Greetings,
November jobs report. Crypto CEOs testify in House hearing. OCC nominee Saule Omarova withdrew from consideration. Hatch rebrands, raises $58Mn. AML platform Hummingbird raises $30Mn. Neobank for migrants raises $27Mn. BNPL may be the big winner of the holiday shopping season. Dwolla looks to capitalize on interchange fee war. Greenlight hires a CFO, eyes IPO in 12-18 months. BM Technologies buys a bank. Visa gets into crypto consulting.
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November Jobs Report Disappoints, but Unemployment Drops Anyway
The economy added just 210,000 jobs in November, significantly below expectations of 550,000. Despite the disappointing jobs numbers, the unemployment rate also came in lower than expected, at 4.6%, as labor force participation hasn’t fully recovered. The US workforce remains 2.4m people smaller than February 2020.
Despite a labor market that has turned favorable for workers, consumer confidence hit a nine-month low in November, driven by concerns over inflation and continuing uncertainty about the course of the pandemic.
Crypto CEOs Testify
Executives from several crypto companies testified before the House Financial Services Committee this week. Representatives from Circle, Coinbase, Bitfury, Paxos, and the Stellar Development Foundation appeared to argue their cases for the benefits of cryptocurrencies and their preferred vision of how the industry should be regulated.
While legislators are still forming their positions on crypto, Republicans tend to favor a more hands-off approach, arguing regulation may inhibit innovation and push companies to friendlier jurisdictions outside the US. Democrats lean towards stronger regulation, particularly as it relates to consumer and investor protections. Industry advocates argue that crypto doesn’t fit neatly into existing regulatory frameworks, and legislators should create a new, crypto-specific regulatory framework.
We’ve said it before and we’ll say it again: increased regulation in the sector is inevitable. Crypto-advocates are smart to capitalize on the spotlight to plead the case for their preferred approach to regulating the sector. Even if that’s not the ultimate outcome, by participating in the process, they can put a stake in the ground to help steer the discussion.
OCC Pick Omarova Withdraws
President Biden’s nominee to head the OCC, Saule Omarova, has withdrawn her name from consideration for the post. Omarova’s background of growing up in the former Soviet Union and her writings as an academic became targets of criticism during her confirmation hearings. In an evenly split Senate, she would have needed every Democratic Senator to vote in favor of her confirmation. Several Democratic Senators opted not to support her nomination due to Omarova’s opposition to a bill that would have loosened regulatory restrictions on banks. Without their support, it became clear her nomination was no longer viable.
Hatch, now called Nearside, Raises $58Mn
SMB neobank Hatch has a new name: Nearside. The company, which raised its Series A just seven months ago, also announced its $58Mn Series B. Nearside offers business checking accounts with no monthly, overdraft, or ATM fees. It also boasts “Universal Cashback” of 1% on all debit transactions. Nearside’s target audience includes incorporated small businesses, solo entrepreneurs, freelancers, and people who haven’t formally started their businesses yet.
SMBs, particularly on the smaller end, continue to be poorly served by major establishment banks. While stand-alone SMB lenders like Kabbage and On Deck had mixed records as businesses, a new crop of startups like Nearside aim to offer a fuller complement of banking and lending services to SMBs. A fuller product stack helps diversify revenue and generate proprietary data that can be used for underwriting credit.
AML Platform Hummingbird Raises $30Mn
Hummingbird RegTech, an AML platform, announced it has raised a $30Mn Series B. Hummingbird offers a specialized case management tool for financial crime investigators, which pulls data from multiple sources into a single view. Clients include traditional banks, like Evolve Bank & Trust, crypto exchanges, like Coinbase, and payment processor firm Stripe.
The growth of platforms like Hummingbird is emblematic of the fintech “infrastructure” trend we’ve written about before. With offerings like Hummingbird, the “build vs. buy” pendulum seems to be swinging back toward the “buy” side, especially for components that are required but not necessarily an opportunity for differentiation. With KYC/AML scrutiny as high as ever, especially in the crypto-world, interest in platforms like Hummingbird is likely to remain robust.
Neobank for Migrants, MAJORITY, Raises $27Mn
MAJORITY, a neobank meeting the needs of migrants, announced it has raised a $27Mn Series A. MAJORITY enables users to open a bank account without a Social Security number. Instead, to pass KYC, they can supply identification from their home country plus proof of a local address. MAJORITY also focuses on remittance features to enable users to quickly and easily send money back to their home country. The new funding comes just six months after raising a $19Mn seed round.
N26 recently exited the US market, and Monzo seems to be struggling, because they entered an already-crowded general market with un-differentiated products. MAJORITY shows there is still room for more neobanks, if they have clear differentiation and user value propositions.
BNPL Shows No Signs of Slowing This Holiday Season
Buy now, pay later is having a good holiday season. According to a survey by CNBC, 7% of shoppers said they would be using the payment method this holiday season. Use of BNPL during “cyber week,” the week following the Thanksgiving holiday, jumped 29% vs. the same period last year. Paypal saw a huge jump in usage of its BNPL offering on Black Friday, with volume up some 400% year over year.
Although BNPL is often presented as stealing market share from credit cards, we tend to view the dynamic as “both/and” rather than “either/or.” Particularly for younger, lower-income, and lower credit score consumers, use of BNPL tends to complement, rather than replace, use of traditional financing products like credit cards.
Dwolla Wants to Capitalize on Interchange Fee Angst
Account-to-account payments are having a moment. The payment method enables shoppers to make payments directly from their bank accounts to merchants, without a debit or credit card. While this has long been possible, the interface historically has been clunky. Now, platforms like Plaid and Dwolla aim to simplify the user experience into a “pay with bank”-type button that would sit at checkout alongside the familiar card options.
Dwolla has recently entered into partnerships with Infinicept, MX, and Plaid. Dwolla also recently integrated with The Clearing House’s Real Time Payments network, enabling businesses to use Dwolla’s APIs to interact with banks on the RTP network.
The appeal of “A2A” payments to merchants is obvious: lower costs. But this isn’t the first time merchants have been down this road. Unless there’s a clear value proposition, users are unlikely to switch from their default payment behavior (or to give up credit card rewards) to pay directly from their bank account. Expect merchants to try to persuade users to switch with various discounts, rewards, or loyalty schemes.
Kid’s Banking App Greenlight Eyes IPO
Greenlight, a banking app for teenagers, has hired its first CFO, with an eye on IPO’ing in the coming 12-18 months. Greenlight’s app lets parents send money to their children, for instance for allowance or completing chores. The Greenlight app can be linked to a debit card, though parents can set spending controls governing how and where the card can be used. Unlike mass market neobanks, Greenlight derives most of its revenue from monthly subscription fees, rather than interchange income. The company says it generated $100Mn in annualized recurring revenue through the first nine months of this year.
While still a ways off, a future IPO would provide an important test for neobank valuation multiples in the public markets.
Why BM Technologies is Buying a Bank
BM Technologies was spun off from a bank, and now it’s buying its own. The company was spun out of Customers Bancorp, a small community bank in Pennsylvania. While its parent was focused on serving its local community, BM Technologies is a digital bank built around disbursing financial aid to college students.
Now, BM Technologies itself has decided to acquire Seattle-based First Sound Bank. It’s hardly the first fintech to decide to buy a bank. Jiko, SoFi, and LendingClub have all been down this path. Becoming a bank, instead of partnering, gives BM Technologies more flexibility in how it builds and deploys products and allows it to retain a greater share of the economics.
Between its student business and white label accounts it provides for businesses like T-Mobile, it boasts deposits over $2Bn. As a bank, BM Technologies would be able to deploy those deposits as interest-earning assets for itself, creating another revenue stream to complement fee income.
Source: PeerIQ, American Banker
Visa’s Crypto Consulting’s Strategic Play
In the latest sign that establishment players “get it,” Visa announced it has launched a crypto consulting practice. The offering will be part of Visa’s existing, 700 employee Visa Consulting and Analytics business unit. Aimed at its existing merchant and bank partners, the consulting offering will aim to streamline and simplify the process for those partners to build crypto offerings – presumably powered by Visa.
Visa clearly understands the risks crypto and particularly stablecoins pose to its core payment processing business. The consulting offering is a smart play to drive revenue now and in the future by helping its existing, broad customer base understand how Visa can help them build and deploy crypto products and services.
In The News:
Who’s in the Running for Remaining Fed Openings (American Banker, 12/5/2021) There are still 3 additional picks to be made to the Fed’s board of governors, including the vice chair for supervision.
How Fintech Became a Hit in Brazil (Wall Street Journal, 12/5/2021) Brazil’s Congress’ 2013 decision to pass a provision to authorize the creation of “payment institutions” has opened the door for fintechs to issue credit and debit cards.
Inside Cross River’s Ecosystem of Some of the Best Fintech Brands (Tearsheet, 12/3/2021) Cross River combines tech and banking, enabling the delivery of innovative financial solutions.
2021’s Winners And Losers In Fintech And Banking (Forbes, 12/6/2021) Fintechs Square (now Block), Plaid, Klarna, SoFi and OpenSea were winners in 2021.
Investors Are Using Robinhood, Other Platforms to Jump Into Options Trades, Worrying U.S. Regulators (Wall Street Journal, 12/7/2021) Daily options trading has jumped 35% YoY, to the highest level ever.
Coinbase Brought Crypto to Main Street. Now Brian Armstrong Wants to Be Your Banker (Inc., 12/6/2021) Armstrong believes that “Every major bank and financial service firm is going to do something with crypto eventually; it’s just too big a piece of the economy.”
Numerated Acquires Fellow Fintech Fincura (Fintech Futures, 12/7/2021) Fincura’s automated spreading and financial analysis tools will be integrated into Numerated’s digital loan origination system.
Meta Tests Split Payments Feature Within Messenger (finLedger, 12/3/2021) The new feature enables users to easily split the cost of bills and expenses among multiple parties, using Facebook Pay.
Kabbage Targets SMBs with New Credit Offering (finLedger, 12/8/21) Kabbage will provide $1k-$150k credit lines with 6-, 12-, or 18-month loan terms.
Lighter Fare:
A Plan for a $3 Billion Casino in New York’s Manhattan Includes a Massive Crypto-Trading Floor and a Flying-Car Landing Pad (Insider, 12/8/2021) The prospective resort would be named “Mirai” — “future” in Japanese.