Fintech Update, 6/28 - 7/11
Hi! It’s Monday, July 12, 2021.
Hey, everyone! We’re happy to be back in your inbox after a week off. Buckle up for a two week mega-update! 🚀
Leading Off
Robinhood limped towards its much-anticipated IPO as FINRA announced a record $70M fine against the brokerage; and Klarna had a big few weeks, announcing a strategic partnership with embedded finance provider Liberis, a strategic investment in Australian BNPL firm Zip, and an acquisition of social shopping platform HERO (also, the Swedish financial regulator is investigating the firm due to a recent privacy incident). // In other news, Britain’s financial regulator banned Binance; Fitch warned of potential “contagion risks” related to surging stablecoin issuance; and Wise went public in a direct listing valuing the money transfer service at $11B. // All this + more below!
Heavy Hitters
Robinhood files for IPO amid regulatory and financial difficulties. The stock trading app (finally) filed for an IPO, disclosing that it first turned a profit in 2020, only to see losses surge in the GameStop mania. The IPO announcement followed news that Robinhood agreed to pay the Financial Industry Regulatory Authority (FINRA) $70M to settle allegations that it harmed customers over the past few years. The SEC is also looking into the firm’s controversial practice of “payment for order flow,” which provided 81% of the brokerage’s Q1 revenue. The Robinhood fine is the largest in the non-governmental regulator’s history. FINRA’s investigation found that Robinhood has “negligently communicated false and misleading information” to millions of customers. The report also examined risky options trades that the brokerage should not have approved, system outages, and the tragic story of Alex Kearns, who committed suicide after thinking he lost hundreds of thousands of dollars in options trades on the app. A spokesman for Robinhood, which did not admit wrongdoing in the settlement, says the company looks forward to focusing on “democratizing finance for all” and putting the settlement behind them. Many will doubt the veracity of this message in light of recent developments at the company.
It was an eventful couple of weeks for Swedish BNPL giant Klarna, who:
Partnered with Liberis; Klarna announced a strategic partnership with Liberis to provide revenue-based financing to merchants. Liberis’ APIs integrate into its partners' platforms and offer payment terms based on actual transaction data that will be displayed within Klarna’s merchant dashboards. As the BNPL war has continued to heat up and merchant fees are negotiated down to the basis point, BNPL-focused companies and those with BNPL offerings have recently made strategic moves to expand their merchant services to offer additional value (e.g., PayPal acquisition of Happy Returns, Affirm acquisition of Returnly, etc.).
Invested in Zip; Klarna also made a strategic investment, picking up a 4% stake Australian BNPL provider Zip. Purchasing shares in a competitor suggests Klarna is exploring a potential acquisition. This strategy is typically called a "toehold" as a precursor to a potential attempt at acquisition of a public company. In this instance, Klarna, the would-be buyer, can accumulate shares quietly, and usually at a lower per-share price than the final acquisition price for the remaining shares.
Acquired HERO; Klarna also announced the acquisition of social shopping platform HERO. HERO’s platform aims to “create a more personal and convenient way to shop that reflects how consumers interact today, bringing the concept of in-person customer service to e-commerce.” Klarna will introduce HERO to its 250,000 merchant partners to facilitate more immersive shopping experiences and more interactive ways for users to interact with merchant products.
and is officially under investigation by Sweden’s watchdog authority. Sweden’s financial supervisor announced that it is planning to investigate Klarna after the an IT incident that resulted in Klarna customers being shown other users' data for a period of 30 minutes.
Quick Takes
The UK bans Binance. The Financial Conduct Authority (FCA) banned Binance, one of the world’s largest cryptocurrency exchanges, from conducting regulated activities in the country. The move reflects the FCA’s increased scrutiny of cryptocurrency exchanges: since January, the regulator has required all firms in the UK offering crypto services to register themselves and comply with AML rules (few have done so).
Fitch warns of “contagion risks” related to stablecoins. The bond-rating service said that the surging growth in stablecoin issuance could threaten the functioning of short-term credit markets if mass redemption of Tether were to occur, putting downward pressure on cryptocurrencies broadly. The report further posited that run of this type could put pressure on traditional markets given Tether is one of the world’s largest holders of commercial paper.
Gusto offers its services to others via API. The payroll and benefits management provider is now offering part of its service to other platforms via API. Gusto Embedded Payroll will allow SaaS companies to provide payroll support to their customers.
Pop Flies
Wise went public via direct listing on Wednesday, valuing the company at $11B.
Circle announced on Thursday that it will go public via SPAC, valuing the firm at $4.5B.
JPMorgan is buying ESG-focused fintech startup OpenInvest.
Payments platform Rapyd announced its plans to acquire Icelandic payment solution Valitor for $100 million.
Payments giant Stripe hired a law firm to help with early stage public listing preparations.
Digital identity verification platform Socure launched an identity verification and fraud solution purpose-built for the BNPL industry.
Fundings!
Lending
Homebuying fintech Tomo raised $70 million in a seed round led by Ribbit Capital.
Kikoff, the personal finance platform that offers a credit-building solution, raised $30 million in Series B funding.
Nigerian fintech and lender Lidya raised $8.3 million in a pre-Series B funding round.
Canadian fintech capital provider Clearco raised $215 million in a funding round led by SoftBank Vision Fund II.
French credit provider Younited Credit raised $170 million in a funding round led by Goldman Sachs.
Banking
Phillipine payment and financial service provider PayMaya raised $167 million in new funding to launch additional services, including a digital bank.
Nigerian credit-led neobank Fair Money raised $42 million in a Series B funding round led by Tiger Global.
Dutch challenger bank Bunq raised $228 million in a Series A funding round at a valuation of $1.9 billion.
Neobank for e-commerce and online marketing companies Juni raised $21.5 million in Series A funding.
Payments
Merchant commerce platform Pine Labs raised $600 million in new funding at a valuation of $3 billion.
Crypto
Brazilian crypto exchange Mercado Bitcoin raised $200M from Softbank at a valuation of $2.1B.
Corporate
Danish corporate card start-up Pleo raised $150 million in a financing round co-led by Bain Capital Ventures at a valuation of $1.7 billion.
Brazilian HR startup Flash raised $22 million in a Series B funding round led by Tiger Global.
Infrastructure
Payment infrastructure provider Orum raised $56 million in a Series B funding round co-led by Accel and Canapi Ventures.
SMB-focused API service provider Codat raised $40 million led by Tiger Global.
No-code fraud prevention provider Unit21 raised $34 million in a Series B funding round led by Tiger Global at a $300 million valuation.
Coast, the company building the financial platform for the future of transportation, raised $6 million in a seed funding round led by Better Tomorrow Ventures.
White label fintech platform Toqio raised $9.4 million in seed funding.