Fintech Update, 4/15 - 4/21

Hi! It’s Monday, April 22, 2024

ICYMI, we dropped our first Big Idea in a while, check it out! The piece focuses on regulation in fintech and a few key questions: Is fintech's competitive advantage limited to regulatory arbitrage, or is there something more that fintechs have to offer in the long term? And what do regulators have to do with it? 

The Rundown

What a week for fintech!

• Synapse, among the first and most well known players in the banking-as-a-service category, sold its assets to money movement platform TabaPay after filing for Chapter 11 bankruptcy. The news comes after many years of reputational concerns and financial challenges halted Synapse’s once-promising ascent (Angela Strange of a16z coined her famous phrase – “every company now has the potential to become a FinTech company” – in the context of her investment in Synapse!) and ultimately pulled it into a downward spiral of bad news, layoffs, and client churn. For his part, Synapse CEO Sankaet Pathak blamed the company’s bankruptcy on one-time client Mercury and “issues they’ve been creating behind the scenes” – to which Mercury responded that it has “significant claims against Synapse . . . [Mercury] will continue to pursue.” Terms of the deal were not disclosed. Our take? This news brings together two of the biggest threads we’re tracking week over week at TFU: (1) the evolving embedded finance ecosystem and (2) consolidation in the fintech ecosystem broadly. Anyone paying attention to Synapse over the past 2-3 years likely will not be surprised to hear of this result; but nevertheless, the exit of a banking-as-a-service OG on such inauspicious terms is jarring. With so much noise in the embedded finance market at the moment, particularly coming from recent regulatory actions, the focus of attention and competition for new business (and future VC funding!) now falls on remaining players such as Unit, Treasury Prime, and Synctera. 

  And on that note, we leave you with our tweet of the week, h/t to Matt Janiga and his fine nose for fintech snark. 10/10, no notes.

  

• Klarna announced that it is launching a credit card in the US. There is no annual fee or foreign transaction fee but the most compelling benefit is “up to 10% cash back on selected merchants when using the card in [Klarna’s] app.” As Rex Salisbury wrote, because Klarna has 500k merchants on their platform, they can offer merchant funded rewards from the start. Beyond this, Klarna cardholders will also have the option to spread out payments for larger purchases over three to six months at an interest rate anywhere between “14.99% - 33.99%,” similar to the functionality of the card that Affirm rolled out last year. 

• Fintech is full of examples of consumer-oriented businesses pivoting and expanding to business-oriented models; much less common is a B2B company pivoting or expanding into a direct-to-consumer model. But that list is one company bigger this week, following Mercury’s launch of a consumer banking product. Seemingly aimed at high-earners (see: $240 annual subscription and benefits like 5% APY and up to $5M in FDIC insurance), the company appears to be betting on its ability to convert business clients into individual customers as well. Mercury CEO Immad Akhund shared that Mercury already has “a few hundred thousand users of [their] business banking product, and a lot of people have expressed that they want a personal banking product.” 

• Financing startup Pipe isn’t bucking the trend of fintechs pivoting to B2B. Pipe raised $300 million on a $2 billion valuation in those heady days of 2021 based on its business of providing revenue-based financing directly to small businesses. Now, it will offer embedded “Capital-as-as-Service” to B2B companies like Boulevard, allowing them to provide capital to their small business customers.  

• The Consumer Financial Protection Bureau (CFPB) is consolidating its org structure such that its supervision and enforcement divisions, which oversee fintech firms, will report directly to Director Rohit Chopra. The change is part of Chopra’s broader plan to speed the agency’s response to developments in fintech.

The Reading Nook

• The FT looked at positive momentum in the fintech sector: major private companies like Klarna may be seeking IPOs this year, and public companies are, by some metrics, outperforming the S&P over the past year.

Selected fundings 

• Ramp raised another $150 million in a Series D extension round co-led by Khosla Ventures and Founders Fund at a $7.65 billion valuation.  

• FlatPay, the Danish fintech which offers payment solutions for small and medium sized brick and mortar stores, raised $47 million in Series B funding.

• Turkish retail investing app Midas raised $45 million in Series A funding.

• German embedded fintech company finmid raised $24.7 million in Series A funding.