Issue #45: Michael Bolton Becomes A Finfluencer, Hova Is Joining Square's Board And The Rush To Be Locally Licensed

👋 Hi, FR fam. I hope the week has been treating you well.

Before we jump into this week’s issue of FR, a quick shoutout to the marketing team over at Public for bringing us this banger from the one and only Michael Bolton. Take it away, Michael…

📣 The News Grab Bag

China continues to intensify supervision of the fintech sector ◌ Hippo is locking to SPAC ◌ Plaid rolls out income verification ◌ Everyone wants a Berkin bagKranken won’t go out for less than $10b ◌ Hackers show how to get around 3D SecureKevin wants to go around the card schemes by providing A2A payments ◌ Going from Goldmans to Walmart ◌ Card firms trampling all over US interchange reforms ◌ Google and Facebook buddy up with Reliance in a bid to start a payment network in India.

📈 Notable Funding Announcements

Yep, it was another week of big financing announcements in the world of fintech, with Klarna ripping down a cool $1bn and the industry as a whole announcing 39 financings totaling $1.8b.

🧾 Taxbit Raises $100m In Fresh Funding

Cryptocurrency tax compliance startup, TaxBit, announced a $100m Series A last week. Paradigm and Tiger Global led the round with participation from Paypal Ventures, Coinbase Ventures, and a bunch of notable angel investors.

🤓 My Take: Tax compliance software might not exactly be the sexist niche in the world of crypto, but it does pose a sizable problem for many — after all, the only things you can’t avoid are death and taxes.

It’s easy to limit one’s thinking in this segment to the average Joe who made a health little gain on Dogecoin but is unlikely ever to bother recognising it in his tax return. Yes, this is likely the same person who will be filing their return on Turbotax and won’t bother revisiting their ‘tax affairs’ until next year. From this customer persona, it’d be easy to conclude that this isn’t all that lucrative an opportunity.

It is true (and was the case for Taxbit) that many startups playing in the crypto tax space start life trying to be ‘TurboTax for crypto.’ Still, the ones who are thriving (and raising $100m rounds) are the ones that realised that consumers are really just the tip of the crypto tax industry.

As the size and scope of the cryptocurrency industrial complex has grown, so too has the complexity of the financial arrangements — think of all whacky new financial instruments being created in Defi. Beyond this, there are the trading houses, crypto exchanges, and don’t forget about the OG bitcoin miners who all deal with thousands (if not millions) of taxable transactions a year. These are all people who actually really care about getting their taxes correct. After all, some are dealing with some serious numbers now.

As the co-founder of TaxBit noted in a recent Forbes piece on their raise, “There’s no NetSuite, Oracle or SAP of cryptocurrency” — and that’s where the picks and shovels are proving to be the most valuable, at the upper end of the market.

In an industry where it’s usually some hyped new cryptocurrency issuance that secures the bag, it’s refreshing to see companies like TaxBit raising a big round to help make the industry a little more buttoned up.

🪥 Beam Raises An $80m Series E Round Of Financing

Insurtech startup Beam last week announced an $80m Series E funding round. The latest round brings Beam’s total raised to date to ~$160 million.

🤓 My Take: Let’s get this out of the way, a smart toothbrush that saves you money on your dental insurance sounds like a meme. However, as Beam’s CEO noted in an interview with Techcrunch, the dental insurance business is structurally different from other insurance markets. Unlike say home insurance, there isn’t a risk of a hurricane coming along and creating a massive loss event for the insurer. In that same piece, he mentions Beam has a “sub-70s” loss ratio which is fairly impressive in the insurance sector.

When you combine these numbers with some healthy revenue growth (the article quotes 600% in the last three years) and a 100% net retention rate, you can see why investors were happy to pump more money into the IoT toothbrush startup.

Last year was in many ways a coming-out party for insurtech. Lemonade listed and rode a hot market all the way up to a ~$9b market cap earlier this year. We also saw Root list, and this year Metromile went public by way of SPAC. The private market has also been bullish on the space, with more than $7bn pumped into the segment in 2020. So it’s no surprise companies like Beam can secure the bag for their insurance premium saving toothbrush.

🎯 The FR Jobs Board

A quick reminder that if you’re looking for extra exposure for that job opening at your fintech startup, the FR jobs board is a great place to get it.

We recently made it easier to manage multiple listings with a new employer dashboard. So go ahead and list those fintech jobs for FR the community to see!

Also, as an FR subscriber, you receive 25% off any job listing. To receive your discount, enter FRFAM25 at checkout.

☝️ If you’d like to chat about a bulk job listing discount feel free to email me simply by replying to this email.

☝️ Things You Should Know About

🤝 Square Buys Majority Stake In Tidal

“I got 99 problems, but a struggling music streaming service ain’t one.”

I imagine that’s what Jay-Z was singing after he offloaded Tidal to Square. The more challenging question to answer though, is why Dorsey was so keen to become the Tidal bagholder?

According to Dorsey’s tweetstorm announcing the deal, it was all about doing for music artists what they did for small business. More specifically, Dorsey said in a tweet, “[Square will]…work on entirely new listening experiences to bring fans closer together, simple integrations for merch sales, modern collaboration tools, and new complementary revenue streams”. Sounds cool. Still not sure why you need to buy a streaming service to do that.

The deal has some strong Caviar energy to it. However, as some pointed out on Fintech Twitter, it could be a way (albeit expensive one) to add more musical endorsers to the Cash App roster. Regardless of how you cut it, this feels like a whacky deal.

Beyond the brand endorsements that are likely to flow from the acquisition, the added bonus of being able to go yachting with Hova and B is pretty damn cool. Also, imagine how lit post-board meeting drinks will be with Jay-Z now a board member.

🏦 Revolut Bank Passports Into 10 More Europen Markets

It feels like it’s been a while since I’ve written about the UK challenger bank juggernaut, Revolut. Regardless, it seems they’ve been chipping away at becoming a bank right across Europe.

According to the article, they’ve now passported their Lithuanian e-money license into other markets — including Bulgaria, Croatia, Cyprus, Estonia, Greece, Latvia, Malta, Romania, Slovakia, and Slovenia. Also, they’re looking to obtain a banking license in their largest market, the UK.

In previous issues of FR, I’ve discussed the at times strong views (strongly held) around obtaining a banking license vs. working with a partner bank. Revolut’s continuing move to holding its own license in every market it operates highlights a trend we see more generally amongst established fintech startups globally.

Many are realising that holding banking licenses (vs. riding on the back of a partner bank’s license) creates more leverage in their business model — allowing them to reduce the cost of lending and bend customer account economics in their favour. Beyond this, and commonly under-discussed, it also allows for cheaper and deeper access to local payment rails, which can be a massive pain point in some markets (Australia is a great example of this).

Partner banks (especially in the US) have been a major reason we’ve seen so many new challenger bank entrants hit the market, but the trend of fintech scale-ups graduating to their own license is in full swing.

🇭🇰 Airwallex Scores Hong Kong SVF License Through The Acquisition of UniCard

Melbourne-based fintech startup, Airwallex last week announced they’d acquired UniCard. They obtained a stored value facility license (SVF) in Hong Kong as part of that deal.

By way of background, UniCard offered co-branded and prepaid card solutions for the Hong Kong market. I’m sure UniCard’s business held some degree of value for Airwallex, but I imagine the SVF license was the end game here.

The deal highlights the growing desire of scale-ups to score their own local market licenses — with M&A being another strategy that can get you there.

🎧 Podcast Recommendations

20VC: Klarna Founder Sebastian SiemiatkowskiKlarna raised a lazy $1b last week as they continue their march towards what will be one of the biggest fintech IPOs of 2021. In this episode of 20VC Klarna founder, Sebastian Siemiatkowski talks about everything from what he thinks the future of retail banking will look like to how he transforms his self-doubt into a positive (which is a classic 20VC piece of startup introspection). As with all 20VC episodes, it’s a winding conversation that’s well worth a listen.

Coinbase Co-Founder on the Future of NFTs and Bitcoin: Fred Ehrsam → In this wide-ranging conversation, Fred Ersham talks about how he met Brian Armstrong, what he thinks about NFTs and how creators might be able to leverage them. Another podcast well worth listening to.

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