Fintech Update, 2/22 - 2/28
Hi! It’s Monday, March 1, 2021.
Leading Off
The Federal Reserve’s payment system suffered a 3+ hour outage on Wednesday, the same day it issued a report outlining preconditions for a “digital dollar” that was supported by Treasury Secretary Janet Yellen. // “Buy now, pay later'' firms had a big week, with Klarna considering opting for new private funding rather than IPOing, Affirm launching the first BNPL card, Afterpay announcing a collaboration with Stripe, and Discover partnering with Sezzle. // In other news, the New York Attorney General’s office fined and banned Tether and Bitfinex from offering their services in the state; Walmart reportedly hired Omer Ismail, who helped create Goldman’s Marcus brand, to lead its recently-announced fintech startup; and an HM Treasury-commissioned independent report urged the U.K. government to take action to help the country’s fintech sector compete after Brexit. // All this + more below!
Heavy Hitters
‘Human error’ brings down the Fed’s payments system. The payments system that allows financial institutions, businesses, and government agencies to send money electronically went down for several hours on Wednesday. Multiple key services were affected by the outage, including the crucially important automated clearinghouse system which connects depository institutions and enables credit and debit transfers. The Fed clarified that the interruption resulted from a maintenance mistake and that it is taking steps to prevent a recurrence, but the incident calls into question the resilience of such critically important financial plumbing. Though individual systems have failed before, an outage affecting all of the Fed’s financial services at once appears to be unprecedented.
BNPL has another big week. In case it hasn’t been clear, “buy now, pay later” (BNPL) firms are having a moment. In addition to European BNPL giant Klarna’s $600 million fundraise in September, which valued the firm at $11 billion, American competitor Affirm IPO’d in January, closing its first day of trading at nearly 100% above listing and hitting a $24 billion valuation. Last week, the BNPL sector kept churning out news, including:
Klarna may be putting its rumored IPO plans on the back burner, and is reportedly in serious discussions to raise $1 billion in new funding that would place the firm’s value at $31 billion. (It’s nice when your funding options both come with 9 zeroes…)
Affirm announced that it will launch a new debit card later in the year, which will allow consumers to choose between paying up-front or splitting the cost of an in-store purchase over time. The debit card will offer “interest-free and simple interest-bearing loans.”
Australia’s AfterPay signed a partnership with Stripe that will give consumers paying via Stripe the option to select four-month installment payments, rolling out the integration to users in Australia, New Zealand, and the U.S.
Credit card brand Discover established a partnership with Minneapolis-based fintech Sezzle that will allow Sezzle to work with merchants on the Discover Global Network to offer installment payment options to consumers.
Characterized by big investments, heady valuations, IPO rumors, and cross-platform partnerships, BNPL may be the single largest driver of buzz right now in the fintech ecosystem (a sector with no shortage of competitors). And, as the pandemic-induced surge in e-commerce continues and consumers get more familiar with alternatives to traditional credit and debit payments, the prospects for new entrants and the expansion of existing players into new geographies and areas of financial services seem like the next wave of stories to watch for – and, of course, greater regulatory scrutiny. Keep an eye out!
Quick Takes
Fed sends strongest signal yet that a “digital dollar” may be coming. The Federal Reserve issued a report setting out “preconditions for a general-purpose central bank digital currency” (CBDC) [full text], signaling the central bank’s growing seriousness about creating a CBDC in the U.S. Treasury Secretary Janet Yellen also expressed support for the idea, noting that a digital dollar could create “faster, safer and cheaper payments . . . [which are] important goals.”
NYAG fines Bitfinex and Tether. The New York Attorney General’s office concluded its 22-month inquiry into crypto exchange Bitfinex and stablecoin issuer Tether, calling the firms 'fraudulent’, fining them $18.5 million, and barring them from trading in New York. Neither company will admit wrongdoing and no further charges will be brought against them.
Walmart’s fintech ambitions strike gold, man. Omer Ismail, the 20-year Goldman Sachs veteran who helped create and lead the bank’s Marcus brand, reportedly is “leaving the bank to run a recently announced Walmart financial-technology startup.” Walmart, which announced its fintech subsidiary in January, also will hire David Stark, another Goldman exec who was behind its Apple Card partnership.
HM Treasury fintech report urges action. The British government-backed independent report [full text] suggested that the British government should ease stock listing and visa requirements to help the country’s fintech sector compete after Brexit. Without action, the report warns, cities like Berlin and Paris could “capitalize on uncertain messaging” concerning the UK’s immigration and regulatory changes.
Treasury Prime and Marqeta partner. The BaaS provider and card issuing platform announced their new partnership, which will allow technology companies to integrate card issuance along with other financial services into their products via a single API.
Square posts strong Q4 results and buys $170M more BTC. The payments firm had another big quarter, announcing $3.16 billion net quarterly revenue (up 141% YoY) and gross profit of $804 million (up 52% YoY), with Square’s Cash App alone delivering gross profits of $377 million (up 162% YoY). Square also purchased another $170 million worth of BTC, after buying $50 million of BTC last October.
Varo launches credit building program. The challenger bank rolled out Varo Believe to help people with insufficient credit histories build or improve their credit scores to qualify for a credit card or a loan.
Check and Plaid partner. The payroll-as-a-service provider and the financial data network authenticator announced a partnership to easily configure direct deposit for employees on payroll.
Pop Flies
Payments infrastructure provider Finix created a special purpose vehicle to raise $3 million in funding from Black and Latinx investors.
Crypto exchange Coinbase officially filed to go public via a direct listing.
Astra launched its transfer automation platform to enable users of fintechs and financial institutions to write rules to move money automatically between their network of accounts.
Fundings!
Lending
Credit fintech Petal took in a $126.6 million debt facility to expand its credit card programs.
Mexican credit card company Stori raised $32.5 million in Series B funding.
Consumer financing platform Wisestack raised $19 million across seed and Series A funding rounds.
Banking
South African challenger bank Tymebank raised $109 million in new funding.
Stitch, the South African fintech that wants to provide API access to financial accounts across Africa, raised $4 million in seed funding.
TreeCard, the U.K. fintech that offers a debit card made of wood and funds reforestation from interchange revenue, raised $5.1 million in seed funding.
Zelf, the latest neobank focused on Gen Z financial services, raised $2 million in pre-seed funding.
First Boulevard, the digital neobank focused on improving the financial livelihood of Black America, raised $5 million in seed funding.
Crypto
Bitcoin payments platform Bottlepay raised $15.5 million in seed funding.
A month after being approved for a federal bank charter, digital asset custodian Anchorage raised $80 million in a Series C funding round (a16z participated in the round).
Corporate
B2B accounting services provider Ageras raised $73 million in new funding.
EquityBee, the company that helps startup employees get capital to exercise their stock options before they expire, raised $20 million in Series A funding.