👋 Hi, FR fam. I hope you’ve all had a great start to the week. Let’s start with some news from us. As you can see, we’ve decided to mix things up with a new logo. What do you think? Feel free to drop your thoughts in the comments below.
Before we get into this week’s programming, I just wanted to remind you about my other newsletter, Future Finance. It’s the best off-chain way to keep up to date with all that’s happening in the world of on-chain finance. If you’re interested in subscribing, click the button below and enter your email.
📣 The News Grab Bag
Nium acquirers Wirecard’s Indian Forex business ⚬ Google expands its fintech ambitions in Japan ⚬ WTF is a banking desert? ⚬ N26 ventures into BNPL ⚬ New Zealand continues work on a consumer data right ⚬ A banking app has been suddenly closing accounts ⚬ Atom Bank surpasses £3bn in mortgage lending ⚬ Booking.com wants to become a fintech ⚬ Over half the world’s population will use mobile wallets by 2025 ⚬ London-based fintech startups secure record VC funding in H1 2021 ⚬
📈 Notable Funding Announcements
Yep, it was another big week of funding announcements in the world of fintech. In total, 47 funding rounds were announced, totalling $2.1b.
🙂 Smile Identity Raises $7m →
Last week, identity verification startup, Smile Identity announced a $7m Series A round of financing. Costanoa Ventures and CRE Venture Capital led the round. Other investors that participated in the round included LocalGlobe, Intercept Ventures and Future Africa.
🤓 My Take: In the world of fintech, identity is a key pillar for nearly every product. If you can’t identity a customer, you don’t get to ‘pass go’. In industry parlance, Know Your Customer (KYC) checks are critical and, much like everything else in financial services, incredibly esoteric depending on where you are in the world.
For example, in some markets, there’s a national identity database you can ping via API (e.g. Aadhaar in India as part of the India Stack) to verify a person’s identity. In contrast, in other parts of the world, a significant amount of the population don’t have fixed addresses — so trying to match them to a place of residence is almost impossible (which is not uncommon in parts of Africa).
Then there’s the regulatory overlay in each market, where certain pieces of information are required to validly identify a customer (e.g. in New Zealand, you need a valid address for KYC/AML purposes). These are just some of the baseline issues you need to parse if you’re a company in this space. On top of all this, you also need the tech to validate an ID and its owner — which is its own beast.
Beyond this, practically, being able to scale into new markets is challenging. In many instances, you’re recalibrating large swaths of your tech and processes for determining positives and negatives (which is part of the magic in this identity space) based on the primary documents you can obtain in the new market, and this is all while competing with an incumbent (and there’s always one) that have an entrenched market position.1 Having said this, if you can navigate your way through the idea maze early on, customers tend to be incredibly sticky and tend to always be asking for more services — which means expansion revenue opportunities are plentiful.
It’s for all the above reasons that you tend to see companies who reach any semblance of escape velocity get gobbled up by the Equifaxes and Experians of the world.
In the case of Smile ID, in just four years, they’ve been able to expand across six markets in Africa: Nigeria, Kenya, South Africa, Ghana, Rwanda and Uganda. Further, they’ve been able to amass some really impressive logos and, according to this TechCrunch article, they’re now at over one million identity checks every month. In a market where you can get thrown some serious stage curveballs, this is really impressive.
I’m incredibly bullish on companies in growth markets that are solving these foundational problems — and I can’t underscore how foundational identity is when it comes to consumer fintech. In fact, it wouldn’t surprise me if we saw the next big player in identity emerge from a market like Africa.
🕵️♂️ Unit21 Raises A $34m Series B →
Last week Unit21 announced they’d closed a $34m Series B round of financing, which Tiger Global led. ICONIQ Capital and existing investors Gradient Ventures, A.Capital, and South Park Commons also participated in the round.
🤓 My Take: Identity is just one part of the journey for managing a compliance program at a fintech (or FSI, for that matter). It also turns out to be one of the more static elements — a user is verified, and that’s generally all you’ll ever need to do prove their identity. The more complex and dynamic element of managing the customer lifecycle turns out to be transactions monitoring and fraud management.
Traditionally, if you were a fintech startup looking to implement tooling to managing transaction monitoring, your choices were (i) roll your own or (ii) use some incumbent solution that you’d have to spend a ton of time and money to customise. Instead, companies like Unit21 provide a no-code toolset with strong defaults and models that provide the right baselines for a company to customise to their current program.
Much like identity, this is a space that is only growing. In a world where everything becomes fintech, the corollary is everything also becomes regtech. What I mean by this is that as we see more companies engage directly with payments (or crypto or their own tokens, for example), the need to better manage fraud will move to a ‘must have’. In fact, I won’t be surprised if we started to see more companies outside of fintech start to implement more robust fraud management tools like Unit21.
Again, this is another segment I’m incredibly bullish on, and we’re only just starting to see companies emerge in this space.2 Broadly, tooling for fraud teams and compliance teams in FS is still stuck in the stone age when compared to, for example, payments infrastructure. In fact, I think many would be surprised by how hacked together solutions are across the board when it comes to transaction monitoring — which is always music to a founder’s ears.
☝️ Things You Should Know About
Last week USDC issuer Circle announced they’re planning to list by way of a SPAC.
In the world of DeFi, stable coins have proven to be a vital asset to allow the movement of value in a more frictionless way. Specifically, they allow users to move value around without ever needing to off-ramp into fiat. It’s fair to say that USDC has become the default (although Tether has more value tied up in its stable coin) and what most prefer to use when interfacing between the legacy FS and DeFi.
The numbers presented in the investor deck paint an interesting picture for the fast-growing stable coin issuer. According to the investor presentation, there are currently $22.6b in USDC currently in circulation, with an expected $190 billion USDC in circulation by the end of 2023.
As you might expect, Circle is planning on making the bulk of their future revenue from value-added service on top of USDC (which they call Transaction & Treasury Services) along with some interest income from USDC and also from their other business, SeedInvest.
It’ll be interesting to see the Street’s reaction to Circle’s listing when it hits the NASDAQ ticker and, more importantly, what it’ll mean for other DeFi companies — especially the contrarian ones who are looking to go public.
🎉 Wise Lists →
This was definitely one of the most anticipated listings of 2021, and it didn’t disappoint.
The debut was a solid one with the remittance startup listing with a market value of more than £8 billion ($11 billion) and a ~10% increase in share price after its first session of trading.
As a reminder, Wise choose to directly list in the UK. Unlike in a traditional IPO, the direct listing meant that rather than raising money by listing, they instead allowed their private investors to sell their existing shares to the public. In another interesting move, Wise opened up the listing to customers who could purchase shares through a program called OwnWise.
Alongside all the usual winners that come out of a listing (which included the likes of Valar Ventures and A16Z, to name a few), the UK also received a much-needed boost post-Brexit along with the London Stock Exchange, which is no doubt licking its lips waiting for the likes of Monzo and Revolut to pull the trigger on a listing.
🎧 Podcast Recommendations
This week for your listening enjoyment, we have two podcasts covering some hot themes in the world of fintech — payroll APIs and fintech in emerging markets.
Jordan Wright, CEO @ Atomic - Payroll APIs, Infrastructure, and Being a Good Human → This a great interview with Jordan Wright from Atomic. During the conversation, he talks about the payroll API segment and what Atomic is thinking about doing in the space and also what it’s like being a second-time founder in the fintech sector. This is a podcast well worth loading up for your next run.
David Vélez - Building the Branchless Bank → I know I’ve recommended at least 5 other podcasts with David Vélez of Nubank, but I personally never tire of hearing him speak about how Nubank thinks about fintech in Latam. Also worth listening for are his views on what good questions from VCs on consumer fintech sound like. As always, any podcast with David Vélez is a must listen, and this is no exception.
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🙏 What did you think of this week's issue of FR?
This is why you tend to see the GTMs for early-stage identity companies revolving around first working with fintech startups. Smile ID is no different, with its early customers being companies like Paystack, Paga and Chipper Cash, Kuda and Umba.