👋 Hi, FR fam. I hope you’ve all had a great start to the week and you’re taking care of yourselves while in isolation.
#FintechTwitter Threads Of The Week
This week I thought I’d do something a little different and share some great threads from #FintechTwitter.
Although I think the infrastructure has improved in leaps and bounds over the last two years, the lessons in relation to distribution are timeless. It’s a great reminder; distribution is everything in consumer fintech.
The next one worth checking out is from Justin Overdoff on why Visa is well-positioned to disrupt the ACH network.
As I’ve noted in previous issues, Visa’s acquisition of Plaid (and then Mastercard’s purchase of Finicity) was in many ways about protecting against the existential threat that open banking presents (especially on the payment initiation front). Beyond the baseline defensive play, in theory, it does make sense for the schemes to play some offense and to disrupt the interbank payment rails. It’s also worth remembering that Mastercard acquired VocaLink back in 2016 to do/protect against a similar thing in the UK (but for BECs and Faster Payments instead of ACH). To be honest, it does seem possible, but not probable. Having said this, I assume given the size of the cheque that they had to cut to buy Plaid they’ll really want to really sweat that asset - so you never know 🤷♂️
As a follow up to the above thread, this one also caught my eye.
Justin M. Overdorff @jmover1/ Been having an interesting convo w @mengxilu to get this hypothesis thought out. Let's talk about why Visa $V has many of the pieces in place (Visa B2B Connect APIs + Plaid acquisition) and is in the best position to disrupt the ACH network ...
It’s worth checking out this part of the thread specifically for the ‘how’ it’s likely to happen.
This is what I’m also tending to see. In an interesting twist, embedded fintech is the thing doing the disrupting (and powered by the scheme, no less). Specifically, it’s giving those companies who have typically relied on interbank payment rails the ability to, in substance, run their own float. Another example of embedded fintech FTW.
💰 Notable Funding Announcements
Last week was a blockbuster week for financing in fintech. This week was down with 36 funding announcements totalling $481m.
This week insurtech startup, Hippo, announced that they’d raised $150m in fresh funding. The round included participation from FinTLV Ventures, Ribbit Capital, Dragoneer Investment Group, and Innovius Capital. This round of financing brings Hippo’s valuation to $1.5bn.
🤓 My Take: There is no doubt that Lemonade’s blockbuster listing has had a halo effect on the whole insurtech sector. I’ve personally seen an uptick in interest from investors keen for intros to insurtech companies.
By way of background, Hippo is well known for its use of some non-traditional data sources to work out premiums. As part of the process, they aggregate data from several sources; such as local council building records, satellite imagery, Zillow, and IoT devices.
According to reports, Hippo saw 60% YoY sales growth in Q2 of 2020. Over the last year, they’ve written $270m worth of policies (representing 140% YoY growth). Although they’re only available in 29 states across the US, they’ve also recently acquired Spinnaker Insurance Company, which will likely help them expand their footprint across the rest of the US. Some exciting times ahead for this Hippo turned unicorn!
This week reports emerged that venture capital firm Ribbit is planning a $600m SPAC. The vehicle will be targeting late-stage fintech companies.
🤓 My Take: Special Purpose Acquisition Companies (SPACs) are hot right now. They’re having a bit of a moment, with 48 SPACs having been spun up on US public markets this year raising a total of $17.1bn. For context, that’s around 40% of the ALL dollars raised in this year’s IPO market!
For those who haven’t heard of Ribbit, they’re one of the most active and successful fintech venture funds in the world. Their portfolio includes the likes of Revolut, Nubank, Brex, and Affirm, just to name a few. What’s most interesting about Ribbit raising a SPAC is that they could work their way through their portfolio and list some of their more ‘mature’ companies. Although this might not be the way most founders expect their exit to happen, it could end up being a very lucrative outcome for some of their portfolio companies.
📰 Articles Worth Reading This Week
This week Robinhood announced they’d be ‘indefinitely postponing’ their launch in the UK. According to the article, the decision is driven by Robinhood looking to strengthen its core business in the US further. In other words, they’re busy fixing other stuff at the moment.
US share trading apps are on fire globally, and the UK has been no exception to the rule. Fintech startups like Revolut have been offering commission-free fractional share trading for a while, and other competitors have also been entering the market. For example, more recently, we’ve seen Aussie startup Stake open up in the UK. I’d be guessing, Robinhood realised that they’d be in for a fight with companies already in the market (e.g., they’d likely need to burn a fair few dollars to gain traction in an already crowded market), this combined with the recent issues in the US probably made it feel like they’d be spreading themselves thin.
More broadly, it’s been interesting to watch how the US commission-free fractional trading market has played out so far abroad. It’s only early days, with new players entering the market all the time, but it already seems that (much like with traditional brokerage) markets are proving to be very regional. Although unsurprising, this wasn’t what I think many expected when Robinhood signaled early on that they had international aspirations.
This week Affirm and Shopify announced an exclusive BNPL deal that makes Affirm the sole BNPL provider to Shopify’s 1m+ US-based merchants.
BNPL is running hot at the moment and the race to be the market leader is intensifying. It wouldn’t surprise me to see the likes of Afterpay and Klarna rush to sign exclusives with other e-commerce providers (👋 BigCommerce) as they try to lock up other online distribution channels.
This week Aussie challenger bank, Xinja, announced they’d be launching a US share trading product. Dabble, which is what the product is called, will be an $8 per month (+ 1% FX fee per trade) all you can trade product.
As noted above, the market for US brokerage apps is running hot, and it’s no different here in Australia. We’ve seen in the UK and US that these types of products have been excellent customer acquisition channels for neobanks - and a good way to make a little side revenue from payments for order flow. I’m now just waiting for one of the challenger banks to offer crypto trading, and the playbook of UK challenger banks will have wholesale made it to Australia.
🥶 From Cold Storage
This week, I’m pulling out a 4 part series on Open Banking from cold storage.
With the recent launch of CDR in Australia, now is a good time to check out what has been happening on the Open Banking front in other parts of the world. Enjoy!
📈 You can 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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