This week, we look at Coinbase’s Q1 earnings, new digital payment methods from Facebook Pay and Dwolla, and China’s new digital yuan.
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Uneven Labor Market Recovery; K-Shaped Inflation
Unemployment jumped by 16,000, which brought the total number of claims to 744,000 for the week ending April 3rd. The labor market has a long way to go before recovering the millions of jobs lost during the pandemic.
Low-income Americans are getting hit hardest by price increases in necessities like food and gas as the economy recovers, while Americans with the highest incomes have seen the least amount of inflation.
The market implied inflation rates from TIPS are the highest it has ever been in the last 10 years – implies better performance for crypto (note Coinbase’s IPO and timing – covered later in this newsletter).
Source: Federal Reserve Bank of St. Louis
China’s Central Bank Unveils the Digital Yuan
China, the country that invented paper currency, has created its own digital currency. The country will now have its central bank issue an electronic version of the yuan.
The digital yuan is expected to give China’s government new tools to monitor both its economy and its people.
We previously covered that the Fed’s focus is to execute the launch of the U.S. digital dollar successfully, rather than quickly. As central banks launch their own digital currency, banking, payment, and fintech industries will need to adapt to the impending disruption.
Facebook Testing QR Code Payments
Facebook Pay, which is already integrated with Instagram, Messenger and WhatsApp, is testing its new person-to-person QR code functionality to allow users to transfer funds instantly with a quick scan.
Facebook’s new payment method may serve as a precursor to their future launch of Novi, the digital wallet that is expected to hold Diem. Diem, formerly known as Libra, is a new digital currency Facebook has been developing with its partners since 2019.
Dwolla Launches Real Time Payments Network
Dwolla, led by CEO Brady Harris, has announced the launch of its real-time payments network, powered by Cross River. Dwolla’s new RTP Network allows businesses to integrate Dwolla’s payment API to connect with RTP-enabled financial institutions and send funds within a matter of seconds to a bank account.
Existing clients can change a single line of code to initiate an RTP transaction using the Dwolla API. Dwolla’s simplified API gives businesses the flexibility to initiate transfers across multiple payment modalities (ACH, Push-to-Debit, RTP) to their vendors and customers for an ideal experience.
In partnership with Cross River, Dwolla has lowered the barrier for its clients to access the RTP Network for instant bank transfers that are available 24 hours a day, every day of the year.
Visa Dancing with Crypto: Caught in the Innovator’s Dilemma?
Visa announced recently that it is now settling transactions from several of its customers on the Ethereum blockchain.
Our CEO, Ram Ahluwalia, is experimenting with SubStack and has a full tear-down on Visa’s strategy on an article titled “Visa: Caught in the Innovator’s Dilemma?”
Q4 2020 Earnings Wrap Up
We’ve now come to a close on the Q4 2020 earnings season and as with past quarters, we wanted to highlight a couple key themes.
- Deposits outpaced loan growth across all bank and non-bank lenders due to the influx of new stimulus payments and conservative underwriting
- Cryptocurrency is becoming mainstream as payment giants, PayPal, Visa, and Square, begin offering select crypto transaction capabilities
Source: PeerIQ Analytics Platform
Coinbase Releases Q1 Earnings
Coinbase released its Q1 earnings and outlook ahead of its anticipated direct listing. With the expected inflationary environment described above coming, Coinbase’s public offering is well timed given the growing interest in cryptocurrencies from retail and institutional investors.
- ~$1.8 Bn revenue ($7.2 Bn annualized) – Q1 revenue was greater than all of 2020
- Adjusted EBITDA of ~$1.1 Bn ($4.4 Bn annualized)
- Net income of $730-$800 MM ($3 Bn annualized)
- 56 MM verified users (+3.3 MM)
- Trading volume of $335 Bn
- Assets on the platform of $223 Bn (11.3% of crypto asset market)
The 56 MM user number is bigger than SQ and Venmo and significantly larger than Robinhood and eToro. That is greater than every bank not named JPM.
The chart below shows Coinbase’s valuation metrics compared to incumbent exchanges.
Avant Acquires Zero Financial
Avant, led by CEO James Paris, has completed its acquisition of Zero Financial and its neobank Level, in a deal that will introduce Avant’s digital banking experiences to new consumers.
Level’s branchless digital banking platform, which offers features such as cash back rewards on debit card purchases, early access to paychecks, and other offerings, will be integrated into Avant’s digital banking and credit products.
Plaid Secures $425 MM in Series D Funding
Plaid, led by CEO Zach Perret, has secured $425 MM in Series D funding, which values the fintech startup at $13.4 Bn. The new funding round was led by new investors Altimeter Capital, Silver Lake Partners, and Ribbit Capital.
The fresh infusion of capital will help the company scale and expand globally.
The Department of Justice did a huge favor for Plaid investors when it sued to block the $5.3 Bn Visa merger late last year. After growing its customer count by 60% in 2020, Plaid has benefited from the recent rise in fintech valuations.
In the News:
- Fed Introduces Uniform Definition Of Synthetic Identity Fraud (PYMNTS, 4/6/2021) The Fed’s uniformed definition of Synthetic Identity Fraud is expected to improve SIF’s detection, measurement, and mitigation across the payments industry.
- China Creates its Own Digital Currency, a First for Major Economy (WSJ, 4/5/2021) China’s cyber yuan is expected to give China’s government new tools to monitor its economy and people.
- The Fintech Cookie Factory: How Banking as a Service Works (Forbes, 4/6/2021) How BaaS helps FinTechs scale their products.
- Blockchain and Taking the Oolitics Out of Tech (Tech Crunch, 4/5/2021) Former head of the OCC and former Coinbase counsel Brian Brooks believes that blockchain and cryptocurrency hold great potential to further financial inclusion.
- Dwolla Unlocks Real-Time Payments (Dwolla, 4/6/2021) Dwolla, a modern payments platform powered by Cross River, announced the launch of its Real-Time Payments Network, which can send money directly to a bank account in seconds.
- SoFi to Offer Auto Loan Refinancing Through MotoRefi Partnership (BankingDive, 4/5/2021) Due to the high demand of frequent auto loan requests from customers, SoFi has partnered with MotoRefi, to allow its customers to access its auto refinancing technology.
- Clubhouse Launches Payments so Creators can Make Money (Tech Crunch, 4/5/2021) Clubhouse wants to put more focus on direct monetization on creators, rather than advertisements.
- Facebook Pay Tests Use Of Personalized QR Codes (PYMNTS, 4/6/2021) Facebook Pay is testing its QR code payments system, which would allow users to instantly transfer money by simply scanning each others’ codes.
- Fidelity, Square, Coinbase Launch Bitcoin Trade Group (WSJ, 4/6/2021) Fidelity, Square, and Coinbase join forces to form the Crypto Council for Innovation, which will serve as the industry’s voice on digital currencies.
- Avant Completes Acquisition of Zero Financial (FinLedger, 4/7/2021) Fintech lender Avant, has acquired Zero Financial and its neobank division, Level.
- Plaid Raises $425M Series D from Altimeter as it Charts a Post-Visa Future (Tech Crunch, 4/7/2021) Plaid, led by CEO Zach Perret, has secured $425 MM in Series D funding, which values the fintech startup at $13.4 Bn.
- Mars Helicopter Ingenuity Unlocks its Rotor Blades to Prepare for 1st Flight on Red Planet (Space.com, 4/8/2021) Nasa will conduct its Wright Brothers experiment on the red planet, which will be a historical flight if successful.