Issue #97: PayPal Fails To Excite The Market With Its New Features, TikTok Wants Every Post To Be Shoppable, And Klarna Drops A Subscription Product
👋 Hi all, I hope you’ve had a great 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
⤷ PayPal to launch AI-based products as new CEO aims to revive share price
PayPal has announced the launch of new artificial intelligence-driven products and a one-click checkout feature. The company plans to roll out a platform that uses AI to enable merchants to reach new customers based on their prior shopping history and introduce a separate AI-based tool called "smart receipts" to recommend personalised items to shoppers.
PayPal is also introducing a "one-click" checkout feature called Fastlane. The move into AI-based products is seen as an attempt to revive PayPal's stock, which has underwhelmed investors in recent years.
🥡 Takeaway: PayPal’s new CEO hyped up the feature release (see above), and the event ended up being… well, underwhelming. Despite an initial surge in PayPal's stock, the market's enthusiasm quickly waned following the launch, which revealed nothing more than a Paypal iteration of Shopify Pay, a rewards platform, smart receipts, and a few minor enhancements such as upgraded business profiles in Venmo.
Don’t get it twisted; PayPal is still a payments juggernaut. Having said this, there comes a point when even once innovative companies hit a wall and a Shopify Pay clone seems revolutionary to them.
It’s disappointing to see PayPal try to hype the launch of these features, given that they are actually doing some interesting stuff in the crypto space. For example, their stablecoin offering has hit a market cap of around ~$300m, which isn’t too shabby given that it only launched in August. Although most have forgotten about that launch last year, in my book, it’s way closer to revolutionary than smart receipts. Maybe for the next launch event, they’ll actually highlight some of the interesting work they’re doing.
⤷ Tink launches risk engine to unlock instant payments
Open banking platform Tink has launched a risk engine called Risk Signals to protect merchants from fraud on instant payment rails. This product feature allows transactions to be assessed in seconds while the payer progresses through the payment process. It uses account, balance, and transaction data to make more accurate risk decisions and minimise fraud.
Risk Signals consists of a suite of risk checks that Tink can customise per bank and market. The feature is launching across Europe, starting in Germany, where Adyen is already using it.
🥡 Takeaway: If you’re a reader of FR, you’ll know I’m bullish on the potential of A2A payments. Having said this, there is irony in the fact that one of the most significant advantages of A2A payments is the speed with which these irreversible money transfers can be made (via both PIS and faster payment rails). Given there isn’t an issuing bank to guarantee the payment, fraud is a significant concern for those offering it as a product offering.
My guess is that we will see many more startups offer similar products to Tink’s Risk Signals product, all geared towards the growing A2A. If I were a betting man, I’d put a few shekels on this being one of the fastest-growing segments in fraud analysis products over the coming years 😉.
⤷ TikTok tests feature to make every post shoppable as social media giant moves to create multibillion-dollar e-commerce business
TikTok is testing a new feature that could make every post shoppable, as the social media giant aims to create a multibillion-dollar e-commerce business. The feature uses technology to identify objects in videos automatically and encourages viewers to find similar items on TikTok Shop.
Previously, only approved influencers and brands could tag products in their posts. TikTok's e-commerce business launched last year aims to sell $17.5b worth of goods in the US this year. While the launch of TikTok Shop has received mixed reviews, the new feature being tested could provide users with a more seamless shopping experience.
🥡 Takeaway: Let’s face it, “embedded” has been the hottest word in fintech over the last two years. Yet the challenge for many has been trying to integrate an offering into their product in a way that makes sense from a customer and an economic front (below, we’ll see how even Amazon has got it wrong with an insurance offering).
In the case of embedded commerce, all the social networks have tried, and what should have been an easy sell has proven to be far from easy. For example, after much a hyped launch, Instagram scraped its commerce offering, and its attempt at live shopping was also quickly scuttled. As with all things, the devil is in the detail.
Embedded (or social) commerce is still a huge opportunity. But just as much as the race to get advertising right (which Facebook nailed and Twitter did not) defined which social networks thrived and which got bought by Elon Musk, commerce will likely be the battleground for the next generation of at-scale social networks.
⤷ Klarna introduces $7.99 ‘Klarna Plus’ subscription plan as it approaches an IPO
Swedish fintech company Klarna has introduced its first subscription plan, "Klarna Plus," priced at $7.99 per month. The plan offers benefits such as no added service fees when using Klarna's One Time Card, double rewards points, and exclusive discounts with popular brands.
Subscribers also receive a welcome offer that saves them $8 on their first Klarna Plus purchase. Klarna is entering the subscription market to increase recurring revenue ahead of its anticipated IPO.
🥡 Takeaway: There’s an interesting divide in fintech around BNPL. Strangely, or so I think, there is a dividing line between those who are BNPL detractors and those who are bullish about the segment’s future.
At one end, you have those who see it as a dressed-up payday loan. It’s another way for people to fall into a debt spiral and (que insidious music) pray on the financially valuable — which most of the data doesn’t support.
On the other end, you have those who see it for what it is, another way for those who traditionally couldn’t get a credit card (and thus had to get payday loans) to access small manageable chunks of credit.
As you can guess, I think most of the criticisms of BNPL are overblown. For a great rundown of both sides of the debate, see Simon Taylor’s breakdown in his excellent newsletter. Rant over.
As the article from Techcrunch notes, Klarna is likely looking to drive a more repeatable form of revenue via this subscription offer ahead of its much-rumoured IPO later this year. It’s also worth noting that others in the BNPL space have dipped their toe in the water on subscription services; Afterpay already offers a similar product called ‘Afterpay Plus’, and according to reports, Affirm is looking into a similar product offering.
It’ll be interesting to see just how willing Gen-Z (the primary consumer of BNPL) is to sign up for yet another subscription service.
⤷ Amazon to Close its UK Insurance Store After 15 Months of Operation
Amazon has announced the closure of its UK Insurance Store just 15 months after its launch, citing "prioritisation" as the main reason. The company plans to redirect its focus towards other core business areas and extract valuable "lessons" from its venture into the UK insurance market.
Despite being initially hailed as a significant development, the Amazon Insurance Store only added two more providers to its initial three partners and will now shut down.
🥡 Takeaway: If you speak to any senior person at an insurer, their biggest concern and simultaneously what they see as the biggest opportunity for their business is embedded insurance.
They see it as a vector for disintermediation and also, on the other hand, as an opportunity to build out distribution through new channels. As a result, most have done little as they try to work through this dilemma. The classic incumbent FI dilemma.
Luckily for the insurers, most of the big players (Amazon being another one) have also struggled to embed insurance offerings into their products in a meaningful way. In fact, outside of the often-used example of Apple, most have not moved the needle with an insurance offering.
As much as embedded finance, in all its guises, remains a hot topic in fintech, it’s still very much at a nascent phase, with even Amazon at a “f**k around and find out” stage.
💸 Notable Funding Announcements
Last week was the first big week for fintech financing in 2024, with 51 funding rounds completed and companies collectively securing $835m in investment.
⤷ Ozone API raises £8.5m to go global
London-based fintech Ozone API has raised £8.5m in a funding round led by Gresham House Ventures. Ozone API aims to enable banks to deliver open APIs that comply with regulations and generate new revenue streams.
The company plans to use the investment to expand globally and build its team to support emerging standards and help banks monetise open APIs. Ozone API anticipates significant growth in open banking implementation worldwide, including in the US.
🥡 Takeaway: I’m super bullish on this segment. I think companies servicing incumbents have some strong tailwinds on both the ‘comply’ and ‘compete’ sides of the ledger.
With more markets adopting a regulatory-driven approach to open banking, there is a growing need for banks to, at the very least, open up API access to meet their regulatory requirements. In other words, many are going to need to ‘comply’ and generally don’t have the resources or know-how to do so in a cost-effective way.
Although ‘comply’ is a strong tailwind for companies like Ozone API, the ‘compete’ opportunity for most is where I think things will get interesting.
Outside of BaaS, there have been a few other verticals where incumbent FIs have taken the opportunity to strategically use data or open up their products through API as a new channel to market.
In part, this has been driven by compliance challenges, but also, let’s be honest, few FIs are technically equipped to build clean, developer-friendly API products that fintechs can actually consume. My guess is some (to begin with) will see outsourcing as the only way to take on new ‘compete’ opportunities.
⤷ General Catalyst leads $200M investment into Bilt Rewards, doubling its valuation to $3.1B
Bilt Rewards has raised $200m in a recent financing round led by General Catalyst, which has doubled the company's valuation to $3.1b. With this funding, Bilt has raised $413m since its launch in June 2021.
The company's loyalty program and payment platform have been rolled out to nearly 4m apartment units, and its annualised member spend is almost $20 billion. Bilt plans to use the new capital to expand its Rewards Alliance, Neighborhood Rewards program, and mortgage payment rewards.
🥡 Takeaway: Interestingly, this round comes when consumer fintech is probably at the lowest points it’s been at for quite some time. In this regard, it’s interesting to see a company that seems to be generating a large chunk of its revenue through interchange raise such a monster round.
To be fair, everyone loves reward points. In markets where interchange is not capped (e.g. the US), the game of credit card points is played at a different level, and companies that allow you to earn precious points on your everyday spending are king. Think about the legendary status of the cards like the Chase Sapphire credit card.
It might well be the case that Bilt has figured out how to balance the rewards needed to acquire customers and generate revenue from their spending through the interchange fees. After all, the article does mention that Bilt “achieved EBITDA profitability in 2023”. Alternately, maybe neobanks should’ve been giving away reward points instead of dollars in the last consumer fintech run-up.
🎧 Resources & Recommendations
⤷ What if ACH had attachments?
The piece from Ayokunle Omojola explores the potential benefits of expanding the messaging layer in payments to include more metadata — and thus context — which is generally exchanged through other parallel systems. The article provides examples of how this could improve processes in healthcare claims and expense categorisation for tax deductions.
In many ways, what Omojola describes in this article is what is attempting to be rolled out globally via ISO20022 and which is finding its way into most modern faster payment rails (see, for example, the NPP in Australia) — even if it’s not as robust and at the same level of fidelity as what he describes in his examples in this article.
But more generally, this is why many (including me) think that the next significant disruption in payments will come through A2A payments via open banking, where the data layer is natively tied to the payment layer. As with all things Omojola writes, this is a must-read.
⤷ The State of Consumer Crypto
Recently, I’ve been digging into the state of consumer crypto, and I thought this was an interesting read on the topic. The article provides a detailed look at the current consumer cryptocurrency landscape, focusing on the roles NFTs and smart contracts will play going forward for the consumer segment.
The article delves into how these primitives will impact art, music, and gaming, particularly in reshaping content monetisation and elevating user experiences. It’s well worth a read for the crypto-curious.
❤️ 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