This Week in Fintech (6/12)

Hello Fintech Friends,

The quickly evolving dynamics of international fintech infrastructure -- whether it’s the launch of a second new payments protocol in India, Brazil’s embrace of open banking and real-time payments, or Mowali’s pan-African mobile money gambit -- has me optimistic for the future. Fintech in emerging markets (all of which are idiosyncratic) can have a much greater impact on financial inclusion than fintech in more developed financial grids.

But in order for fintechs to scale quickly and drive inclusion, we need a global financial architecture. This was something I hazarded a guess would be coming a few years ago, and it’s exciting to see the snowball turn into an avalanche now. Onward!

Another week of fintech and banking news below.

Quote of the week

“If fintech fails to innovate where it counts the most, it will be doomed to repeat the failures of the very system it seeks to replace. And we would have all let a once-in-a-generation opportunity to upgrade rails for economic inclusion go to waste.”

Dr. Chris Brummer, Professor at Georgetown Law School (source)

Open role spotlight

Nivelo, a stealth-mode fintech that wants to rebuild America’s payment rails for the 21st century, is hiring a DevOps Engineer and Data Scientist.

Read(s) of the week

In Fintech 2.0, how to survive when your product becomes a feature, Fintech Ruminations reflects on what separates nimble, adaptive fintech companies from brittle and vulnerable ones. The ability to take advantage of unbundling / embedding to prevent a core service offering from being commoditized is a key trait of successful, antifragile fintechs.

Banking and Credit Cards

A recurring theme in this newsletter is that bank branches are costly to maintain, less visited by customers, and falling out of favor to digital banking. And that was before the Coronavirus required businesses to close their doors. Now, the Wall Street Journal covers the banks re-evaluating whether they need branches at all. Meanwhile, small banks and credit unions are rebelling against core providers such as Fiserv, FIS, and Jack Henry, who they claim de-prioritize smaller institutions, withhold the banks’ own data, and charge onerous fees. This last article is a pretty eye-opening read on the monopolistic practices that core providers use to extract rents out of small banks with no collective bargaining power - another nail in the coffin for community banking.

More small businesses closed down in the US in the last three months than during all of the financial crisis, with minority-owned businesses the hardest hit. Still, US lenders have not (yet) seen high levels of distressed debt - 90-day payment holidays have helped many borrowers stay current. It remains to be seen how debt performs when the crisis has matured.

Meanwhile, Goldman Sachs’ Marcus announced a strategic tie-up with Amazon to use proprietary sales data to offer revolving lines of credit from 6.99% to 20.99% to the e-commerce giant’s small business merchants. Elsewhere, Marcus’ UK bank closed its savings accounts to new customers after the economic slowdown drove an influx in deposits, forcing the bank to drop its APY from 1.5% to 1.05%.

In a savvy move, Chase is advertising its competitive products against transaction line items in customer’s financial statements. The bank also announced its partnership with Sensibill to offer its digital receipt management solution as a native part of the Chase Mobile app.

The UK’s Open Banking Implementation Entity has launched a marketplace for consumers to search for and access financial products that benefit from connection to their bank accounts.

Spain’s Caixabank is rolling out biometric identification in 100 ATMs across the country, which use facial recognition in place of a pin.

The Reserve Bank of India will contribute $66 million into a Payments Infrastructure Development Fund to expand digital payments and point-of-sale solutions through the continent. Rwanda has instituted a new rule that motorcycle taxi drivers may only accept cashless payments going forward. Switzerland announced it will launch QR code bill payments at the end of the month, replacing seven different types of payment slip. And Brazil plans to launch its new PIX instant payments standard (similar to UPI in India or RTP in the US) in November and has 140 financial institutions ready to join.

Private equity firm Apollo Global ended its joint venture with India’s Icici Bank to start its own credit investment business in India.

The New York Department of Financial Services announced the launch of DFS FastForward, a program to incentivize fintech-regulator collaboration to help small businesses in the state, and signed an MOU with France’s financial regulator ACPR to make it easier for fintechs to expand into each others’ markets.

The Office of the Comptroller of the Currency has indicated that it plans a new rulemaking soon to promote innovation in banking, particular in the use of digital currencies.

The United States-Mexico-Canada Agreement for trade could create new opportunities for fintech collaboration and standardization across all three markets.

The Monetary Authority of Singapore announced a $1.75 million global fintech challenge to find solutions that help financial services institutions deal with coronavirus and climate change.

In an odd case, the Commonwealth Bank of Australia is cracking down on the use of Australian transaction descriptions to send abusive messages, sometimes to domestic abuse victims.

And Deutsche Bank’s head of its Europe, Middle East, and Africa business is leaving the firm with no clear successor.

Source: Bharat Ramamurti

Fintech

Product Launches

See if you can spot the product launch trend...

Klarna is the latest fintech pivoting into the neobank space. This week, the installment lender launched a digital bank in collaboration with German savings marketplace Raisin, boasting a 0.35% APY - seven times higher than the average German savings account. The Swedish fintech also launched a rewards program called Vibe, which provides points for every $1 spent at select retailers with cashback opportunities.

German neobank Vivid Money announced its partnership with licensed digital bank solarisBank and Visa to launch its consumer-facing mobile bank.

Wave Money launched the waitlist for its business neobank product, which features automated bookkeeping, reconciliation, and spend categorization.

MoneyLion launched the waitlist for its upcoming digital bank and rewards debit card.

Tomorrow, a ‘green’ German neobank, announced the launch of its new eco-friendly card design.

Neo.tax, which provides an R&D tax credit to give startups an extra month of runway, launched on ProductHunt.

Other News

Paypal is the latest fintech to step up its commitment to the black and minority-owned business community, committing $530 million to support black-owned businesses.

Quicken Loans, the largest mortgage lender in the US which has remained private until now, filed for IPO.

Uber announced a strategic partnership with Nigerian fintech Flutterwave to launch its Uber Cash digital wallet using top-ups via the remittance partners on the B2B payments platform.

Smaller merchants are turning to ‘fintechs’ such as Lightspeed and Shopify to help them create online stores, manage cashflow, and sell online through the economic shutdown.

The coronavirus has wreaked havoc on Asia’s growing online lending industry, with lendtechs shuttering and as much as 10 out of 14 lenders withdrawing their offers from Indian marketplaces.

Lemonade, the direct-to-consumer insurance-focused fintech, filed to go public this week.

Libra named Credit Suisse head of financial crime as its CCO. This comes as progressively more consumers are accessing core banking services through messenger platforms like WhatsApp and FB Messenger.

More large tech companies are integrating fintech into their core service offering, as Apple offers monthly interest-free payment plans for products like iPads and Macs when users purchase with their Apple Cards. Meanwhile, Google Pay and Walmart - via PhonePe - have widely dominated India’s mobile payments market, with 75 million and 60 million transacting users, respectively, while Paytm and WhatsApp Pay rush to catch up.

Source: a16z

Financings

Automated investing, borrowing, and banking management startup M1 Finance raised a $33 million Series B.
H4, a digital documentation provider to the financial services industry (not to be outdone by its naming convention counterpart above), raised $27 million from JPMorgan, Goldman Sachs, and Barclays.
Wahed Invest, an Islamic finance and investing startup in the US, raised $25 million to expand to new markets including through its Saudi subsidiary.
iBanFirst raised a €21 million Series C. The company helps small businesses make cross-border payments in 30 currencies.
Neptune Networks raised $15 million for its fixed income trading utility platform.
Colombian point-of-sale financing platform ADDI raised a $15 million Series A extension.
Nymbus, a bank software platform, raised $12 million.
UK fintech Codat raised $10 million to build a financial application data API for small businesses.
MPower Financing, a student lending startup focused on underbanked students, raised $9 million to continue its growth, including a new program to refinance international student loans.
Pando, which lets professional athletes pool their future earnings, raised an $8 million Series A.
Pinwheel raised a $7 million seed and came out of stealth to launch its API for payroll data, including income verification, employee verification, and switching direct deposit.
Multi-bank account aggregation platform Cobase, which spun out of ING bank, raised €10 million from banks Nordea and Crédit Agricole to expand its network of connected banks.
Tabby, a MENA online payments software that allows consumers to make purchases with just a phone number and email, raised $7 million to launch in Saudi Arabia.
Chargeback, a somewhat-fintech transaction disputes platform, raised a $6.6 million Series A1 to boost growth plans.
Grow Credit, which provides consumers with credit lines for online subscriptions, letting them use subscriptions to build credit, raised a $2 million seed round.
Jamborow, a Nigerian blockchain fintech platform, raised a $400,000 seed round to expand its service offering to unbanked consumers.
Caspian, a UK-based compliance and financial crimes investigation software, raised an undisclosed amount from Nasdaq Ventures.
Swedish fintech platform Trustly, which allows users to make direct bank transfer payments for online purchases and which is profitable with revenues over $150 million, raised an undisclosed amount of funding from backers including Blackrock.
Point of sale financing software ChargeAfter secured an undisclosed equity amount from Japanese bank Mitsubishi UFJ Financial Group, which has been making more forays into fintech lately.
The Dubai International Financial Centre invested out of its $100 million Fintech Fund in four startups: FlexxPay, Go Rise, NOW Money and Sarwa. Allocations were not disclosed.

Exits and M&A

The Department of Justice concluded its antitrust investigation and cleared the way for Charles Schwab’s $26 billion all-stock acquisition of TD Ameritrade.
Investment advisor Captrust bought $1.6 billion wealth management firm Lakeside Wealth Management, its 41st acquisition since 2006.
Special purpose acquisition company Nebula (sponsored by True Wind Capital) completed its reverse-listing of risk analytics platform Open Lending to Nasdaq.
Private equity firm Blackstone lowered its bid to take over Dutch bank NIBC by 25% to $1.13 billion, citing the coronavirus pandemic as the driver in the cut.
Private equity investor Cerberus called for two seats on German lender Commerzbank’s board to stop its “downward spiral.”