Fintech Update, 9/28 - 10/4
Hi! It’s Monday October 5, 2020.
Leading Off
The European Central Bank is reportedly experimenting with a “digital euro.” // Several firms, including Gusto and LendingTree, launched new products or services, furthering the expansion of many fintechs into multi-line businesses. // In other news, The House of Representatives’ Fintech Task Force held a hearing on fintech issues like financial inclusion and licensing; the owners of leading crypto exchange BitMEX face criminal charges for AML violations; JPMorgan partnered with “loyalty finance” firm Affinity to securitize travel points; and Amazon unveiled palm-scanning payments. // This + more below!
Heavy Hitters
Europe is seriously looking into a “digital euro.” The European Central Bank (ECB) reportedly will begin “experimenting with a digital version of the euro” while simultaneously holding public consultations on the idea. “Our role is to secure trust in money . . . [which means] we should be prepared to issue a digital euro, should the need arise,” said ECB President Christine Lagarde. The development would represent a massive leap in the legitimation of cryptocurrencies in the EU, as well as its acceptance as a means of exchange at a transnational level – though its backing by the ECB would make it inherently different from non-governmental cross-border tokens such as Libra, Bitcoin, or Ethereum. Other global initiatives in this vein include China’s digital yuan, which is expected to go live in the coming months, and investigations by the Bank of England and the U.S. Federal Reserve into the viability of central bank-backed digital currencies. The ECB plans to decide in mid-2021 whether to proceed with the digital euro by kicking off a formal “investigation phase.”
Prominent fintechs continue expanding their product mix. Most fintech firms start by solving a single problem in a new, tech-driven way, attracting customers by offering lower costs, new mediums of access, a better UI/UX experience, or some combination of the three. SoFi started with student loans, Robinhood started with stock trading, and Revolut started with cross-border money movement. Over time, however, successful fintechs can leverage the strength of those products, and the resulting brand recognition that comes with it, to add new products and diversify the business into a “multi-line” firm. In the past few years, SoFi, Robinhood, and Revolut, among others, have all offered new services as they converge into one-stop-shops for their customers. This week featured several such expansions:
Small business payroll software provider Gusto rolled out several new offerings, notably Gusto Wallet, expanding into a full suite platform for financial wellness.
Online loan marketplace LendingTree launched a connected bank account feature, allowing users to connect multiple accounts into one consolidated money management dashboard.
Mastercard-owned open banking platform Finicity launched Finicity Lend, “an integrated solution set of open banking data services.”
Credit-scoring and personal finance advisory service Credit Karma launched a fee-free checking account aimed at serving underbanked and Gen Z users.
Additional products can help lower customer acquisition costs by cross-selling new products to existing customers and making their customer relationships stickier, but they also represent a growing race to grab market share before competitors can launch their own, similar products. Indeed, the ability of fintech firms to effectively expand to multi-line from mono-line services may ultimately determine their future viability in the marketplace.
Quick Takes
JPMorgan and Affinity team up to securitize travel points. The global bank partnered with the “loyalty finance” fintech to create tradable securities backed by airline and hotel loyalty points. Airlines have recently turned to loyalty programs as a means of generating liquidity, with Delta, American, and United borrowing billions of dollars in recent months backed by their frequent-flier programs.
House fintech task force holds hearing. The House of Representatives' Fintech Task Force discussed several fintech-related subjects, including algorithms, financial inclusion, and licensing. Chairman Stephen Lynch (D-Mass.) highlighted the risks of BigTech and algorithm-based financial services and warned that he expects to see “too-big-to-fail fintechs in the future in a big, big way.”
BitMEX charged with AML violations. The cryptocurrency exchange which allows highly leveraged trading in digital assets has been charged with failing to prevent money laundering and offering illicit derivative trading services. The Southern District of New York alleges its owners violated the Bank Secrecy Act, which carries a maximum penalty of five years in prison.
MAS orders Wirecard to cease Singapore operations. The Monetary Authority of Singapore (MAS) issued an order requiring Singaporean sub-entities of the embattled German payments firm to “cease their payment services in Singapore and to return all customers’ funds by 14 October 2020.” Wirecard filed for insolvency earlier this year after an audit found $1.9 billion missing from its books.
Big banks invest in biometrics firm BioCatch. Barclays, Citi, and HSBC have invested $20M in the Israeli behavioral biometrics firm as part of a Series C round. BioCatch looks to use behavior as a predictive tool to prevent fraud. The banks will join long time investor American Express in its new innovation board.
Amazon unveils palm-scanning payments. Amazon launched Amazon One, a biometric palm-scanning technology that allows shoppers to enter and pay for items at Amazon Go stores by placing their palm, which must be connected to a stored credit card/method of payment, on a scanning device.
Pop Flies
Digital bank Step officially launched with a no-fee, secured Visa credit card aimed at U.S. teens, partnering with TikTok star Charlie D’amelio to market the product through social media channels.
Coinbase will allow users to “nearly instantly” convert their token holdings into USD, EUR or GBP and transfer to a bank account through a “compatible” debit card.
Universal banking API builder Plaid updated Plaid Link to improve its account linking flow, including through faster panel loading and location savvy bank listing.
Binance announced a new decentralized stablecoin called Venus, which it has called “a regional version of Libra”
Starling Bank had us all thinking they were opening a physical branch… but it was really just an initiative to “branch out” by committing to plant a tree every time a user refers a friend.
Fundings!
Rare collectibles investment platform Rally raised $17 million in new funding.
Philippine payment processor PayMongo raised $12 million in a Stripe-led Series A funding round.
Acin, a data startup that helps financial institutions manage operational and non-financial risk, raised $12 million in Series A funding.
Yotta Savings, which offers prize-linked savings accounts, raised $3.3 million in seed funding.
Retirement savings startups Retirable and Capitalize raised $4.7 million and $2 million, respectively, in seed funding.
Small business lending platform Capify raised $10 million in an equity funding round.
Crypto asset platform Bitpanda raised $52 million in Series A funding.
PayCargo raised $35 million in funding from Insight Partners to expand its suite of cloud-based payment and financing services for the cargo industry.