Fintech Update, 3/20 - 3/26
Hi! It’s Monday, March 27, 2023.
The Rundown
Block’s share price fell over 15% after short seller Hindenburg Research published its latest research paper on the company. The report [full text] alleges that Block has systematically overstated its user numbers and facilitated fraud, including reporting misleading active user metrics that include fake and fraudulent accounts, processing fraudulent payments through its CashApp product, and routing transactions through community bank partners below the Durbin Amendment asset threshold to take advantage of favorable interchange rates. Our immediate reaction? This is a bogus play from Hindenburg, a firm that was created to (and is *highly* incentivized to) stir the pot and drive down the stock prices of targets. Hindenburg is not dedicated to research for the sake of research – they take short positions in companies, release inflammatory reports, and walk away smirking. They’ve mastered this playbook and successfully shorted other firms in the past, including Nikola and Adani. Buuut just because we don’t like their tactics doesn’t make them wrong… In fact, Hindenburg’s past reports have often been right, including exposing massive fraud at Nikola and getting Platinum busted for securities violations. Hindenburg might be too interested to be unbiased, and their claims at times feel hand-wavy or weak (for example, is the fact that “CEO Jack Dorsey has publicly touted how Cash App is mentioned in hundreds of hip hop songs” really evidence that Block promotes or takes a lenient approach to fraud on the platform?), but that still doesn’t make them wrong. In fact, P2P payments apps like CashApp are notorious vectors for fraud, and certain allegations in the report – if true – would be damning (for example, growing Cash App’s user base by “strategically disregarding Anti Money Laundering (AML) rules”). Block is currently exploring legal action against Hindenburg in response to the report; and although Wall Street largely has stuck by Block so far, we’re going to watch this one closely in the coming weeks as more details unfold.
In a sign that it continues to turn up the heat on crypto programs in the wake of the FTX scandal, the Securities and Exchange Commission (SEC) notified crypto exchange Coinbase that it may bring an enforcement action against the company for “violations of the federal securities laws.” While details are still unclear about the specific allegations, Coinbase believes the regulator’s Wells notice “would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.” Coinbase responded by issuing a statement that the purported violations related to “unspecified portion of [their] listed digital assets.” Coinbase is the second crypto-focused firm to receive a Wells notice following Paxos, which received a slap on the wrist from the SEC linked to its BUSD stablecoin.
The SEC’s potential action against Coinbase is only the most headline-grabbing action the agency took last week: Earlier, the SEC served a subpoena to DeFi protocol Sushi Swap and its CEO Jared Grey. Not even former Parent Trap stars are immune – the SEC also charged Lindsay Lohan and seven other celebs with illegally promoting crypto without proper disclosures.
JP Morgan entered an agreement to acquire Aumni, the investment analytics platform for startup investors, after previously leading the firm’s $50 million Series B funding round in August 2021. The bank described the acquisition as “part of a broader push to deepen relationships with venture capital investors and their companies.” Although terms of the deal were not disclosed, the acquisition price is said to be in the neighborhood of Aumni’s last private valuation of $232 million. The Aumni acquisition is the latest in a string of fintech deals made by JP Morgan over the past few years, including:
Acquiring payments startup Renovite in September 2022.
Buying a 48.5% stake in payments company Viva Wallet in December 2022.
Acquiring college financial planning platform Frank in September 2021 (😬😬😬).
Acquiring ESG investing platform OpenInvest in June 2021.
Acquiring UK investment platform Nutmeg in June 2021.
Acquiring tax-smart investment strategies provider 55ip December 2020.
Payment processor Checkout.com announced that it is launching virtual and physical card issuing in the EU and UK. We’re seeing fintechs best known issuing or acquiring taking on responsibilities for the other side of the payment lifecycle: Checkout’s expansion into issuance follows acquirers like Adyen.
Brex launched Brex Travel, offering “comprehensive booking and management capabilities, all in the Brex dashboard and mobile app,” only a year after competitor Ramp expanded into the travel space and travel company TripActions broadened into expense management.
Online marketplace for “investing in leased single-family rental homes” Roofstock laid off 27% of its workforce. The latest round of layoffs comes only five months after the company laid off 20% of its staff.
Mastercard acquired Swedish cloud-based cybersecurity company Baffin Bay Networks, which uses AI to filter and counteract malicious internet traffic. The terms of the deal were not disclosed.
Ladies and gentlemen, we got him: Do Kwon, founder of failed crypto company Terraform Labs, was arrested Thursday in Montenegro for forging official documents. Do Kwon’s Terra ecosystem reached a total market cap of over $60B before its sudden collapse last May.
Selected fundings
Indonesian-based credit provider Kredivo raised $270 million in a Series D funding round led by Mizuho.
Investment and trading platform eToro raised $250 million in new funding at a $3.5 billion valuation.
Earned wage access provider Rain raised $166 million, $66 million in equity and $50 million in debt, in a new funding round led by QED at a $250 million valuation.
German embedded b2b payments platform Monite raised $5 million in a seed funding round.
Banking infrastructure provider for emerging markets Credible raised $2.5 million in seed funding.
Beam, a fintech company that helps “general contractors pay subcontractors and get paid themselves,”raised $4 million in a seed funding round led by Accel.nd get paid themselves,” raised $4 million in a seed funding round led by Accel.
*A note from our friends at the 2023 Wharton Fintech Conference*
Don’t miss the opportunity to hear from founders of companies such as Sardine, Column and Lithic, executives from Unit, Visa and Stripe and fintech investors from BTV, QED, GGV and Ribbit. The 2023 Wharton Fintech Conference will be on March 30 (in-person) and March 31 (virtual). See the full lineup here and buy your tickets here.