Issue #5: SoFi Goes Shopping In Hong Kong, Monzo Applies For A US Banking License And Regional Banks In The US Hustle To Help Dish Out PPP Loans
👋Hi, FR crew. I hope everyone is keeping safe and sane. Also, I trust you all tuned into Travis Scott’s concert.. in Fornite 🤯 FYI, it was epic and exactly what the internet needed this week.
📣 Announcement
Next week I’ll be chatting to Senator Jane Hume about all things fintech and what the Australian Federal Government has been doing to support the local ecosystem. It’s sure to be a great conversation, so make sure you register for the virtual event.
👩🌾 Flipping turnips and fintech
I’ve written about the commerce happening on Animal Crossing: New Horizons (ACNH) a few times now - so much so I’m thinking of changing the name of the newsletter. Jokes aside, it’s been fascinating to see how everyone from turnip trading celebrities through to virtual clothes designers are using the platform - in ways, I’m sure, Nintendo never imagined.
As I’ve said previously, I think it’s a great example of how fintech is empowering the passion economy. For this week’s example of Animal Crossing commerce, I present to you: Turnip Exchange. Watch out, Turnip CDO coming soon 😲
💳 Card schemes staying relevant
This week I was doing some research into open source alternatives to card scheme rails (for a future post), and I was reminded how hard the card schemes have been working to stay relevant - and what a good job they’ve been doing as compared to banks.
It easy to forget that it was only a few years back that people were predicting the demise of credit card schemes. There was no doubt that they were facing an existential threat. How were they going to stay relevant in a world that was moving to open banking (and specifically, payment initiation), real-time payments, and new payment channels like bitcoin?
Luckily, during the same time, challenger banks arrived, tap-and-go became big, and embedded financial products that used scheme rails began to gain popularity. These have all resulted in the card schemes remaining relevant - and for the most part, allowed them to thrive.
More recently, we’ve seen them roll out new products that are very of the moment (see the tweet below for an example), and their recent M&A activity show they’re looking beyond traditional credit cards plays to grow. Along with a healthy stock price for both, it’s become clear the schemes aren’t going anywhere.
💳 Stripe issuance becomes available (in the US)
Speaking of card issuance, this week, Stripe announced that their previously beta card issuance product is being opened up all business in the US.
In case you missed the product when it launched in beta last year, it allows any company to issue cards both physically and virtually using Stripe’s API. The pricing is a little rich if you know what schemes generally charge - but in many instances, for speed and ease of use, it’ll be a compelling product for startups looking to embed fintech into their business.
It’s also worth noting that, despite having ‘$2bn on their balance sheet’, they have Regions Bank as the issuer under the program. This says a lot about how hard it is to gain a banking license in the US.
💰 Notable Funding Announcements
My namesake insurtech startup, Alan, announced a $54m round led by Temasek as it continues to expand its health insurance offering across Europe. I like what they’re doing (which goes beyond the company’s names). Specifically, they’ve taken a vertical in insurance that most don’t want to touch (due to regulation and it’s general complexity) and really tried to freshen up the offering. It’s a company worth keeping an eye on as they expand through Europe and continue their march to unicorn status.
Digits, the smart expense manager for companies that became a bit of meme last year for the crazy number of angels (72!) and their combined 1,000+ years of business experience 😂announced a fresh round of funding led by GV. Again, this is another company worth watching. As many companies try to understand their spending habits better and curb non-critical burn, this could turn into a hot M&A target.
AP automation unicorn, AvidXchange, has added another $128m to its coffers this week. This is hot on the heels of a monster round ($260m) that they closed in January of this year! According to the article, this brings their valuation to ~$2bn. In a world where every cost centre is receiving close scrutiny, AvidXchange might be another fintech startup that benefits.
📧 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 me@alantsen.com and @alantsen on the Twitters.
Ps. If you like what I’m doing with FR please feel free to share it on your social disinformation network of choice. Also, I’d appreciate it if you forwarded this newsletter to a friend you think might enjoy it.
📰 News
🛍️ SoFi goes international with the acquisition of Hong Kong-based investment app 8 Securities
The SoFi shopping spree continuous this week with another acquisition. This time SoFi has ventured into the Hong Kong market with the acquisitions of 8 Securities. The Robinhood clone for Hong Kong will be rebranded to SoFi and will continue to serve its customers.
In the press release, Anthony Noto mentioned the opportunity in Hong Kong and how it could be used as a launching pad for further expansion in the region.
“We underwent an extensive evaluation process when considering our first international market, and it was clear that Hong Kong, a financial capital of Asia, is ripe for innovation and a launching pad for further expansion in both product and geography”
I think this would’ve been a key consideration in why they pursued an acquisition in Hong Kong and it’s a reason why I’m bullish on the market.
🦠 23 Fintech Companies Aiding in Coronavirus Relief
US fintech startups have been quick to jump in to help businesses and consumers access COVID-19 stimulus payments. While many incumbent FSIs have struggled to deal with the overwhelming demand for access to the PPP loan initiative, startups have excelled with fully digital experiences and quick loan turnaround times.
Moreover, I think we’re going to see a real sea change in how businesses access working capital after COVID-19. Many will remember the seamless experience they had and quick turnaround times fintech provided and will opt for this channel vs going back to banks and their paper-based systems.
🇺🇸 Monzo leapfrogs Revolut by applying for US banking license
The playbook most challenger banks have used when launching in the US has been to find a local partner (usually, a regional bank who has some degree of BaaS capability) and to start issuing cards. When Monzo launched into the US with their alpha product, they took this route and partnered with Sutton Bank to offer FDIC insured accounts.
In a bold move, Monzo has announced that they are seeking a US banking license. Potentially, encouraged by the recent announcements from Square and Varo regarding bank charter applications, Monzo is launching into the 18-24 month process.
I think it’s an ambitious all in play that signals that Monzo is serious about the US market.
🤦♂️ New York payments startup exposed millions of credit card numbers
“Ouch” is the best place to start with this piece of news.
According to the Techcrunch article, credit card processor, Paay, publicly exposed a database that had millions of credit card transactions for close to three weeks.
It’s always concerning to hear about these types of incidents, and it doesn't help the credibility of the industry when they do occur. Further, it feels like the response could’ve been handled better.
🏦How a family-owned Nebraska bank became a leader on coronavirus loans
This is an excellent piece on the regional banks in the US that have hustled to provide PPP loans, while larger banks have struggled under the load. It’s an interesting piece about how smaller players worked around the clock to give loans from the opening of PPP loan scheme to their customers. Well worth a read to better understand the massive bifurcation between the regional and national players in the US banking market.
🥶 From Cold Storage
This week I’ve pulled a two-parter out from cold storage. Again, I’m heading back to the archives of Bain Capital for Matt Harris’ piece on Fintech as the forth platform.
I highly recommend these two pieces. I think they neatly layout how big the ‘embedded fintech’ opportunity really could be and where the white space is.
1️⃣ Fintech: The Fourth Platform - Part One
2️⃣ Fintech: The Fourth Platform — Part Two
📊 Public Market Fintech KPIs
Fintech companies have been running hot in public markets recently, with many getting very close to their pre-COVID-19 levels.
If you’re interested in looking a little further under the hood of these publicly listed companies to see their KPIs, this is an excellent resource for it. The Meritech Capital Insights page has a breakdown of everything from revenue through to margins. The team there has done the heavy lifting of breaking out the data, so you don’t have to.