Unemployment claims keep dropping and wages rising. The SEC is looking to regulate stablecoins, while regulators look to provide a roadmap for banks to get in on the action. A B2B BNPL raises $100Mn. PayPal backs away from Pinterest. Mastercard plans crypto support. Chime looks to go public for as much as $45Bn. Plaid enables account to account payments. BNPLs partner for reach.
Money20/20: Payments Focus Shifts to Crypto
Another Money20/20 in the books! Thank you to everyone we had the chance to catch up with in Vegas.
The event, which historically has been primarily focused on payments, remained so. The big difference? Crypto. Across the exhibit hall, on stage, and in 1-1 meetings, the buzz about the possibilities was unmissable. While the crypto industry and the potential applications remain nascent, institutional interest and acceptance have progressed at a furious pace. The big opportunity for crypto in payments is the potential for stablecoins to serve as a new set of payment rails. This has the potential to disrupt everything from old school ACH, to stalwart networks like Visa and Mastercard, and to relatively new fintech businesses that rely on interchange income as their primary source of revenue. Crypto-native investors get it, driving valuations as high as 50-100x revenue on early-stage companies, while some more traditional VCs are still shying away from the sector.
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Employers Raise Wages, New Unemployment Claims Keep Slowing
Survey data shows 58.1% of companies report rising wages and 47% reporting shortages in skilled labor. Average weekly earnings have risen 4.5% over the past year. New unemployment claims continue to slow, hitting a fresh pandemic low of 281,000 last week.
SEC Stakes Claim to Stablecoins
It is expected the SEC will emerge as the top dog in the fight to regulate stablecoins. The cryptocurrencies, which have come under increasing scrutiny recently, are marketed as pegged in value to an underlying currency, like the US dollar. But what assets underpin them, and even where those assets are, is not always clear. A government report expected to be published within days is likely to specify the SEC has significant authority to regulate stablecoins. It also is likely to suggest that Congress pass legislation that would regulate stablecoins similarly to bank deposits.
Meanwhile, the FDIC and other federal banking regulators are trying to develop a roadmap for how banks could engage in crypto to provide services like asset custody, trading, using them as collateral, and even holding them on their balance sheets.
The speed at which crypto is intersecting with the “traditional” financial system is astounding, and the implications are likely to be profound. Establishment players are recognizing the threats to legacy business models. And they’re reacting. Expect to see institutional interest and investment in developing crypto-powered products and services accelerate as regulatory clarity improves.
B2B BNPL Billie Raises $100Mn
Berlin-based Billie, which provides buy now, pay later financing for B2B transactions, announced it has raised $100Mn. The Series C round values the company at $640Mn. In addition to the equity raise, Billie secured refinancing lines totaling $200Mn from a group of German banks.
We don’t need to say “BNPL is on fire,” again. Bille’s raise (and valuation) demonstrate the potential for the financing mechanism to disrupt more than consumer payments and credit. Though consumer products tend to get the headlines, a new generation of startups like Brex and Ramp, among many others, are focusing on the B2B stack, further pushing into territory long held by banks and card issuers like JPMorgan Chase and Amex.
PayPal Back Peddles on Pinterest Acquisition
News broke late last week that PayPal was mulling a pricey acquisition of social media site Pinterest. By Monday, the company had already reversed itself, amidst a sharp decline in its share price. The share price drop would have further complicated the apparently unpopular deal by increasing the ownership stake Pinterest shareholders would get in such a transaction. Some analysts also expressed skepticism about PayPal’s ability to successfully integrate Pinterest in a way that would increase its total payment volume, revenue, and profitability.
The scuttled deal is certainly a bit of black eye for PayPal, which has been on a tear recently as it pursues its “super app” ambitions. Don’t expect this misstep to slow those efforts. Moving upstream to capture users earlier through the use of “social shopping” strategies remains a viable strategy, and one that is being pursued by rivals like Klarna and Square.
Mastercard to Enable Banks and Merchants to Offer Crypto
Mastercard is set to announce that thousands of banks and millions of merchants on its network will be able to integrate crypto functionality into their products and services. Offerings could include bitcoin wallets, cards that earn rewards in crypto, and loyalty programs where hotel or airline points could be converted to crypto. Mastercard is partnering with ICE spinoff Bakkt, which will provide custody services for the offerings.
Mastercard’s plans are case-in-point on what we observed first hand this week at Money20/20. Crypto is likely to disrupt traditional payment methods and networks. Traditional payment processors understand this. Mastercard’s move is an effort to embrace and get ahead of that disruption.
Chime Wants to Go Public at a $35-$45Bn Valuation
Neobank Chime is reportedly in talks to go public in 2022 at a target valuation of $35Bn to $45Bn. A quick reminder that yes, Chime raised $1.1Bn at a $25Bn valuation just a couple months ago.
Chime’s revenue, which is primarily derived from interchange, is expected to reach close to $1Bn this year. This implies a hypothetical revenue multiple of 35x – 50x, depending on the actual revenue and valuation Chime achieves.
To defend such a valuation as it reaches public markets, Chime will need to continue quickly growing its user base and boost ARPU by launching new products. Chime’s customer base, which skews lower income and less creditworthy, may make boosting revenue per user by cross-selling a challenging feat.
Plaid Looks to Power A2A Payments
Last week, Plaid announced its “payment partner ecosystem.” The functionality will enable consumers to leverage Plaid to initiate “account to account” payments via a pay with bank account option at check out. Account to account payments bypass traditional debit or credit card processing infrastructure and typically cost significantly less. Partners on the initiative include Square, Dwolla, Checkout.com, and Marqeta.
With Plaid’s payment ambitions coming into focus, it starts to become clear why Visa wanted to acquire the company. Merchants could steer users toward account to account payments to help them save on card processing costs. If such payments were to become popular, it would eat into card networks’ revenue. Neobanks that are highly dependent on card interchange also stand to lose.
BNPLs Partner for Reach
Mega fintechs Stripe and Klarna are teaming up on buy now, pay later. Merchants that use Stripe will be able to easily offer Klarna’s BNPL payments options to their customers. The move is likely to substantially boost Klarna’s reach, given Stripe’s status as one of the largest payment processors for ecommerce transactions. The partnership also helps Stripe defend from competitors like PayPal, which offers its own BNPL solutions, and Square, which recently acquired BNPL provider Afterpay.
Meanwhile, Bread, which is owned by private label card giant Alliance Data, and Sezzle announced a partnership. Sezzle has historically focused on offering “split pay” financing for smaller ticket sizes. With the partnership, Sezzle’s network of more than 40,000 merchants will be able to offer Bread’s larger installment loan option.
These types of partnerships exemplify two key trends in fintech. First, the BNPL model is still highly dependent on merchant acquisition to power its growth. These types of strategic partnerships are quick ways to boost distribution. Second, they demonstrate the trend of “embedded finance,” where one company’s offerings are distributed through another’s products and services.
Looking for the latest on fintech lending originations volume and performance, including the buy now, pay later sector? Reach out to firstname.lastname@example.org to learn about the data and analytics we have on the sector.
Pain and (Some) Gain as a Host of Companies Report
While many companies reported earnings and revenue beats, investors looked past the headline numbers, sending many payment providers, banks, and many fintechs lower. However, LendingClub and Live Oak Bank were bright spots (+33.1%, +8.5%) on LendingClub’s blowout earnings and as both companies exceeded analyst origination expectations.
Consumer spending maintained its upward trend, with payments rising from the second quarter on borders and the broader economy reopening (Mastercard +5.3%, Capital One +3.0%, Visa +2.6%).
We saw a number of fintech acquisitions and expansion of existing product offerings, as financial companies vie to become the “one stop shop” for consumer’s financial needs.
During the quarter, Visa announced an agreement to acquire Currencycloud, a fully cloud-based platform for B2B cross-border payments. Currencycloud offers a broad set of APIs enabling banks and fintechs to provide forex solutions such as multi-currency wallets, virtual account management, and real-time notifications on transactions. In addition to acquiring fintechs, Visa sees them as key players in their ecosystem, with CEO Al Kelly saying, “Fintechs have also fueled our growth. In the last year, nearly 30% more fintechs issued Visa credentials, and they have more than doubled their payments volume.”
With the seemingly endless new BNPL product offerings and partnerships that have been forged this year, Visa CEO Al Kelly asserted that Visa will be in line to capitalize on the space as it matures, explaining, “The majority of the installment payoffs are on cards today. We believe we’re currently experiencing BNPL 1.0. Individual fintechs and companies are cutting individual deals merchant by merchant. Eventually, we believe the business model will evolve to BNPL 2.0, where fintech partners issue Visa credentials to leverage our acceptance and platforms to overcome the difficulty of scaling acceptance globally, merchant by merchant.”
Mastercard shared the BNPL sentiment, touting its Mastercard Installments program, which would also bypass the need to engage merchants on an individual basis, and instead offer BNPL to consumers through their banking app, at the point of checkout, or through click-to-pay. Fiserv has also worked to expand its BNPL offerings, as last week we discussed its partnership with Synchrony to offer BNPL on its card processing platform Optis. While merchant-by-merchant deals may not have the ability to scale, emerging infrastructure from account-to-account payments may pose a threat to card networks’ role in BNPL in the future.
Mastercard announced the acquisition of Aiia, an open bank tech provider that offers a direct connection to banks through a single API, as well as CipherTrace, a security and fraud monitoring company with insights into 900 cryptos.
In addition to its partnership with Bakkt (as we mentioned above), Mastercard is also signing up new crypto wallet providers and exchanges to its network, including ZEN.com, Coinmotion and CoinJar. Bakkt has been the hot company to partner with in the crypto space, with Fiserv also announcing a new partnership with the crypto wallet solution provider, to develop new crypto use cases for both merchant and financial institution clients. Visa also has ventured into the space, with CEO Al Kelly stating, “Blockchains also will continue to expand our network of networks. Our settlement capabilities and our continued innovation around crypto APIs and services have been key to winning new partnerships. We have nearly 60 crypto platform partners with the capability to issue Visa credentials, and we’re already capturing over $3.5 billion of payment volume in FY ’21.”
Fiserv seeks to capitalize on progress towards a post-pandemic world with the acquisition of BentoBox, a digital marketing and commerce platform for restaurants. CEO Frank Bisignano explains, “This transaction will expand our Clover Dining Solutions and industry-leading commerce and business management capabilities, which already enable nearly 200,000 restaurants of all sizes to deliver unique and differentiating dining experiences from quick and casual, to fine dining.” By acquiring BentoBox, Fiserv is likely looking to build out a more full-stack experience that provides defense for its payment processing business by way of an over the top differentiator of restaurant POS.
Enova and LendingClub led fintech originations, reporting 25.8% and 14.1% growth from the prior quarter.
Enova’s 25.8% jump in originations was its largest QoQ increase to date. The increase was driven by a record number of new customers, showcasing its ability to attract customers in a reopening economy, with CEO David Fisher reporting, “In addition, originations from new customers increased to a record 43% of total origination, up from 39% in Q2 of 2021 and well above 11% in Q3 of 2020, as we believe our broad and diverse product offering combined with effective marketing across a wide range of channels is resonating very well with customers.”
While many companies increased marketing spend significantly to attract new customers, LendingClub was able to keep its expenses under control, with CEO Scott Sanborn stating, “Our marketing expenses as a percentage of originations during Q3 were only 163 basis points. That’s one of the best in the industry.” By controlling spend without sacrificing growth, LendingClub was able to report a blowout earnings per share figure, which sent their stock flying 33% higher.
Source: Google Finance, PeerIQ
In The News:
Banks Urge White House to Ditch IRS Reporting Plan (American Banker, 10/25/2021) Banks push back against reporting all account flow over $600, arguing this measure does not target high earners and that consumers have a right to privacy.
FTX Raises Over $420 Million, Reaches $25 Billion Valuation (Axios, 10/22/2021) The global crypto exchange raises its Series B in a “meme” round of $420.69Mn with 69 investors.
Andreessen Horowitz Plans to Raise Roughly $6.5 Billion for New Venture Funds (Wall Street Journal Pro, 10/24/2021) The new funds will focus on early-stage startups and growth-stage companies.
Banks’ Debt Sales Are Driving the Corporate Bond Market (Wall Street Journal, 10/26/2021) The six largest U.S. lenders have issued $314Bn worth of bonds in 2021 so far, the most for any year since 2008.
Small Banks Turn Corner on Loan Growth (American Banker, 10/25/2021) Community banks see some incremental loan growth, as businesses try to expand to meet an increase in consumer spending.
Lenders Say Americans Are Ready to Use Their Credit Cards Again (Financial Times, 10/25/2021) Lenders see deposits beginning to normalize as consumers start to draw down on savings.
Ocrolus Launches its Plug-and-Play Platform for Developers, Starting with Plaid (finLedger, 10/25/2021) The solution will combine Plaid’s consumer-permissioned payroll data with Ocrolus’ ability to analyze documents uploaded to its platform.
Two Fintechs Give Credit Unions Banking-as-a-Service Capability (American Banker, 10/25/2021) Mbanq will use Temenos’ banking cloud tech to offer credit unions APIs to create tailored services for customers.
This Little-Known Woman Billionaire Built A Fortune Powering Fintech Firms Like SoFi And Webull (Forbes, 10/25/2021) Jenny Just prepares for the public listing of Apex Fintech Solutions, which handles the back-end trading for many popular fintech startups.
Georgia Man Used Most of Covid Business Loan to Buy $57,000 Pokémon Card, Prosecutors Say (CNBC, 10/25/2021) Gotta catch ‘em all – man caught using PPP loan to buy rare Pokémon card.