Issue #57: LatAm Continues To Run Hot, Shopify Wishes It Didn’t Have To Be A Bank, And Every Fintech Wants To Be A CVC
👋 Hi, FR fam. I hope you’ve all had a great start to the week.
Welcome back to another issue of FR! It’s been a big week in the fintech industry (but when isn’t it?), so let’s jump straight into this week’s news grab bag.
📣 The News Grab Bag
Four charts on bank digital transformation strategies ⚬ Matcha now allows you to use fiat to buy into all those eccentric Defi projects ⚬ Square is considering making a crypto hardware wallet ⚬ A GME NFT might be coming soon ⚬ The FCA doesn’t like what it sees at crypto exchanges ⚬ Razer (yeah the gaming company) is thinking of expanding into crypto ⚬ Why more banks are weaning themselves off overdraft fees ⚬ Klarna shed its Aussie leader team (ouch!) ⚬ Lemonade backtracks after a bizarre AI galaxy brain tweet ⚬
📈 Notable Funding Announcements
Yep, it was another week of big deal announcements in the world of fintech. In total, 63 funding rounds were announced, totalling $2.4b.
I couldn’t do a ‘notable funding announcements’ section without mentioning that Chipper had a massive week announcing that the team completed a $100m Series C led by SVB Capital. Watch this space… 🚀🚀🚀
The alternative asset platform, Yieldstreet, last week announced a fresh round of funding. Tarsadia Investments led the Series C round with Kingfisher Capital, with existing backers Edison Partners, Soros Fund Management, Greenspring Associates, Raine Ventures, Greycroft and Expansion Capital also participated in the round. The $100m round brings Yieldstreet’s total raised to $278.5m.
Yieldstreet, in some ways, sits a little outside of the platforms that have recently been riding the alt asset class wave (e.g. Rally Rd and Otis). In many ways, Yieldstreet is a more classic case of fintech ‘disruption — taking what was reserved for the 1% and bringing it to the masses. In many ways, I think this makes it a better case study into what we will continue to see in this segment.
By way of background, Yieldstreet provides access to investment products across various asset classes such as real estate (commercial and consumer), art, marine finance, legal finance and aviation. In other words, asset classes most retail investors might only have small or indirect exposure to through EFT or their pension funds. The Yieldstreet model is centred around bringing what was once reserved for HNWs and Wall Street insiders to the (or really the slightly above) average retail investor. According to their press release announcing the round, it seems to be working.
The appeal of these newly available options is seen in strong investor demand for Yieldstreet’s investment platform; both investment requests and new investors have surged through May of 2021, each up over 250% over 2020, with new investors already exceeding all of 2020.
The idea that a mere internet finance nerd can access the same opportunities that the customers of Goldman Sachs private can access is appealing. There’s no doubt that the low-interest environment is providing some wind in their sails, along with the rising interest in more esoteric streams of revenue as more capital (including retail) chases yield.
In a time when it’s hard to imagine the pendulum swinging back on interest rates, this feels like the moment a new class of investors is brought up on the idea that allocating a portion of your portfolio to esoteric asset classes is the norm, not the exception. It’s clear there are going to be some serious winners that come from this change in investment allocations, and YieldStreet might be one of them.
The Brazilian payments company, Kushki last week announced what they claim is the highest valued Series B in the history of Latin American. The $86m Series B values the company at $600m. The round had participation from SoftBank Latin America Fund and previous investors, including DILA Capital, Kaszek Ventures, Clocktower Ventures, and Magma Partners.
🤓 My Take: LatAm fintech has been on an absolute tear recently, and 2021 is turning into a banner year for the region. In fact, this year is already shaping up to be the biggest in the region’s history.
Kushki is an interesting example of companies that are quickly establishing themselves as important fintech infrastructure players in the region.
Commonly, when people think of LatAm fintech companies, they think of the consumer success stories like NuBank, Creditas or Rappi, the delivery app come super app (who Kushki power). However, Kushki represents a wave of fintech infrastructure companies beginning to get some serious attention from investors. In fact, earlier this week, another infrastructure player, Belvo raised $43m for their open banking platform. Part of why investors are paying attention is obvious — the region is growing rapidly in all the demographics that matter.1 Another contributing factor is the growing need for modern infrastructure that provides a quick and reliable way for consumer fintech startups (and non-fintechs) to get to market rapidly.
However, what goes under-discussed in regions like LatAm is the variance in payment networks across countries — which are in some instances only a few hours drive away. For example, in other regions, companies like Flutterwave in Africa have figured out that providing a unified way to access payment channels across a fragmented continent can prove to be a moat that is hard to replicate. The same is playing out in LatAm as payment players rapidly expand across the region and offer a wide breadth of payment options (on both the acquiring and issuing sides).
Like everyone else in fintech, I’m paying close attention to LatAm, and I can’t wait to see how the market plays out.
☝️ Things You Should Know About
At this point, are you even a fintech unicorn if you don’t have a venture arm? It seems not.
The list of fintech unicorns with venture arms is getting fairly extensive. They include Stripe, Brex, Affirm, SoFi, Square and Coinbase. All are dropping money into deals and doing so very successfully.
Although this isn’t anything new — I mean, even Exxon and Dupont had CVC arms — it’s interesting to see that the rush is on from earlyish-stage companies to get into rounds. Now I’m just waiting for one to spin out and run as a stand-alone fund.
I’m not going to spoil this article, as I think it provides a fascinating insight into how Shopify thinks about financial products in the context of its seller ecosystem.
The core of the piece is an interview with Kaz Nejatian, vice president of product for merchant services at Shopify. I personally really enjoy reading interviews with Shopify’s senior leadership team, as it highlights how clear their thinking is about where they play and, more importantly, where they won’t play. Beyond this, the problems they’re solving for their sellers always seem to stem from pain points — not the need to be part of the cool kid’s embedded fintech crew.
Keep arming those rebels, Shopify!
Ok, I didn’t have this one on my bingo card for 2021.
Most in crypto land aren’t probably all that surprised by this. I mean, a bank was always eventually going to come to the party and not leave it to the likes of Coinbase to have all the fun (and revenue).
The article notes that Standard Charter is not going full consumer exchange but will be allowing institutional and corporate clients to trade popular digital currencies, including Bitcoin and Ethereum.
It’s just a matter of time before every bank joins the party and provides access to cryptocurrencies. It’s really a question of when, not if they enter the space. After all, if a bank can get comfortable with flogging CFDs to retails consumers, it’s just a matter of time before crypto is a tab in your trading account.
🎧 Podcast Recommendations
This week I’m serving up two podcasts on the SME challenger banking space. Load them up and get schooled on what’s happening in this hot segment.
20VC: Ramp's Eric Glyman → If you can stand the softball questions the 20VC podcast is renowned for, then you’ll enjoy this episode with Eric Glyman, co-founder of Ramp. Eric provides some insights into how he thinks about the SME banking space and how Ramp has been growing its footprint.
Henrique Dubugras - Building the Financial Center of Gravity → There’s no doubt Brex is the company everyone else is playing catch up to in the US SME banking space. Having recently applied for a banking charter in the US, they’re going well beyond just being a charge card and are going after the full stack banking relationship a business owner has with their primary financial services provider. In this podcast, Henrique talks about a host of things — from how different it is building a company in the US vs Brazil to how he thinks about long term planning for Brex. This is definitely a must listen to this week.
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