Fintech Update, 7/27 - 8/2
Hi! It's Monday, August 3, 2020.
ICYMI: On Thursday, we released our latest Big Idea on financial education and financial literacy in the age of fintech. Check it out here!
Leading Off
PayPal reported that Q2 performance was its best-ever quarter, citing “Black Friday-level daily transaction volume” since the start of the pandemic. // Consumer lender Enova will acquire OnDeck Capital, formerly valued at $1.3B, for about $90 million, in a sign of the troubles online lenders have faced in recent years. // Digital banking app Dave suffered a massive security breach that compromised the personal information of all its roughly 7.5M users. // Apple is purchasing Mobeewave, potentially signalling its intent to move into the POS payments space, challenging market leader Square. // Plus… Varo officially became an OCC-chartered bank; Rocket Loans set the terms for its IPO (~$3.3B valuation) while Affirm is setting the groundwork for its own public offering (~$10B valuation); Monzo reported worrisome figures that call into question its viability; and TransferWise’s valuation rose to $5B. // All this + more below!
Heavy Hitters
PayPal announces record performance, suggests e-commerce is the ‘new normal.’ The payments giant’s most recent earnings call revealed that its 2020 Q2 was the best in its history. PayPal added 21.3 million net new active accounts in Q2, the highest ever in one quarter, brought in over $5 billion in quarterly revenue for the first time, and reported a 30% year-over-year (YOY) increase in total payment volume. All told, PayPal announced a 49% YOY increase in earnings per share and 112% YOY increase in free cash flow. One PayPal employee commented that the firm has experienced “Black Friday-level daily transaction volume since COVID-19 started,” and CEO Dan Schulman has also stated that he doesn’t believe “there is any going back” from e-commerce after COVID-19. Combined with the recent upticks and rosy outlooks reported by other e-commerce giants including Amazon and Shopify, it seems that COVID may have hastened the transition to online transactions as the primary mode of retail and payments – a new normal that seems likely to only become more entrenched as the pandemic wears on.
Enova to acquire OnDeck. The online consumer lender and the online small business lender jointly announced that Enova will acquire OnDeck in a cash and stock transaction valued at approximately $90 million. Enova stated that combining the two entities will offer a meaningful increase in scale, as well as a wide selection of small business and consumer lending products, that banks and credit unions have struggled to achieve. The acquisition is a significant admission of OnDeck’s steep decline in market value since its $1.3 billion IPO in 2014, a signal of the challenging market conditions facing online lenders in recent years. The firm reportedly had been seeking a buyer since May after posting a $59 million loss in Q1. While challenges faced by firms in the online lending space have been well reported and particularly difficult, OnDeck’s fate as a “once highflying [fintech] that fell on tough times made worse by the COVID-19 pandemic” may serve as a counterweight to the recent high-profile IPOs of other fintech firms.
Dave suffers a major security breach. The digital banking app 🦄 confirmed that it experienced a severe data security breach, in which personal information on all of the firm’s 7.5 million users – including names, emails, birth dates, physical addresses and phone numbers – were stolen and published on a public forum. The company reported that the hacked data did not include bank or credit card numbers, records of financial transactions, or unencrypted Social Security Numbers. Dave is one of several digital banking firms to experience surges in user sign-ups as a result of COVID-19, a phenomenon that the American Banker has noted is accompanied by increased cybersecurity risks: “as the public increases its use of mobile banking apps, partially due to increased time at home, the FBI anticipates cyber actors will exploit these platforms.” The significant breach highlights the importance and challenge of maintaining security at scale, particularly at points of rapid expansion. Dave has added about 3.5 million customers since raising its Series B funding in September 2019, which valued the company at $1 billion.
Apple acquires POS payments firm, may be moving to challenge Square. The global technology giant purchased Mobeewave, which develops point-of-sale (POS) payments technology that allows for phone-based payment processing via Near Field Communications (NFC) chip. The deal, reportedly valued at $100 million, gives Apple control of technology and a team that “could transform iPhones into mobile payment terminals.” If Apple chooses to build out the technology, it could be angling for a significant push into the POS market, challenging Square, which has a leading position in the market, by not requiring customers to purchase an additional piece of hardware.
Quick Takes
Varo becomes real bank. The digital banking firm became “the first fintech provider . . . to obtain a national bank charter,” officially getting a charter from the Office of the Comptroller of the Currency after winning provisional approval in 2018. Varo now can operate as a nationally chartered bank, completing a “three-and-a-half-year journey . . . [with] more than 5,000 pages of paperwork.”
Monzo faces huge losses, may need to wind-up operations. The UK challenger bank’s latest annual report showed losses of £113.8 million, up from £47.1 million last year, despite tripling its annual revenues. The firm noted that it expects revenues to decline this year as a result of Covid and that the pandemic has called into question “the ability of the Group to continue as a going concern.”
Two more fintechs prepare for IPO. Rocket Loans set the terms for its initial public offering, pricing 150 million shares at $20 - $22 each, which could raise up to $3.3 billion for the company. Meanwhile, POS installment lender Affirm is working with Goldman Sachs to lay the groundwork for an initial public offering that could value the company at up to $10 billion.
TransferWise valuation rises to $5B. The money transfer service’s change in valuation, an increase of 43% since May 2019, follows a $319 million sale of secondary shares. The fundraising contrasts with fellow pentacorns Revolut and Klarna—who achieved their valuations through primary funding—and may indicate a coming IPO.
JPM partners with Marqeta on ‘virtual’ credit card tokenization. JP Morgan’s new digital-only credit cards will allow its corporate cards to function immediately in mobile wallets like Apple Pay, without having to wait for physical versions to arrive in the mail. The bank’s head of corporate cards noted that “Covid has taught us . . . there’s more use cases for this than we imagined.”
PayPal strikes deal with CVS on QR codes. The payments giant partnered with the drugstore chain to roll out fee-free, phone-based PayPal and Venmo QR code technology at all of its 8,200 stores.
Intuit launches no-fee business bank account. The tech firm rolled out QuickBooks Cash, a business bank account offering “1% interest when used with QuickBooks software or mobile apps.”
Pop Flies
Remittance-focused startup Remitly raised $85 million at a $1.5 billion valuation.
AI-based transaction monitoring firm ComplyAdvantage closed a $50 million Series C funding round.
Investment app eToro is planning to debut a UK debit card.
TrueLink, which provides financial services aimed at elderly and disabled consumers, raised $35 million in Series B funding.
Revolut will launch an in-app price comparison feature in partnership with Decision Tech.