Issue #109: Feds Looking Into Financial Transactions At Block, GM's Card Programme Might Be Headed From Goldman Sachs To Barclays, And PE Continues To Eye Fintech Opportunities
Issue #109: Feds Looking Into Financial Transactions At Block, GM's Card Programme Might Be Headed From Goldman Sachs To Barclays, And PE Continues To Eye Fintech Opportunities
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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
⤷ Federal prosecutors are examining financial transactions at Block, owner of Cash App and Square
🏃♂️ The Rundown: Federal prosecutors are investigating compliance lapses at Block concerning Square and Cash App. The article notes that documents provided by a former employee to prosecutors revealed failures in customer risk assessment, processing transactions involving sanctioned countries, and handling cryptocurrency transactions for terrorist groups.
According to the article, Block allegedly did not address these issues when alerted. The company claims to have a robust compliance program and voluntarily reported transactions to the U.S. Treasury.
🥡 Takeaway: Running a compliance program at any financial institution is challenging. Continuously balancing, reducing friction, ensuring accounts aren’t needlessly frozen due to false positive AML or sanction flags, and trying to stop the bad guys from running wild on your platform is challenging.
Regardless of whether you’re a fintech or SIP bank, the bar is high when it comes to AML and CTF requirements — and as we’ve seen, when it goes bad, it can cost a lot — and it’s a battle that is forever changing. Having said this, in many ways, it’s the steady state for any financial institution that moves money.
⤷ Barclays reportedly leading the race to take over GM credit card programme from Goldman Sachs
🏃♂️ The Rundown: Barclays is reportedly leading discussions with Goldman Sachs to acquire the General Motors credit card program, marking Goldman's further retreat from retail banking. The Wall Street Journal revealed Barclays as the frontrunner for the program, catering to General Motors customers.
Goldman outbid Barclays during the initial sale four years ago. Since then, Goldman has been exiting retail banking, selling businesses like PFM and BNPL services under CEO David Solomon's strategy to focus on investment banking and asset management.
🥡 Takeaway: Last week, I discussed the challenges that Goldman Sachs has faced with its fintech foray, and now, this week, it’s ditching more of the partnerships it fought so hard to acquire.
It’ll be interesting to see what GS does with the remaining assets — namely the Marcus deposits accounts/brand. Will they scuttle or sell? My guess is they’ll close the doors on this foray and take the deposit product to the proverbial back paddock. RIP.
⤷ Permira acquiring control of BioCatch at $1.3 billion valuation
🏃♂️ The Rundown: Permira, through its Growth Opportunities II fund, is acquiring a 60% stake in Israeli fraud detection startup BioCatch for around $750 million, valuing the company at $1.3 billion.
The article notes that BioCatch, founded in 2011, has seen significant growth, with revenues hitting $100 million in 2023. The company's behavioural biometric intelligence system has attracted over 190 global financial institutions as users. BioCatch, which has prevented approximately $3.5 billion in losses, will maintain its operations post-acquisition. Permira aims to support BioCatch's expansion and development, with an IPO being a long-term goal.
🥡 Takeaway: M&A activity in fintech continued to run hot last week with this $750m purchase by Permira. As I’ve noted in previous issues, this year has been chock-a-block with M&A activity. To put some numbers against this, we’ve seen 240 deals with a total deal value of $70b (nb. This includes the monster $35.3b agreement between Capital One and Discover).
It’s buying season, and PE is all over it, with shops looking beyond the US market (as is the case here) for companies generating revenue and, even more importantly, that are profitable. Moreover, with the current anti-trust environment in the US, it’ll be tough for mega deals to get done, so keep an eye out for PE buying not only overseas but also where assets are beyond the ‘reach’ of the big industry players.
⤷ Monese and coreless banking subsidiary XYB secure fresh funding ahead of separation
🏃♂️ The Rundown: Monese and its subsidiary XYB have secured fresh funding ahead of their planned division into two separate businesses. While the exact amount raised and the investors involved remain undisclosed, XYB received capital from existing and new investors.
Monese reported a £30.5m loss in 2022 and aims to split from XYB, with both entities operating independently but collaborating on strategic partnerships. Monese's CEO, Norris Koppel, will lead the company, while XYB will appoint a new CEO soon.
🥡 Takeaway: It’s been a brutal run for Monese this year. In February, it was reported that their Series B lead wrote down their investment in the UK challenger bank to zero. As noted in the article, the startup also reported losses of £30.5m in 2022. This is all at a time when a number of its compatriots seem to be turning the corner and moving towards profitability.
We’ve seen other fintech do something similar (for example, Privacy.com’s spinout of Lithic), in substance taking the tech they’ve built in-house and spinning it out as a B2B offering. Although it’s not unusual, it’s relatively rare — which I imagine has to do with the fact that most challenger banks are simply a mishmash of integrations with little to no in-house tech being built.
It’ll be interesting to see how this goes, given it’ll be a completely different company with little to no (beyond the tech) resemblance to Monese’s consumer-facing business.
⤷ Cross-border QR payments with India set to begin in Q3
🏃♂️ The Rundown: The Bank of Thailand is set to launch QR code cross-border payments with India in Q3, aiming to expand into a multinational network across Asia. This follows successful links with Singapore, Malaysia, Indonesia, and others via PromptPay.
In the article, they note Daranee Saeju, the assistant governor for payment systems policy and the financial consumer protection group at the central bank, discussing the efficiency gains of these partnerships and plans to extend cross-border remittances to more regions.
PromptPay's transactions are on the rise, with 77.6 million registrations and a peak of 75.9m daily transactions in December 2023. Cash transactions have declined, with daily money transfers averaging 54.5m valued at 130b baht in 2023.
🥡 Takeaway: I’ve been discussing this wave of multinational payments networks for a while now, and last week, we added another one to the mix. In previous issues, I highlighted the cross-border growth of UPI and PIX, but other countries are catching on to this playbook.
This web of multinational networks is growing in various regions—notably Asia, led by UPI—and is proving to be a new avenue for growth for national payment networks smart enough to cut these deals.
We’re still in the early innings of payment networks like UPI and PIX bootstrapping their network globally; as they build it out market by market, they increase the value of the payment rail and, at the same time, shift from a local to a global payment player.
As I’ve said before, watch out for this trend. It’s currently one of the most under-discussed trends in the payment segment, and I predict it will have a massive impact on how money is moved in the coming years.
💸 Notable Funding Announcements
⤷ ‘Wallet-as-a-service’ startup Ansa raises $14 million with female investors leading the way
🏃♂️ The Rundown: Ansa, a startup offering branded virtual wallets for merchants, has secured $14m in Series A funding led by Renegade Partners.
Co-founded in 2022 by Sophia Goldberg and JT Cho, Ansa focuses on developing a "wallet-as-a-service" infrastructure for businesses to streamline small payments and reduce credit card fees. The company targets industries like quick-service restaurants and marketplaces. The funding will primarily support product development and expansion. In Q1 2024, Ansa doubled its customer base.
🥡 Takeaway: Last week, I shared a video from Stripe Sessions where John Collison interviewed Alex Rampell from A16Z. During the interview, they discuss “self-processing” and use the example of the Target Red card, which is their attempt at running a closed(ish) loop payment product.
It sounds like what Ansa is trying to do is offer retailers the ability to stand up their own version of Target’s Red Card or the Starbucks wallet. In many ways, what they’re building isn’t dissimilar to the plethora of other players building in and around the affinity/co-branded card in-a-box segment. Having said this, it remains a hot area in the fintech infrastructure space.
I personally love this segment. It’s such a great example of embedded finance tightly coupled with the goal of actually driving sales, savings and loyalty for merchant adopting it — which is refreshing in a segment where there are tons of embedded finance promises and few results for the customer.
⤷ Backflip raises $15 million to help real estate investors flip houses
🏃♂️ The Rundown: Backflip, a startup founded in 2020, offers real estate investors short-term loans and tech tools for property evaluation. It raised $15m in a Series A round led by FirstMark Capital, reaching $28m in equity and $67m in debt financing.
The platform facilitated over 900 home deals by mid-2022, with users averaging $82,000 profit per property. Backflip focuses on quick underwriting, rehab financing, and data-driven loan origination.
🥡 Takeaway: Short-term financing for house flippers is an interesting slice of the market to target. I imagine in the current up-and-to-the-right property market, they’re seeing tons of demand for their offering.
In the lending space, I like seeing plays focusing on a tightly defined customer base. In theory, because the risk surface area is being reduced, you should, over time, be able to build a deeper understanding of the customer's risk profile and translate that into a better underwriting model than a more generalised lender. To be fair, there is nothing new about specialist lenders — what’s interesting here is this is a segment that has traditionally been underserved.
One thing I’ve been noodling on recently is whether it makes sense for fintech startups with a defined niche to pursue adjacent SaaS plays. For example, in the case of Backflip, would offering some project management tooling for home flippers be a good idea? This would aim to drive retention on their platform while driving some incremental revenue. We’re seeing more of this approach in the SME banking space (think Ramp getting deeper into procurement). I wonder if we’ll see it seep into business lending.
🎧 Resources & Recommendations
⤷ Fleet Card Masterclass with Coast Founder Daniel Simon
In the latest episode of Fintech Layer Cake, Reggie Young interviews Daniel Simon, the founder of Coast.
Their discussion centred around the complexities of fleet payments, the approach Coast is taking to disrupt this well-established market, and the fascinating challenges customers face when issuing fleet cards to employees — they talk about some super imaginative fraud that goes on in the fleet card industry.
I must admit this episode sent me further down the fleet card rabbit hole, making me even more of a fan of Coast's work.
This is a great breakdown of how you might go about building out a receipt API as a service business. In the piece Ayo goes through some of the opportunities for this product.
As you might expect there are a fair few companies that have attacked this or adjacent opportunities (a few readers point this out in the comments of his peice).
What you see in most most markets is actually a more bottoms up approach. For example, Slyp in Australia have done the hard hand-to-hand combat work of partnering with retailers to provide digitised receipts for their customers. Although, they don’t currently offer the data on an API basis you could imagine a world where they do and potentially kick back some of the API revenue to retailers for the right to pass the SKU level data on. Thus bootstrap up into a more focused data play.
As Ayo points out in his piece the challenge here is incentives — is a retailer really going to care about a few bucks coming back for their proprietary data? Probably not. In fact, they probably value the data more than the dollars coming back.
It’s a great read and fantastic breakdown of the segment. Make sure you add it to your reading list for the weekend.
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