Issue #92: Amazon Drops Venmo, Block Is Releasing A Bitcoin Hardware Wallet And The Latest Fintech Funding News
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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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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
⤷ Digital payments: SBP launches ‘Raast P2M’ service
The State Bank of Pakistan (SBP) has launched the Raast Person to Merchant (P2M) service, which allows merchants and businesses to accept digital payments.
This service enables payment acceptance through QR codes, Raast Alias, IBAN, and Request to Pay (RTP). The SBP has shared technical specifications with regulated entities and has set a deadline of March 1, 2024, for REs to enable the required capabilities for P2M transactions.
To promote the adoption of digital payment services, REs are asked to design user-friendly interfaces and not charge fees for customer transactions. Raast Merchant Service Providers (MSPs) are also encouraged to waive off charges initially. The SBP has issued instructions for compliance, and non-compliance may result in punitive action.
🥡 Takeaway: I firmly believe that the biggest threat to the card schemes is A2A payments. Whether it’s in the configurations we’ve seen in Europe on open banking rails (PIS), faster payment rails like UPI in India (for example, see the following article on the drop in debit card payments in India) or PayID/ PayTo in Australia, the existential threat to the card schemes is already here; it’s just not widely distributed.
Emergent payments markets like Pakistan are a great example of how we might see this play out. As a cash-dominated market, the move to digital payments is still in its infancy. However, a piece of research from (of all companies) Mastercard found that most respondents in Pakistan were open to using Open Banking for payments and sharing of financial data. This, combined with the push by the local government to provide a cheap and accessible way to move money, could mean that the first interaction consumers new to digital payment have is through payment methods like P2M.
The days when card networks automatically saw growth in these emerging markets as customers moved into the digital world (which has fuelled their net new revenue for a long time now) could be gone as consumers in these countries embrace A2A payment methods.
Starting from January 10th, Venmo users will no longer be able to use the payment app for purchases on Amazon. PayPal, which owns Venmo, stated that Venmo can no longer be added as a payment method on Amazon. However, users who already have it enabled in their Amazon wallet will still be able to use it until January 10th, 2024.
PayPal did not provide a specific reason for this change but mentioned that customers can still add their Venmo debit or credit cards to their Amazon wallet for payments. Amazon's decision could be a setback for PayPal's growth strategy, as Venmo has been a promising avenue for growth, especially among young consumers.
🥡 Takeaway: According to the article, it’s not clear why Venmo was dropped as a payment method. However, you might recall it was only in October that they announced it as a new payment method — which makes it odd that they’d cancel the relationship so soon. What makes this even more strange is that this is an age where we continue to see many players offer more, not less, payment options.
Looking ahead, it will be fascinating to see if Amazon further 'streamlines' its checkout partners and whether this was the first in a shake-up of the checkout options they offer.
⤷ Credit scoring firms face curbs after landmark EU data protection ruling
Credit scoring firms operating in the European Union may face tighter regulations following a ruling by the Court of Justice (CJEU). The ruling relates to a complaint against a German credit scoring company, Schufa, but could have broader implications for regional credit information agencies.
The complaint in the Schufa matter centred on Schufa's extended retention of data, which the CJEU deemed contrary to the General Data Protection Regulation (GDPR). The court also ruled that credit scoring companies may need to obtain explicit consent from individuals before issuing credit scores, as automated decisions with legal or significant impacts on individuals are prohibited by the GDPR. Additionally, the CJEU ruled, in a different case, that national courts must be able to review decisions made by data protection authorities fully.
🥡 Takeaway: This is a fascinating ruling from the CJEU that feels like it could have a broader impact on credit scoring. As the article notes, “If this kind of credit scoring is the basis for a decision by a bank, for instance, to deny an individual credit, the practice risks ruling foul of EU data protection rules”.
Although this matter is being sent back to the Administrative Court of Wiesbaden to determine whether German Federal Law on data protection provides a carve-out to the prohibition in accordance with the GDPR if they find it doesn’t, this could impact how credit scores are derived in the EU. I have a feeling this might be a case worth keeping an eye on for those fintechs that serve the EU.
⤷ Adyen to act as global acquiring bank for Klarna
Klarna has chosen Adyen as its global acquiring partner, responsible for collecting card-based customer payments and delivering them to retailers and merchants. This partnership will allow Adyen to act as the acquiring bank for Klarna's various consumer offerings, starting in Europe, North America, and Asia in 2024.
The agreement aims to simplify card payments for Klarna's 150m consumers and 500,000 retail partners worldwide. The co-founder and co-CEO of Adyen believes that the combination of their financial technology platform with Klarna's consumer offerings will enhance payments and consumer experiences globally. Klarna recently launched its Visa credit card in the UK, which allows users to defer payment for up to 30 days.
🥡 Takeaway: This deal is pretty intriguing. Typically, consumer fintech startups partner up with different acquiring partners in each country they work in. This strategy lets them team up with the best-in-breed payment acquirers in each place. From experience, every market has its quirks, so if you're in multiple countries, you usually have to pick and choose different partners to get the best combination of price, availability and service. It's rare to find one equally strong across different regions. For example, few are equally competent across the vastly different Asian and EU regions.
Adyen must have thrown Klarna an offer they couldn't refuse. While we might not get all the juicy details of this deal, I bet that Adyen had to pull out all the stops to make this partnership work on a global basis.
⤷ Jack Dorsey's Block Releases Bitkey Bitcoin Self-Custody Wallet for Pre-Order
Block last week launched the pre-order for its new self-custody wallet, Bitkey. The wallet aims to redefine ownership and security for Bitcoin holders worldwide by offering a multi-faceted approach to self-custody without the complexities of traditional hardware wallets.
It includes a mobile app, hardware device, and comprehensive recovery tools. The key feature of Bitkey is its 2-of-3 multi-signature design, which eliminates the need for long passwords or seed phrases and requires any two keys to authorise transactions. Bitkey has also partnered with platforms like Coinbase and Cash App to facilitate easy Bitcoin transfers. Pre-orders are available now, with shipments starting in early 2024.
🥡 Takeaway: Jack Dorsey continues to push Block towards crypto — or, more specifically, bitcoin. Although this isn’t as tightly coupled to Block as other crypto feature rollouts, this hardware offering shows that Bitcoin remains top of mind for the company. As the crypto market seems to be riding a high, it’ll be interesting to see if the Block team have any other offerings on the horizon.
💸 Notable Funding Announcements
Last week was slower for fintech financing, with 43 funding rounds completed and companies collectively securing $460m in investment.
⤷ Spade Raises a $10M Flourish Ventures-led Series A
Spade, a provider of real-time merchant intelligence for the card ecosystem, has raised $10m in a Series A funding round led by Flourish Ventures. By providing comprehensive merchant information, Spade's technology allows card issuers to improve fraud models and make more accurate authorisation decisions.
The lack of real-time merchant intelligence has been a problem for card issuers, leading to false declines and lost revenue. Spade aims to solve this issue by offering a proprietary ground truth database and fast transaction enrichment capabilities.
🥡 Takeaway: Data enrichment for transactions has traditionally been a commodity business and, for the most part, one that has been lacking in innovation. This has partly been because those who have played in the space have focused on the ‘first mile’ of the problem. Specifically, taking raw strings of incomprehensible data like ‘WW6777’ and turning it into useful merchant information (e.g., Woolworth, East Melbourne).
What’s interesting about Spade is that they’ve taken this and focused on working with those solving the real problem that sits underneath this data — fraud. As they note in their funding announcement:
Spade’s real-time merchant intelligence unlocks a wealth of new possibilities for card issuers. Fraud detection is greatly advanced by the addition of a consistent merchant identifier and exact latitude and longitude points for each transaction, strengthening issuers' ability to flag suspicious activity. Real-time authorization is enhanced tremendously, allowing issuers to offer granular spending controls and optimize for a more customizable user experience. Visibility into customer spending becomes more granular, allowing issuers to strengthen their personalization efforts and offer a more tailored experience.
This is an excellent example of a company taking a commodity service and providing real value to a segment that highly values that information.
⤷ Pachama Brings Series B Funding Round To $64M With $9M In Fresh Capital
Last week, San Francisco-based carbon credit platform Pachama announced they’d raised an additional $9m in an extension of its Series B funding round, bringing the total to $64 million. The extension was led by T.Capital, the corporate venture capital arm of Deutsche Telekom, as a new investor.
This funding round brings Pachama's cumulative capital to $88m. According to the article, Pachama reported 57% year-over-year growth in credits retired during Q3 2023, which is attributed to increasing demand from corporations and project originators. The new capital injection will be used for further research and development in AI applications for geospatial data, as well as the creation of new products and services.
🥡 Takeaway: I know I’ve been on a bit of a fintech x climate kick over the last few weeks, but I thought I’d add another funding announcement in the segment to the mix.
Pachama is a fascinating company that is an excellent example of the unique challenges this sector faces. More specifically, they use satellite images, remote sensing, and intelligent machine learning to determine how much carbon our forests store and monitor how they grow. Instead of the old-school way of checking things out on the ground, Pachama does it from afar, which means they can get super accurate, up-to-the-minute info. This, in turn, makes forest carbon credits way more reliable. They combine this data platform with a way to find and support forest conservation projects that they’ve vetted — taking their data insights and using it to provide customers with high-quality projects.
Most of the time, when we think of the carbon credit market, we think of the mechanism to buy them (similar to what we saw last week with Stripe’s new offering). But there's another side – the monitoring part – and it's a big, complex world. With the growing demand for carbon credits, especially those that are verifiable and monitored, it's pretty clear why companies like Pachama are able to raise boatloads of capital.
🎧 Resources & Recommendations
⤷ Lithic: Making Cards Simpler
On this episode of Contrary’s Research Radio, Bo Jiang, Lithic co-founder and CEO, comes on to have a wide-ranging conversation about the payments landscape. More specifically, he unravels the complexities behind the scenes of being an issuer and talks about where he thinks the sector is headed. This is a great discussion and well worth a listen for those keen on better understanding the intricacies of being a card issuer.
⤷ Breaking Down the Open Banking Rules with Matt Janiga
In this episode of the Fintech Layer Cake podcast, Matt Janiga, delves into the proposed regulatory enhancements to open banking in the US. He discusses the potential impacts of proposed rules, focusing on competition, data access, consumer choice, and the influence of major banks and trade groups.
The discussion also covers the challenges traditional banks could face under the proposed rule changes, the implications of screen scraping, and the limitations and rationale behind open banking rules. This is one of the more in depth discussion on the proposed US open banking rules that I’ve heard and well worth listening to for those interested in where things are at for s1033.
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