Fintech Update, 7/19 - 7/25
Hi! It’s Monday, July 26, 2021.
Leading Off
FICO’s score, which has been a linchpin of consumer-credit decisions for decades, is losing its dominant grip on the credit market. // In other news, it was a hot week for fintech M&A activity - Visa acquired cross-border payments fintech Currencycloud for $963M, Bill.com acquired accounts receivable software provider Invoice2go for $625M, and Klarna acquired German shopping app Stocard for $133M. // Plus, Square launched a new product called Square Banking that combines a checking account, savings accounts, debit cards and loans for businesses, Venmo finally did away with its global feed of users’ transactions, and Upgrade launched a new credit card with bitcoin rewards. // All this + more below!
Heavy Hitters
What does it mean for lenders to fade FICO? A recent Wall Street Journal article discusses what may be the beginning of the end of the credit industry’s reliance on FICO scores in credit decisioning. (Quick background: FICO = “Fair, Isaac and Company,” a data analytics firm that uses individuals’ consumer data to generate and assign a three-digit number (300-850) representing a consumer’s likelihood to repay a loan.) FICO long has dominated the market for credit decisioning, but it’s starting to change for three primary reasons:
Alternative data and performance concerns: There are several new alternative sources of data (e.g., income and employment data, demand deposit data, rent and utility payment data, property and asset data, etc.) that companies are reviewing and using to refine their own proprietary scoring that can better predict willingness and ability to repay.
Regulatory concerns: Regulators are also concerned with FICO - for the 53 million U.S. adults that lack traditional FICO scores, because they have thin or non existing histories of engaging with credit products (e.g., people under the age of 25, immigrants), they are forced to turn to costly forms of credit and more predatory products (e.g., payday loans).
Price concerns: FICO has “increased its price for traditional FICO scores significantly in recent years, to around 25 cents apiece for underwriting purposes from 15 cents to 18 cents.” Industry consensus is that the price is too damn high!
According to the WSJ article, VantageScore – a consumer credit-scoring model created by the three major U.S. credit bureaus – passed its credit-score assessments, meeting minimum accuracy thresholds. While the scores are still a mainstay in consumer credit decisions, chinks in the credit scoring monolith’s armor suggest there is an opening for innovative fintech firms to step in with new data and new tools.
Quick Takes
Visa acquires Currencycloud. Visa acquired the London-based cross-border payments fintech for $963M to build out its currency exchange and remittance infrastructure. Currencycloud has some 500 corporate customers in 180 countries, including Monzo, Revolut, and Dwolla. The startup’s APIs allow for streamlined currency transfers, notoriously difficult and costly financial services that are becoming increasingly more popular as global e-commerce grows.
Bill.com to acquire Invoice2go. The software provider, which supports back-office financial operations, signed an agreement to purchase the accounts receivable startup for $625 million. Along with Bill.com’s recent acquisition of expense management software provider Divvy, the firm continues to enhance its back-office functionality and build a multipurpose financial services operations offering.
Robinhood looks to IPO at $35B valuation. The digital brokerage reportedly is seeking a valuation of up to $35 billion when it makes its public debut on the Nasdaq exchange later this year, pricing its shares between $38-$42. Robinhood plans to offer 35% of its shares, with Goldman Sachs, JPMorgan Chase, and Citigroup among the banks underwriting the deal.
Square launches business bank accounts. The payments firm will launch Square Banking – offering users checking, savings, debit cards, and loans – as it works to increase small business engagement with and the ‘stickiness’ of Square’s product. Square offers FDIC-insured checking accounts through Sutton Bank.
Venmo does away with its global public feed. The PayPal-owned payments app eliminated its public transaction feed as part of a broader redesign to declutter its interface and improve users’ privacy. Users still will be able to see their “friends feed,” i.e., transactions made by in-app contacts.
Mastercard announces crypto initiative. The global payments network is collaborating with Circle, Evolve Bank, and Paxos to make it easier for partners to convert crypto into fiat currency. The partnership will test Mastercard’s ability to allow users to spend crypto anywhere its cards are accepted.
Upgrade launches bitcoin rewards credit card. The digital lender partnered with Bitcoin technology and investment firm NYDIG to launch a card that offers 1.5% BTC cashback on payments. At the moment, uses are limited to holding the BTC or selling to pay down statements; users cannot transfer BTC holdings to another wallet.
BNPL Corner
Sezzle rolls out working capital solution. The BNPL provider launched Sezzle Capital, a program enabling same-day funding of working capital to merchants of up to $10 million. Sezzle is partnering with Irish financing provider Wayflyer to power the program, less than a month after Klarna announced a similar financing partnership with Liberis.
Klarna acquires Stocard. The Swedish BNPL giant purchased the German shopping app for €113 million, giving Klarna a way of “bundling multiple bank cards and present[ing] users with discount deals from a network of merchants” and that already has a user base of 60 million people.
Afterpay to launch banking app. The Australian BNPL provider will partner with Westpac Banking Corp to launch Money By Afterpay in October, offering users 1% interest per year. Money will provide users with both a spending and savings account and will allow users to view their total Afterpay BNPL balance.
Pop Flies
Circle revealed its USDC stablecoin is 61% backed by cash or cash equivalents. Please retire the use of “1:1” when describing stablecoins, everyone.
JPMorgan is now allowing all of its wealth management clients access to bitcoin and other cryptocurrency funds.
Following its listing on the LSE, payments firm Wise posted first-quarter revenue gains of $168.66 million, up 43 percent over the same period last year.
Revolut launched a new booking tool that will give customers 10% instant cashback on travel reservations.
Starling Bank reported strong 2021 results, including both a 600% in revenues and 8 months of profitability.
Fundings!
Wealth management
Active investment management platform Titan raised $58 million in a Series B funding round led by a16z.
Personal finance platform Monarch raised $4.8 million in a seed funding round led by Accel.
Workplace savings and investing platform Vestwell raised $70 million in a Series C funding round with participation from Wells Fargo, Goldman Sachs, and Morgan Stanley.
Lending
Capchase, provider of non-dilutive capital for subscription businesses, raised $280 million in new debt and equity funding.
Commercial mortgage marketplace Lev raised $30 million in Series A funding at a $130 million valuation.
London BNPL provider Zilch extended its Series B funding round with an additional $110 million in debt and equity funding, including backing from Goldman Sachs.
Payments
Accelerated online checkout startup Bolt raised $333 million in Series D funding at a $4 billion valuation.
Paystone, the Canadian startup that provides electronic payments and customer engagement technology to businesses, raised $23.8 million in a strategic investment.
Payments processor Dwolla raised $21 million in new funding.
Crypto & Blockchain
Paystand, the payments provider that utilizes blockchain technology to digitize B2B payments, raised $50 million in Series C funding.
Corporate
UK business expense management platform Soldo raised $180 million in new funding.
French corporate spend management service provider Spendesk raised $118 million in new funding.
Infrastructure
Open banking software provider Yapily raised $51 million in Series B funding.
Insurtech
Life insurance provider Ethos raised $100 million in funding from Softbank at a $2.7 billion valuation.