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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
“As a matter of fact, I went to the doctor and he said that I was above normal. Or, as he put it, ‘abnormal.'” Andrew “Squiggy” Squiggman, Laverne & Shirley, 1976.
Whether you consider yourself “above normal” or just another banking consumer with unique needs, Arival Bank, which launched in 2018 as a spin-off venture from Life.SREDA, has you covered. The bank announced today that it is launching its Arival beta account to provide banking services to “abnormal customers.”
“Too many clients today are rejected by traditional even digital banks because they are viewed as ‘abnormal’, ‘too risky,’ or ‘unusual,” Arival Bank COO Jeremy Berger noted in a blog post announcing the beta launch. “International startups, new tech ventures, crypto-related businesses, investment funds, e-residency businesses, freelancers, charities, expats, digital influencers, bloggers, gamers and streamers, and many others are rejected by traditional and even digital banks. It’s only a matter of time (before) the demand from abnormal customers will outgrow that of traditional customers.”
Arival is introducing an online bank account that is tailored to the needs of businesses and entrepreneurs like these. The company is opening the beta release to 3,000+ early signups from its waiting list. Arival will be adding a business bank account and an individual bank account soon, and said that it is already accepting applications for both accounts. Beta participants also will get an early look at Arival’s banking platform, ArivalOS, with no fees for the first 90 days.
A Best of Show winner in its Finovate debut at FinovateAsia in 2018, Arival was founded to help underbanked businesses maximize the opportunities of digital banking. Powered by open API fintech banking, the company’s ArivalOS provides a digital banking platform that integrates a comprehensive suite of third-party fintech solutions and services geared toward the needs of SMEs and entrepreneurs. Headquartered in Singapore and co-founded in 2017 by Vladislav Solodkiy (CEO) and Igor Pesin (CFO), Arival raised more than $2.3 million in its equity crowdfunding campaign last fall, earning a pre-money valuation north of $14.8 million.
Lili, a New York-based mobile banking startup geared toward freelancers and gig economy workers, has picked up an investment of $10 million. Group 11 led the seed funding round, which also featured participation from Foundation Capital, AltaIR Capital, Primary Venture Partners, and Torch Capital.
The company, founded by Lilac Bar David (CEO) and Liran Zelkha (CTO), will use the funding to help support new product development, as well as expand the company’s customer base and add talent to Lili’s operations, marketing, and product teams.
“Lili is redefining banking for freelancers and we’re thrilled to be partnering with the team,” Group 11 founding partner Dovi Frances said. “As the future of work continues to evolve more quickly than ever in these uncertain times, Lilac and Liran’s forward-looking vision is changing how modern workers manage their finances, while saving them valuable time and money.”
Lili offers banking, expense management, and tax savings tools, a free checking account, and a Visa business debit card. No minimum balance is required and no account fees are charged. Account holders who authorize direct deposit can get their salary up to two days faster than they would with a traditional bank account, and the company’s business debit card can be used anywhere Visa debit cards are accepted. Free ATM withdrawals are available at more than 32,000 locations.
The company said that its technology can save freelancers “up to 60 hours and $1,700 per year” when they use Lili as their main account. In its statement, Lili noted that “tens of thousands of freelancers” across the U.S. are using the company’s app.
Last month, Fundera named Lili the Best Bank Account for Freelancers of 2020. Founded in 2018, the company’s FDIC-insured banking service was launched a year later with the backing of Choice Financial Group.
Wealth management technology provider Finantix announced today that it has appointed Christine Ciriani as its new CEO. Company co-founder and former CEO Ralf Emmerich will transition to the role of Executive Chairman.
“I am delighted to take up this leadership position at Finantix,” Ciriani said in a statement. She praised the company’s “award-winning” solutions for wealth managers, banks, and insurance companies, as well as Finantix’s “client-first culture” and strong teams. She pledged to continue working “to ensure that both our integrated and point solutions are rapidly adopted in the market to deliver the data-enabled, digitally-connected, and content-rich services today’s clients demand.”
Ciriani will continue to serve as the company’s Chief Commercial Officer, a position she has held since the fall of 2019. The wealth management and professional services veteran came to Finantix in February of that year, joining Finantix’s board of directors as a non-executive director as part of the Motive Partners investment in the company. During her time at Finantix, Ciriani has helped drive talent acquisition, commercial strategy, and market positioning, overseeing expansion in Switzerland, Japan, and Australia. She also has been praised for her role in the company’s acquisition of AI and data science-based solution provider InCube earlier this year.
“Under Christine’s leadership and working with our management team, we have successfully accelerated the process of expanding our extensive portfolio of innovative products,” Emmerich said. He added that the leadership shift would enable Finantix to maximize the next phase of its evolution as a leading provider of technology solutions for the wealth management, banking, and insurance industries.
“Now is the ideal time for me to hand over the reins to Christine so she can continue to build on the strong foundations we have created.” Emmerich said.
The C-suite news follows the launch of Finantix’s latest Digital Collaboration Hub. A client servicing solution, the Hub enables institutions to establish omni-device, multi-media collaboration channels with virtual private lounges that can be used to digitally enhance client interactions. Market updates and advisories, as well as onboarding and document exchange are among the client-oriented activities possible via the Hub. Banco Itaú International is one of the FIs that has deployed the technology, offering the Hub to its U.S. and Swiss clients.
A Finovate alum since 2011, when the company debuted at FinovateEurope, Finantix was founded in 1994 and is headquartered in Venezia, Vento, Italy. Acquired by Motive Partners in December 2018, Finantix wonBest Front Office Solution at the WealthBriefing Swiss Awards 2020 in February.
Digital identity technology plays an increasingly large role in financial services, and the current global public health crisis has accelerated this trend.
We spoke with Dean Nicolls, VP of Marketing for Jumio, to learn what the digital identity innovator is doing to help banks and other enterprises leverage this technology for their businesses. We also take a look at how the technology has been deployed to help deal with with coronavirus pandemic.
Finovate: Jumio announced that it is providing free identity verification services for organizations involved in COVID-19 relief. Which organizations qualify and why is Jumio launching this effort?
Dean Nicolls: Jumio launched Jumio Go for Good in March 2020 to help organizations involved in relief and assistance during this global health crisis quickly and accurately identity proof their patients, students and workers to ensure critical services can be delivered and trusted. Powered by AI, Jumio Go provides enterprises with a real-time, secure and reliable way to verify remote users, ensuring the person enrolling or logging in is who they claim to be online.
Jumio Go is becoming increasingly important in helping organizations across a wide range of industries reliably onboard and serve a number of important use cases (e.g., new account onboarding, fraud detection, AML/KYC compliance), where verification speed is critical. With Jumio Go, identity verification decisions are rendered in seconds, not minutes or hours, which translates to significantly higher conversions, lower fraud rates, and improved customer satisfaction.
Through September 30, 2020, Jumio will provide free identity verification services via its AI-powered, fully automated solution, Jumio Go, to any qualifying organization directly involved in helping with COVID-19 relief including (but not limited to): healthcare, online learning, and the general population.
Finovate: What services are included in this offering?
Nicolls: Jumio Go For Good is powered by Jumio Go, the only fully automated digital identity verification solution on the market capable of defending against bots, advanced spoofing attacks and sophisticated deepfakes, which are often leveraged for fraud.
By leveraging AI, Jumio Go works to prohibit bad actors from fabricating online accounts. As deepfakes, bots, and sophisticated spoofing attacks continue to rise, Jumio has integrated certified liveness detection to detect when photos, videos or even realistic 3D masks are used instead of actual selfies to create online accounts. Additionally, Jumio Go provides organizations with a real-time, secure, and reliable way to authenticate remote users, ensuring the person enrolling into a new service is who they claim to be in the real world.
Finovate: Identity verification has become an issue for small businesses seeking COVID-19 relief-related funding. What is the specific problem these businesses are facing and how can digital identity verification solutions help?
Nicolls: Small businesses across America are feeling the financial stress from shelter-in-place restrictions that have millions of people taking refuge from the outbreak by staying at home and working remotely. Recent changes have brought about a new question for the financial industry: how can lenders properly evaluate small businesses when they can’t physically walk into their office? For reference, SBA lenders are those who work with the Small Business Administration and provide financial assistance to small businesses through government-backed loans. The implementation of online identity verification solutions helps SBA lenders vet small business owners to ensure they follow compliance mandates (KYC/AML) by verifying their digital identities. Instead of requiring small-business owners to visit a local branch office, they can verify their online identity from the safety of their home, allowing lenders to effectively manage the influx of requests, and small-business owners the peace of mind knowing they’re being supported at this time.
In the future, identity verification solutions will become crucial for SBA lenders to establish trust remotely with an increasing number of remote users who simply do not want to visit a branch office. Jumio Go verifies government-issued IDs and ensures that the individual in the selfie matches the picture on the ID. A biometric-based approach to authentication helps expedite onboarding while also deterring fraud by as much as 90%.
As the number of SBA lenders continues to increase, online identity verification will rapidly become a vital competitive advantage in terms of quickly distributing capital to small-business owners and nonprofits on the front lines, while also preventing cyberattacks.
Finovate: What are the key technologies behind identity verification solutions such as those offered by Jumio? AI? Advanced machine learning? What capabilities do these technologies enable that would not be possible otherwise?
Nicolls: Jumio launched Jumio Go, the company’s first real-time, fully automated identity verification solution, in November 2019. It is designed to remove friction from the user onboarding process, while preventing online identity fraud and meeting AML and KYC compliance mandates. Jumio leverages the power of informed AI and equips modern enterprises with instant online identity verification that delivers a simple and intuitive experience for good customers.
There are three critical ingredients to informed AI:
Data Breadth: Jumio has verified 250 million digital identities to date. This gives Jumio a big leg-up in developing smarter algorithms. Not only is the data set very large, but it’s also very deep. Jumio’s database has seen large volumes of each one of the more than 3,500 ID document types/subtypes from more than 200 countries and territories.
Ground Truth: Jumio has leveraged supervised AI from the very beginning. This means Jumio employs identity verification experts who tag every identity verification based on an analysis of the security features and physical characteristics of an ID and selfie. These verification experts have spent thousands of hours reviewing and verifying government-issued IDs from all over the world which helps train our algorithms and make them iteratively smarter.
Production Data: Jumio’s AI algorithms are trained on real-world production data, not purchased data sets. Jumio AI models are trained on images of ID documents and selfies where the images may be blurry, dimly lit, or have excessive glare which means our models are more robust and scalable than models trained on perfectly captured photos. This also helps us avoid bias since the data has been tagged by trained verification experts.
Finovate: Where is adoption of identity verification technology most robust? Are there industries where the technology would be especially valuable, but adoption rates have been slower than expected? If so, which industries and what challenges to adoption are they facing?
Nicolls: Traditional banks have been surprisingly slow to adopt online identity verification and take digital transformation seriously. When you’re talking about traditional banks, there are numerous divisions including retail banking, private banking (for high net worth individuals), business banking and brokerage accounts. While all banks need to comply with KYC/AML checks when new accounts are created and have defined customer identification programs (CIP) in place, the methods they employ to establish a consumer’s digital identity are varied. Many traditional banks leverage non-documentary approaches to corroborate identity and this often involves pinging third-party databases or credit bureaus based on self-reported information from the consumer (e.g., name, address and date of birth).
Unfortunately, these methods are not overly reliable. In fact, Gartner recommends that identity proofing solutions that rely on shared secret verification, such as out-of-wallet knowledge questions, or memorable personal data, be phased out. The concept of high-memorability, low-availability data has become archaic since the rise of social media and the subsequent plethora of breached data available through underground organizations. By requiring a picture of a government-issued ID, and pairing it with a corroborating selfie (which should include an element of liveness detection), banks can have much higher levels of identity assurance than traditional approaches and can deter as much as 90% of attempted fraud.
Finovate: Lastly, are there any upcoming announcements or initiatives coming in the next few weeks that we should be looking out for?
Nicolls: Jumio is launching a new suite of address services that can be used to validate and corroborate addresses with independent, third-party sources. Historically, Jumio has only relied on the ID document itself and a corroborating selfie as the fraud signals. Jumio Address Services actually consist of two distinct services:
Jumio Address Validation:Determines if the address extracted from a government-issued ID (e.g., passport, driver’s license, ID card) exists in the real world.
Jumio Proof of Residence: Checks to see if the person being verified actually lives at the physical address extracted from their ID document. In the U.S., if the user moved, we would return whether the address provided matches the most recent address on file.
With these new add-on features, customers can use this data as additional fraud signals that help enterprises know if the person creating a new account is in fact who they claim to be. These services will be sold with our current identity verification solutions to provide a more holistic picture of an online user.
Founded in 2010 and headquartered in Palo Alto, California, Jumio has been a Finovate alum since its debut at FinovateFall in 2013. In the company’s most recent appearance on the Finovate stage at FinovateAsia in 2018, Jumio demonstrated how its Netverify Identity Verification solution used liveness detection to prove an individual’s physical “presence” at the moment of the transaction.
In a round led by Gallatin Point Capital and The Rise Fund, mobile banking startup Varo Money has secured $241 million in new funding. The investment in the San Francisco, California-based fintech, which featured participation from HarbourVest and Progressive Insurance, takes Varo’s total capital to $419.4 million.
The funding comes at a time when Varo Money is closing in on the opportunity to be the first, fully-digital U.S. bank to earn a national charter – as early as this summer. The charter would enable the company to add credit cards, loans, and other savings products to its offerings.
This most recent investment will help Varo further develop its mobile banking solutions. In a statement, Varo Money co-founder Colin Walsh underscored growing consumer preferences in favor of digital banking services, and said that the company, founded in 2015, has been “laser-focused” on becoming the first fully digital bank in order to take advantage of this kind of opportunity from the start.
The investment also will accelerate the company’s goal of bringing better banking services to the underbanked. “Varo was founded first and foremost to make a powerful impact on systemic financial inequality in communities across the country,” Walsh said. “As the first fully digital bank, Varo will bring our mission of financial inclusion to life and create more financially resilient – and thus healthier and stronger – communities. This new investment will enable us to complete the chartering process and leverage our modern banking technology to build on our track record of innovation and inclusion,” he added.
Varo Money offers a high-yield savings account with an annual percentage yield of up to 2.8% for five-digit savers, as well as a Varo Visa Debit Card. The company also offers an online bank account with no overdraft or monthly fees charged, and no minimum balance required. Accountholders can authorize direct deposit with their Varo accounts to get their paychecks up to two days early, and can send money instantly and without fees to other Varo accounts. Deposits are FDIC insured to $250,000 courtesy of Varo’s partnership with The Bancorp Bank, and accountholders have access to fee-free ATM withdrawals at more than 55,000 ATMs worldwide.
Illuma Labs, creator of the real-time audio authentication platform for secure voice communications, Illuma Shield, has received a joint investment from The Veridian Group (a CUSO of Veridian Cedit Union) and Texas Dow Employees Credit Union (TDECU). Terms of the funding were not disclosed.
The investment comes as a result of Illuma Labs’ participation in VentureTech, an annual program that helps fintechs seeking funding to secure investment opportunities from within the credit union industry. Illuma was part of VentureTech’s 2019 cohort, which also featured fellow Finovate alums Wizely Finance, Terafina, Plinqit, and Pinkaloo. VentureTech was launched by The Veridian Group, Open Technology Solutions, and CUNA Strategic Services in 2018, and will hold its third event this fall.
“Instead of waiting for technology to come to market, VentureTech allows the credit union industry to be proactive in building its competitive advantage in the digital space,” President of The Veridian Group, Nick Evens explained at last year’s conference, which saw Illuma Labs take home top honors. “By recognizing and investing in promising fintech, we’re providing innovative, digital-first solutions that will drive the Movement forward.”
Iowa-based Veridian Credit Union, the FI served by The Veridian Group, has more than 244,000 members and $4.5 billion in assets. Texas Dow Employees Credit Union, with $3.7 billion in assets and more than 263,000 members, is the biggest credit union in the Houston, Texas area, and the fourth largest CU in the state.
Founded in 2016 and making its Finovate debut last year at FinovateSpring, Illuma Labs provides real-time voice authentication for customers around the world. With a technology that has its origins in R&D projects with the U.S. Department of Homeland Security Science and Technology Directorate, the company’s solutions support secure communications in verticals ranging from financial services and insurance to e-commerce. Illuma Shield, the company’s flagship solution, leverages signal processing, machine learning, and AI to offer call centers a real-time voice authentication solution that analyzes voices in natural conversation and provides a high authentication accuracy rate in a short period of time.
Headquartered in Plano, Texas, Illuma Labs was founded in 2016 by Milind Borkar (CEO) and Jeremy Whittington (CTO).
We caught up with Uri Rivner, co-founder and Chief Cyber Officer of BioCatch, a leading cybersecurity firm that provides behavior-based authentication and threat detection solutions to banks, e-commerce platforms, as well as mobile and web applications.
We wanted to learn how the company, founded in 2011 and headquartered in Israel and New York, has fared in the wake of its major $145 million spring fundraising. We also wanted to hear about the new cybersecurity environment brought on by the global public health crisis and what BioCatch is doing to help institutions manage this challenge.
Finovate: You are one of the founders of BioCatch, and your current role with the company is Chief Cyber Officer? What does this role entail within the company?
Uri Rivner: I was actually head of new technologies at security giant RSA when, in 2011, a foreign state hacked into RSA. It was one of the most famous hacking incidents in history, and following that I was on the look for new technologies that can help the industry against cyber attacks and online fraud. BioCatch, then a very young company, came to us at RSA to present the tech, which sounded really sci-fi. I was impressed and introduced them to industry players who all said that if this was working as advertised, this is a game-changing technology.
At some point the founders of BioCatch asked me to join as a co-founder and help them build the business. I joined mid-2012 as VP of Cyber Strategy. My current role as Chief Cyber Officer is to identify new cybercrime business problems the technology can address, and provide internal and external thought leadership on the role of behavioral biometrics in digital transformation and fighting online fraud.
Finovate: When we last shared BioCatch news with our readers, it was in April on the heels of the company’s $145 million fundraising. How big of a moment was that for BioCatch?
Rivner: It was a major milestone. A vote of confidence that showed us how well the market appreciates what we have accomplished. We’ve taken a scientific field in cognitive studies, something that was working in the lab, and made it extremely practical for use in solving the biggest issues in online fraud across dozens of banks, credit card issuers and companies outside the financial sector, protecting over 100 million online and mobile users. We’ve tackled issues that were initially deemed impossible to solve. And we’ve done all of that with very happy customers and a highly scalable product. It was a proud moment, but at the same time also a commitment to work very hard to justify the trust of our new investors!
Finovate: What has BioCatch been up to in the weeks since then – specifically, how has the COVID-19 crisis impacted the work your company does?
Rivner: Our team has shifted to a work from home model; it was done quite efficiently, and we experienced no issues in continuing to serve customers. We run in the cloud, and there was no interruption to the service. The customers also moved to the same mode of operation.
Finovate: Let’s talk about some of the new security challenges that have developed during the pandemic. It seems like there are fraud “hotspots” everywhere: COVID aid/relief fraud, the security issues of Work From Home, and the potential for identity crime in any track and trace program. Can you talk a little about the cybersecurity landscape in the era of COVID-19?
Rivner: If I had to pick one community that is definitely going to thrive during a global virus outbreak, it’s online fraudsters. They have a golden opportunity to scale their operations while entire companies move their fraud operations and analytics teams to a work from home model, which is not an easy process for, say, a major bank. Here are some of the trends to watch for:
Stimulus Fraud
American taxpayers get a direct deposit to their bank account using the information included in the last tax return they filed. If they haven’t filed a tax return for 2019 yet, it’s then a race with the fraudsters, who will try to beat them to it and provide a falsified tax return including a bank account that they control. This means the stimulus deposit will go to the bad guys. There are many people who do not file tax returns and go to a website where their information is validated and a check is sent to their address. That’s an easy venue for identity thieves who can obtain full identity records for all U.S. citizens in the dark web. Fraudsters are also impersonating small businesses to apply for stimulus loans using similar methods. In short, it’s a fraudster’s heaven.
Account Opening Fraud
The most scalable fraud operation is opening credit card or personal loan accounts. All you need is to buy a bigger list of stolen identity records, and have a team of people opening accounts in other people’s names. Identity theft is reported to sky-rocket, and it can be quite dangerous, especially if it’s a new digital service that is launching these days. If a new digital service is targeted by a massive campaign, there will be more fraud applications than real applications – that’s disastrous. Traditional defenses such as checking KYC (know your customer) data and device recognition no longer hold, and new technologies such as behavioral biometrics are used to stop such fraud campaigns and reduce false rejections due to high security bars.
Corona Tracker Rogue Apps
Cyber space is teeming with coronavirus scams. The most dangerous scams are the ones that manage to trick users into downloading rogue apps onto their mobile device. They’ll look like useful tools that alert you when a coronavirus carrier is in your immediate vicinity or providing CDC-approved virus contagion maps. But, in reality, they’re after your mobile banking app and mobile e-commerce purchases.
Social Engineering… From ‘Your Bank’
“Hey, we’re your bank, and wanted to reach out! The branch is closed, so we’re the friendly help desk. We’ve noticed some issues in your account, and would like to help you sort it out. Can you please install this utility to help us run some tests remotely?” You know the rest of this story.
Uri Rivner demonstrating BioCatch’s Passive Biometrics/Invisible Challenges technology at the company’s Finovate debut in 2014.
Finovate: Earlier this year you were part of a conference presentation that highlighted the importance of machine learning and AI in fighting fraud. What about these enabling technologies is so beneficial when it comes to cybersecurity?
Rivner: My lecture talked about how Sherlock Holmes managed in A Case of Identity to identify an imposter based on a dozen or so “features” related to the typewriter they used to type love letters. Machine Learning can instantly look at thousands of features, resulting in an extremely accurate model that predicts fraud and can adapt itself when cyber criminals change their strategy. At BioCatch we have over 2,000 such features – and not even good old Sherlock could have managed that many in his identity model!
An important consideration though is that some machine learning models are a black box and don’t really provide insights into why a certain action is risky. BioCatch, for example, uses Explainable AI models to make sure customers can get the reasons why a score was high, as well as many negative and positive behavioral factors observed during a session.
Finovate: What can we expect from BioCatch over the balance of 2020? Has the global health crisis made it more difficult to have visibility into the second half of the year?
Rivner: Fraud isn’t going away and, in fact, we anticipate a surge in account takeover activity as criminals scale up their cash-out operations. They already have the data they need to steal more money, but they need to scale their infrastructure. Think of mule accounts for moving money out of victim’s account. The crisis makes it easy to recruit mules in work-from-home scams, and to open bogus bank accounts to which stolen money can be moved. Right now criminals are busy doing just that, preparing for a big wave of attacks that is likely to focus on real-time payments such as the relatively new Zelle infrastructure in the U.S., or similar services elsewhere. So demand for a frictionless control that stops fraud and highlights genuine behavior is going to increase.
Specifically, Banco Santander will use ThetaRay’s anti-money laundering technology to detect activity in SWIFT traffic, risk indicators, and KYC data that may be indicative of money laundering. Banco already has begun deploying ThetaRay’s anomaly detection solution and anticipates a full global rollout “over the next months.”
“We are proud that a financial institution as universally respected as Santander Bank has chosen our AML solution for correspondent banking,” ThetaRay CEO Mark Gazit said. “Recent progress with Partnerships Unit makes me feel Santander is the best financial platform to partner with.”
ThetaRay leverages big data analytics and machine learning algorithms to provide organizations with automatic, real-time detection of suspicious behavior. This enables firms to move faster to address potential threats and to initiate early remediation efforts sooner. ThetaRay’s Investigation Center, designed specifically for the needs of correspondent banking, gives Santander complete access to the data lineage, as well, enabling the bank to conduct extensive forensic investigations to understand the reasoning behind every warning generated by the system.
“ThetaRay’s solution will further improve our ability to detect the earliest signs of money laundering and uncover unknown originating risks,” Santander Global VP for Global Transaction Banking CIB, Carlos Gutierrez said.
ThetaRay demonstrated its technology at FinovateFall in 2015, showing how its fraud and anomaly detection solution helps increase the efficiency and accuracy of cybersecurity systems. Last month, as part of the company’s effort to help financial institutions manage new cybersecurity challenges during the coronavirus crisis, ThetaRay launched FAST START. The new offering packages ThetaRay’s financial crime technology into a cloud-deployable solution that banks can get up and running within 30 days. FAST START is available in three different packages – AML Alert Triage, AML Detection and Monitoring, and Enterprise Fraud Prevention -geared toward the specific kinds of cyberthreats FIs are dealing with.
Founded in 2014 and headquartered in both Israel and the U.S., ThetaRay has raised more than $66 million in funding from investors including ABN AMRO Ventures and Jerusalem Venture Partners (JVP).
As a company, the only thing better than a customer that loves your services and solutions is a customer that wants a piece of the action as well. That’s the happy situation digital banking solution provider Meniga finds itself in; the multiple-time Finovate Best of Show winner has just secured a $9.4 million (€ 8.5 million) strategic investment from current customers Grupo Credíto Agrícola, UniCredit, and Groupe BPCE, which led the round.
The investment, which takes Meniga’s total equity funding to more than $43 million, will help fuel the company’s R&D activities, as well as bolster its sales and service teams. Also participating in the round were current investors Velocity Capital, Industrifonden, and Frumtak Ventures.
Having Groupe BPCE, the second largest banking group in France, as both a customer and an investor is no accident. “Partnering closely with our customers is a key part of our strategy to be the preferred digital innovation partner to our clients,” Meniga co-founder and CEO Georg Ludviksson explained. “An equity relationship is an excellent way to strengthen such partnerships and we appreciate the continued vote of confidence and growing business we have with our impressive global client base.”
Meniga’s funding announcement comes amid a flurry of activity worldwide from the London-based company. In April, Meniga partnered with UniCredit to offer an enhanced version of its smart banking app in the Czech Republic. Also that month, Meniga teamed up with payments and transaction services firm Worldline to help boost digital customer engagement via personalization. Opening a new office in Warsaw, Poland in March, Meniga began the year by receiving its AISP license from the Financial Conduct Authority (FCA) in the U.K.
“The FCA license is an important milestone for Meniga,” Ludviksson said when the license was granted this February, “We will now be able to test new innovations against the Open Banking APIs and with real use cases, which will help us develop products of outstanding quality.”
Meniga’s technology is used by more than 90 million digital banking customers in +30 countries. Founded in 2009, the company most recently demonstrated its technology at FinovateFall in 2019.
How has COVID-19 impacted fintech funding in the first half of 2020?
Writing about fintech funding in the first quarter of 2020, CB Insights painted a bleak picture of how the global health crisis and its economic effects have put a pall on VC investment in fintech around the world.
“Worst first quarter for funding since 2017…” “Worst first quarter for deal volume since 2016 …” Across the globe, venture capital investors were on the retreat with only Europe showing significant quarter over quarter growth – thanks largely to the $500 million investment secured by Revolut.
And as the appetite for risk waned, so did interest in smaller fintech startups. CB Insights noted that early stage startups were among the hardest hit in the first quarter, with this subset of companies falling to a nine-quarter low in funding and a 13-quarter low in deal volume.
The struggles of the first quarter of 2020 – when the lockdowns, shelter-in-place, and quarantines were implemented – had reduced much of economic activity to a trickle. With Q2 all but wrapped up – and countries around the world beginning, some more tentatively than others, to reopen their economies – are venture capital investors proving more ready to return to the table?
What were expectations for 2020?
Although VC investment in fintech was down modestly from 2018, last year featured more than enough fundraising to give fintech observers confidence that 2020 could still be a strong year. Again, using CB Insights’ figures, fintech investment pulled back to $33.9 billion in 2019 from $40.8 billion in 2018, with deal volume easing to 1,912 deals in 2019 from 2,049 deals in 2018. Early stage investment declined from a peak in Q1 2018, en route to the 13-quarter low noted above. But investment in more mature startups, Series B and beyond, was strong, with deal volumes reaching their highest levels in five years.
Articles like “Fintech Startups Got All the VC Love in 2019” were also indicative of the general optimism fintech observers felt headed into 2020. Major merger and acquisition deals like Add to this the enthusiasm engendered by major merger and acquisition deals like Fiserv and First Data, and Worldpay and FIS added to the enthusiasm. When combined with the rise of digital banking and regtech, and the addition of 12 new fintech unicorns in the U.S., the conclusions reached by KPMG late last year in its Pulse of Fintech report for the second half of 2019 seemed perfectly sound.
“Fintech investment is well-positioned to grow in 2020,” the report noted, “particularly with the growing proliferation of fintech hubs globally, not to mention the ever-widening scope of fintech offerings.”
How have these expectations played out? Who has benefitted most?
While fintech VC funding in the first half of the year has struggled, there are signs that this slowdown may be a function of trends that began before the pandemic hit. The second quarter – when quarantines were the case in much if not most countries – did not lack for big fintech deals; Stripe’s $600 million extension of its Series G round in April rivals the $500 million raised by Revolut in February. Micro investment platform Stash scored $112 million in funding in April, as well. Payments company Marqeta announced a $150 million investment – and $4.3 billion valuation – in May.
Similarly, did COVID-19 cause or merely accelerate a growing VC preference for larger, more established companies over the early stage startups? KPMG was among those who predicted that 2020 would see “frothy speculative deals … increasingly replaced by high-conviction deals focused on companies with proven business models and paths to profitability or access to capabilities in adjacent areas of interest.” This view was shared in February, before the challenge of the global public health crisis had become incorporated fully by many analysts (and not just fintech). Since then, we have seen this play out in the form of new lows in deal volume and deal value for seed and Series A fintechs mentioned above.
When risk appetites are modest, it is understandable that the riskier, early stage startups will be those most likely to suffer. This so far has proven to be the case this year, as investment preferences continue a trend toward relatively more established companies. The fact that this shift had been anticipated by analysts, pre-COVID, suggests this trend is likely to endure in the near term.
Has there been significant geographic variation? Why?
As mentioned above, the only area to see significant VC investment gains in their fintech sector was Europe. In all other regions – Asia, North and South America, Australia, and Africa – both deals value and deal volume were down in the first quarter of 2020.
The profile of VC fintech investment in Europe so far this year was boosted by the $500 million raised by Revolut in Q1. Fintech is in many ways a favorite sector of the European venture capitalists; fintech has lead all others as a destination for VC investment for the past 6+ years. But there was no big Revolut/Stripe level investment in Europe in Q2, although there were a number of smaller deals in firms like U.K. ID verification company Onfido ($100 million) and Germany-based stock trading app TradeRepublic ($62 million) in April. U.K. challenger bank Monzo is also reportedly working to raise capital, as well.
One interesting development on the international fintech funding front is the continued rise of India relative to China. As reported in our weekly Finovate Global column last week, fintech investment in India bested fintech investment in China by a significant margin of more than $50 million. Indian fintechs racked in more than $330 million in funding while their Chinese counterparts raised “approximately $270 million” in capital. Deal volume in India also surpassed deal volume in China in Q1 by 37 to 26. GlobalData, the firm that conducted the analysis, credited the overall cooling of VC investment enthusiasm as disproportionately benefitting India relative to China.
Interestingly, early stage startups were the preference of Indian investors, compared to a focus on more established fintech firms in China, where the fintech industry is arguably both more advanced and more COVID-sensitive, at least in terms of headline risk.
What are the best projections for H2 2020 and beyond?
The analysts at CB Insights have suggested that we could see a “fintech M&A” spree in the second half of the year. This would mean a resumption of a trend toward consolidation in many areas of fintech that was pronounced in 2019 and at the beginning of this year. They highlight the deals involving Plaid and Credit Karma, SoFi’s acquisition of Galileo and LendingClub’s acquisition of Radius Bank. This is another trend that could be accelerated as part of the industry’s response to the coronavirus, as hardships for some companies become opportunities for others.
Most fintech analysts remain relatively positive about the industry and its capacity to continue to attract VC money during and after the pandemic. In its report on the fintech and the coronavirus – The Future of Disruptive and Enabling Financial Technology Post CV-19 – Finch Capital sees opportunities for lenders, and for both “agents of digitalization” and digitalization’s newest beneficiaries in mortgage and insurance. Enabling technologies like AI and critical services like cybersecurity and KYC are also likely to continue to fuel innovation and investment in fintech. Interestingly, those industries the report sees as “under pressure” – challenger banks, wealth management, and payments – are among those at the foundation of traditional fintech. This may suggest more disruption – and perhaps more consolidation – ahead for incumbents in these areas once we emerge on the other side of the current crisis.
This week on Finovate Global we feature an interview with Beerud Sheth, co-founder and CEO of smart messaging platform, Gupshup. We talked with Mr. Sheth about the smart messaging business and its relationship to driving payments in India. We also discussed the current state of Indian fintech more broadly, including an update on Prime Minister Modi’s goal to improve financial services through a combination of better payments technology and new digital identity solutions.
Finovate: Tell us about Gupshup and the role of smart messaging in enabling payments in India.
Beerud Sheth: Gupshup is a smart messaging platform. We use messaging as a platform to make it easier to use other services such as e-commerce, payments, and more. Messaging enables one-click payments, which makes it easier for consumers to keep up with their busy financial lives. For example, they can pay bills instantly without missing deadlines, manage recurring payments, make a digital payment to an offline merchant, or pay friends quickly and easily.
Finovate: Tell us a little bit about yourself and your background. Why did you decide to launch the company?
Sheth: My name is Beerud Sheth – co-founder and CEO of messaging and AI-building company Gupshup, based in Silicon Valley. We are primarily focused on automating enterprises’ messaging processes across multiple channels using a single API. I am responsible for the overall strategy, execution, and growth of Gupshup.
I also founded Elance, the world’s largest online services marketplace, and also have played various leadership roles at different stages of the company’s growth.
Before founding Elance, I worked in the financial services industry, modeling, structuring, and trading fixed income securities and derivatives at Merrill Lynch and, before that, at Citicorp Securities. My graduate research, at the Massachusetts Institute of Technology’s Media Lab, involved developing autonomous learning software agents for personalized news filtering.
I earned an M.S. in computer science from Massachusetts Institute of Technology and a B.Tech in Computer Science from IIT Bombay, where I was awarded the Institute Silver Medal. I am a frequent speaker at industry events as well as a holder of two technology patents.
Finovate: You recently won a $100,000 Grand Challenge competition sponsored by the Bill & Melinda Gates Foundation. Can you tell us about this contest? Why did you get involved in this event and how do you think it will help promote your technology and solution?
Sheth: The Gates Foundation in partnership with National Payments Corporation of India (NPCI) sponsored a competition to discover new ideas to enable payments for the next billion users – who use low-end feature-phone devices. It attracted over 750 participant companies from around the world. They announced a couple of weeks ago that Gupshup won the 1st prize. Our key insight was that for payments to work well, the primary focus has to be on the user experience. If users have to remember and type in numerous digits, it will never work for users that may not be tech-savvy or have low-end devices.
Gupshup used its expertise in messaging to enable a one-click payment experience. The message contains the entire context about the payment, freeing up the user to do nothing else except authorizing the payment. Gupshup is now working with enterprises and device manufacturers to roll this out to consumers.
Finovate: Your winning entry was a solution called the Smart Feature Phone. What does the phone do and who is the primary market for it?
Sheth: The Smart Feature Phone brings smartphone like capabilities to the feature phone. The target users are the next billion feature-phone users in emerging markets that are left out of the digital ecosystem.
The key feature is the use of messaging to enable chatbots and payments on the feature phone. Chatbots and the Bot Store have the same impact on feature phones as Apps and App Stores did on smartphones. It opens up a wide range of use cases including commerce, gaming, entertainment, sports, etc. Payments enable the monetization of these activities.
Finovate: Can you tell us a little about your partnership with Amazon?
Sheth: Gupshup partnered with Amazon Registry Services to enable customers to validate their bots and register a domain name with Amazon’s BOT Registry.
Without getting too technical, this means users who own, operate, or manage bots published using Gupshup’s tool will be able to be found by end-users no matter what platform or framework they use now or in the future, something previously unavailable for bot owners.
Finovate: You’ve also leveraged your technology to help during the global coronavirus public health crisis. Can you tell us a little about the “COVID bot” you’ve created?
Sheth: CareMe Health, a Chennai-based tele-health company, the National Health Mission of Tamil Nadu and American company Gupshup, worked together in implementing a multi-language WhatsApp-based chatbot readily accessible by millions of citizens in Tamil Nadu and the world over.
The bot, named Careme Bot, is designed to:
Educate the users on the health hazards of COVID-19
Provide emergency helplines and information on testing centers
Facilitate self-reporting
Provide up-to-the-minute updates on the COVID pandemic
The creators of Careme Bot are Dr. Arun Babu and Dr. Vasanth Kattalai Kailasam- Chief Medical Officer, Interventional Pain Physician at Northern Light Health, Maine, USAGK, CTO of the company. Check out screenshots of the Careme Bot here.
Finovate: What do you find most interesting about the Indian fintech scene right now? What is it about the fintech scene in India that you think would surprise people outside of India?
Sheth: The scale of a billion-user market would surprise people outside India. India is leapfrogging its way to advanced fintech services since the consumer has been capital-starved for a long time. Indians tend to be conservative about debt which makes them generally creditworthy. However, the financial delivery systems have been lacking, which is now changing because of new technology and startups.
Finovate: You mentioned that one goal of your solution is to help realize the JAM initiative proposed by Indian Prime Minister Modi. Could you elaborate a little on this vision and why it is important?
Sheth: Prime Minister Modi’s vision is to transform India by making sure no citizen is left behind. Three initiatives, in particular, are critical enablers: Jan-dhan (a layer of free, basic financial and payment services for every citizen), Aadhar (unique, biometric-linked identity, like SSN + fingerprints, for every individual) and Mobile (delivery of government services through ubiquitous mobile phones).
The missing piece was the enablement of financial services on low-end feature phones. This problem has now been solved by the Gupshup solution.
Finovate: What can we expect from Gupshup over the balance of 2020 and into the next year?
Sheth: Gupshup is singularly focused on its vision of “smart messaging” i.e., leveraging the power of messaging tools to enable richer services. As people’s lives get increasingly busy and complex, messaging apps, with their ubiquity, simplicity, and richness, are uniquely positioned to be the glue that ties it all together. Gupshup will keep rolling out new components of this over-arching vision.
Cloud banking platform provider NYMBUS, which demonstrated its SmartLaunch banking-as-a-service solution at FinovateFall last year, has partnered with Pacific National Bank (PNB) to help the Florida-based company launch a digital-only bank, FACILE.
“We knew we had to act fast to meet the rising consumer demand for digital banking services,” Pacific National Bank CEO Carlos Fernandez-Guzman said. “Only NYMBUS could immediately offer us a proven, unified solution that delivers on-demand access to their wide-range of digital-first technology products combined with a 24/7/365 live call center and remote business process management support.”
The new offering from Pacific National Bank, an institution with more than $656 million in assets, is designed to provide on the kind of online and mobile banking services that young professionals increasingly demand. FACILE will offer both digital checking and savings accounts on a fee-free basis. Accountholders can make mobile transfers and payments, take advantage of personal financial management tools and resources, and access a network of fee-free ATMs. The account also comes with a debit card that features card controls for both better security and keeping spending at a manageable level.
Headquartered in Miami Beach, Florida and founded in 2015 by Scott Killoh, NYMBUS has raised more than $33 million in funding. The company began the year teaming up with PeoplesBank, a Massachusetts-based financial institution with assets of more than $2.9 billion, that deployed both NYMBUS’ SmartMarketing and SmartOnboarding solutions. “NYMBUS will integrate key aspects of our marketing, onboarding, and CRM ecosystems,” PeoplesBank president and CEO Tom Senecal said. “Together with instant end-to-end reporting that crosses business lines, we will ultimately be setup to strategically course correct future spending for even greater outcomes.”
Finovate Podcast Interviews Steve McLaughlin of FT Partners
In the latest edition of the Finovate Podcast, host Greg Palmer catches up with Steve McLaughlin, founder, CEO, and managing partner at Financial Technology Partners. Launched in 2001, FT Partners, as it is known, is the only investment banking firm dedicated solely to fintech. The company has been recognized by the M&A Advisor as “Dealmaker of the Year” and “Investment Banking Firm of the Year.”
Greg and Steve talk about the fintech industry from the perspective of an investment banker. They discuss the issue of capital availability, company valuation, and the idea of a harsher grading rubric for fintech.
Here is the latest news from our Finovate alums:
ThetaRaylaunches FAST START to help banks fight cybercrime during Covid-19.
Capita Consulting leverages low-code technology from Outsystems.
Minna Technologieslaunches pilot with Tatra banka in Slovakia.
SaltEdge’s new solution helps banks get exempted by the regulator from providing a fallback channel.
Token.io’s payments API to power open banking payment services for Upco’s Mobile Messenger.
DriveWealth to integrate with Access Softek’s new investing app, EasyVest.
ACI Worldwide to provide e-commerce payment processing for retail payments platform, Wundr.
Payment processor Trustlyteams up with Ecommpay to offer three months of free processing.
Finastralaunches its Fusion Credit Connect solution on Salesforce AppExchange, FusionFabric.Cloud.
Bokupowers direct carrier billing and e-wallet payment services for Korean game developer Pearl Abyss Corporation.
MXlaunchesAudiences, a new segment builder tool to help banks improve marketing efforts.
ID R&DreleasesIDFraud Contact Center to address subscription fraud in the contact center.
DriveWealth to bring U.S. stock investing to India-based INDmoney clients.
Coinbaseplans to be a “remote-first” company after COVID-19.
Ethoca and Mastercardpartner to help retailers deal with chargebacks and fraud during the COVID-19 crisis.
Kabbagereceives SBA approval to fund PPP applications totaling more than $3.5 billion.
FISlaunchesiQ Now, a mobile app for SMEs that enables owners to monitor real-time business performance.
WorldRemit teams up with Onfido to enhance the identity verification component of its onboarding processes.
iProov to bring its biometric authentication technology to the U.K.’s National Health Service (NHS).
Xeropartners with online small business bank Relay to offer real-time visibility of cash flow.
Finovate Alum Features and Profiles
Visa Backs GoodData in New Strategic Partnership and Investment – The collaboration includes an investment in the global analytics company and is designed to enable Visa to offer its customers and partners better access to aggregated data and analytics.
Plaid Exchange Offers Open Banking in a Box – The new tool, Plaid Exchange, offers banks a way to provide open banking connectivity to their clients while keeping their clients’ data safe and giving them control of their data.
