Issue #63: Cardless Secures The Bag, Apple Could Be Getting Into BNPL And Klarna Is Acquiring HERO.
👋 Hi, FR fam. I hope you’ve all had a great start to the week.
Before we get into this week’s news, I just wanted to share a little promo video I had made to celebrate the rebrand of Fintech Radar. Enjoy!
📣 The News Grab Bag
Mastercard: India stops payment service provider from issuing cards ⚬ Goldman sees a 41% surge in consumer banking revenues ⚬ Montenegro's central bank sets up a fintech hub ⚬ Ramp adds merchant ‘blocking’ to corporate cards ⚬ TikTok bans investment promotions ⚬ Indian e-commerce market to reach $120.1m ⚬ Fintech startups could make or break Africa’s new free-trade area ⚬ Deel launches a prepaid credit card in Brazil ⚬ With open banking on the horizon, the fintech-SME love story is just beginning ⚬ Data shows how Robinhood makes more money from its users than other brokers ⚬
📈 Notable Funding Announcements
It was another big week of funding announcements in the world of fintech. In total, 64 funding rounds were announced, totalling $3.7b.
💳 Cardless raises $40M →
Last week Cardless announced a $40m Series B funding round. The round was led by Activant Capital. Other investors who participated in the round include the Phoenix Suns and Boston Celtics owners and existing investors, Accomplice and Pear VC. This round of financing brings the company’s total amount raised to date to $50m.
🤓 My Take: You’ve probably seen a ton of co-branded credit cards in the wild. These have been part of the standard playbook for a retailer looking to engage their customers further while earning a few points of NIM. What started with airlines and hotels offering cards1 to their customers with the lure of points turned into big business for the Schemes and issuing banks. In fact, co-branded cards account for ~31% of all credit card transactions in the US, with 43% of American households owning at least one co-branded card. That’s an $809 billion business for the Schemes and issuing banks involved.2
For the most part, fintech startups tend to stay clear of credit cards3 as they’re a whole different world of pain as compared to issuing debit or prepaid based cards. Yet in markets like the US, credit cards are what customers have been trained to reach for when they make a purchase. Beyond this, if a brand is looking to really engage in financial services, this is where the money is — especially if you can tune a rewards program that takes leverages your brand.
Having said this, the ability to offer a credit card program isn’t easy. Say if you’re a Casper, Soul Cycle or a Canva and you want to leverage your brand to get into the co-branded card game where do you start? Usually, it starts with having to deal with banks and/or the Schemes which is never a great experience. This is where companies like Cardless come in. Essentially they do all the backend heavy lifting in a more modern package.
For context, if you did want to do the big lift of building a program, you’d need to piece together all usual things when issuing a card product (i.e. issuing, processing, KYC/AML, card printing, transaction monitoring, and the list goes on), but where it gets really challenging with credit cards is the lending element. This is where more modern program management platforms can really offer some serious value. For example, Cardless notes in a blog post about their product, this is where they’re getting creative. Specifically, by relying on various lenders, they’re able to “…capture different parts of the credit spectrum” — which means you have less drop-off from rejected applications.
Co-branded cards have been big business for a while now, but the ability to bring them to a broader market hasn’t been there. As more modern brands look to build a deeper relationship with their customers (and become fintechs themselves), there’s no doubt we’ll see companies like Cardless play an important role in bridging the gap.
Revolut last week announced a monster round of funding that values the company at $800m. The fresh round of funding was led by Tiger Global and Softbank. In total, the two funds tipped in $800m — and according to reports, they were the only funds that participated in the round.
🤓 My Take: In some ways, and might seem strange to say, but it almost feels like Revolut has gone from over discussed (and dare I say hyped) to under-discussed.
In the world of challenger banking, Revolut is building one heck of a large business. As I noted a few weeks back when discussing their most recent financial disclosures, their customer numbers continue to climb, and more interestingly, they’re growing their reach in adjacent segments that might be bigger opportunities than their initial wedge of consumer accounts. The best example of this being their entry and growth in the business banking space. Along with their clever expansion, according to reports, they’ve now crossed the 16m customers mark and are processing $150m transactions per month. Both are really impressive numbers.
Although most of the media surrounding this latest funding announcement has fixated on the valuation (which, to be fair, is eye-watering), the metrics that count around customer numbers and TPV are headed up and to the right.
There’s no doubt that there are those who would point to the loss position Revolut and many of its competitors are still sitting in as a sign that this segment is still attracting valuations that are well beyond what they’re “actually worth” (however that’s objectively measured). I still think this is a premature criticism for the challenger bank segment, given how early we still are in the game. Still, even on this front, we’re starting to see many turn the corner and moving closer to positive unit economics.
The more interesting question to me really revolves around the next stage of the segment’s evolution. Specifically, this first wave of challenger banks globally has been typified by Revolut, Monzo, Chime et al., all of which have really been focused on doing what the incumbent banks won’t do. However, the next wave will be led by the challengers who do what the incumbents banks can’t do. The question remains, whether Revolut and co cross the chasm and move to a place where they no longer compete with incumbent banks.
☝️ Things You Should Know About
At this point, maybe we should modify the “everything is fintech” meme to be instead “everything is BNPL”?
According to reports, Apple plans to partner with Goldman Sachs to provide instalment payments and enter the BNPL space through its Apple Pay product. More specifically, a Bloomberg report notes that Apple plans to provide Apple Pay users with the ability to pay for their purchase “either across four interest-free payments made every two weeks or across several months with interest.” According to the same report, the longer payment plan will be called “Apple Pay Monthly Installments”.
In many ways, I think this is a harbinger of what’s to come in the segment. To date, the BNPL players that have emerged have all been an adjunct to the payment flow — e.g. in a meatspace transaction, you’d use the BNPL app as an alternative payment method outside a wallet (i.e. Apple Pay) or card transaction. The evolution we’re seeing is that the likes of Apple and Paypal come to the view that they can offer BNPL as a feature.
Simultaneously, we’re seeing Afterpay and Klarna both try to back their way into being the primary wallet for a customer. It’ll be interesting to see how this plays out as both sides battle to take the full customer experience. If anything, Apple’s entry will be another data point in determining whether BNPL is actually, in the long run, a feature.
I thought this was a really interesting reflection on the evolution of money movement and, more specifically, how dramatically it’s improved.
In the piece, Koning points out that globally the speed at which money now moves has dramatically been improved due to the investments many governments have made in RTP rails.4 He also correctly points to the variety of instant payment rails now available to companies looking to move money (e.g. push payments by the Schemes).
Having said this, one thing that Koning misses in the piece is the cost associated with moving money on a scheme rail — push payments are great but, in most cases, are many times more expensive than using a local/native payment rail like ACH. Beyond this, he points to how companies like Wise are “…is dispatching up to 38% of its remittances instantly.” Which is a misnomer, as anyone who works in the money movement game knows these are ledger transaction (i.e. just internal transactions represented on a customer’s ledger) with the magic being how you manage country floats combined with making sure the last mile happens on an RTP rail. That’s the pledge, turn and prestige in the magic of international money movement.
I don’t say any of this to take anything away from the fact that money movement has become vastly faster, but to point out that practically there’s a ton of trade-offs a fintech needs to think through when deciding how it wants to move money that hasn’t necessarily improved since the 70s.
Last week Klarna announced they’d agreed to acquire social shopping platform Hero. The tl;dr is that Hero allows buyers to interact with customer service agents both in-store and online to provide a more personalised touch when they’re trying to make a purchase decision.
This continues the trend we’re seeing of BNPL players acquiring companies to extend their value to merchants. As I briefly discussed a few months back when Affirm announced their acquisition of Returnly, as more players enter the BNPL segment, the likes of Klarna are going to have to expand the services they can offer or diversify their offering to ensure they remain relevant to the merchant side of their customer base. This is clearly becoming a trend, and I fully expect that we continue to see the A.K.As (Afterpay, Klaran and Affirm) continue to buy up companies playing in the merchant services segment.
🎧 Podcast Recommendations
Here are this week’s podcast recommendations. Enjoy👂
John Hensel from Securrency → This was a fascinating podcast with John Hensel, who discusses tokenized issuance and securities trading. Well worth a listen if you’re keen to understand how blockchain tech can play in this space.
Former NYSE president gives the inside story behind Bullish's $9 billion SPAC deal → Although I didn’t touch on the Bullish SPAC in this issue of FR, it will definitely be an interesting barometer as to how bullish the market is on crypto exchanges (pun intended). In this interview, former NYSE president and now CEO of Bullish talks about his journey down the crypto rabbit hole. A really interesting listen and one well worth loading up for your next run.
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🙏 What did you think of this week's issue of FR?
It’s worth noting these cards come in two flavours, a store credit card (sometimes referred to as ‘private label cards’) or a co-branded card. The former is, as you probably guessed, can only be used at the place it was originated from (e.g. Amazon Store Card), while the latter can be used wherever the card issuer’s cards are accepted (e.g. Amazon’s Visa co-branded card).
Obviously, there are some notable exceptions like BREX.
Faster Payments in the UK and NPP here in Australia are great examples of this.