Issue #105: Nuvei Goes Private, Fiserv To Bring Pix To The US, And Singapore Launches A Centralised AML/CTF Platform
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A curated round-up of the most interesting and relevant news from the world of fintech. In each issue, I focus on what caught my eye from the previous week — so don’t expect a weekly smorgasbord of press releases and partnership announcements. The aim is to serve the meaty bits in a neat, nibble-worthy package. It's all about spotlighting the head-turners and giving you the nitty-gritty without the fluff.
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As always, it’s been a busy week for fintech, so without further ado, let's delve into the major happenings from last week.
📣 The News Grab Bag
⤷ Nuvei goes private in stock sale to Advent
🏃♂️ The Rundown: Canadian payments processor Nuvei is set to go private through a stock sale to Advent International, valued at $6.3b. Existing shareholders, including CEO Philip Fayer, Novacap, and Caisse de dépôt et placement du Québec, will benefit from a $560m windfall.
Fayer and his team will continue to lead the company, focusing on e-commerce, mobile payments, card issuing, and fraud management services. Nuvei operates globally, collaborating with Visa and offering diverse payment solutions. Despite a net loss for last year, revenue surged by 41% to $1.19b. The deal is expected to close later this year or early next year.
🥡 Takeaway: As multiples fall on listed fintech startups, PE shops are starting to smell opportunity. We’ve entered a period where the market has rebalanced and, in some instances, overcorrected on startup valuations—after all, PE only comes along when it sniffs out a bargain—and players like Advent and KKR are seeing some buy-side opportunities.
Established payment players in tightly held markets like Canada will always be high on the list for PE players like Advent, which has a bit of a penchant for the segment. It’s probably one of the more prolific PE investors in payments, with active investments in Nexi, Ebanx, Prisma Medios de Pago, GPS, Planet, Xplor, and Mangopay.
Down markets always present an opportunity for eagle-eyed investors to swoop in and buy quality assets at a steep discount (and I think we’ve hit that point), and there are few more eagle-eyed than PE players. I expect this trend to continue this year as more valuable fintech assets start to look like real buy opportunities for those with dry powder.
⤷ Fiserv to let Brazilians use Pix in US
🏃♂️ The Rundown: Fiserv is expanding the use of Brazil's Pix national payments system to the U.S., following its success in Argentina. This move aims to lower cross-border payment costs for merchants and consumers globally.
The company's VP, Chris Abele, highlights Pix's benefits—lower fees, familiar payment methods, and speed. Fiserv anticipates enabling Pix payments in the U.S. by early next year.
🥡 Takeaway: If you’re a regular reader of Fintech Radar, you know I’ve been beating the drum on the rapid internationalisation of faster payment networks. These more direct connections to local payment networks — distinct from what currently happens in more standard cross-border payments done through a correspondence network (see below) — are sure only to grow as RTP networks build partnerships aimed at taking them global.
Source: “Cross-border Faster Payments”, World Bank Fast Payments Toolkit, World Bank Group This trend is only gaining momentum as local networks seek to expand their reach into other countries. For example, some might recall that I highlighted UPI’s plans to go global a few weeks ago, a deal not dissimilar to what Fiserv is doing with PIX.
Currently, most of these cross-border plays tend to fall into two distinct buckets: reciprocal arrangements done at a national level (like this one between Singapore and India and this one between Hong Kong and Thailand) or “distribution” deals like this one that Fiserv has struck with PIX.
It’s a trend worth keeping an eye on this year as we see more markets (well, except for the US) continue to see an uptick in local faster payment network adoption.
⤷ Mastercard to increase credit and debit card fees
🏃♂️ The Rundown: Mastercard will increase credit and debit card transaction fees by around $250m and raise the Acquirer Brand Volume Fee (aka assessment fees) from 0.13% to 0.14% starting April 15, 2024.
This move is part of a series of fee hikes by Mastercard and Visa, totalling nearly $2b over the past three years. Despite a recent legal settlement with US merchants to lower credit card swipe fees, the agreement does not cover Mastercard's fee increase.
The article notes that the Merchants Payments Coalition advocates for fair market competition and criticises the continuous fee hikes, estimating that these fees could lead to annual consumer price increases of over $1,000 per family.
🥡 Takeaway: I suppose when you have a billion-dollar hole in the P&L, you need to recover it somewhere. In all seriousness, the schemes are masters of devising fees and then varying them based on every factor imaginable. Factors such as the type of card, whether the transaction is conducted online or in person, the transaction's value, and the merchant's size can all ratchet up the cost of a transaction—and that’s only for interchange fees!
As the article notes, Mastercard's recent hike in assessment fees marks the third series of adjustments in various interchange and network fee rates since 2021. Despite Congressional appeals to halt these increases, Mastercard and Visa have increased them multiple times.
It’s certainly an interesting tactic. Raise prices and continue to extract all the value you can from every transaction. I’m sure the schemes would counter with the growing cost of servicing transactions is driving this or something to that effect — which at some point starts to sound ridiculous when your business runs at an 80% gross margin.
In the long run, the gradual ‘boiling frog’ strategy seems likely to push merchants towards alternative payment methods. With the emergence and growing popularity of Account-to-Account (A2A) payments, this shift could represent a significant turning point for many merchants.
⤷ MAS launches centralised digital platform against money laundering, terrorism financing
🏃♂️ The Rundown: The Monetary Authority of Singapore (MAS) introduced Cosmic, a centralised digital platform aimed at combating money laundering, terrorism financing, and proliferation financing.
Launched on April 1, Cosmic enables information-sharing among financial institutions, with participation from banks like OCBC, UOB, DBS, Citibank, HSBC, and Standard Chartered.
MAS highlighted Cosmic's role in enhancing financial crime prevention, with banks like Citi and OCBC emphasising the platform's significance in efficiently identifying and deterring criminal activities.
🥡 Takeaway: In many markets, it’s not uncommon for banks to collaborate and share information on scams they’re seeing. For example, last year in Australia, 17 banks banded together to introduce the Fraud Reporting Exchange (FRX) platform to combat scams, aiming to freeze fraudulent payments in real-time. Commonly, these are industry-led initiatives that are about information sharing and are narrowly focused (presumably to ensure they don’t attract the attention of competition regulators).
It’s always fascinating to see a regulator (or government department, in the case of MAS) step into this space and clear the path from a regulatory and technology perspective to raise the level of information sharing. As the article notes, the enabling legislation is designed to define clear legal parameters for this exchange of information. The goal seems to be ensuring that the shared data is used strictly for combating financial crimes, thereby preventing misuse beyond its intended purpose.
It’ll be interesting to see how this goes, as it could be a harbinger of something we see more and more of in other markets.
⤷ ClearBank rings in first full year of profitability
🏃♂️ The Rundown: ClearBank, an embedded banking platform, celebrated its first full year of profitability in 2023, reporting a pre-tax profit of £18.4m by December 31st.
The fintech saw a 91% increase in total income, driven by a 54% rise in payment volumes and a 103% surge in deposits, which now amount to £6.1b. ClearBank's success is attributed to the high-interest environment in the UK, which prompts more clients to seek protection and higher returns. ClearBank aims for a European banking license and plans a full EU launch later this year.
🥡 Takeaway: At a time when most of the discussion around BaaS has been somewhat gloomy, it’s great to read about a player in the segment posting a profit.
The article notes that CEO Charles McManus recently commented that the fintech now serves 221 live clients and has “moved up the curve in relation to larger and larger institutional clients”.
I think this will continue to be a trend in BaaS. Specifically, the move further and further upmarket (whether that be working with more prominent SaaS players, airlines, retailers, etc.) is something that most BaaS startups are likely furiously trying to do.
The days of a BaaS player servicing newly-formed consumer fintech startups are numbered. No doubt some will still play in that segment, but after the regulatory challenges most have recently faced and a dwindling number of well-funded consumer propositions, we’ll likely see most converging on “larger institutional clients”.
💸 Notable Funding Announcements
Last week was slower for fintech financing, with 55 funding rounds completed and companies collectively securing $513m in investment.
⤷ ValidMind raises $8.1m for AI risk management platform
🏃♂️ The Rundown: ValidMind, a model risk management platform for financial services that leverages AI, secured $8.1m in seed funding, led by Point72 Ventures and joined by Third Prime, New York Life Ventures, and others.
With the surge in AI adoption in financial services, ValidMind is trying to address the need for efficiently managing AI-related risks. The platform automates testing, documentation, and governance for AI and statistical models, aiming to enhance developer productivity, accelerate model deployment, and ensure regulatory compliance.
🥡 Takeaway: Most of the attention when it comes to AI applications in fintech has (so far) fallen into a few narrow buckets. Whether that be customer service bots or agents to help with all types of internal processes—coding, compliance reviews, and internal information. Ask a question, and it comes back with a response, whether that be for your team or a customer.
So, where will the net new use cases come from? Ironically, one of the more interesting use cases for gen AI in the fintech is coming from… well, gen AI.
The proliferation of gen AI is necessitating solutions to monitor the models, and with everyone jumping in and testing use cases with their data, the demand for platforms that monitor what is actually going under the hood will only rise.
I predict we’ll see a plethora of companies like ValidMind pop up for every vertical to provide the guardrails that companies (especially in highly regulated industries) can use to show regulators that their models are not going full Skynet.
⤷ Constantinople’s “bank in a box” platform attracts $50 million in Series A funding
🏃♂️ The Rundown: The Australian fintech startup Constantinople announced it had successfully raised $50m in Series A funding. Prosus Ventures led this round, with participation from Square Peg Capital and Airtree Ventures.
Constantinople, established in 2022 by former Westpac executives Dianne Challenor and Macgregor Duncan, introduces an innovative "bank in a box" solution for smaller banking institutions.
This solution integrates operational tools for both retail and business banking sectors. The company has already commenced operations with Great Southern Bank in Australia.
🥡 Takeaway: As each new generation of core banking providers enters the market, they seem to spring onto the scene with the promise of a similar thing. Specifically, they all lead with being a lighter-weight solution and easier to integrate than their successors. Whether that’s the last wave of Temenos, Mambu and Thought Machine or this next wave with companies like Constantinople, the claim is that we’re not like your current providers — we’re an all-in-one package, a bank in a box, if you will.
This strategy mirrors what Jack Henry did in the U.S. years ago, targeting the substantial market of mid-sized banks—a strategy predicated on the belief that success in one country can be replicated in another. It's ambitious and compelling.
Navigating the market remains challenging. Despite the emergence of new entrants promising innovation, many institutions continue to use the old guard of SAP, Oracle, TCS, and FISERV for their ERP, origination platforms and so on. While a handful of new competitors attempt to disrupt the status quo, a significant market upheaval has yet to occur. Then again, maybe this time is different.
🎧 Resources & Recommendations
On the latest episode of Fintech Layer Cake, host Reggie Young chats with Natasha Vernier, CEO and co-founder of Cable, about all things compliance.
Despite the episode's lofty title—“compliance 3.0”—it’s actually a great discussion about some of the more interesting opportunities in what some might see as a less dynamic segment of fintech.
More specifically, they explore the critical role of automated effectiveness testing in compliance (don’t worry, Vernier does a great job explaining what this means), the challenges of selling products to incumbent banks, and some of the emerging trends in compliance.
As always, Fintech Layer Cake delivers. Add this episode to your fintech podcast playlist.
⤷ Building products that delight customers with Adam Nash
In this episode of In Depth, Adam Nash, CEO of Daffy and former President of Wealthfront, shares his thoughts on a range of topics including some insightful lessons from his time at Wealthfront. In this wide ranging podcast, he also discusses topics like customer delight, strategy, and leadership transitions.
Tons worth tuning in for on this episode (and I have to admit I made a bunch of notes), but it’s particularly worth listening in on how Nash thinks about prioritising features using what he call the 70/20/10. Take notes, it’s banger of an episode.
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