Issue #55: Rally Secures The Bag, Robinhood Wants To Democratise IPOs, and EML's Share Price Gets Savaged
👋 Hi, FR fam. I hope you’ve all had a great start to the week.
Welcome back to another issue of FR. Let’s get things going this week with a little project I’ve been involved with — The Fintech Nerd Collective.
The Fintech Nerd Collective is a group of… well, fintech nerds pulled together by Nik Milanović and Simon Taylor. Each month the collective will provide answers to a burning question in the world of fintech. For the first edition, we answer: “If you could build your own neobank, what would be your first product and why?”
Have a question you want to be answered by the collective? Let us know here.
📣 The News Grab Bag
The FDIC wants to know more about crypto use cases for banks ⚬ Gojek and Tokopedia to merge ⚬ NerdWallet files for IPO ⚬ Bank of America reaches $75 mln settlement ⚬ Stripe acquires Bouncer ⚬ Goldman Sachs hires Uber tech executive to lead Marcus ⚬ Temenos embeds Wise into core banking offering ⚬ J. Powel is getting pumped up about a CBDC in the US ⚬ HSBC to take on fintech rivals with multi-currency digital wallet ⚬ Tink acquires FinTecSystems ⚬
📈 Notable Funding Announcements
It was another bumper week of financing announcements in fintech. In total, 64 funding rounds were announced, totalling $3.3b.
🖼️ Rally Raises $30m →
Alternative asset trading platform, Rally, last week announced a $30m Series B round of financing. Accel led the round with participation from existing investors, Upfront Ventures, Social Leverage, and others. Rally has also secured a $50M debt facility from Upper90 Capital as part of the round.
🤓 My Take: Alt assets have been running hot as of late as more players enter the market with seemingly more and more esoteric offerings. If you’re interested, you can now buy everything from a fractional share in a Warhol over at Masterworks through to a factional interest in a supply chain financing deal via Yeildstreet. In previous issues, I’ve talked about the ‘why now’ for the alt asset class (see HERE and HERE), but since I last discussed the segment it seems to have continued to grow at a rapid pace.
The cynical take on it is that in a zero-interest environment, it’s a case of dollars seeking yield and the likes of Rally, Otis, and Masterworks et al. have opened up which dollars can access these returns (or losses). However, as I noted back in issue #12 of FR, I think there is more to it than that.
Rally competitor, Otis, sums it up best with their slogan “The Stock Market for Culture”. This goes to the heart of what many of these platforms are marketing. Their message is about more than returns. Beyond returns, they’re trying to provide new and novel ways for people to interact with culture. Specifically, they’re providing a way for the average Joe to own a piece of it. For example, want to own a part of a Burkin bag after listen to Gunna’s “Baby Burkin”? Boom, you can buy a share in a Hermès 35cm Bordeaux Porosus Crocodile Birkin on Rally for only $US26.25 per share. Yep, you and your closest 2,000 Rally platform buddies can each own a slice of this rare handbag.
The cultural cache of owning a piece of culture isn’t all rainbow and Skittles. In fact, on Otis and Rally, the performance of sneakers (one of the more hyped assets classes) has been mediocre. According to Alt Insights, of the 22 total sneaker offerings (including both deadstock and memorabilia offerings), the net ROI was less than impressive (it came in at -1.84%). The article does provide some nuance on why this might be the case (and it’s well worth a read). However, it does speak to the fact that owning a piece of the zeitgeist isn’t always a profitable endeavour.
There’s no doubt that some people jumping on these platforms are chasing yield, but by in large, I’m guessing those hungry for bps are probably trading crypto and NFTs. This means the customer most attracted to Rally et al. are those looking for a connection to the assets they’re investing in — some likely want to own a piece of history or want a way to reconnect with their childhood, or maybe they want to connect with something more ephemeral like “culture”. Regardless, the alternative asset class is only getting hotter and this latest round from Rally also shows VCs are getting it.
💳 Lithic (née Privacy.com) Raises $43m In Funding →
Privacy.com last week announced a $43m funding round led by Bessemer Venture Partners. The round also had participation from Index Ventures, Tusk Venture Partners, Rainfall Ventures, Teamworthy Ventures, and Walkabout Ventures. Privacy.com also announced that they’d rebranded their card issuing offering to Lithic.
🤓 My Take: I love the Lithic (the artist formerly known as Privacy.com issuing) story so much. What started as a disposable virtual card offering for the browser has morphed/evolved into an issuing as a service platform aimed at allowing fintech startups and fintech curious companies to spin up cards of their very own.1 In fact, you may recall when 1Password launched their disposable card offering, Lithic was the backend infrastructure provider.
Having chatted to many a founder who’s launched a consumer fintech product into the market, there is a moment where every founder contemplates a hard left turn into the world of B2B fintech. As customer numbers plateau (not to suggest that happened here), a founder will inevitably turn to the tech they’ve built and dream instead of becoming an infrastructure provider. Not having to deal with customers who want the world and while paying nothing for the privilege makes pivoting to become a B2B company seem like the answer. But, of course, few go through with it. Still, it’s so common that I joke that if you’re looking to invest in a fintech infrastructure company, hang around with early-stage neobanks and PFM apps — they inevitably tinker with the idea to pivot into an infrastructure play.
It’ll be interesting to see how Lithic go with running a consumer and B2B offering under one roof. The answer might be that this round of funding and the name change could signal a more concentrated and effort on the issuing product. Regardless, I can’t wait to see what they do next with their issuing platform.
☝️ Things You Should Know About
👮♂️ EML Shares Tank On FPS robe →
For anyone that works in fintech, this is the thing nightmares are made of.
Late last week, EML announced that the Central Bank of Ireland (CBI) sent them a letter raising significant regulatory concerns over their Irish sub, Prepaid Financial Services (PFS). Specifically, EML noted in their release to the ASX:
The CBI’s concerns relate to the PCSIL’s anti-money laundering/counter-terrorism financing (AML/CTF) risk and control frameworks and governance.
The news sent the company’s shares into free fall and resulted in their share price ending the day of announcement down 46%.
This type of thing makes anyone in the industry shudder and is a reminder of how vital buttoned-up AML/CTF policies are.
Last week Robinhood announced they’d be entering into the world of IPO offerings. On the face of it, this might not seem like a big deal. However, this is another significant step forward in democratising access to markets for retail investors. As Robinhood put it in their blog post announcing the product:
Most IPO shares typically go to institutions or wealthier investors. With IPO Access, everyday investors at Robinhood will have the chance to get in at the IPO price.
According to reports, initially, they’ll be working with Wall Street banks to access allocation for their customer, with the first IPO being Figs’ much-anticipated listing. Having said this, one could imagine a world where Robinhood might one day be a significant underwriter of listings. Imagine a world where instead of calling Goldman Sachs to be your lead underwriter, you call Robinhood instead to gather its 13m+ users to lead your listing. Now that would be disruptive.
At times I’ve bemoaned the glacial pace of the roll-out locally of the Consumer Data Right (CDR). However, this is an excellent reminder that as a market, Australia is miles (or should I say kilometres) ahead of many other markets in building an open data economy.
I feel for our fellow former colony friends over in Canada. It’s a long process to get a CDR to market, and when it’s a government-led (vs market-led) approach, it can seem like the fintech version of the Never Ending Story. Having said this, building a solid foundation through a national strategy that puts all the building block in place to create an actual data economy is well worth the wait.
As a side note, I’d be surprised if we don’t see Canada take a similar approach to Australia. In fact, it almost feels archaic not to take the Aussie CDR model as the baseline— an economy-wide approach with banking being the first port of call. Also, as a reminder to all the international reader of FR, if you want to get a sense of what a regulatory led open banking (or, more correctly, CDR) will look like in other parts of the world, it’s worth looking at the Australian model.
🎧 Podcast Recommendations
This week’s podcast recommendations are all about alternative asset classes. Firstly, I’ve got one with Rally’s co-founder and CPO on what the future holds for them and a podcast on how Pipe are unlocking AAR as an asset class.
Rob Petrozzo, CPO @ Rally - Alternative Assets and the Rally Series B → This episode of For Fintech Sake provides a great insight into ‘what next’ for Rally. So if you need another hit of Rally info you’ve got to load this podcast up for your next walk.
Harry Hurst, Co-Founder & CEO of Pipe: Unlocking Revenue as an Asset Class → To say Pipe is a hot startup would be like saying Avatar did alright at the box office. If you want to learn more about the fintech startup that’s been the quickest to reach a $2bn valuation, this a great primer.
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