Issue #33: Visa Volcanos, WhatsApp Gets On The UPI And Ant's IPO Gets Iced

👋 Hi, FR fam. I hope your week has got off to a good start.

Let’s kick things off this week with a piece of video art from the Litquidity Twitter account. Sound on 🔈

📣 The News In Brief

Apparently, HSBC is launching a Transferwise competitor. The ASX’s DLT gets delayed again. Brazil goes live with its instant payments system. Starling goes looking for the bag. The Reserve Bank of Australia gets on the CBDC horse with some riding mates. Upstart dropped their S-1 this week. UPI transactions in India keep on growing - they hit 2b monthly transactions in October. Meanwhile, in the US, the Zelle Network has hit 1b transactions over the last twelve months. Are fintech Series As hot or not? Alliance Data wants that BNPL Bread. Built for Mars dropped chapter 2 of their PoS UX study, and it’s well worth a read.

📈 Notable Funding Announcements

It was a slightly quieter week for fintech fundraising announcements, as you might expect with the US election on. This week companies globally raised a total of $139m across 22 deals.

🚘 Insurtech Startup, Marshmallow Raised $30m

Marshmallow, this week announced they’d completed a $30m Series A round of funding. According to TechCrunch, this values the UK insurtech at $310m.

🤓 My Take: The quarter just passed was a strong one for insurtech, with the number of deals done and the amount invested into the sector both up. According to CB Insights, deals completed in Q3 rose by 5% over Q2, and dollars invested increased from $1.6b to $2.5b over the same period. More interestingly, insurers continued to pour money into the sector, with the top 25 US property and casualty (P&C) insurers recording their highest year to date deal activity in the last 5 years.

Much of this acceleration in investment by carriers comes as digitally native propositions continue to grow in popularity. The FOMO is undoubtedly increasing, as it’s been another breakout year for the neoinusrers. This year we’ve seen the IPO of Lemonade and mega-rounds from sector darlings Hippo and Next Insurance all further driving capital market interest in insurtech. Meanwhile, incumbents have been left trying to figure out how they move from being PDF native to digitally first companies.

Interestingly, the automotive insurance segment has simultaneously been faced with changing attitudes to car ownership as many switch from owning cars to using ride-hailing and car-sharing apps, along with the rise of the challenger insurers. This has resulted in some insurers making investments outside of insurtech (e.g., IAG’s acquisition of Carbar) to hedge against the potential impact on premiums a fall in car ownership might cause down the line.

Having said this, the likes of Uber and Lyft really only present an existential threat to premium revenues for large insurers. The more real near term threats come from digitally native startups like Marshmallow. As Deloitte noted in a recent piece of research into the car insurance sector, consumers in countries like Australia and the UK have a strong preference for digital channels when buying automotive insurance.

Further, when you combine the digital-first approach neoinsiruers are taking along with the use of alternative sources of data to assess risk, and a differentiated customer acquisition approach it’s easy to see why they’re starting to gain more mindshare amongst savvy buyers of insurance.

As we see car ownership trends potentially reverse in a post-COVID19 world, this might end up proving to be an opportune time for many neoinurers who are looking at the car insurance market to make more serious moves.

🥡 Takeaway: Car ownership globally has been on the decline for a while. However, with the trend potentially turning in a post-COVID world, the opportunity for new business models in the car insurance market has never been greater. Take Marshmallow as an example. They started by serving ex-pats living in the UK with a solution that used global (not just national) data. This approach allowed them to compete in a space that wasn’t crowded with incumbents and, in the long run, might provide them with an interesting data advantage as they expand into other geographies.

🤖 Announce A $5m Seed Round last week announced that they’d closed a $5m seed round. The round had participation from Afore Capital, West Loop Ventures, and Foundation Capital. This round of financing brings its total funding to $6.6 million.

🤓 My Take: As I discussed back in issue #31, the benefits management space is proving to be a new attack vector for embedded fintech. The companies playing in the segment are starting to realise that offering financial services that align with their customers’ needs could prove to be a significant new business line for them (i.e., Gusto offering a wallet product).

As you might expect, one area where benefits management is incredibly important is in the gig economy. That is where companies like come in. Specifically, provides gig workers with a portable income protection product that provides paid time off, sick leave, 24/7 health service, and legal protection.

In the wake of Prop 22 being passed in California, companies like might be some of the indirect beneficiaries as the likes of Uber and Lyft will be required to provide gig workers who work 15 hours per week health care contributions equal to 50 percent of the employer-provided average under the Affordable Care Act.

It’s likely the gig economy behemoths will roll their own products. However, some of the smaller gig economy players might turn to startups to provide a solution. This could provide these startups with an interesting distribution strategy for their embedded fintech offerings.

🥡 Takeaway: Regulatory changes are always worth keeping an eye on, as they provide a new opportunity for startups to move quickly and solve a problem for companies needing to comply with the change. In the long run, they can provide a wedge into a much broader market, which we might see in this case.

☝️ Things You Should Read About

👨‍⚖️ U.S. Sues Visa to Stop Plaid Deal Over Antitrust Concerns

Well, that escalated quickly.

A little under a month ago, reports surfaced that the DOJ was looking to build a case to block the acquisition of Plaid by Visa, and as of this week, they filed their case with the Federal Court in San Fransisco.

In case you haven’t seen the filling, it alleges that Visa has a monopoly in the online debit transactions market and that acquisition of Plaid would result in the elimination of “…a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.”

The “nascent competitive threat” that the DOJ is referring to is Plaid’s payment initiation service (PIS) in the US - called bank transfers - which is currently in beta. Their claim refers to several internal conversations executives had at Visa, which suggested that Plaid's acquisition was an insurance policy against the risk Plaid’s PIS business posed to Visa’s online debit revenues. For example, in the claim, the DOJ asserts:

…Visa’s senior executives became alarmed to learn about Plaid’s plans to add a “meaningful money movement business by the end of 2021” that would compete with Visa’s online debit services. This prompted Visa’s CEO to conclude that Plaid was “clearly, on their own or owned by a competitor going to create some threat to our important US debit business” and to tell his CFO that purchasing Plaid would be an “insurance policy to protect our debit biz in the US.”

Yes, the optics aren’t great for Visa, and the now-infamous volcano diagram didn’t do them any favours. However, to my mind, the claim being made by the DOJ with respect to the threat PIS poses is overstated.

The core of the DOJ’s claim revolves around the threat payment initiation services providers (PISPs) pose to Visa. However, this fails to acknowledge the impact PISPs are having and their projected long term impact. One need only look across the Pond to see PISPs to date have had little impact on the schemes. The same can be said more broadly across Europe, where they haven’t made a dent in the schemes’ dominance as the preferred rail for e-commerce.

It is easy to argue that it’s still early days for PIS, with most providers only really hitting the market in the last twelve months. However, even with some aggressive assumptions, the impact PISPs will have on the retail payments market is expected to be minimal (for example, see the projections below from Accenture for the UK market - which have ended up overstating the impact).

There is a respectable argument to be made that Plaid’s future as a PISP could have turned the company into a formidable alternative payments rail. However, when you combine the reality that PIS has turned out to be more hype than reality, and the vigorous competition in the ACH payments space, it really feels like Plaid’s potential to be a serious competitor to Visa was more an existential risk than a real one.

Having said all this, as with most competition law matters, the case likely will turn on the market definition. Visa will argue that the market they operate in is broader than just online debit payments (which represents about 60% of their core business offering) and they’ll also posit that payments is not business Plaid is in (as shown by the rounding error revenue they are generating from it). Regardless, this is going to be an interesting matter and well worth keeping an eye on as it unfolds.

🥡 Takeaway: The fact that Visa’s acquisition of Plaid is being challenged is unsurprising. I think it signals the posture competition law regulators will adopt in many jurisdictions as they try to grapple with the growing impact fintechs are having on the financial services landscape.

🇮🇳 WhatsApp Launches Payments In India

Last week WhatsApp announced that users located in India would be able to send money through the app. According to the announcement, WhatsApps will be using UPI as the payment rail, enabling it to move money between ~160 banks across the country.

As you might recall, WhatsApp had some issues rolling out a similar feature in Brazil. The regulators turned around and shut down the feature after the product was in the market for just under a week. India is another market where they’ve run into regulatory issues, which they’ve apparently been navigating since 2018.

The launch of payments functionality in India is a big deal for WhatsApp and could provide a template for the company as they look to roll it out in other markets. For context, India is WhatsApp’s biggest market with 340m users and 82% of Indian internet users using the app (putting it behind only Facebook and YouTube in terms of popularity in the country), which means it’s the perfect place for them to test the offering.

🥡 Takeaway: The Indian mobile payment market is currently dominated by Google and Walmart, which have ~80% market share in UPI transactions. It’ll be interesting to see if WhatsApp can meaningfully challenge this. If it does, I think we’ll be seeing a lot more of WhatApp’s payment product on a global basis.

🐜 Inside the Chaotic Unraveling of Jack Ma’s $35 Billion IPO

This was meant to be the biggest listing ever. At $35b it was going to be the chonky cat of IPOs. But as of last week, the listing was put on ice.

The official statement from the Shanghai Stock Exchange (SSE) announcing the postponement cited changes in the ‘regulatory environment’ as the reason for listing being shutdown just two days before Ant was to hit the SSE's mainboard.

According to this Bloomberg article, Ant was informed by the China Banking and Insurance Regulatory Commission (CBIRC) in a meeting early in the week that they’d be required to gain further licenses and capital to meet its regulatory obligations. This accordingly, triggered the SSE to call a halt to the listing.

The article notes that some China-watchers have posited that the real reason for the yanking of the IPO was that the Chinese government wanted to send a message. Specifically, the article cited comments Ma made at a Shanghai conference in late October, where he criticised the regulatory environment and suggested it was stifling innovation. If true, I can imagine this becoming an even wilder story - as I’m sure Jack Ma is planning how he gets this listing back on track.

🥡 Takeaway: Ant is an amazing case study in what ‘China scale’ fintech success can look like. However, it also highlights how fragile this success can be when ultimately regulation in China can shift (literally in this case) under your feet with little to no warning.

🎧 Podcast Recommendations

Here are this week’s must listen to podcasts.

The State of Healthcare in 2020 with Nikhil Krishnan → Yes, I know this isn’t a fintech podcast. Hear me out though, it’s a fintech adjacent one. For a large portion of this pod, Eric and Nikhil talk about the tangled mess that is American’s multi-payer healthcare system. In this regard, it provides a great primer for those in fintech looking to target the sector with their offering - or just those, like me, trying to understand how the US system even works.

'There were other great services, but banking was kind of static': Mercury's Immad Akhund → This is a great interview with Mercury’s Immad Akhund. In case you haven’t heard of Mercury, they offer business banking built for startups. Well worth a listen.

▶️ Lastly, although this isn’t a podcast, I thought I’d also add this to the mix this week. In this fireside chat between Maia Bittner and Ahmed Siddiqui (author of what I think is the best payments primers out there, Anatomy of the Swipe), they chat about a wide range of fintech topics - everything from how Marqeta started through to how Ahmed came up with the content for his book.

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