Issue #70: TrueLayer Secures The Bag, Get Ready For The DeFi Mullet, And Wise Launches Their Take On A Stocks Product
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Ok, without any further ado, let’s get into this week’s news from the world of fintech.
📣 The News Grab Bag
It turns out fintech is worth as much as SaaS ⚬ Climate fintech is heating up (pun intended) ⚬ Twitter adds more partners (including Chipper Cash!) and crypto to its Tips product ⚬ Claro takes anti-BNPL campaign to London's streets ⚬ Zip eyes India with an investment in ZestMoney ⚬ Monese moves into BaaS ⚬ Deutsche Bank acquires Better Payment ⚬ DeFi: Who, what and how to regulate in a borderless, code-governed world? ⚬ UK fintech startups call for a smarter data right to drive open finance ⚬ Paypal adds savings ⚬
📈 Notable Funding Announcements
It was a slightly slower week for funding announcements in the world of fintech. In total, 67 funding rounds were announced, totalling $2.1b.
🦄 TrueLayer Raises $130m And Joins The Unicorn Club →
🤓 My Take: TrueLayer is an interesting case study in the world of Open Banking. While its competitors have been busy getting acquired (or acquired and then not), TrueLayer has quietly been chipping away at building a sizable business in the Open Banking segment across the EU and UK. According to their website, “50% of open banking traffic in the UK, Ireland, and Spain flows through” TrueLayer, and they’ve been rapidly growing.
However, what makes TrueLayer interesting has less to do with its growth than with the direction they're taking as a company — which I think in many ways represents where we’re headed with Open Banking.
What was evident from the earliest days of Open Banking in the UK and EU was that ‘read access’ was only the tip of the iceberg when it came to what could be achieved with the opening up of data pipes in and our banks. In fact, from the earliest days, the question was really ‘when write access?’ — or what has more commonly become referred to as payment initiation.
In the UK and EU, the slow but steady move by most Open Banking players into essentially becoming payment companies has been noticeable. What started out very much as a segment focused on just powering PFM apps has morphed into a segment that is looking more like a rival to the payments schemes. In fact, according to a McKinsey report into the segment, payments has become the dominant proposition when it comes to Open Banking in the UK.
If you’re looking at the Open Banking landscape, you’d probably be hard-pressed to find a startup that’s leaned harder into becoming a payments company than TrueLayer. In fact, if you look at their offering it’s clear that they’re slowly building all the pieces required to be a fully-fledged payments company.
As I discussed, recently in a piece on payment initiation services (PIS), it’ll be interesting to see how the current cohort of Open Banking players trying to make the move from data to payments navigate the path ahead. As we’ve already seen, the card schemes know the PIS focused startups are coming to cut their lunch, and they're doing everything they can to acquire or slow them down in all of their key markets. Definitely some interesting times ahead in the Open Banking segment.
💸 Cobo Secures $40m In A Series B Fund Round →
🤓 My Take: In some ways, the rise of crypto has caught many in the fintech industry by surprise. I don’t mean the increase in the price of all your favourite magical internet coins (although some have probably been surprised by that too), I’m referring to how consumer fintech companies have slowly been morphing into crypto companies.
From the earliest days of crypto, most have pondered the question of when crypto would become ubiquitous. For example, when would we be able to buy a Coke with bitcoin?
It turns out that was the wrong question.
The reality is that we’ve seen it become ubiquitous in a different way. More specifically, in the world of fintech, we’ve seen not only the rise of consumer-facing exchanges like Coinbase, but we’ve also seen crypto become a staple in the neo bank product mix. For example, let’s take Square’s Cash App and Robinhood.
In the case of Cash App, it’s long been a money printing machine built on crypto trading.While in the case of Robinhood, it’s basically morphing from a share trading platform to a crypto exchange.
If the first wave of cryptocurrencies in consumer fintech was about providing onramps into crypto the next wave will be about changing the backend of banking, or what is more commonly described as the ‘defi mullet’ — fintech in the front and defi in the backend.
The best example of how we’re likely to see this play out initially is via products being offered by ‘defi-as-service companies’ to the tradfi fintech startups. The most notable example of this is Compund’s Treasury product, which offers a 4% APR to institutions who want to access interest rates available in the USDC market of the Compound protocol. As you can imagine, in a world where banks can only offer 0.5% on saving this becomes a compelling product for fintech startups to offer to their customers.
This will likely be the mainstream moment for many defi protocols, with fintech handling the front end and protocols handling the backend. More importantly, barring any regulatory fallout or a wild defi crash, this could actually end up being how the next 50m customers get ‘onboarded’ into the world of defi.
Ironically, crypto might go mainstream in what could be the most anti-climactic way possible — by offering high yield interest-bearing accounts to the average consumer.
☝️ Things You Should Know About
Last week Robinhood announced they plan to start rolling out crypto wallets to select customers in October. The new feature will allow Robinhood users to send and receive crypto in their Robinhood account from external wallets.
Part of the play here is to provide their customers with more flexibility with what they can do with their crypto — after all, who wants their crypto stuck in one centralised exchange? More importantly, it also allows their customers to bring the crypto they have scattered across other wallets to Robinhood, thus providing the platform with liquidity and also putting them on par in terms of wallet functionality with the likes of Coinbase.
In a world where flexibility is the norm and non-custodial solutions are aplenty, it’ll be interesting to see how Robinhood tries to entice crypto customers to make their ‘primary’ trading wallet a Robinhood one.
Last week, after whispers many months ago of Wise’s plans to launch an asset investing product, the recently listed remittance juggernaut quietly pushed out their take on a ‘stocks’ product to their UK customers. To be clear, as Wise notes on their website, this isn’t a stock trading product in the way you might imagine.
More specifically, the blog post announcing the new product offering notes:
The money in your bank account is already working, just not for you. Banks invest the money you hold with them to make profit for themselves…So as more and more customers hold money in Wise, it became more and more important to us to build something that allows this money the potential for growth. And we wanted customers to stay in control of how their money is held — with transparency over how it’s being used. On top of this, we wanted customers to have total flexibility to keep using their money like normal.
It’s definitely not a product designed for the active trader — because, well, you can’t actively trade stocks. More specifically, their stocks product is an MSCI index-tracking fund managed by Blackrock, which provides Wise customers access to shares in 1,500 global companies. Nothing fancy here, just a simple and proven way for their customers to earn a return on idle cash.
At their core, Wise do something (seemingly) simple — move money globally quickly and cheaply — and execute it exceptionally well. In a world where every fintech company is continuously shoving new products down your throat, Wise solves problems for their customers in a way that always feels like a natural extension of their core value proposition — and this is yet another example of this ethos manifested in what feels like a well-executed product.
🎧 Podcast Recommendations
For this week’s podcast recommendations, we have two bangers from the Pomp Podcast that are well worth listening to.
Building The Future of Crypto with Brian Armstrong → Up first, we have this great interview with Brian Armstrong. In a week that included tons of FUD in the crypto space, Coinbase’s CEO talks with Pomp about everything from the company’s mission through to their recently axed lend product. Definitely worth a listen if you’re interested in the crypto space.
Building The Fintech Super App with Anthony Noto → This is a great episode with SoFi’s CEO, Anthony Noto. In this episode of the Pomp Podcast, the former Twitter COO talks about the ever-broadening ambitions of SoFi and, interestingly, how he thinks about the ROI on their $400m splurge on the naming rights to an LA football stadium, amongst a bunch of other interesting topics. Well worth a listen.
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According to their blog post announcing the raise, they’ve seen “400% growth in monthly volume and 800% growth in monthly value… and doubling [of their] customer base”.
For example, approximately 80% of Square's $5b in revenue from the first quarter of 2021 was related to crypto trading, with bitcoin contributed $3.5b in revenue (or 70% of the total).