Issue #71: Google Scraps Plex, Affirm Is Becoming A 'Super App' And AngelList Wants to Offer Your Startup Banking Services
👋 Hi, FR fam. I hope you’ve all had a great start to the week.
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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
Apparently, Apple Pay can be abused to make contactless payments from locked iPhones ⚬ How London became a global centre for fintech ⚬ New Zealand’s central bank opens consultation on future of money ⚬ Visa is trying to make digital currency interoperable ⚬ Starling to bring out a BaaS offering ⚬ BaFin ordered N26 to pay a €4.25 million ($5.0 million) fine ⚬ Eftpos granted government accreditation as first Aussie private ID exchange operator ⚬ Mastercard gets into BNPL ⚬ You can now deposit your paycheck into your Coinbase account ⚬ Financial tools for solopreneurs (plus some other stuff from A16Z) ⚬
📈 Notable Funding Announcements
It was a slightly slower week for funding announcements in the world of fintech. In total, 72 funding rounds were announced, totalling $2b.
🎶 Highnote Raises $54m →
Last week card issuing platform, Highnote, came out of stealth with a monster $54m+ raise (as part of their seed and Series A fundraise). The round was co-led by Oak HC/FT and Costanoa Ventures. Also participating in the round was XYZ Ventures, SVB Capital, and WestCap.
🤓 My Take: It’s no secret that the banking-as-a-service (BaaS) space has been running hot recently. Having said this, a company coming out of stealth and raising $54m is definitely, well, a new high..note for the segment.
The bull case for the BaaS is strong. In many ways, the fintech battle cry of ‘everything and every company will be a fintech’ has been driving funding and interest in the space. The short version being, BaaS companies, are providing the picks and shovels in a gold rush. The argument goes: we’re seeing more companies than ever wanting to offer financial services as part of their offering. Whether it’s Ikea going deep into BNPL or Amazon getting (back) into the merchant acquiring space, the narrative of ‘every company will become a fintech’ is playing out slowly but surely. Then there are, what feels like at least, the hundreds of consumer-facing fintech startups being spawned every week. These companies need a quick, reliable, and modern way to tap the legacy financial system's ageing pipes — and BaaS companies are providing that plumbing.
No doubt, a strong bull case can be made for the BaaS segment and presumably, this is part of why we’re seeing companies coming out stealth able to raise $54m.
As you might expect, where there is demand, supply quickly follows. In the last year, there’s been exponential growth on the supply side of the BaaS segment. In other words, there are a ton of well funded BaaS providers in the market hunting for companies to adopt their solution.
The same is also happening on the consumer segmentation side; some BaaS companies are turning their attention to the larger end of town while others are focused on the long tails of developers working at the earliest of early-stage startups. They all have a slightly different spin on the wares they’re hocking — with some trying to narrow down their offering to issuing and processing while others are attempting to be a ‘soup to nuts’ solution that incorporates the compliance and operational layers. In other words, if you need to integrate a financial product into your offering, there’s a special someone out there for you — and by this, I mean a BD person ready to sell you a BaaS integration.
However, it’s not all rainbow and Skittles for the BaaS segment. As the BaaS playing field starts to get crowded it’s clear not everyone is going to survive the gold rush. As an ‘everything is fintech’ maxi, I don’t doubt we’re going to see most companies start to natively offer some form of financial services embedded into their product, but at the same time, we don’t need 10 different ways to essentially do the same thing. Especially, when in reality, most are selling the same product wrapped in a different landing page.
Although I’m sure many will disagree with me, it is hard to differentiate a BaaS offering. If you peel back the onion on the products out there, you’ll notice they’re all incredibly similar under the hood — they’re an opinionated layer of software all sitting on the same financial rails, plus a local banking license. This ends up meaning that, and as much as everyone in the BaaS space will try to sell you on how they’re different, the offerings are in fact incredibly homogenous.
So what does this mean for the segment? Well, inevitably we’re going to see consolidation (which hasn’t really happened yet) and more aggressive pricing as cashed-up BaaS providers look to grow their base of customers. It might be slightly early to be calling the top of the market, but we might be closing in a what could be ‘peak BaaS’.
The bull case for the segment is clear. However, what is less clear is who comes out on top and, importantly, why they come out on top. Regardless, money will continue to pour into the space, and we’re sure to see more well-funded companies emerge — after all, are you even a fintech VC if you don’t have a BaaS company in your portfolio?
☝️ Things You Should Know About
We all knew this was coming. That’s right, Google has pulled the pin on its much-anticipated entry into the checking account space with the scraping of Plex.
According to the WSJ article that broke the story, Google is adding yet another product to the Google graveyard due to the departure of vice president and project sponsor, Caesar Sengupta. Yes, Google went full bank mode and decided to bin the product because the project’s sponsor left Google.
Although unsurprising, I did harbour hopes the ‘this time would be different’ for Google. After all, the approach actually made a lot of sense and was building on some great momentum around Google Pay. Also, bringing on a range of partners who could use the tech giant’s distribution and more natively align the interface to the backend was actually a great strategy. However, as is the case with ‘big tech’ when it comes to fintech products, they lacked the ability to push through when the going got tough. Or maybe it was just old fashioned big company politics — the guys who championed the product left, and the person who came in decided they didn’t want to deal with someones else’s mess, so they canned it.
To be fair, Google wasn’t the only one to bin a fintech product this week. Santander also decided they were done playing fintech and scuttled their ‘Wise challenger’, Pagofx. Again, not all that surprising. From the beginning, it was clear this was never going to be a long term play from Santander. RIP Pagofx, we never really got to know you.
‘Super app’ has quickly become the most abused word in fintech. Over the last 12 months, it feels like basically, every consumer fintech has tried to call itself a super app — with none actually being a ‘super app’.
If I understand the bastardised meaning of the word, it’s come to reference offering more than one financial services product in your app. Yep, everything is a super app.
Anyone that’s been around the fintech space long enough knows that the moniker comes from the fintech OG super apps out of Asia — which are actual platforms that allow their users to access an array of 3rd party services in their walled garden. The likes of WeChat and AliPay in China, Paytm in India, Grab in Singapore, and Kakao in South Korea exemplify the term.
Back to Affirm, during their recent investor day call, they referenced that they were looking to go beyond BNPL and to venture into a broader range of financial services that includes offering crypto, amongst other things.
Clearly, Affirm is not a ‘super app’, and what they mean here is that they’re looking to cross-sell financial services products to consumers — but granted, ‘super app’ does sound better. Regardless, it’s clear they’ve caught on to what Afterpay figured out a long time ago — the actual play in BNPL has little to do with offering just another credit product. It’s the ability to close the loop on the merchant AND consumer experience (as I discussed when Square acquired Afterpay). Said another way, the real opportunity in BNPL centres around owning both sides of the market and being a bridge between the consumer and merchant experience. In the most hopeful end-state, a BNPL player could challenge the payment schemes but with access to more granular data (this is the Alex Rampell view of the world).
It’ll be interesting to see if Affirm can now build a credible consumer fintech arm to their business, especially given their historical focus on the merchant side of the equation.
👼 AngelList Gets Into Banking →
Last week AngelList announced Angel Stack, a new suite of products that, as the name suggests, is aimed at being the ‘stack’ founders use to “incorporate, fund, and scale their startup.”
Beyond being what seems like a swipe at Carta’s dominance in the cap table management segment, it was interesting to note that AngleList is also making a move into the business banking space. According to the blog post announcing AngelList stack:
Once incorporated, founders automatically receive business banking accounts that can be managed through AngelList Stack.
FDIC insured interest-bearing accounts (0.15% APY)
Physical and virtual debit cards
Free incoming and outgoing wires
ATM fee reimbursement
Interestingly, the account is also linked to the cap raise process and provides a streamlined way to go from signed term sheet to money in the bank. More specifically:
Founders can raise their first SAFE round entirely on Stack by sending a link to investors to digitally sign the SAFE. Once the funds arrive in the bank account, investors are automatically added to the cap table.
Business banking feels like a natural extension for AngelList as it looks at new ways to support founders during the cap raise process. In many ways, it’s also a prime example of embedded fintech done right.
We’ve seen many other players clumsily trying to offer financial services by just adding it as another tab on their website, in substance not embedding it but instead offering an adjacent product to their offering. AngelList shows how you can integrate financial products into the fabric of the offering — by providing real value to the end customer with the right product at the right time and in the right context. Now let’s see how many cap table management companies copy this approach.
🎧 Podcast Recommendations
Here are this week’s podcast recommendations. Enjoy👂
Building A Fintech Unicorn with Eric Glyman → Ramp has been on a tear lately, recently raising $300m at a $3.9b valuation. Eric Glyman, the co-founder of Ramp, talks about everything from disrupting incumbents to putting stablecoins on the balance sheet in this podcast. I highly recommend loading this one up for your next run.
Insights: How is French Fintech growing and tackling regulation? → In this episode of Fintech Insider, the team over at 11FS dig into what’s going on in the growing French fintech ecosystem. As is always the case with all things from 11FS, this is well worth a listen.
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