Fintech Update, 11/2 - 11/8
Hi! It’s Monday November 9, 2020.
Leading Off
It was a bit of a light week in fintech this week – was something else going on? In the U.S., the DOJ officially challenged Visa’s acquisition of Plaid on antitrust grounds. Meanwhile, in China, Ant Group’s planned mega-IPO was suddenly scuttled by the Chinese government after Jack Ma publicly rebuked the country’s state-dominated banking sector. // In other news, the DOJ sued for more than a billion dollars in seized Bitcoin tied to the former Silk Road; WhatsApp launched its payments feature in India; and PayPal and Square announced big Q3 earnings. // All this + more below!
Heavy Hitters
DOJ officially challenges Visa’s purchase of Plaid. Updating on the story we shared last week about the Department of Justice (DOJ) investigating the card giant’s proposed $5.3 billion acquisition of Plaid, the DOJ has now filed a lawsuit officially challenging the deal on antitrust grounds. The DOJ’s complaint [full text] alleges that:
“Visa is a monopolist in online debit transactions, extracting billions of dollars in fees annually from merchants and consumers”;
Plaid threatens Visa’s monopoly with plans to “leverage [its] technology, combined with its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants”; and as a result,
“Both merchants and consumers would be deprived of competition that would drastically lower costs for online debit transactions” in violation of Section 2 of the Sherman Antitrust Act.
As we wrote last week, the case may be the most significant example yet of the DOJ’s increasing scrutiny of the fintech space, particularly with regard to the acquisition of data-rich tech firms by powerful financial services incumbents (see, e.g., Mastercard’s $1 billion bid for financial data aggregator Finicity and Intuit’s $7 billion acquisition of Credit Karma). While Visa argues that the “action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape,” the DOJ’s complaint makes it clear that Visa knew of “Plaid’s potential to disrupt its business,” and saw the firm as an “existential risk” capable of costing its debit business $300-$500 million by 2024. It will be fascinating to watch this suit unfold, and the outcome likely will serve as a bellwether for future fintech tie-ups.
Ant makes history with massive IP...Uh Oh. So, here’s what we had started writing about this story last week: “With a simultaneous IPO in Shanghai and Hong Kong, the Chinese fintech giant raised $34 billion, eclipsing Saudi Aramco’s 2019 $29 billion IPO as the largest IPO in history and valuing Ant at $313 billion.” How quickly things change. Only days before Ant’s stock was set to debut, Chinese regulators slammed the brakes on its offering, issuing a regulatory notice claiming that the flotation did not meet listing requirements, The filing, issued after a late interview with founder Jack Ma, also mentions “recent changes in the fintech regulatory environment” suggesting newly published rules may have thwarted the IPO. The late suspension is seen by some as a personally-motivated rebuke of Ma, who recently chided regulators for focusing too heavily on preventing risk at the cost of innovation. The decision reflects poorly on Chinese regulators and the country’s capital markets: few IPOs are stopped so late in the game, and Ant’s offering was 800 times oversubscribed. Ant now holds the dubious honor of having the world’s largest suspended IPO.
Quick Takes
DOJ sues for billions in Silk Road-related Bitcoin. The U.S. government is “suing for the forfeiture of more than $1 billion in Bitcoins” allegedly linked to transactions on the Silk Road, the dark web marketplace shut down by federal agents in 2013. [Relatedly, if you’ve never read that story, it is bananas and absolutely worth your time.] The thousands of Bitcoin represent “the largest cryptocurrency bust the government has ever made,” according to a DOJ statement.
WhatsApp launches payments in India. Within hours of receiving approval from the National Payments Corporation of India, WhatsApp announced the launch of its payments service to Indian users, with support for ten regional languages. WhatsApp initially wanted to launch in India in 2018, but “quickly ran into a . . . regulatory maze . . . [and] concerns over users’ payments data.”
Starling nears profitability, targets new funding. The British challenger bank’s founder and CEO Anne Boden said Starling is “on track to be profitable by Christmas,” while the firm reportedly is simultaneously seeking £200 million in new funding. Starling counts 1.9 million customers in the U.K.
PayPal beats Q3 expectations and lays out plans for digital wallet. The payments giant announced another historic quarter, taking in $5.46 billion in revenue and further demonstrating consumers’ increasing use of fintech services to make payments and purchases online. Additionally, during the earnings call, PayPal laid out its plans for its digital wallet in 2021, which will include substantial changes to integrate a range of new features, “including enhanced direct deposit, check cashing, budgeting tools, bill pay, crypto support, subscription management, buy now/pay later functionality and all of Honey’s shopping tools.”
Square beats earnings estimates...again. The payments firm announced strong Q3 earnings, including massive traction in its bitcoin business: “Cash App generated $1.63 billion of bitcoin revenue and $32 million of bitcoin gross profit during the third quarter of 2020, up approximately 11x and 15x year over year, respectively.”
HSBC launches cross-border payments product. The global bank has launched a free, mobile-based service that allows the bank’s customers to send funds in various currencies to the over 20 markets HSBC operates in globally. The Global Money Account is seen as a competitor to Transferwise and is first launching in the US before being rolled out to other markets in 2021.
Pop Flies
Peer-to-peer payment network Zelle processed significantly more transactions in Q3 than previous quarters, largely due to COVID-19.
Crypto wallet ZenGo launched a Visa crypto-powered debit card in the U.S., a week after Coinbase announced the expansion of its debit card.
Corporate credit card provider Ramp launched a vendor management feature to track and manage payments to all vendors across a company.
Consumer loan startup Upstart, which uses non-traditional data to evaluate borrowers, filed for a $100M IPO and released its financials for the first time.
Fundings!
Brazilian card issuer and BaaS platform Conductor raised $150 million in new funding.
German challenger bank Vivid raised $17.6 million in Series A funding led by Ribbit Capital.