Surfing the right wave.
Never half ass two things, whole ass one thing
Ron Swanson
After reading Chris Dixon’s post on climing the right hill last month, Ayo’s long read (link below) about startups hunting for the right wave really resonated with me and the importance for a startup to pick the right problem to go after.
A busy week in the challenger banking space with Square and Agora launching new products, earnings from Revolut and OakNorth and trouble at N26. Exciting news in lending as Amex is rumour to be looking into buying Kabbage and a restructuring of Facebooks payments into a new group, F2, to harmonise its solution across the whole FB playform. A bank goes to the cloud.
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Recent News 📰
Challenger Banking 🚀
Square is pushing further into the consumer lending space as Cash App is testing short term loans to consumers, offering 1,000 users between $20 and $200. With an interest rate of 5% for four weeks, although expensive, it is cheaper than the average payday loan rate of 400% annually. This ties in nicely with Cash Apps target market, unbanked and underbank Americans who often use payday loan companies to get them through the month.
Revolut announced earnings this past week with losses tripling for 2019 to £107m with revenues up only 180% to £163m (£100m from interchange). This follows a simialr trend across Monzo and Starling. CEO Nikolay Storonsky still expects the company to break even this year and is focused on reducing operating costs.
London based digital mortagage company Habito has raised a £35m Series C led by Augmentum, a new investor and existing investors Ribbit Capital, Atomico and Mosaic.
Robinhood has stopped providing data on the most popular stocks on its platform, leaving some hedge funds scrambling for data sources to replace it. These hedge funds were clearly looking to capitalise on popular stocks traded by retail investors. Robinhood already makes money selling its order flow to hedge funds like Citadel and it may look to monetise this data by asking quant funds to pay for access, bringing in additional revenue. This is the murkey underside of retail trading which is so called “dumb money” by Wall Street which they look to profit from.
More trouble at N26 after employees have set up a “Works Council” in Germany due to low trust and confidence in management. German law allows employees to set up a worker council which can be used to protect and advoate for staff. The company is trying to undermine the effort which will further erode morale.
UK bank TSB is phasing out 929 purely cashier roles in branches due to steep decline in customers.
Zero-touch ATMs are coming to BBVA customers, which uses geo-location and NFC to give users the ability to withdraw €300 per day.
Holvi, a digital business bank is pulling out of the UK after six months citing Brexit and Covid as the causes. Usually moves like these are caused by a lack of customer uptake however.
Challenger bank technology provider Agora Services has launched two new white labelled products, Agora Junior and Agora SMB to help smaller banks target the teen market and SMBs.
OakNorth, the UK bank, has lent £600m in new loans since lockdown began, with £220m under the UK’s CBILS program.
Retail Banking 🏦
American Express is looking to purchase Kabbage for up to $850m. Kabbage is one of the largest online lenders and focuses on the SMB space. A deal at this price would be a fall from its $1bn valuation from 2017 when SoftBank invested $250m. Amex could be pushing into new services and will help support the SMBs that feature on its platform. However these small businesses that have suffered the most since the pandemic began, so Amex is also being opportunistic and readying for a bounceback in the near future (hopefully).
Virgin Money has partnered with Life Moments and its FirstHomeCoach tool to help first time buyers. The tool helps borrowers assess affordability, generates a personalised plan with savings goals, guidance at each step of the buying process and links to Virgin Money products.
Standard Charter has signed a three year deal with Microsoft to take its core banking, trading system and new digital ventures into the cloud by 2025.
Fintech Infrastructure
Routable has emerged from stealth mode, raising $16m for its B2B payments solution which automates payables and receivables, handles processing and invoice routing. The company is a YC graduate and boasts BoxGroup, Addition on its cap table as well as angels from Square, Marqeta and Funding Circle.
Payments 💰
Facebook has launched a new group to focus its payments efforts across its platforms, which include Facebook Pay and Whatsapp Pay. The new team is run by David Marcus, the co-creator of the Libra project at Facebook. This could make advertising more valuable as a user would be able to see an ad on the FB platform and click and buy it without leaving the site, providing much needed attribution of marketing spend. I would like to see Venmo or Cash app integrating with the FB platform to allow more P2P payments with FB and WhatsApp contacts and not another P2P wallet and platform that is separate.
Amex is also entering the installment pay market with its “Pay it Plan it” program for US cardholders. The plans have a fixed fee and no interest and are another way to tie merchants to Amex.
Apple has removed the Fortnite app from its App Store after they introduced a direct payment method with discounts, circumventing the commission charged by Apple. It has also been removed from Google Play store. Apple’s monopoly of payment methods in its iOS store is coming under increased scrutiny and takes a lot of revenues from established companies like Netflix. It is also likely to be challenged in court in the near future, especially in Europe given increasing scrutiny of tech companies.
Embedded Finance
Goldman Sachs, according to WSJ, is said to be vying for the credit card business of General Motors in what is another example of financial services moving vertical. GS pitched the idea of the car as an e-commerce portal as GM has enabled drivers to order food, pay for gas and book hotels from inside the car.
Longer reads 📜
Another great read by Ayo here about wave hunting and Cash App. “If you had to bet on two swimmers in a race, and one was an exceptional swimmer in calm waters, and the other was an average swimmer riding a tsunami, which would you bet on?”
Details on how a SaaS business attracted its first 500 paid users here shows what focusing in hard on users can really achieve.
Examples of how some well-known B2B businesses attracted their first customers here
7 ways for incumbents to react to fintechs from McKinsey; buy, partner, invest, transform, build, serve or ignore.
Startup of the Week ⭐
FirstHomeCoach is a UK based startup which provides first time buyers a complete guide to buying their first home. In the UK, where the average age of a first time buyer has increased from 31 to 33 in less than ten years and the average first home costs £220,000, getting on the property ladder remains just an aspirational goal for many.
FirstHomeCoach provides a digital app to guide users through the process with checklists and dashboards combined with personalised goals. Having recently secured a partnership with Virgin Money, FirstHomeCoach makes money when you take a mortgage, solicitor or insurance through one of their partners by charging them, never the user.
Founded by serial entrepreneur Ben Leonard, who previously worked at HSBC and Paul Carse, CTO, the company has raised money from the UK govenrment and an accelerator program based in Cambridge.
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Michael