Issue #90: The ASX Turns To Tata For Help With CHESS Replacement, The FCA Gives Go Head To Klarna For Payment And Credit Services, And The Definitive Podcast On Visa
👋 Hi all, I hope you’ve had a great start to the week.
A big shout-out to our loyal subscribers and a hearty welcome to the new faces — we're ecstatic to have you here!
If you’re new to Fintech Radar, this is what you can expect from each issue:
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.
Also, if you enjoy this issue, please share it with a friend. I’m sure they'll appreciate it!
As always, it’s been a busy week for fintech, so without further ado, let's delve into the major happenings from last week.
📣 The News Grab Bag
⤷ FCA greenlights Klarna for payment and credit services in the UK
The Financial Conduct Authority has authorised Klarna to provide regulated payment and credit services in the UK. The authorisation extends to the firm's credit products, as well as its payment services.
Klarna has paired its renewed regulatory approval with a newly formed entity, Klarna Financial Services UK, which it will now leverage to provide all consumer-facing services in the UK. The approval puts Klarna's UK business on a more secure regulatory footing ahead of the regulator's plans to bring BNPL products under its remit.
🥡 Takeaway: Governments worldwide are looking to tighten the leash on BNPL. For example, earlier this year, the UK and Australia both looked to extend their consumer credit/lending regimes to include BNPLs. In an ironic twist, my guess is that many of the BNPL incumbents can’t wait for the regulation to come.
Many predicted increasing regulatory scrutiny (and ultimately government regulation) would be the handbrake the industry desperately wants to avoid. Yet here we are with the big players all surviving and, in some instances, thriving. In the case of Klarna, they’ve been able to edge their way towards profitability and are now looking to further button up operations in one of their major markets.
Much like ridesharing before it, BNPL has hit escape velocity, and regulation will only cement the place of those who moved early and gobbled up market share. Viva la regulation!
⤷ Credit fintech Petal seeks buyer
According to Fortune, Petal is reportedly seeking a buyer due to doubts about its viability. The company, which provides cards for consumers new to credit, is exploring options following months of struggle.
The article notes that Petal has received multiple acquisition offers and is looking for a buyer to ensure its future. Even if no buyer emerges, Petal still has options with leftover funding and the ability to draw liquidity from loan agreements. The company has already cut around 20% of its workforce in June and secured a $200m debt facility in July.
🥡 Takeaway: It’s a tough market for consumer-facing fintech startups, especially if you’re in the crowded neobank market. More challenging economic conditions, growing reticence amongst partner banks to work with fintech startups, rising CACs, and dwindling interest from investors make this the most difficult time to build a consumer proposition in the space.
Much like we saw HMBradley do a few weeks back, I think a few consumer propositions will look to pivot and leverage the tech they’ve built in-house. In fact, you might recall that back in May, Petal spun out an open banking platform (Prism) they’d built. As part of that spin-out, they raised $35m for the new company.
Don’t get me wrong, I think the overall message is that it’s hard out there for consumer fintech propositions, and we’ll see some shutdowns. But I also think we might see a few interesting B2B companies (à la Plaid’s pivot from consumer to B2B) emerge from the ashes of this downturn.
⤷ Nubank launches limit transfer between personal and business cards
Nubank, the Brazilian fintech company with over 3m SME account holders, has launched a tool allowing customers to transfer the limit of their personal credit card to their business card, up to 99% of the available limit.
The feature aims to improve financial organisation for entrepreneurs who often rely on personal resources to meet business needs. Nubank also announced the launch of free additional cards for business credit card customers, allowing owners to request extra cards for their partners and employees with defined spending limits on a single invoice.
🥡 Takeaway: This is a fascinating product from the team out at Nubank. Classically, co-mingling consumer and business credit lines is a no-no for a bank. Outside of the challenge of actually structuring this product from a compliance perspective, many banks would struggle to pass consumer data over the fence to a business banking team (and vice versa).
I can also see the logic here around the underwriting — if the consumer is good for the credit line, what difference does it make if they spend it on their business? I mean, who hasn't whipped out their personal credit card for a business expense at some point?
In many ways, this is an innovative offering, and it shows some of the underlying opportunities modern banks have when they’ve got a handle on their data. Now, let’s see how this fairs in the market.
⤷ Binance CEO exits after pleading guilty to money laundering charges
Binance Holdings, the entity behind Binance.com, has pleaded guilty to charges related to anti-money laundering, unlicensed money transmitting, and sanctions violations.
As part of the resolution with the US Department of Justice, Binance has agreed to pay $4.3b in fines and forfeitures and retain an independent compliance monitor for three years. Founder and CEO Changpeng Zhao (more commonly known as CZ) has resigned. Richard Teng, former CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market, has been named Binance's new CEO.
🥡 Takeaway: ☝️Another one (insert DJ Khalid gif). First, we saw SBF bite the dust, and now CZ is gone. It’s interesting to note that outside of the fine, installation of an independent compliance monitor for three years and upgrades to their compliance programs, Binance will continue on — and with CZ as a shareholder. Wild.
⤷ASX turns to Tata, passing over Nasdaq, to rescue CHESS
The Australian Securities Exchange (ASX) has appointed India's Tata to revamp its 30-year-old clearing and settlement system, superseding the anticipated selection of Nasdaq. This move follows the ASX's decision to discard their multi-year blockchain-based system upgrade. The project is set to cost up to $125m for the initial stage and is expected to be a lengthy, multi-stage process, with the first phase launching in 2026.
The second phase, aiming for a 2028 or 2029 rollout, will update settlement and sub-register services. ASX has opted for a traditional database system, diverging from its previous blockchain plan, with the potential for future blockchain integration.
This development has garnered attention from industry observers and regulators, including ASIC and the RBA, who stress the importance of comprehensive market consultation for the success of this critical infrastructure upgrade.
🥡 Takeaway: The ASX’s attempt (and that’s really all it’s been to date) to upgrade CHESS — the system used to record shareholdings and manage the settlement of share transactions in Australia — has been a circus. The now-defunct blockchain-based replacement has given way to a consultant project that might be completed almost a decade after the ASX announced they were replacing the current system.
Although it’s not uncommon for core infrastructure changes at an incumbent FI to take a decade and hundreds of millions of dollars, this one stands as an epic example of how an in-house build can go woefully wrong.
💸 Notable Funding Announcements
Last week was a quiet one for fintech financing, with 27 funding rounds completed and companies collectively securing $558m in investment.
⤷ Singapore's Climate Alpha raises $5M in seed round led by Jungle Ventures
Climate Alpha, a Singapore-based startup that uses an AI-based platform to help real estate owners and investors analyse the impact of climate change on their portfolios, announced last week they’d raised $5m in seed funding. Jungle Ventures led the round with participation from seed investor Cocoon Capital, as well as Phillip Private Equity and Genting Ventures.
Climate Alpha, founded in 2022, aims to promote sustainable investment by fusing data science, climate modelling and finance to guide clients in allocating capital to climate-resilient assets.
The platform uses GIS data and economic modelling to help real estate owners understand the impact climate change will have on their property. It also uses public and private data streams and proprietary machine learning algorithms to generate forecasts of climate change’s financial impact.
🥡 Takeaway: I haven’t covered much about the growing fintech x climate tech space in previous issues of FR, but it’s a segment that has lowkey been gaining momentum over the last 12 months.
According to a report published earlier this year from Commerz Ventures, the climate fintech segment raised $1.8bn globally in 2022 — up 1.5x from 2021. As you'd expect, it's still in its nascent stages, with over half of the funding rounds being at the pre-seed or seed level. Additionally, most of this investment has been channelled into sub-sectors primarily focused on understanding climate impact. For instance, carbon accounting alone has attracted most of the funding, raking in $970m in 2022.
Climate Alpha is a neat example of how climate data can be used for more than just accounting for an organisation's footprint. As this sector continues to evolve, I'm betting we'll witness even more creative and innovative uses for the data being gathered on climate impact. Watch this space.
⤷FrontEdge raises $10M in debt, equity from TLG, Flexport to facilitate trade for African exporters
Lagos-based fintech FrontEdge has raised $10m in debt and equity seed funding to help SME exporters and importers facilitate cross-border and international transactions. FrontEdge provides upfront capital to these exporters based on transaction-based underwriting without a request for collateral.
The startup also provides software tools to exporters, including logistics management, cargo insurance, and document management, to complement its financial offerings. The company plans to use its capital to hire more talent, scale its financing product across Nigeria, Ghana, Ivory Coast and Kenya, and launch additional products.
🥡 Takeaway: Fintech pundits love talking about embedded fintech. For the most part, the examples revolve around a SaaS product adding cards to the mix or taking a larger slice of the payments value chain. However, rarely do they (me included) discuss how deep into the workflow you need to reach to find an embedded opportunity. It was telling in the article that they noted:
“While FrontEdge initially developed a lending-first platform, it has evolved to become more robust. [FrontEdge] provides software tools, including logistics management, cargo insurance and document management, to exporters to complement its financial offerings.”
FrontEdge is a reminder that embedded fintech isn't just about slapping on a card feature or tossing in some lending or payment options. It's about weaving a significant portion of the value chain into your offering and then including a financial element.
🎧 Resources & Recommendations
⤷A timeline of the last 100+ years in Insurance in the U.S. (Part I) and The next wave of Insurtech’s (Part II0 [Industry Deep Dive]
This is a great two-part series from Amir Kabir, GP at AV8 Ventures, on the history of the US insurance sector and where to next for insurtech. More specifically, it covers the sector's long history and highlights how profound the moats are for the incumbents, places where we might see some innovation and potentially even a little disruption. It is well worth a read for the insurtech nerds and insurtech-curious readers.
⤷Acquired podcast deep dive into Visa [Podcast]
This episode of the Acquired podcast truly is the ultimate deep dive into Visa. Spanning over three hours, the team embarks on an exhaustive exploration of Visa's rich history and its significance in the modern financial world. They meticulously dissect how Visa seamlessly links banks, merchants, and consumers, enabling smooth transactional processes.
Moreover, they delve into the company's immense value and impact on the financial industry. This podcast is an essential listen for anyone eager to delve into the backstory and the influential role of this payments titan!
❤️ Show Some Love For FR
📧 Feel free to reach out if you want to connect — I'm @alantsen on Twitter.
Ps. If you like what I'm doing with FR, please share it on your social disinformation network of choice. I'd also appreciate it if you forwarded this newsletter to a friend who might enjoy it.
🙏 What did you think of this week's issue of FR?
I love it! ◌ I Like It ◌ Not Bad ◌ I Don’t Like It ◌ It’s Awful