Issue #99: Entrust Wants To Buy Onfido, MEPs Move To Make Euro Transactions Arrive In 10 Seconds, And JPMorgan Plans To Open 500 Branches
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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
⤷ Entrust confirms plans to acquire Onfido
Entrust, a payments, identities, and data security company, has announced that it is in exclusive discussions to acquire Onfido, an identity verification technology company. The acquisition will add AI/ML-based biometric and document IDV technology to Entrust's identity solutions portfolio. The agreement remains subject to the relevant regulatory approval.
🥡 Takeaway: The KYC segment has evolved dramatically since the founding of Onfido back in 2012. At that time, the segment was still hyper-focused on financial services and most offered nothing more than IDV (and yes, it is still the dominant use case); after all, it’s still one of the few segments where getting it wrong can lead to financial ruin and time in the big house with Bubba.
Since then, the use cases have ballooned. Whether it’s your Uber Eats driver needing to check you’re able to purchase that six-pack of beer or the games company checking to make sure you’re not a minor so you can play their latest gruesome game. In 2024, the segment is much more than just financial services.
As the opportunity has grown, so too have the competitors. In each market, you’ll see a slew of localised KYC providers battling it out in what has become, for the bare-bone basics, a race to the bottom market. This is why we’ve seen players not only fan out into other segments but also venture deeper into the identity stack.
My guess is that Onfido has seen its margins compress as competition continues to heat up. Observing the queue of fintech companies looking to list, they likely decided that this was their best exit strategy.
Also worth noting is that, according to reports, Entrust’s acquisition “could be valued around $650 million” (which, I think, is a great price). If the deal closes around this mark, it’ll set a bar for the hoards of other players in the space and might even incentivise those looking to make some shrewd acquisitions in the segment. Watch this space in 2024 for more M&A activity.
⤷ JPMorgan Chase to open 500 new branches
JPMorgan Chase plans to open 500 new branches over the next three years as part of a significant investment in its network. The expansion will include entering new markets, particularly low-to-moderate income and rural communities, and expanding in existing locations such as Boston, Charlotte, the Greater Washington region, Minneapolis, and Philadelphia.
In addition to the new branches, the bank will renovate around 1,700 of its existing branches and hire 3,500 employees by 2027. This expansion comes as many banks are cutting back on physical branches, but Chase has continued to grow its network, adding 650 branches over the past five years.
The bank also plans to focus on community centre branches and hiring community managers to help residents improve their financial health, particularly in historically underserved areas.
🥡 Takeaway: Well, this is an curious approach to customer acquisition from JPMorgan. In a market where CACs continue to rise and margins keep getting compressed, why not drop more money into branches?
One view here might be that as others continue to close up branches (especially in low-income areas), there is an opportunity for a bank to zig where others are zagging and to invest in building branches. On the other hand, it’s hard to imagine a world where banking doesn’t continue to be more digital — especially as Gen AI continues to get better — and demand for in-person banking continues its precipitous decline. I suppose at least they’re not trying to rebrand ATMs as “cash pods” like HSBC is trying to.
⤷ ASIC gets its first win against the crypto industry
ASIC, the Australian Securities and Investments Commission, has won its first case against the crypto industry. The court agreed with ASIC's allegations that Block Earner, a start-up, should have been licensed for its fixed-rate products, which were considered financial products.
However, ASIC lost the second part of the case regarding Block Earner's "DeFi Access" product, which connects customers directly with protocols that offer variable yields. According to the article, Block Earner welcomed this decision as the DeFi Access product is still operating. ASIC has pursued other crypto companies and brought actions against BPS Financial and Finder.com.
🥡 Takeaway: The Aussie financial services regulator ASIC has been on one recently when it comes to crypto offerings. Last year, they initiated actions in a trio of cases against Block Earner, BPS Financial (on a different issue), and Finder.com.
In many ways, these cases feel like their ASIC’s attempt to test the waters on products offering yield on deposited funds to customers. It’ll be interesting to see how this decision impacts the local market. Specifically, whether crypto companies will look to stay clear of yield-generating offerings or whether they lean into a less active style product that connects customers with protocols through their platform.
For those interested, here is a more detailed breakdown of what the court held in the Block Earner case.
⤷ MEPs adopt new rules to ensure Euro money transfers arrive within ten seconds
MEPs have adopted new rules to ensure Euro money transfers arrive within ten seconds. The new regulation aims to eliminate waiting times for retail customers and businesses across the EU. Banks and other payment service providers will be required to process credit transfers immediately and at an affordable cost.
To enhance safety, PSPs must have robust fraud detection and prevention measures in place, as well as strong identification verification services. Charges for instant credit transfers cannot exceed those for non-instant transfers. The regulation will enter into force 20 days after publication in the EU Official Journal, and member states will have 12 months to implement it.
🥡 Takeaway: I’m sure this will result in a flurry of activity in the EU as many rush to uplift their offering to meet the 10-second requirement — especially given the risk associated with instant transfers being the responsibility of banks and PSPs.
Another angle to these new rules is the associated cost cap introduced along with the timing requirement. Specifically, a PSP can’t apply a higher rate for instant transactions vs ‘non-instant’ credit transfer transactions in euros. It’ll be worth watching to see how this impacts remittance providers who operate in the EU, as it’s not uncommon for players in the segment to price discriminate based on the transaction speed.
⤷ Introducing Carta Conclusions
Last week, cap table management startup Carta announced a new product called Carta Conclusions. The newly launched service is designed to assist founders who have decided to dissolve their companies.
As Carta’s CEO notes in the announcement, shutting down a company is a challenging and unpleasant process involving various tasks such as severance packages, cancelling agreements, filing tax returns, and more, which can take time and effort.
Carta Conclusions aims to take the operational busywork off the founder's hands and guide them through the dissolution process. The service also ensures that investors on Carta receive their proper tax paperwork. The goal is to support founders during this challenging time and make the process a little bit easier, allowing them to move on to the next chapter in their lives.
🥡 Takeaway: There are two ways to think about innovating when it comes to the financial back office space. You can go after the papercuts that companies endure daily, those painful manual processes that someone has to do regularly (which is, rightly, where most startups focus), or you can go after the ‘gushing wounds’; those big gnarly processes that are irregularly handled but are a major pain in the a**. Closing a company down definitely falls into the latter category.
It’ll be intriguing to see if Carta can turn this into a viable standalone offering or (which is more likely) it’s another reason for a startup to be a Carta customer.
💸 Notable Funding Announcements
Last week was another slow week for fintech financing, with 48 funding rounds completed and companies collectively securing $418m in investment.
⤷ Accounting software startup Pennylane becomes France’s latest unicorn
French accounting software startup Pennylane has raised €40m ($43m) in its latest funding round, bringing its total funding to €104m. The company, which provides accounting software for small and medium-sized businesses, has seen rapid growth, with over 2,000 accounting firms and 120,000 SMEs in France using its software.
Pennylane aims to be an alternative to more prominent ERP software like SAP, offering accounting and finance tools specifically designed for SMEs. The company also provides features such as integration with third-party services, in-house OCR technology, banking and payment services. According to the article, Pennylane plans to become profitable within 12 to 18 months.
🥡 Takeaway: It’s not only the challenger banks who are coming for the job of financial control centre for SMEs. As much as the likes of Qonto in France, Tide in the UK, Ramp in the US, and Airwallex in Australia — along with the plethora of other players out there — look to expand their offering closer to the finance function, the accounting platforms are also looking to gobble up more of the financial stack.
It’s an intriguing battle that I think is under-discussed. In many ways, it seems the likes of Pennylane are well positioned to work their way from the ledge down into banking. Still, it feels like the challenger banks focused on SMEs have been winning as they go up towards the ERP from the banking relationship. This might be the year where we see this growing battle start to take shape, and the ERP platforms begin to invest in trying to win the fight.
In many ways, now is the golden time for this new breed of ERP systems to pushing displace the incumbents. In much the same way that over a decade ago was the right time for a cloud-native accounting platform to be born (e.g. Xero), now might be the time for the next wave of platforms to capture the SME dollar. This might especially be the case as Gen AI proves to be a new platform for them to develop on.
⤷ Charitable giving fintech Overflow raises $20m
Charitable giving fintech startup Overflow has raised $20 million in a Series B round led by Wesleyan Investment Foundation. Founded in 2020, Overflow initially focused on enabling stock donations to churches and non-profits. However, it has since expanded its offerings to include various donation methods like ACH, card, crypto, and more.
With nearly a quarter of a million users and 450 organisations on its platform, Overflow plans to use the funding to move beyond giving and provide a suite of financial products tailored to churches and non-profits, including spend management. The company aims to establish a full financial suite of solutions to save time and money for finance teams in these organisations.
🥡 Takeaway: I love reading about vertical fintech plays that take on massive segments in plain sight. In the case of religious giving, it’s a monster of a segment that only continues to grow.
I’ve looked at this market previously and was shocked at the size of it. In 2021, people gave $135.78b to religious causes, and that’s just in the US! In a trend that I was surprised by, there’s been an uptick post-pandemic in church attendance (especially by millennials), and along with this, digital giving has been on the rise.
There are numerous players introducing a plethora of digital solutions to churches, ranging from specialised CRMs to tap-to-pay collection plates (yes, seriously). This shift underscores the significant potential for digitisation as churches transition from cash to digital payments
Similar to other SME segments, there's a keen rush to dominate the entire customer relationship. As noted by the Overflow CEO in the article, 'With this latest round of funding, we are now positioned to expand beyond our core giving solution to new product areas such as spend management - effectively becoming a ‘Brex for Churches’.' This segment is truly a fascinating case study for vertical fintech.
🎧 Resources & Recommendations
⤷ Frank Rotman of QED on Navigating FinTech and Crypto Investment
On this episode of Turpentine VC, Eric Torenberg chats with Frank Rotman, founding partner of QED Investors. They discuss investing in fintech and neo-banks, the macro environment, discipline in business, and the potential of crypto.
Rotman talks about where he thinks we are with neo-banks and digital disruption in the banking industry and provides his take on crypto. Any podcast with Rotman is worth listening to when it comes to all things fintech. This is a must listen.
⤷ Business Breakdowns — Arthur J. Gallagher: Insurance Broking
This is a highly insightful breakdown of insurance broking and reinsurer behemoth, Gallagher. The company has built a huge global insurance brokerage business, and this is a fantastic look into how the company has remained relevant and (arguably) thrived in a world where many predicted the disintermediation of the broker channel. This is a must-listen for all you insurtech nerds.
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