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How long is a long enough runway?
This week has seen lots of exciting news including;
A new type of news feed
Fintech bank charter application
Challenger bank launches and acquisitons
Another UK fintech arrives in USA
European fintechs coming together
A UK bank targetting to double the number of digital users by 2022 despite seemingly having a terrible digital proposition
More payments systems!
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Some of Europe’s largest fintechs have come together to launch the European Fintech Association (EFA), a non-profit organisation designed to help create a single financial market in the EU with no cross-border barriers.
A study by Innovate Finance found 70% of small UK fintechs have less than six months runway, with 32% looking to diversify their revenue and 30% considering pivoting their business.
Online lender SoFi has applied for a national bank charter which would enable it to make loans and hold customer deposits itself. The firm has aggressively expanded from its student loan financing beginnings, buying API platform Galileo and mobile banking outfit Zenbanx and partnering with Coinbase. SoFi clearly has grand ambitions to expand their product range to continue helping people with their finances. Could a checking account be next for SoFi?
Starling Bank, as well as seeking an additional £35m grant from Banking Competition Remedies (BCR), has launched two new products for business accounts, a “digital banking toolkit” costing £7 per month as well as an account for holding $. This presents a natural progression of most business accounts that have launched, building out revenues and adding value to customers. A competitive space but a natural fit.
A new challenger bank has launched in US. Point is trying to bring credit card rewards and points to the humble debit card. An impressive list of investors including Valar Ventures Kindred Ventures, and YC invested $10.5m in the Series A. Not an entirely new concept as Zero is already operating but it will be interesting to see if the US consumer can be weaned off credit and move towards debit cards like their European counterparts.
Chime is launching a new card to help customers build credit history. Chime targets the underbanked market who typically have less financial options and helping them build out a credit history is a great way to do that. On the flip side it does increases the chances of them moving to a different lender. Essentially a secured credit card but which includes reporting payments to credit agencies.
Karat is a new credit card which ties credit limits to your social media stats, revenue streams and cash in hand, with some customised perks. With the social media influencer market growing rapidly, an increasing number of people are making a living through social media but they can seem unreliable to traditional banks due to volatile income streams. Not dissimilar to gig-economy workers who are becoming a larger part of the labour markets and a focus for fintechs.
Upgrade, a fintech offering affordable loans and cards, has raised a $40m Series D round, valuing the company at $1bn, doubling its valuation since its Series C. The company reached $100m ARR and is cash flow positive, which explains the small round for such a late stage investment.
Challenger bank Shine has been acquired by Société Générale for a rumoured €100m. Shine focuses on the freelancer and small business market in France and has ~70,000 customers. Shine uses Treezor as its infrastructure partner.
A new challenger bank, Momument, is in the late stages of applying for its banking license to serve mass-affluent professionals with net worth between £250k-£5m, a market traditionally underserved by both private banks and high street banks. As well as being completely app based, customers will have access to communicate with relationship managers on chat, video and in person in “Moment Lounges”.
Who is the biggest mortgage lender in USA? BAML? JPM? Wells Fargo? Its actually Quicken Loans, who surpassed WF in late 2017. How did they reach the top position? Through an easy online and mobile application, a customer can get approved in 8 minutes, taking out much of the pain from the process.
HSBC announced it wants to double its mobile users by 2022 to generate more revenue per customer and to cut $4.5bn in costs by migrating account opening and investments to digital channels. This is despite the recent report from UX expert Peter Ramsey which placed HSBC near the bottom in number of clicks to create an account and at rock bottom in number of working days to have an active account (36!). HSBC’s head of digital transformation, Kevin Martin, has a tough job on his hands.
Personal Capital, a investment platform allowing users to invest in automated portfolios of stocks and bonds, has been acquired for $825m by Empower Retirement. Founded by former Intuit CEO Bill Harris, the automated retail investing platform gives customers a dedicated financial advisor to speak to unlike traditional robo-advisors. Empower is the second largest administrator of retirement plans with $656bn in assets and will increase engagement among its customers.
Only 54 African startups have raised $1m in 2020. One’s also started by an African woman are even more rare, but Fara, cofounder of Okra, has done just that. An API superconnector, Okra aims to be the Plaid for Africa. There will be some copycatting of services launched in US but crucially I believe these will be adopted quicker due to a lack of fixed asset infrastructure costs by banks to consider.
Bud has launched a PSD2 payments API to provide an alternative payment method to card and bank transfer. PSD2 allows direct payments from a consumer’s account to a merchants, cutting out the payments middlemen through Payment Initiation Service Privoders (PISP) and could be a game changer in Europe. Fees charged to merchants will come under pressure and merchants cash flow will improve as a result. It will be interesting to see how the card networks of Visa, MasterCard and Amex respond. Their purchases of Plaid and Finicity could be the start of their move into the space.
Railsbank has arrived in US offering what it calls Credit Card as a Service (CCaaS) to enable fintechs to launch credit cards faster and cheaper. Its first US customer is Unifimoney, a challenger bank targeting high-earning profressionals. The product adds Railsbank to the list of fintechs that enable card issuing which already includes Synapse and Marqeta.
16 European banks are taking on Visa, Mastercard and other payment providers with their own European Payments Initiative (EPI), a pan-European card, digital wallet and P2P payments system with support from ECB. With a large proportion of European countries that have national card schemes that don’t accept cards from other EU countries, the need to build upon the Single Euro Payments Area (SEPA) instant credit transfer scheme will hopefully end the fragmentation.
Amex, Discover, Mastercard and Visa are themselves teaming up for a global expansion of “Click to Pay” their online checkout tool. Its aim is to streamline the online checkout simple and secure for web and mobile users. With cart abandonment costing $18bn a year, expected to only grow as e-commerce becomes more mainstream, retailers will do anything to facilitate a seamless checkout experience for consumers.
Venmo has launched its pilot for small businesses, allowing them to create a Venmo profile and accept payment for goods and services. The push from P2P payments into ecommerce is the reverse of Square which started off with commerce and has moved into P2P through Cash App. These two companies will be facing off over the coming years which will be incredibly interesting to watch. Watch out for my deep dive on digital wallets coming soon!
Apple’s iOS14 beta contains traces of a hidden feature enabling users to make payments with QR codes using Apple Pay. QR codes are ubiquitous in China but haven’t found much traction in the West but adoption by Apple would definitely jumpstart that. For merchants, its an easy way to be able to accept payments without having a separate device and also helps maintain social distancing and contactless payments.
This weeks longer reads
Shachar Bialick, CEO of Curve, has detailed the herculean task that Curve undertook over a weekend to migrate its services away from Wirecard to Mastercard in under 60 hours. Utilising Checkout.com as its acquiring partner and bringing its card issuing in-house, they were able to complete the task with as little down time for customers as possible.
Marc Rubinstein of Net Interest gives some context to the regulatory future for fintechs. With German regulator BaFin stating that “Wirecard is a technology company and therefore not directly supervised by us”, it highlights the often grey area of regulation that fintechs fall. Whilst often partnering with regulated entities and only providing technology services, in hindsigh it is easy to see how this happened. The future for fintech is likely going to be increasing regulation. As regulators both sides of the Atlantic have encouraged competition in financial services, they have not yet caught up to the new risks that are forming. They need to take a step back and look at the bigger picture as more financial activities are moving away from firms under their regulatory perview.
Startup of the Week
MX is a Utah based fintech infrastructure company that helps financial institutions connect their customers with their financial data. This enables the institutions to boost customer acquisition, have more personalised marketing and products and to increase account funding rates.
The connect product is similar to Plaid and allows a customer to get a hollistic view of their financial profile through its API but also enhances the data for more educated decisions and AI-driven nudges.
One thing MX are looking at is having a financial news feed. We have social media news feeds and the news feed concept could be put to use within a bank’s app or a personal financial management app. Rather than being just a list of transactions, it would be personalised messages and nudges with account related alerts, updates on how market shifts impact your investments, notifications about better rates or lower fees available and some financial advice. This will make personal financial management even more useful and frictionless for the end user.
MX has raised $100m in its Series B last June at a valuation of $450m. Its cap table includes Battery Ventures, Point72 Ventures and Commerce Ventures.
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