👋 Hi, FR peeps. I hope you’re all keeping safe during these crazy times.
By far and away, the biggest news in fintech this week was the announcement that insurtech posterchild, Lemonade, has filed to go public. The release of their S-1 provided a wealth of knowledge for the data inclined and shed light on Lemonade’s strategy as they try to scale their business globally.
For those interested, I wrote a teardown of Lemonade's S-1 which you can find HERE.
Investing In The Zeitgeist
We’ve all seen the graphs showing how certain alternative investments (e.g., wine) have consistently beaten out equities over the last 10 years. Yes, we all know wine can be an excellent investment - if you can stop yourself from drinking that bottle of Chateau Lafite sitting in your cellar.
More recently, we’ve seen a wave of fintech startups trying to capture the alternative asset market by offering fractional stakes in rare assets. Companies like Vinovest, Masterworks, Rally Rd, and Otis allow you to own a partial stake in a piece of art by Kaws or a 1965 Aston Martin DB5 for as little as $25.
Ok, so wine and art aren’t necessarily new asset classes - they’ve been the method by which the rich have splashed their cash and accumulated wealth for centuries. However, what has changed is who is buying into these assets, the types of assets available, and the cost to access them. The ‘why now?’ for these assets boils down a few tailwinds the industry is experiencing.
The Rise of Stonks → During COID-19, the ‘stonks’ meme has gone into overdrive, and companies like Robinhood have prospered. However, more broadly the notion of taking a punt on a soon to be expired call option on Robinhood or buying magical internet money (also known as bitcoin) on Coinbase has been socialised. In many ways, it’s the new sports betting for Gen Z. This has opened up the aperture on the types of things that consumers will buy into - especially if it only takes $25 to own a piece of it.
Access, Access, Access → One thing the web is incredibly good at is democratising access and this has been a strong driver for growth in the fractional ownership of collectibles. Previously, these assets were only available to ultra-high net wealth individuals (or the ‘in’ crowd) - so even if you knew what was hot in art, wine or handbags access was still an issue.
Also, accessing customers through ads on Instagram, not showroom, has pushed the idea of fractional ownership into the feeds of Gen Zs and, more importantly, driven down the cost structure for these startups.
One important element of access that goes under-discussed, is the changing regulatory landscape. In the US, the Jobs Act opened up this type of investing to “unsophisticated” investors. In the case of Rally Rd, this allowed them to carve up ownership of cars into small ownership stakes and sell to a much broader market than would have been possible previously. In many ways, the structuring of these assets in a lower cost form has been a significant step forward in allowing them to reach a broader market than previous platforms have been able to.
Chasing The Zeitgeist → ‘Culture is a new asset’ is Otis’ slogan, and it aptly describes a fuzzier element that has facilitated the rise of these platforms.
The idea that you too can “own” (a piece of) the same Birkin bag that Cardi-B got for her birthday (or insert your celebrity of choice here) has been instrumental in propelling these rare collectibles into the zeitgeist. Co-sign culture has taken these items from things of desire to marketable products that fractionalisation platforms have packaged up and sold online.
This has also opened up the range of assets that have entered the popular consciousness as potential collectible assets. Sneakers are a great example of this. The rise of platforms like GOAT and StockX has opened up the market for ownership, and the likes of Otis have jumped at fractionalising ownership in this new asset class.
It’ll be interesting to see where the market goes for these platforms. It’s still too early to tell if they end up being another wash out like the fractional homeownership platforms or whether it’ll be a new way for Gen Z to micro-flex while satisfying their desire to have a flutter on the latest must-have piece of culture.
💰 Notable Funding Announcements
Globally fintech financing experienced an uptick in deal volume this week, with 46 funding announcements totalling $727m.
🤓 My Take: Duck Creek Technologies is the Temenos of insurance infrastructure - with one of the best names ever for an FSI infrastructure company.
Specifically, Duck Creek’s current focus is on property and casualty insurance, and their solutions are used for policy administration, billing, and claims. Their clients include American International Group Inc, Chubb, and Zurich Insurance Group AG.
In the press release announcing the raise, they noted they’d be using the proceed to continue to invest in business growth and “…to repurchase equity from certain existing investors.” This could hint at the fact they’ll be cleaning the cap table ahead of the listing they filed for privately late last year.
🤓 My Take: Fraud prevention is big business - especially as more commerce shifts online. What’s interesting about NS8 is that they have created a toolset that goes beyond the monitoring of the end transaction (which, many payment processors - like Stripe - are also doing). NS8 provides a set of tools that prevents other malicious attacks associated with online commerce - like account takeovers, account interception, ad fraud, and bot attacks.
NS8 is an excellent example of a company that plays at the orchestration layer - through a collection of their tools - which allows it’s customers to deal with a broad set of problems all through a single API. At the infrastructure layer, I think we’re going to see more take this approach.
📈 Don’t forget to check out Radar, an open database of Australia's fintech ecosystem. You can find it here → 📡 SideFund Radar
📧 Feel free to flick me an email if you have any exciting news you'd like me to share with the FR community. I'm firstname.lastname@example.org and @alantsen on the Twitters.
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📰 Articles Worth Reading This Week
According to Jim Barksdale, there are only two ways to make money - bundling or unbundling. To date, the story in fintech has been one of unbundling. Readers of this newsletter have no doubt seen the famous CBInsights diagram showing how fintech startups are unbundling banks. In recent times, this has given way to a wave of rebundling as fintechs look to broaden their base of services in an attempt to expand their revenue base.
However, as the article points out, we have also seen the rise of embedded finance. This has thrown a spanner in the works for many fintech companies. As the report notes:
The recent embedded finance trend looks to me like a new iteration of the eternal bundling and unbundling cycle. This time financial services are not unbundled by a new or younger financial institution, but rather decomposed into atomised features that are added to existing products by large consumer brands and technology giants.
In many ways, this has changed the bundling vs. unbundling conversation to a question of where fintechs play in the stack - upstream (as aggregators) or downstream (as infrastructure providers). This piece goes through the pros and cons of both approaches - this is well worth a read for the fintech strategists.
GS has been on a bit of tear recently, signing deals left, right and centre as it tries to grow its lending business. According to the article, the new Amazon/GS partnership will be sending invites to sellers on Amazon’s platform to apply for credit lines up to $1 million through GS’ Marcus. The line of credit offered will have fixed interest rates of 6.99%- 20.99%.
The project (codenamed “Augusta”) was in development for two years and will dramatically grow Amazon’s existing small business lending program (which they’ve been running since 2012). Interestingly, Amazon had reportedly considered creating an online lending marketplace before coming to its senses and partnering with GS.
In contrast to GS’ superb execution so far, it’s been interesting to watch Amazon repeatedly drop the ball in the fintech space. You may recall, early in Square’s life, Amazon built a competing mobile register product which they famously pulled after just a year in the wild and then sent their customers Square readers. The same has gone for their lending business, which for the most part, has floundered in obscurity. It’ll be interesting to see if GS’ Middas touch will be able to help Amazon open up this massive opportunity.
In stark contrast to the expansionary play with Amazon in the previous article, Marcus by GS this week closed the door on new easy-access savers accounts to UK customers. According to the article, Marcus has seen an influx of new customers during the COVID-19 pandemic as they try to take advantage of the high-interest rate savings offered by the bank.
The article notes that “…over 500,000 customers have opened accounts, and more than £21 billion has been deposited.” This sudden rise in customer numbers has pushed their business close to their regulatory limit of £25 billion for ring-fenced deposits.
Not a bad problem to have, but then again probably what you'd expect if you’re giving away free money through an interest rate that is many bps above the market average.
📖 Book Recommendation
This week I have a book recommendation for those wanting to go deep on the payments industry. I just finished it and can definitely co-sign for its quality.
The Anatomy of the Swipe: Making Money Move is written by Ahmed Siddiqui, who is VP, product at Branch, and previously a VP of product at Marqeta. It’s a great intro to the payments industry and has a ton of illustrations to help crystalise how transactions move on both the issuing and acquiring side of things.
I’d recommend this for not only payments n00bs, but also as a quick reference guide for those who need to remember what information an ISO 8583 message carries.