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Issue #88: The CFPB Proposes Rules For Big Tech Payments, N26 Gets Out Of Brazil, And TrueLayer Brings A2A Payments To Shopify
👋 Hi all, I hope you’ve had a great start to the week.
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A curated round-up of the most interesting and relevant news from the world of fintech. In each issue, I focus on what caught my eye from the previous week — so don’t expect a weekly smorgasbord of press releases and partnership announcements. The aim is to serve the meaty bits in a neat, nibble-worthy package. It's all about spotlighting the head-turners and giving you the nitty-gritty without the fluff.
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It’s been another busy week for fintech, so without further ado, let's delve into the major happenings from last week.
📣 The News Grab Bag
German online bank N26 is withdrawing from Brazil in an effort to cut losses and focus on its European core markets.
The future of N26’s Brazilian operations had been in doubt for more than a year as it struggled to attract local investors and was unable to compete with Nubank, the largest online lender in the country. N26 plans to close its Brazilian operations over the next two months, and local staff can apply for jobs in its European offices.
🥡 Takeaway: In December last year, I wrote my predictions for fintech in 2023. In that issue, I predicted that we’d see consumer-facing fintech startups pulling back from their global expansion aspirations and getting focused on their primary local markets. In a constrained capital environment, when the focus shifts from blitz scaling to healthy unit economics, I thought we’d see most players abandon their global aspirations.
Case in point: N26. With their exit from the UK, the US and now Brazil, it seems N26 has throttled back their plans for global expansion to concentrate on their bread-and-butter EU markets. This isn't just about N26, though. The fintech consumer sector is peppered with stories of international expansion that didn't entirely take off. Despite the copious amounts of capital sloshing around in the ecosystem, few B2C fintech startups have made a significant mark outside their native market. This goes to show the monumental challenge of nailing it in one market, let alone several, in the tricky world of fintech.
JPMorgan has added a new feature to its blockchain-based settlement token, JPM Coin, allowing users to program their accounts to make payments automatically based on preset conditions. Previously, clients had to set standing orders for payments to occur at a specific time, but now they can program them to trigger when particular criteria are met.
This new feature allows clients to respond dynamically to events. JPM Coin was introduced in 2019 for institutional clients to make wholesale payments on a blockchain and recently reached the milestone of handling $1b in transactions daily.
🥡 Takeaway: Slowly but surely, JPMorgan continues to add capabilities to JPM Coin (and let's be honest, it could use a snappier name). As noted in previous issues of FR, this bear market has turned out to be a busy time for that blockchain/crypto infrastructure. Whether it’s startups building layer two offerings, corporate chains or new startups playing at the intersection of both, we're witnessing a shift. It feels like we're moving beyond the novelty of crypto's 'monkey picture' phase. Here's hoping we're on to the next chapter of the industry and that we actually get closer to making programable money a reality.
TrueLayer has launched its A2A payments app on the Shopify App Store, allowing UK and EU merchants to integrate open banking payments into their checkout process.
This integration brings the benefits of the open banking network to Shopify, offering faster and more secure payment options at a lower cost than traditional methods. The app populates customers' details directly from their bank accounts, reducing the risk of payment failure. With real-time settlement of funds, businesses can also process refunds more quickly. Electronics retailer Maplin is the first merchant to sign up, with more expected to follow.
🥡 Takeaway: As discussed last week, the end game of open banking is establishing a more efficient and cost-effective payment method. Despite the continued dominance of cards in many markets for consumer purchases, open banking is slowly shifting this by making A2A payments a more frictionless experience. Having said this, and as with most payment methods that have come before it, the driving force behind adoption will likely be substantially lower merchant fees.
In markets like the U.S., where interchange fees remain uncapped, the impact of radically reduced merchant fees could end up being a catalyst for adoption.
Although PIS is still in its deployment phase (even in markets like the UK and EU), expect to see more moves like this from TrueLayer, Tink, Plaid, et al. as they try to get ahead of the adoption curve.
European regulators have agreed on new rules to increase the availability of instant payments for customers and businesses across the continent. The rules would allow banks and payment service providers to offer instant payments at a price that does not exceed the current charges for standard credit transfers.
This means that customers and businesses can transfer money at any time of the day within the EU member states, with transactions settled in 10 seconds or less. The rules also extend the ability to facilitate instant payments to e-money institutions and payment institutions.
🥡 Takeaway: For those unfamiliar with the Single Euro Payments Area (SEPA), it was an initiative designed to simplify bank transfers denominated in euro across the EU. It enables customers to make cashless euro payments to anyone in the EU — using a single bank account and a single set of payment instruments. As you can imagine, this integrated design improves the efficiency of cross-border payments and turns the fragmented national markets for euro payments into a single domestic one.
Although this seems like a small change, it brings the EU one step closer to offering a unified instant payment network. For fintech startups operating as EMIs, this could also be incredibly valuable as they would be able to access this network under proposed amendments to the settlement finality directive (SFD).
The US Consumer Financial Protection Bureau (CFPB) has proposed regulations to oversee the digital payments and smartphone wallet services of tech giants like Alphabet, Apple, PayPal, and Block's CashApp. The proposal would subject these companies to bank-like supervision, with the CFPB examining their privacy protections, executive conduct, and compliance with laws against unfair practices.
The proposal would cover around 17 companies that collectively process over 13 billion payments yearly. The CFPB aims to ensure appropriate oversight and crack down on regulatory arbitrage by tech firms in the financial services sector. The proposal is open for public comment until early 2024.
🥡 Takeaway: Tech companies have been on a good wicket for a while when offering financial services, but it seems like the global tide is changing.
What many regulators are seeing is companies which are intermediaries moving billions of dollars annually with little to no regulatory oversight. Most tech companies (like many fintechs) would retort that they work with partner banks or other regulated entities to provide their services — and, thus, already meet many of the regulatory requirements imposed on them by their partners.
However, as we saw recently in Australia, governments are quickly realising that payment options like Apple Pay are significant in the national payments ecosystem. Despite tech companies possibly shrugging this off due to their smaller market share, it's hard to ignore the strides being made, particularly by giants like Apple, in the financial services sector. Their growing influence is undeniable, signalling that the era of lenient oversight might be drawing to a close.
Notable Funding Announcements
Last week was a big one for fintech financing, with 44 funding rounds completed and companies collectively securing $728m in investment.
Last week, Black Ore, an AI fintech start-up for financial services, launched out of stealth with $60m in funding led by a16z and Oak HC/FT. The start-up is based in Austin, Texas, and offers an AI automation platform for financial services businesses to help streamline workflows and increase productivity, revenue, and profitability.
Black Ore's flagship product is Tax Autopilot, which uses AI to simplify federal and state tax compliance processes for CPAs and accounting firms. With the funding, the company plans to expand its team and develop new products for wealth management, financial advisory and planning, insurance services, and more.
🥡 Takeaway: In the world of fintech, we’re just now starting to see an influx of AI-branded startups. “We do X, but with AI” has taken its time to get to fintech, but it’s really picking up steam now.
I like what Black Ore is promising. Having had to review tax returns in a former career as a tax lawyer, I can attest to there being a host of opportunities to improve the tax compliance process, and it feels very natural to apply AI to this problem. The broader trend of AI being applied to compliance work is one I’m sure we’ll continue to see gather momentum as AI Summer continues to heat up.
AI-powered PFM app ERA, last week announced they’d closed a $3.1m seed round. The company is founded by Stripe alumni Alex Norcliffe and Lindsay Brady. Various investors supported the funding round, including Protagonist, Designer Fund, and angel investors from Stripe, Plaid, Google, Netflix, and Pipe.
The startup aims to make finance "simple and accessible for all" by personalising wealth management advice and automating financial tasks using artificial intelligence. Norcliffe and Brady want to level the playing field in financial advisory services and empower anyone to manage their money like experts. Era combines AI technology with human expertise to provide personalised responses to user inquiries about budgeting and investment portfolios.
🥡 Takeaway: In what is a nice bit of timing for the launch of ERA (or maybe an opportunity too good to pass up), we have a new player entering the PFM arena just as one is shutting up shop (RIP Mint).
I don’t think this will be the last PFM app we see launch this year with AI under the hood. I have to admit I'm interested to see what AI brings to the table when it comes to PFM apps. My feeling has always been the challenges are less about the insights or advice and more about finding the resolve to follow through with those intelligent financial moves that everyone knows they should make.
Maybe this new wave of AI-powered PFM apps (plus open banking and faster payments in full swing) might be the thing that finally allows 'self-driving money' to go mainstream.
🎧 Resources & Recommendations
KPMG released their 2023 survey of the Australian fintech landscape, and as usual, it provides some interesting insights into the state of the Aussie fintech ecosystem. The survey captures a mood of guarded optimism within the sector as fintechs steer through turbulent capital markets, tackle customer retention challenges, and scout for the best talent. It's a treasure trove of data and analysis worth delving into for anyone keen on getting the lowdown on the state of fintech Down Under.
Tune in to the latest episode of Contrary Radio for a fascinating conversation with Rick Song, co-founder of Persona. In this episode, Rick delves into digital and physical identities, explaining how our online avatars differ vastly from our real-world selves and why that matters in sectors like banking.
He also discusses the challenges of selling KYC platforms to investors and why commoditised segments aren’t always what they seem on the surface. It's definitely worth adding to your playlist!
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