across Europe access to such instruments with a seamless process that also tackles the issue of currency conversion if funds are priced in non-local currencies.
TechNation reported Top 15 fintech startups to watch this year which includes KodyPay, a similar company to MishiPay which I wrote about last week, Collectiv, which allows users to chase friends and family for money owed, not dissimilar to Splitwise and Irish startup LoyalBe, a digital loyalty card platform.
German Banking as a Service (BaaS) startup solarisBank raised a $67.5m Series C which valued the company at $360m, with HV Holtzbrinck Ventures leading the round. The company, a fully licensed bank, is one of the original BaaS providers, enabling companies to launch financial products without building the entire infrastructure themselves. Another embedded finance play and validation for the sector.
The Europas 2020 winners were announced with London’s Playfair capital scooping the award for hottest seed fund and Romanian FintechOS winning the hottest fintech Category. FintechOS is an open-sourced personalisation technology that allows tailored customer solutions. They raised a $13.85m Series A at the end of 2019 led by Earlybird Venture Capital. This is a very interesting space as I believe personalisation will be the way that financial services are offered in the future. Mass-market products were cheap to offer and helped banks offset the high cost of their fixed branches but as customers become digital, the economics personalisation become more profitable. Congratulations to both teams!
In last week’s newsletter, I reported that WhatsApp was launching payments in Brazil, but the Brazilian central bank quickly suspended the service, instructing Visa and Mastercard to halt payments. They cited potential damage to the Brazilian payments system from competition, efficiency and data privacy. I struggle to believe that WhatsApp didnt previously engage with the central bank and the launch came as a shock. Could the central bank be engaging in anti-compeittive behaviour as WhatsApp is competing with PIX, the central bank’s QR based real-time payments system set to launch later this year? Whilst it is great to see emerging market countries developing real-time payment systems, leapfrogging the decrepid ACH system prevalent in the US, they should be encouraging competition rather than hindering it. Not something that emerging markets are traditionally known for however.
The below list are fintech partnerships which have been announced at the end of June by Finnovating. Partnerships are the key to fintech as no one company is going to be successful without partnering. It is difficult enough building one market-leading product so companies should stick to their competencies and partner in the other areas that make sense!
What I’ve read/listened to this week
Felix Smith’s Medium post on the third wave producivity software, with companies like email client Superhuman and note-taking/mapping Roam Research, was an interesting read and could point to software that sits on top of existing mass-market software (like Gmail for Superhuman) but is designed to be used in a very specific way with little customisation. Previously, as I mentioned above with mass-market fintech products, companies built technologies that appeal to the boradest audience, which meant making them customisable with lots of bells and whistles, but this era might be coming to an end. Software may start to be designed for smaller types of users who are willing to pay for it. As long as these systems are not closed loop but built on top of popular software, I can see a potential market. But paying $30 per month essentially for Gmail, which Superhuman charges, will not be for everyone!
Startup of the week
Astra is a early stage fintech startup that enables the automatic movement of money between a checking and savings account based on dynamic rules. This exciting startup is enabling personal finances to be put on autopilot. Example use cases would be to sweep any excess funds from a checking account to a high yield savings account when they are not needed to earn more interest. Rather than having money in a low interest earning checking account, a user could move money to their savings account and set an automatic transfer if their checking account balance dips below a certain threshold.
What is most exciting however would be to integrate this with a personal financial management app that can see regular spending and set the threshold automatically as well as move money in anticipation of upcoming bills.
It is an example of a fintech infrastructure company whose services can be offered directly to consumers or white labelled and sold B2B via an API.
Astra raised just under $2m in September 2019 from Alumni Ventures Group, Hustle Fund, Slow Ventures and angels.
Thanks for this Micheal! Interesting to hear about WhatsApp, based on my experience it's possible that WhatsApp negotiated an agreement with the government just to have them backtrack later. Allowing competition has been a perennial problem in Brazil.