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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Mary Meeker, general partner at Bond Capital, a VC firm she founded, released her Internet Trends Report this week at Recode’s Code conference. The report, which aims to deconstruct the future of the internet, has come to be a yearly highlight for techies since 1995, as it contains data and insights on nearly every aspect of the internet.
At 333 pages long, the report contains a wealth of information relevant to a range of industries, so we’ve dissected a quick look at some of the details that are relevant and useful specifically for banking and fintech.
The number of internet users is at 50% global penetration but growth is slowing.
The Asia Pacific opportunity persists: Asia Pacific claims 21% of global internet users. The U.S. trails at 8%.
Ecommerce growth is “solid” and up from last year.
Customer acquisition costs are rising and have been steadily increasing over time.
Customers try a new service if they see a positive product recommendation or if they can first use a freemium version. In fact, Meeker said the freemium strategy as a business model is “just getting started.”
Investment from VCs, public stock exchanges, and IPOs remains high.
The best ways to engage with audiences are through short form video or voice engagement, such as podcasts or Amazon Echo, which now has 4.7 million users (up 2x since last year).
Cyber attacks are on the rise but the time it takes to detect them is falling.
Digital payments account for more than 50% of daily transactions.
In the report, Meeker also mentioned specific fintechs and their growth. Including:
China’s Alipay has 1 billion users, up 2x in two years.
South Korea’s Toss has 12 million users, up 2x in one year.
Revolut has 4 million users, up 2x in 10 months.
Brazil’s NuBank has 9 million customers, up 2x in one year.
Latin America’s Mercado Libre has had 389 million transactions, up 2x in two years.
Read the full report or check out Recode’s bullet point breakdown to get a gist of the fuller picture.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.
For years, startups have resisted going public; avoiding IPOs. At the same time, merger and acquisition (M&A) activity is at an all-time high. We’re taking a look at why startups are increasingly taking the M&A exit route over listing publicly, and why it’s a good thing (for fintech, anyway).
IPOs down, M&A up
According to Quartz, the average age of publicly listed companies in the U.S. has increased from 12 years old to 20 years old since 1997. During that same time period, the number of American firms publicly listed in the U.S. shrank from 7,500 to 3,618. Echoing those findings, the Harvard Business Review reports that the number of publicly listed companies has declined by almost 50% since 1996, when the number peaked.
On the Finovate blog, we’ve covered 17 M&A deals so far this year. Compare that to last year, when we covered 46 merger and acquisition deals; and 2017, when we covered 29 mergers and acquisitions; and 2016’s total of 26. In the same vein, KPMG reports that the number of global M&A deals in fintech soared to more than 120 in the first quarter of 2018, totaling $22 billion. This is due primarily to consolidation of key segments. Large exits so far this year include TSYS and IDology — with eToro, InComm, Envestnet, and SumUp all having made major acquisitions.
Why not IPO?
Here are a few reasons why becoming acquired is more appetizing than going public:
There’s no shortage of VC funding (yet)
A grow-fast-and-get-acquired strategy is easier than a strategy to IPO, which requires long-term profitability planning
Mergers and acquisitions are less costly than IPOs; underwriting and registration costs for IPOs add up to an average of 14% of the funds raised
IPOs have a bad track record. The public markets have been tough environments for OnDeck and Lending Club, which both went public in 2014.
IPOs are time consuming– taking anywhere from six to nine months to complete– and can take management’s focus away from business operations until the IPO is finalized.
Fintech hold outs
There are plenty of fintechs that would make good IPO candidates who are waiting to go public. Many of these companies have been in the industry for a decade or longer, and some have valuations upwards of $1 billion.
Take personal finance company SoFi, for example, a San Francisco-based company that’s valued at $4.3 billion. In February, CEO Anthony Noto told Barron’s that the company isn’t planning an IPO for this year, though Noto said that the company’s long-term goal is to go public. This comes after former CEO Michael Cagney said the company would likely go public in 2018 or 2019.
Payroll and HR innovator Gusto is valued at $2 billion. The company, also headquartered in San Francisco, has a different view on going public. In fact, Gusto Founder and CEO Josh Reeves said that it isn’t the company’s end goal. “There are pros and cons to being a public company, and we believe that today, the benefits of Gusto staying private outweigh the benefits of being public,” Reeves said. “An IPO isn’t our end-goal; instead, it’s creating a world where work empowers a better life. We currently serve more than 1% of all employers in the U.S., which is an accomplishment we’re incredibly proud of, but we realize we still have a lot more work to do. Building Gusto to its full potential is a multi-decade mission for me.”
Founded in 2009, Atlanta-based Kabbage has been an alternative source of small business financing for almost 10 years. In an interview with Inc., Kathryn Petralia, Kabbage co-founder and president said, “An IPO is a huge distraction. It’s not just any fundraising event, it’s a really, really complicated transparent fundraising event that brings with it a lot of extra work– forever.” Regarding potential timing on taking Kabbage public, Petralia said, “There’s going to be a time for that, I suspect. But right now… it just doesn’t make sense.”
And in an interview with TechCrunch last year, Betterment CEO Jon Stein told the interviewer that going public is “something that we want to ultimately do.” He added, “we continue to drive towards it, and I believe we’re in a great position. We’re audited, we have an amazing finance team, we’ve got great risk management, security processes… all of those things that companies that are preparing to IPO ought to be doing.”
Good for fintech
So why is the M&A exit route beneficial over an IPO for the fintech industry? First, it keeps the fintech company loyal to its acquirer instead of shareholders. By focusing on an acquiring firm’s or bank’s bottom line instead of its own, fintechs are contributing to the bigger picture of banking.
Additionally, M&As tend to stimulate collaborative projects that benefit both financial services clients as well as end customers. Ultimately, working with tangential players in the market helps foster innovation.
Crypterium, a company that turns cryptocurrencies into fiat money, launched its long-promised prepaid card today.
The Crypterium Card is loaded with cryptocurrencies and functions just like a traditional prepaid card in that it can be used with online and brick-and-mortar merchants. With this functionality, the card overcomes one of the biggest hurdles to cryptocurrency usage since the number of merchants who accept cryptocurrency is limited.
“One of the major barriers to general crypto acceptance has been the fact that it is very difficult to spend cryptocurrency in the real world, and any solutions offered so far have been confined to specific countries or retailers,” said Crypterium CEO Steven Parker. “But the beauty of cryptocurrencies is that they are designed to be borderless and global. The Crypterium Card lives up to this borderless, global ideal: anyone can apply for one and start using their cryptocurrencies to pay for things in everyday life. This has the potential to take off as quickly as NFC.”
The Crypterium Card is available in any country across the globe and has generous spending limits of up to $10,000 per day or $60,000 per month. The card is linked to the Crypterium Wallet, which the company debuted at FinovateFall 2018.
The Crypterium Wallet is available in the company’s app and allows users to manage, store, and purchase a range of cryptocurrencies– including Bitcoin, Ethereum, Litecoin, and Crypterium’s CRPT token. Similar to other prepaid wallet apps, the Crypterium Wallet offers bank-like functionality such as spending analysis and money (both fiat and crypto) transfers. And because Crypterium is integrated with the top 10 exchanges, consumers can also use the app to follow real-time exchange rates and get the best rate for each transaction.
Perhaps coincidentally, Crypterium competitor Coinbaseannounced today that its debit card, the Coinbase Card, has expanded its geographical reach. Once limited to U.K. users, the card is now available for users in Spain, Germany, France, Italy, Ireland, and the Netherlands.
Crypterium is headquartered in Estonia and first listed its CRPT tokens on the HitBTC exchange last March. Last May, the company appointed former CEO of Visa U.K., Marc O’Brien, as CEO.
Klarnaexpands its UK operations with a new office in Manchester.
INTELid.io to integrateValidSoft’s voice biometrics into its private digital identity blockchain.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.
Cloud banking provider nCinoannounced today it will power a digital banking experience for South State Bank’s commercial banking customers.
The South Carolina-based bank will leverage the nCino Bank Operating System to improve its operations and provide a digital, omni-channel solution for its 700,000 customers across the Carolinas, Georgia, and Virginia. Specifically, South State hopes to improve its CRM technology, customer onboarding, account opening, workflow, credit analysis, enterprise content management, and instant reporting capabilities.
“It’s important to us to offer the right combination of high-touch personalized banking expertise and high-tech capabilities,” said President of South State Bank Greg Lapointe. “We’re committed to delivering exceptional service and believe nCino’s market-leading platform will provide our staff with the right tools and digital infrastructure to quickly and efficiently serve customers’ evolving needs.”
nCino demonstrated its Bank Operating System at FinovateEurope 2017. The North Carolina-based company offers a holistic platform that integrates the bank’s core system, as well as third party applications, while replacing dated solutions and manual processes.
The company has more than 200 clients from credit unions to banks with more than $10 billion in assets under management. Some of the company’s customers include Navy Federal Credit Union, SunTrust, Santander, and Regions.
So far in 2019, nCino has sparked a partnership with Accenture and landed clients from across the globe, including Sydney-based Thinktank, Stockholm-based DBT Företagslån, U.K.-based Project BankNorth, and Belgium-based Centrale Kredietverlening bank.
Since it was founded in 2012, nCino has raised $133 million in funding from the likes of Salesforce Ventures and Insight Venture Partners. Pierre Naudé is CEO.
Equity crowdfunding platform OurCrowd formed a partnership this week with NOAH Advisors to boost investment for European startups.
NOAH Advisors, a European corporate finance boutique, will work alongside the Israel-based company as it expands its portfolio into European startups. The two will focus on Germany, Switzerland, and the U.K.
“Europe is practically next door, with many Israeli startups choosing to focus on this market,” said OurCrowd CEO Jon Medved. “There are amazing innovations being developed in Europe now, and now is the time to bring Israel and Europe closer, collaborating on new ideas and innovation finance.”
As a part of the agreement, NOAH Advisors’ clients, executives, and investors will gain access to OurCrowd’s investment opportunities.
Founded in 2013, OurCrowd’s crowdfunding platform allows its network of 33,000 individual investors to participate in startup investment opportunities alongside VCs and institutional co-investors at the same terms. The company prides itself on its curated deal selection process that requires a team of investment professionals to review thousands of companies, meet with selected management teams, and select opportunities to open to investors. Since opening its doors, the company has vetted over 10,000 companies.
At FinovateSpring 2016, the company debuted the OurCrowd mobile app. Since then, the company marked $1 billion in assets under management; a milestone OurCrowd reached last year. The company was recently featured in Forbes and was ranked by Pitchbook as the most active Israeli VC firm.
Voleo to participate in Google’s Digital Strategy program to boost user acquisition on its social trading application.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.
Worldline and Trapeze deliver a hands-free payment solution for public transport.
Sberbank to Open First Branch in McDonald’s Restaurant.
James Hale appointed Head of Product at alternative investing firm Artivest.
Finastranamed2019 Microsoft Alliance Global ISV Partner of the Year.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.
Synapse, a San Francisco-based fintech startup, has raised $33 million in a series B round led by a16z, with participation from existing investors Trinity and Core and unnamed individual investors, including 9Yards Capital, reports Henry Vilar of Fintech Futures, Finovate’s sister publication.
This brings the start-up’s total raised to $50 million, following a $17 million series A round in September 2018. Synapse says it has over three million clients using its cloud-based tools, with 10,000 new signups and five million API requests every day.
In total, Synapse says it has facilitated more than $10 billion in transactions to date. The company reports facilitating more than $2 billion as automated clearing house (ACH) and $40 million in payment card transactions for over 100 companies so far this year.
Synapse provides payment, deposit, lending, and investment products as APIs to financial technology companies, which in turn launch consumer-facing financial services.
The fintech plans to build direct processor integrations with both Mastercard and Visa, which it expects will speed up API calls around card issuance and open up features like just-in-time funding and dynamic spending controls.
The company also intends to launch a brokerage account product and to enhance its loan origination and servicing API. This will make it easier for developers to apply for a warehouse line of credit and add automated text and phone loan collection support.
Toward the end of this year, the goal is to launch services in Europe and Canada, starting with payments, deposits, and debit card issuance. Lending and investment products will follow.
The firm plans a chatbot platform to answer customer questions, along with self-servicing tools for developers, a seed investing program. Synapse will also improve its security tools, including its ID verification and video authentication stack, add-ons around duplicate profile detection, and fraud and transaction monitoring.
“After 2019, our goal is to add support for two key markets each year, plus one underserved market, where we will build consumer-facing products until developer ecosystems are built,” said cofounder and CEO, Sankaet Pathak.
As a part of the series B, a16z’s Angela Strange and Michael Hoffmeyer, director at the Crews Center for Entrepreneurship at the University of Memphis, have joined Synapse’s board of directors.
Founded in 2015, Synapse demoed its white label loan issuance at FinovateSpring last year. The tool originates and services unsecured consumer and business loans while providing customizable decisioning, automated compliance, smart notifications, and an origination and servicing UI.
With the launch of the PayPal eCommerce PlatformPayPalannounced this week, the alternative finance provider will be helping small businesses gain access to ecommerce tools typically reserved for larger businesses.
In the company’s blog post announcement, COO Bill Ready said, “The PayPal Commerce Platform is designed to meet the specific needs of marketplaces, e-commerce solution providers, crowdfunding platforms and more by bringing together the most comprehensive set of technologies, tools, services, and financing for businesses of all sizes around the globe.”
With the new tool, businesses can access PayPal’s 277+ million active users. They can also operate on a more global scale, leveraging PayPal’s capability to accept more than 100 currencies. Perhaps most notably, however, the PayPal eCommerce Platform takes care of two headaches– compliance and security. Changing regulatory compliance mandates and constantly evolving security standards can make it difficult for businesses to keep up. PayPal’s eCommerce Platform meets demands regulators across 200+ markets and provides AI-powered fraud detection tools.
Previously, these tools were reserved for leading platforms such as BigCommerce, Facebook Marketplace, Instagram, Lightspeed, and Yahoo! Small Business. PayPal eCommerce Platform enables more businesses, and ultimately more people, to participate in the digital economy. “We want to help more businesses get started, grow and thrive in today’s complex digital world. It’s that simple,” said Ready.
This week’s launch may have something to do with the company’s back-to-back acquisitions made last year. Last June PayPal purchased merchant payout platform HyperWallet for $400 million and just weeks later acquired fraud prevention and risk management specialist Simility for $120 million.
PayPal Commerce Platform is available in France, Germany, Italy, Spain, the United Kingdom, and the United States. The company hopes to expand it to more than 40 markets by the end of this year.
PayPal was founded in 1998 and has a market capitalization of $134.6 billion. The company showcased its Instant Account Creation feature at FinovateFall 2012.
Paysendannounces expanding network and latest funding round.
Tinkoffannounces the launch of Tinkoff Capital management company.
Entrust Datacardcompletes acquisition of nCipher Security.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.
