Fintech Update, 9/11 - 9/17
Hi! It’s Monday, September 18th, 2023.
The Rundown
JPMorgan announced that it is launching digital payroll processing in partnership with Gusto, stepping up its fight over small businesses with Square and PayPal. The Wall Street giant has recently sunk billions into building in-house fintech capabilities like a credit card reader with same-day settlement, that directly compete with fintech offerings. Behind Square (who offers payroll services) and PayPal (who has strong connections with service providers through its venture arm), JPM is eager to launch a competitive offering by the end of ‘24. This could only be achieved by partnering with a fintech provider like Gusto, and represents a significant shift in the bank’s strategy: you can't do everything yourself. JPM also sees benefit in Gusto handling the complexity of regional nuances related to disbursing salaries to employees, generating tax documents and pay stubs, and filing to local and national agencies. Is this the biggest embedded finance partnership between a traditional financial institution and a fintech yet? Gusto currently serves 300,000 small and medium businesses; JPM serves five million. If you can’t move as quickly do-it-all fintechs, co opt specific fintech providers to get to market faster.
Dutch payments company Adyen was approved by British regulators for a UK banking license, allowing the company to take deposits directly and make loans to customers in the country. The new license pairs with Adyen’s existing license in the Netherlands to operate as an acquiring bank, which allows the company to process merchant payments throughout the EU without relying on bank partnerships to manage settlement. Our take: We’re interested in this story both because getting a banking license is a big deal (cut to Revolut doing some soul-searching?) and because of what we think it signals about Adyen’s broader ambitions. As Bloomberg notes, the approval replaced Adyen’s “temporary post-Brexit permission to offer embedded finance and other payments services,” highlighting how this full banking license could support expanded efforts in embedded finance. As Adyen’s CFO Ethan Tandowsky recently described, “Platforms is the smallest piece of our business today, but we have a very strong belief that SMBs will get their payments and broader financial services from platforms over the next years”; a comment that aligns with Adyen’s 2022 decision to offer bank accounts in Europe and the US “as a white label solution for other platforms.” (If that sounds like banking-as-a-service to you, well, it does to us too.) And considering Stripe’s Treasury offering, it wouldn’t surprise us if Adyen wants to make sure it also has a banking offering to compete with its rival. Or, as Mariëtte Swart, Adyen’s chief legal and compliance officer, said about the company’s new UK license: “it’s another stride towards Adyen becoming a full spectrum global financial technology platform.”
Microsoft partnered with Barclays to release the Xbox Mastercard, a credit card built specifically for gamers. The card has no annual fee and offers 5 points per "$1 spent on eligible purchases through digital Microsoft stores.”
Our take: the vast majority of founders, including in fintech, tend to build products for people that look like themselves. That's why we have so many repetitive neobanks, social investing apps, etc. Furthermore, there has been an explosion of neobanks built for specific audiences (e.g., all the x for y) that fail to actually differentiate their products, so their ability to acquire users ultimately comes down to branding.
Cash back or other rewards are typically one of the top reasons cited for moving money / utilizing new payment instruments, so offering a credit card with rewards specific to gamers makes sense. It isn’t clear to us that simply offering a card with tailored rewards for gamers will move the needle - nonetheless, it’s encouraging to see continued efforts to build financial products tailored for specific audiences, and is especially interesting / validating coming from a Big Tech player like Microsoft.
Speaking of building financial products tailored for specific audiences, Alza just launched with the goal of helping meet the various banking needs of Latin or Central Americans who have moved to the U.S. More specifically, Alza will give their users FDIC-insured checking accounts and a debit card but they will also offer their users “the ability to send cross-border remittances to more than 20 countries in Latin or Central America.”
UK-based neobank Monzo announced the debut of its new investment feature, which enables customers to invest as little as £1 into various multi-asset funds managed by BlackRock. The new offering, which represents Monzo’s first foray into investment management, will enable the neobank to compete with incumbent banks like Chase (via Chase’s subsidiary Nutmeg). Our take? The announcement represents an attempt to diversify the bank’s revenue streams as digital account openings stagnate and neobanks struggle to achieve profitability.
Citi spun out Bridge, an SMB lending platform incubated within the bank, and simultaneously sold the business to lending marketplace Foro for an undisclosed amount. Citi also contributed a minority investment in Foro alongside the transaction. [Disclosure: one of us is an investor in Foro].
The Reading Nook
Figure’s CEO Mike Cagney wrote in Fortune about his decision to withdraw the blockchain lending startup’s application for a bank charter with the OCC and remain a fintech (surprise?). The company’s recent struggles to find funding and layoffs were not discussed [Disclosure: one of us is an investor in Figure].
Bloomberg looked at how Sam Bankman-Fried’s parents, renowned and well-connected Stanford professors, enabled FTX’s rise.
Selected fundings
French embedded banking provider Swan raised $40 million in Series B funding.
Home insurance company Kin raised $33 million in a Series D funding round led by QED.
CertifID, which offers products to fight wire fraud, raised $20 million in new funding.
Fixed-income infrastructure provider Moment raised $17 million in a Series A funding round led by a16z.
Caliza, a Brazil-based company that provides an API that financial institutions can use to create digital dollar accounts for their users to save and transact, raised $5.3 million in a seed funding round co-led by Better Tomorrow Ventures and Abstract Ventures.
Parallax, the company building a cross-border payments system, raised $4.5 million in seed funding.