Fintech Update, 10/5 - 10/11
Hi! It’s Monday October 12, 2020.
Leading Off
Bloomberg reported on scammers’ use of fintech firms to receive fraudulent loans under the CARES Act’s PPP initiative. Bank of America unveiled two new products that put it into greater competition with wealth management and small-dollar lending fintechs. And Mastercard and Visa expanded partnerships with payments fintechs Marqeta and Stripe, respectively. // Meanwhile, Affirm filed paperwork for an IPO; Robinhood reported that its customers are being targeted by hackers; Square purchased $50M in bitcoin; and Venmo launched a new credit card. // All this + more below!
Heavy Hitters
PPP scammers exploited fintech lenders’ fraud checks. According to a new Bloomberg analysis, 75% of the fraudulent loans extended through the CARES Act’s Paycheck Protection Program (PPP) were made by fintech firms, despite those firms making only 15% of the total PPP loans. Although the PPP was originally administered by banks, the program was opened up to fintech lenders such as Kabbage and BlueVine in order to speed up the distribution of funds to vulnerable businesses. However, while having additional lenders achieved the goal of faster distributions, it also increased borrower fraud. Importantly, the uptick in fraud “doesn’t mean lenders broke the rules of the program, and they haven’t been accused of wrongdoing”: the government permitted firms to rely on applicant self-certifications in order to make loans as fast as possible. Nevertheless, as Bloomberg reports, “more than 75% of applications that flowed through Kabbage were approved ‘without human intervention or manual review,’” despite many cases in which “a simple Google or state records search would have suggested an applicant’s business didn’t exist or was dormant.”
BoA moves in on fintechs’ turf. Bank of America (BoA) is launching a mobile-based, digital financial planning tool known as “Life Plan.” The digital tool will allow clients to “select and prioritize their most important goals within areas like finance, family, health, home, work and leisure” and deliver “personalized guidance and recommendations on incremental steps toward achieving the goals.” The product places BoA firmly in competition with well-known fintech advisory and wealth management platforms like Betterment, Wealthfront, and Acorns, suggesting the bank hopes to keep its clients within its ecosystem rather than linking their accounts to one of those third-party options. Meanwhile, the bank also launched Balance Assist, a new, low-cost, small-dollar lending product for its checking customers. The service, which allows clients to borrow up to $500 for a flat $5 fee, addresses the small personal loan market served by fintechs like LendUp and Aura and may signal a growing willingness to re-engage in a practice that banks “largely abandoned . . . in recent years amid regulatory scrutiny.”
Card giants expand partnerships with fintech payments platforms. Mastercard is investing an undisclosed amount of additional funding in Marqeta, the fintech card issuing platform with which it is a longtime partner. Marqeta’s open API platform enables companies like Square to process payments and issue cards without needing to execute a full implementation with a card network. Meanwhile, Visa executed a new deal with payments firm Stripe to allow Stripe customers without a Visa card to access Visa’s Payables Automation services. In both cases, well established payments giants leveraged the customer bases of their fintech partners to expand their reach into new segments of the payments market: Mastercard through a greater financial stake and Visa through greater exposure to its services.
Quick Takes
Affirm files for IPO. The point-of-sale credit firm filed to go public, confirming reports made in July by the Wall Street Journal. The filing remains confidential, so no valuation target is known, but TechCrunch has placed at as much as $10 billion. The unicorn has over $1 billion in total funding since its founding.
Robinhood reports account hacks. The stock trading and wealth management platform reported that customers have been targeted by hackers through compromised personal emails, but that the firm’s systems were not breached. Some users have reported being left in limbo because the app does not have a customer service line to report such incidents.
Dozens of Coinbase employees quit amid corporate ban on activism. Following a blog post by CEO Brian Armstrong that the firm would offer exit packages to employees who are not comfortable with his vision of an “apolitical” future, over 60 employees, or about 5% of the firm, announced their departures.
Ant Group’s IPO shows how fintech is revolutionizing finance. The Economist explores Ant’s blockbuster listing and its place amid the broader rise of fintech, especially during the pandemic. Ant processed $16 trillion worth of payments last year while offering a bevy of ancillary services; and upon going public, it’s believed the company could achieve a valuation similar to that of JPMorgan.
Square buys $50M in bitcoin. The payments platform announced that it purchased $50 million in bitcoin as part of a larger investment in cryptocurrency. The 4,709 bitcoins now represent about 1% of the firm’s total assets. CEO Jack Dorsey “has long been a proponent of bitcoin, saying in 2018 that he believes it will eventually become the world’s single currency within the next decade.”
Venmo launches credit card. The PayPal-owned payments service launched its first credit card, issued by Synchrony Bank and processed by Visa, designed for Venmo users and offering cash-back rewards and in-app account management. Venmo also offers debit cards to customers.
Revolut adds features. The challenger bank announced a number of new services, including subscription payments tracking, savings bonuses for US customers based on their spending habits, and premium metal cards for business accounts. It also added a tool called ‘Goals’ to encourage kids using its Junior service to save money.
JPMorgan Chase to devote $30B to address inequality. The global investment bank committed to allocate $30 billion to “help address U.S. wealth inequality, especially in traditionally underserved Black and Latino communities.” The bank will use a “combination of loans, investments and philanthropy over five years” to “drive an inclusive economic recovery, support employees and break down barriers.”
Pop Flies
Bulgarian e-money firm Paynetics acquired Wirecard’s UK and Ireland corporate card portfolio.
Macy’s invested in Klarna, giving the Swedish fintech a big platform to expand in the US market.
Alchemy Pay and QFPay are partnering to offer hybrid fiat and cryptocurrency payment services for Shopify merchants.
Petal launched a new credit card, Petal 1, that is “optimized for responsible credit building.”
Fundings!
Nivelo raised $2.5M in seed funding to reduce risk in digital ACH payments.
Cloud accounting fintech Tipalti raised $150M at a $2B valuation after a COVID-related surge in use.
Indian credit card firm Uni raised $18.5M as it looks to crack the debit-card dominated Indian market.
Compliance fintech Strike Graph raised $3.9M as it looks to automate security audits.
Bloom Credit, which helps firms looking to provide credit products work with credit bureaus, raised $13M in Series A funding.
Embedded fintech Payrix has surpassed $50M in funding as it looks to expand.