Issue #56: Fold Stacks Some Sats Of Its Own, Square Is Coming For SME Banking & What's CBA Up To?

👋 Hi, FR fam. I hope you’ve all had an awesome start to the week.

It’s another bumper issue of FR, so let’s dive straight into this week’s News Grab Bag.

📣 The News Grab Bag

Public launches in-app audio ⚬ Plaid and Square partner on ACH payments ⚬ How much do fintech execs get paid? ⚬ Meet the bitcoin pizza guys ⚬ 7 insights into gen-z finance ⚬ Another UK neobank CEO says goodbye ⚬ South Africa launches a digital currency study ⚬ PAYTM closes down crypto exchange accounts ⚬ A vision for frictionless and autonomous fintech ⚬ China continues its battle against bitcoin


📈 Notable Funding Announcements

Yep, it was another week of big deal announcements in the world of fintech. In total, 58 funding rounds were announced, totalling $2.6b.

👛 Fold Raises A $13m Series A

Crytpo rewards debit card, Fold, this week announced that they’d raised a $13m Series A round of funding. The round was led by Craft Ventures and had participation from M13, Slow Ventures, and Bessemer.

🤓 My Take: Crypto rewards programs seem to be the flavour of the month. What used to be the realm of cryptocurrency exchanges and niche product offering that catered to the diehard crypto heads seems to be going mainstream. In fact, earlier this month we even saw Brex jumping on the bandwagon by offering points redemption for crypto.

There’s no doubt that part of the reason we’re seeing more fintech startups incorporating crypto into their rewards programs is because of the run-up we’ve seen in market activity over the last 18 months. Yes, we all know crypto has been hot. However, this only tells part of the story.

Everyone loves getting a cashback on a purchase or some points they can on their next overseas trip. However, what Fold, Cash App et al have figured out is that their core customer isn’t only looking to be rewarded for using their card, they’re also looking to be engaged. The old model of buying customers through points or cash backs works fine (I mean who doesn’t like something for free) but in a highly competitive market for customer attention just offering what all your competitors are offering is… well, table stakes. In 2021, it feels lazy to just drop a cashback into your consumer fintech app when Fold is doing stuff like this.1

Let’s be honest, Fold is just a debit card offering (with credit cards apparently coming soon). However, what they’ve got sooo right is (i) people love getting some free magical internet money and (ii) everyone loves a little bit of gamification. Their numbers also suggest they might be on to something. According to the press release announcing their latest raise, 20,000 cardholders participated in an early access program in November 2020, where they saw $100m in transaction volume. Not too bad at all.

💰Mono Raises A $2m Seed Round

African open banking startups, Mono, last week announced a $2m seed round. The funding round had participation from Entrée Capital, TCVP and Lateral Capital, to name a few. To date, Mono has raised $2.625m.

🤓 My Take: It’s become passé to say a company is building the “Plaid for country x”. However, it’s undeniable that open banking is becoming a major fintech theme in every market. Yet, most of the time we (I include myself in this bucket) focus on what’s happening in the regulatory led markets (namely, UK, EU, Australia) and the US. However, I’d argue, that if you’re interested in seeing what the future of open banking could look like you probably want to be paying attention to what’s happening on the Continent.

One of the most striking things about the open banking landscape in Africa is that every player has gone to market (or released very early on) a payment initiation service (PIS). If you look at Mono, Okra and Stitch they all have PIS product offerings. In part, this is driven by demand for other payment methods — especially in markets with developed banking systems like South Africa and Nigeria — but also it’s seen as part and parcel of what open banking entails. This is very different to what we’re seeing in other markets — where the idea of PIS is just being batted around (i.e. Australia) or has been slow to gain traction in the markets where it is available (i.e. The UK). In fact, having the payments element so entrenched in open banking from day 1 is an interesting (and subtle) twist on an open banking regime. Arguably, this better sets up the Continent be an open finance powerhouse.

When looking at the Continent it’s easy to get fixated on the unbanked and underbanked populations, however, what open banking (or broadly open data) will unlock is much broader than just financial use cases. As Prakhar Singh notes in a TechCrunch piece on the raise:

“…Our focus isn’t only on open banking but data. We’re thinking of how we can power the internet economy with data that isn’t necessarily financial data. For instance, think about open data for telcos. Imagine where you can move your data from one telco to another instead of getting a new SIM card and making a fresh registration. That’s where I see the market going, at least for us at Mono.” 

As is the case in every market, financial data is only the tip of the iceberg. It’s just that open banking companies on the Continent might figure out how to get to the ‘good stuff’ more quickly than those in other markets.


☝️ Things You Should Know About

🏪 Square Plans To Launches Business Banking Accounts

This is not surprising at all. In fact, the only thing surprising is that it’s taken Square this long to offer banking services to its business customers.

According to reports, Square plans to make the chequing account incredibly SMB friendly with no overdraft fees, minimum balances, or service fees on the accounts. While with its savings account the same article suggests Square will offer an interest rate of 0.5% through 2021.

In part, Square’s recently finalised banking charter will make this an even more attractive proposition as it’ll provide more funding for its balance sheet which it can, in turn, lend to business. It looks like the flywheel continues to spin at Square.

🤦‍♂️ Klarna Shuts App Down After Users Report Being Logged Into Random Accounts

In what has to be the WTF moment of the week in fintech. Klarna had a massive data snafu that resulted in customers being surprised(/shocked) when they logged into their accounts. In his statement regarding the bug, Klarna’s CEO, Sebastian Siemiatkowski explained:

The bug led to random user data being exposed to the wrong user when accessing our user interfaces. It is important to note that the access to data has been entirely random and not showing any data containing card or bank details (obfuscated data was visible).

Wild, just wild.

In an industry where the security of data is literally the number one concern of many customers, to let a bug like this be introduced into prod is kind of crazy. Let’s hope this doesn’t result in any further issues for the Swedish BNPL player.

🏦 Look Out Big Tech – CBA Wants To Be A Platform

What’s going on at CBA?

For those unfamiliar with the big four Aussie bank, CBA has historically been one of the more insular of the four when it comes to innovation. In fact, I think it’d be fair to say most in the Aussie fintech ecosystem would consider CBA to be fairly NIMBY when it comes to partnering with fintech startups. However, it seems things may have changed over at 1 Darling Park.

As the article highlights, CBA has recently gone on a bit of a spending spree and invested in a range of startups in what outwardly seems like a strategy that is designed to take advantage of their huge distribution reach. As their head of Business Banking, Michael Vacy-Lyle, points out in the piece:

“We need to go beyond selling traditional banking products through traditional banking channels.”

In theory, the strategy makes total sense. The internal CBA deck outlining the strategy probably points out that this is classic bank cross-selling — but now with more products. In fact, it’s like the deck probably has a reference to Amazon somewhere in there too.

Narrator: It’s not. It’s a completely different ball game.

I mean, will CBA have a pop-up in their online banking portal pointing to Amber (the electricity provider they recently poured $20m into) or will they offer Doshii (the payments middleware company they purchased not that long ago) to their SME customers? Yeah, I’m sure they will.

However, there’s a reason these types of distribution and “data”2 plays never work. Banks are just not geared up to distribute anything that isn’t through a broker or well-established sales channel. If a business line at a bank can’t kick it out in an email to a sales team or broker network with an upfront payment and trail it’s likely going nowhere.

Beyond the practical, banks also face challenges when it comes to the tactical elements of distributing products outside of their core offering. Specifically, one I’ve seen play out to the detriment of startups partnering with banks is KPIs.

Practically, at a big bank like the CBA who’s going to be incentivised and by this I mean who’s KPIs are going to rely on pushing products like Amber, Doshii or Little Birdie? No one. In fact, most middle managers will probably see it as taking resources away from them reaching their current KPIs. There’s a reason you’ve never heard of Vonto, Home-In, Credit Savvy or Backr (all internally built CBA innovation products) and this is likely one of them.

Beyond this, as much as banks love to pretend to be all buddy-with-buddy with startups they generally struggle to partner with fintech startups. Take, for example, CBA’s puzzling BNPL strategy where they started by investing and proudly announcing they’d be bringing Klarna to Australia to then launching a card designed to compete with the BNPL players and ultimately launching their own BNPL product. Yep, I’m sure Klarna are just as puzzled as you are.

Having said all this, it’s refreshing to see CBA go from “yeah, Nah” to “yeah, sure” when it comes to investing in startups. Net-net, it’s probably a good thing for them and the Aussie fintech ecosystem. However, at the end of the day, all incumbent banks are huge ships with tiny rudders who are more likely to get jammed on the banks of the Suez Canal than become a platform company.


🎧 Podcast Recommendations

Fintech Today has been running a great series of podcasts on couples finance that I’ve been enjoying. To be honest, it’s a fintech segment that doesn’t get a lot of love (pun intended), but it’s finally getting some much-deserved attention through this great little series of podcasts. Load them up for your next run, they’re well worth a listen.

  1. Understanding Your Partner’s Relationship With Money ft. Saira Rahman, VP of Finance at HM Bradley

  2. Transparency, Control, and Emotions ft. Maia Bittner, Founder of Pinch and FinTech Angel Investor

  3. The CFO of Your Relationship ft. Aditi Shekar, Co-Founder & CEO of Zeta

  4. Fixing Fintech's Infrastructure Problem ft. Justin Howell, Co-Founder & CEO at Rize


❤️ Show Some Love For FR

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🙏 What did you think of this week's issue of FR?

I love it! ◌ I Like It ◌ Not Bad ◌ I Don’t Like It ◌ It’s Awful

1

Fold really loves to mix things up with their spinning wheel. Check out their Medium for a breakdown of the different themed wheels they’ve run.

2

Let’s be honest, the only people winning here are the cloud storage providers who are serving their data lake needs.