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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Facebook Messenger unveiled today that it will pilot a feature that will allow users to split payments in the Messenger app. Facebook will begin testing the “free and fast way to share the cost of bills and expenses” next week for users in the U.S.
In a group chat or payments hub within Messenger, users select “get started” and can split a bill evenly or modify each person’s contribution amount. After the amounts are determined, users enter a personalized message, verify their Facebook Pay details, and send their request in a group chat in Messenger.
The launch of Facebook Messenger’s Split Pay feature comes as “Request to Pay” is heating up in the fintech world. Venmo has used QR codes to facilitate person-to-person payments since 2017, and Messenger began using similar functionality in June of this year.
Outside of the P2P realm, Request to Pay is becoming a popular way to replace payment methods such as cards, invoices, and direct debits in B2C and B2B transactions. Essentially, customers can pay for everyday purchases within a messaging framework. Shoppers can, for example, pay for their lunch by opening a push notification on their phone and accepting the payment, thereby finalizing the transaction.
Merchant services aggregator and mobile payment company Square is rebranding to Block on December 10 and can be found at block.xyz. The new name will refer to the company as a corporate entity, which is the parent company to multiple subsidiary businesses.
Since it was founded in 2009, Block has built a sizable seller business that offers commerce solutions, business software, and banking services for merchants. This branch of the company will retain the brand name Square. The California-based company also offers Cash App, a challenger bank; TIDAL, a subscription-based music streaming service; and TBD54566975, a decentralized Bitcoin exchange. In addition to creating clarity around these brands, the company also notes that the rebrand “creates room for further growth.”
“We built the Square brand for our Seller business, which is where it belongs,” said Block Co-founder and CEO Jack Dorsey. “Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to build tools to help increase access to the economy.”
In addition to renaming the corporate brand, Block is also changing the name of Square Crypto, a company initiative to advance Bitcoin, to Spiral. Square, Cash App, TIDAL, and TBD54566975 will each maintain their brand names.
Being a three dimensional representation of a Square, the name Block gives more depth to the company’s image. The company said that the new name represents “building blocks, neighborhood blocks and their local businesses, communities coming together at block parties full of music, a blockchain, a section of code, and obstacles to overcome.”
Block went public as Square in 2015 on the New York Stock Exchange. The company’s ticker symbol, “SQ,” will remain the same.
This news comes after Block CEO and Co-founder Jack Dorsey announced his departure from Twitter earlier this week. Dorsey had been CEO of Twitter since he co-founded it in 2006. Interestingly, Dorsey said he left Twitter because he considers founder-led organizations to be “severely limiting and a single point of failure.”
Last year, while the pandemic was heating up, banks’ attitudes toward small business lending turned cold. With lockdown measures in place, underwriting became difficult and risk increased across commercial lending.
We tapped ForwardAICEO and Co-Founder Nick Chandi to discuss what the current lending environment looks like, how data can help, and what we can expect to see in 2022.
A serial entrepreneur, Chandi co-founded ForwardAI, a fintech that helps banks, lenders, and businesses access and analyze small business data. The company launched earlier this year to help fill the gap in small business-focused technology available to companies that serve small businesses.
What are some unseen advantages in leveraging financial data when underwriting small business loans?
Nick Chandi: The trend I’ve seen has been a shift to leveraging direct financial data, as in connecting to banking, accounting, payments, and commerce software using APIs instead of having potential borrowers export to spreadsheet or PDF. In the past, all lenders did the latter option and that caused a huge hiccup. After all, whereas with accounting data you can see insights like client base diversification, profits and loss statements, and more, that data can be manipulated to look better than reality. With banking data, it’s the opposite; data is often context-less but it’s practically impossible to fake.
Previously, when lenders looked at financial accounting data, they would have to manually cross reference transactions. This was a tedious task often taking weeks, but one that with API technology these days can be done in seconds using machine learning and AI. This can lead to exceptional savings for banks and lenders in their loan underwriting time.
In 2021, what kind of appetite have you seen from banks when it comes to small business lending? Has the pandemic caused more hesitancy than in years past?
Chandi: For a while in 2020, many lenders completely stopped lending to small businesses. In 2021, we saw much of the industry has returned to or pretty close to business as usual.
Have you noticed a specific type of lender take on more small business loans?
Chandi: We have seen that revenue-based financing has become very popular in the last year. This can be seen from the valuation of Pipe ($2 billion in May 2021) as it provides an opportunity for entrepreneurs to transform their future revenue into an asset with instant access to annual cash flows.
Previously, it cost lenders about the same amount to review a business for a $50k application as it did for a $250k application. As lenders begin to incorporate automation and process loan applications faster, that cost goes down and becomes more profitable. I have noticed lenders are incorporating more small business loans into their offerings, even if it wasn’t a market they put significant effort into previously.
What trends do you expect to see in small business lending going forward into 2022?
Chandi: The biggest trend change is going to be that direct data access I mentioned earlier. Simply put, with modern lenders using direct access to permissioned data instead of spreadsheets and PDFs, we can expect lenders to process significantly more financing applications and faster than ever before. Traditionally, SMBs have been a market that most companies haven’t focused on, but after the pandemic I think a lot of the public sentiment has shifted towards desiring and expecting more support for struggling small businesses in their community.
Going into 2022, I expect to see financial institutions and fintechs across the world upgrade their services and begin offering better products; enhanced financial management portals, expedited lending options, personalized financing offers based on predictive data, and proactive cash flow alerts may soon one day be normal. That’s part of the reason we created ForwardAI.
Watch ForwardAI’s demo from FinovateFall 2021 below:
It’s hard to read about David Marcus’ departure from Meta’s cryptocurrency project Diem (formerly Libra) and digital wallet Novi, and not wonder what’s next for the stablecoin.
Marcus announced over Twitter yesterday that he is leaving the company. In a tweet, he said, “Personal news: after a fulfilling seven years at Meta, I’ve made the difficult decision to step down and leave the company at the end of this year. While there’s still so much to do right on the heels of launching Novi — and I remain as passionate as ever about the need for change in our payments and financial systems — my entrepreneurial DNA has been nudging me for too many mornings in a row to continue ignoring it.”
While it’s easy to make assumptions based on Marcus’ tweet, there is still a lot we don’t know about the fate of Diem and Novi. With all of the uncertainty, let’s look at what we do know about Meta’s stablecoin project. Here are the five chapters in the life of Diem (so far).
Launches as Libra Facebook announced Libra in June of 2019. The company said that its new cryptocurrency would help users transact and transfer funds with near-zero fees via the corresponding wallet, Calibra, that would be integrated into WhatsApp, Messenger, and Facebook. In order to decentralize control from Facebook, The Libra Association was formed to govern the new cryptocurrency and wallet. The 27 founding members included Visa, Uber, and Andreessen Horowitz.
Politicians object Criticism of the project began building up and, months after launch, global privacy regulators, central bankers, and finance ministers all voiced their concerns about the new cryptocurrency and wallet. Specifically, Federal Reserve Chairman Jerome Powell aired his concerns of privacy, money laundering, consumer protection, and financial stability.
Major founding members withdraw By October of 2019, just four months after Facebook unveiled Libra, some of the top founding members pulled out of the project. PayPal, eBay, Visa, Mastercard, and Stripe announced they would no longer be part of Facebook’s cryptocurrency project.
Changes name to Diem and pivots to a stablecoin In December of last year, Facebook changed the name of its cryptocurrency from Libra to Diem. The move came after the company changed the name of its wallet from Calibra to Novi. Facebook said that the rebrand signals the project’s “growing maturity and independence.” At the same time, the company announced that Diem will be a stablecoin, which is a cryptocurrency pegged to government-issued currency.
Marcus departs, former PayPal exec Stephane Kasriel steps in The most recent chapter in Diem’s storied history is yesterday’s news on Marcus’ departure. Starting next year, former Upwork CEO and former VP of Product for Novi Stephane Kasriel will lead Meta’s cryptocurrency unit.
As for what’s next for the cryptocurrency, it doesn’t appear to be fizzling out any time soon. The project still has a handful of major industry backers and, being the child of Meta, has plenty of funding to back it up. These factors, combined with an increased interest in decentralized finance, are enough to keep Diem afloat for at least another year.
Small business financial platform Fundboxclosed a $100 million Series D funding round this week. With this funding, the California-based company is now a freshly-minted unicorn with a valuation of $1.1 billion.
The round, which brings the company’s total funding to $553 million, was led by Healthcare of Ontario Pension Plan (HOOPP) and had contributions from existing investors Allianz X, Khosla Ventures, and The Private Shares Fund. New investors Arbor Waypoint Select Fund and funds managed by Newton Investment Management North America also contributed.
Fundbox was founded in 2013 to help small businesses access working capital through credit and payments solutions. The company has invested $100 million into AI technology with an aim to gain deep insights into the small business ecosystem.
Today’s investment comes at a time of growth for Fundbox. The company has experienced new customer acquisition growth of over 200% this year, has surpassed $2.5 billion in transaction volume, and has connected with over 325,000 businesses since launch.
The new capital will also help Fundbox expand into payments. The company is launching a tool called Flex Pay that will offer small business owners additional payment options and flexibility for business expenses. In addition to repaying loans via bank account or credit card, businesses have a buy now, pay later option in the form of a Line of Credit draw.
“The addition of Flex Pay to our product offerings is critical as small business owners look to utilize buy now, pay later solutions for business,” said Fundbox CEO Prashant Fuloria. “We remain committed to leveraging our superior AI, data-native approach, and small business insights to solve working capital needs and power the resurgence of the small business economy.”
Fundbox has additional financial products in the pipeline for next year. The company is working on a subscription revenue stream, a product for entrepreneurs with multiple small businesses, and tools to help new businesses that lack financial history.
Cryptocurrency exchange platform Coinbaseacquired Israel-based security company Unbound Security today. Terms of the deal, which Coinbase calls the next phase of its security journey, were not disclosed. Coinbase expects the deal to close in the coming months.
Unbound specializes in cryptographic security technologies, including secure multi-party computation (MPC), an emerging subfield of cryptography that allows parties to jointly compute a function over their inputs while protecting their data. Essentially, MPC enables crypto assets to be stored, transferred, and deployed more securely, easily and flexibly.
Today’s deal will give Coinbase access to cryptographic security experts, including Unbound Co-founders Guy Peer and Yehuda Lindell, who is considered a world leader in MPC. Coinbase will also gain a presence in Israel and plans to establish a tech center in the country. The company states that this global reach will “add an additional powerful prong” to its global talent acquisition strategy.
“We’ve long recognized Israel as a hot bed of strong technology and cryptography talent, and are excited to continue to grow our team with some of the best and brightest minds in these fields,” the company said in its blog post announcement. “The Unbound Security team will form the nucleus of this new research facility, which we plan to grow over time.”
The purchase of Unbound marks Coinbase’s twentieth acquisition since the company was founded in 2012. Coinbase has acquired six companies this year alone, including financial software company BRD, voice AI startup Agra, crypto wallet API provider Zabo, financial infrastructure company Skew, and blockchain security firm Bison Trails.
Coinbase, which demoed at FinovateSpring 2014, went public earlier this year and now trades on the NASDAQ under the ticker COIN. The company has a current market capitalization of $67 billion. Earlier this fall the company announced plans to launch its own NFT marketplace, Coinbase NFT, to help users mint, purchase, showcase, and discover NFTs.
South Korea-based Shinhan Bank recently wrapped up testing the use of stablecoins for cross-border transactions. The bank completed a proof-of-concept issuing and distributing stablecoins with an unnamed “megabank” outside of Korea. The two are leveraging the Hedera Network’s Hedera Token Service (HTS) and Hedera Consensus Service (HCS) to make the transfers.
Shinhan Bank will mint stablecoins backed by the South Korean Won (KRW), while the unnamed bank will mint stablecoins backed by its local currency. Under their partnership, customers can buy Shinhan’s KRW-based stablecoin and send them to an account at the other, unnamed bank. The recipient of the funds can then exchange the stablecoins for local currency.
Shinhan Bank opted to target international remittences because it is one of the sub-sectors with the most room for disruption. Cross-border transactions generally cost customers high intermediary bank costs, take three-to-seven days to complete, and don’t allow customers to track the funds while they are in progress.
“International remittances were a massive market of $702 billion in 2020, with $539 billion going to low- and middle-income countries,” said Hedera CEO and Co-founder Mance Harmon. “There is a massive opportunity to cut out the middleman and make this process dramatically more efficient and cost-effective, getting the most money possible to people who often need it urgently. We commend Shinhan and their partner for developing this solution, and are proud that it takes advantage of the economic and speed benefits that only the Hedera network can provide.”
This isn’t Shinhan Bank’s first time leveraging decentralized finance. In March, the bank partnered with LG CNS to create a platform for central bank digital currencies (CBDCs). The banks has also invested in Korea Digital Asset Custody (KDAC), a group of businesses that provide digital-asset custody services, and joined the Hedera Governing Council in April 2021.
Open finance network Plaid commissioned a survey from Harris Poll earlier this year to provide insights and analysis on fintech’s consumer impact in the U.S. and U.K. This fall, Plaid published a report based on the survey that detailed three overarching conclusions about the state of fintech.
Here’s a look at each of the findings below, along with what they mean for banks and fintechs in 2022.
Users’ switch to digital is permanent
Plaid’s survey found that for about half of the respondents using technology to manage finances is a habit. In fact, 58% said that they, “can’t live without using technology to manage their finances.”
Additionally, almost 70% of survey respondents said they use technology “as much as possible” to manage their money due to the pandemic. And it appears that this trend isn’t isolated to pandemic times. The study found that between 80% and 90% of respondents who used fintech in the past year plan to use it the same amount or more in the future.
Fintech spans demographics
According to the answers from respondents in Plaid’s survey, fintech is helping to level the playing field of financial management. Respondents across racial lines and generational divides are turning to technology to help them not only manage their finances, but also get further ahead.
For example, 37% of Black respondents and 31% of Hispanic respondents use online-only banking services to minimize fees they may incur with accounts. Additionally, 32% of Hispanic respondents use earned wage access tools to receive their pay early and avoid payday loans. In addition to offering access to tools, fintech also enhances financial education. Plaid’s study found that 28% of Black respondents and 24% of Hispanic respondents didn’t track their credit scores at all before they started using fintech.
The survey indicated that the youngest generation surveyed (Gen Z) and the oldest generation surveyed (Baby Boomers) have been the most impacted by fintech. More than 70% of Gen Z respondents said that fintech helps them build better financial habits. When it comes to Baby Boomers, almost 70% of them reported that they feel confident using technology to manage their finances. This figure is up 16% from the year prior.
Fintech is becoming part of every day life
Perhaps the most noteworthy statistic in Plaid’s survey is that almost half (48%) of Americans use fintech on a daily basis. This figure is up 30% from the year prior, when 37% of respondents said they use it daily.
Interestingly, the survey indicates that this usage is more heavily weighted toward positive aspects of financial management, such as budgeting and investing, versus negative ones, such as billpay. In its analysis, Plaid suggests this is because the negative aspects are often automated.
In its conclusion, Plaid indicates that fintech is no longer separate from traditional financial institutions. Rather, because of embedded finance, fintech is simply the new way of conducting finances digitally.
Looking ahead
What do these shifts mean for banks and fintechs in 2022? In short, they indicate that there’s no going back on the road to digital. Even some of the most reluctant user groups have switched to digital and their usage is only increasing. The findings also indicate that the sector is poised for even more growth. The increase in demand, combined with new capabilities brought forth by enabling technologies, ultimately means that there will be new opportunities to serve users in new ways in the years to come.
Payment card startup Slice received a $220 million Series B investment today, bringing its total funding to $291 million and boosting its valuation to over $1 billion, unicorn status. This is an impressive jump in valuation. According to TechCrunch, the India-based company was valued at under $200 million less than six months ago when it raised $20 million in funding in June of this year.
Today’s round was led by Tiger Global and Insight Partners and saw contributions from Sunley House Capital, Moore Strategic Ventures, Anfa, Gunosy, Blume Ventures, and 8i. Slice plans to use the funds to expand its product line by launching a payment card for teens. The company is also working on adding support for the country’s real-time payment rails, unified payments interface (UPI), and a digital ID product.
Slice is aiming to disrupt India’s credit card industry by relying on its own underwriting system. The company, which targets millennials, has five million registered users and is currently issuing more than 200,000 cards every month, making it the third largest card issuer in India.
Because of its in-house underwriting, Slice doesn’t require a credit score; anyone over the age of 18 can apply. Credit limits are relatively low, starting at $26 (₹2k). Additionally, the fintech doesn’t charge a joining fee, or an annual fee. Cardholders can get up to 2% cashback on purchases and receive weekly deals from brands such as Amazon and Netflix.
Slice’s name comes from one of its most differentiating features. The company allows cardholders to “slice” all of their bills over the course of three months into multiple installments.
“Slice targets an underpenetrated market in India and seamlessly allows users to make online payments, pay bills and more,” said Insight Partners Managing Director Deven Parekh. “There is a large opportunity in the credit and payment space in India, and Slice is well-positioned to become the leader in the industry. We look forward to this partnership with slice as they continue to scale up and grow.”
Column Tax, a company that offers tax features as a service, unveiled a new tax product today along with its announcement that it raised $5.1 million in seed funding.
The investment, which marks Column Tax’s first funding round, was led by Bain Capital Ventures with participation from South Park Commons, Core Innovation Capital, and Operator Partners. The company will use the money to expand client adoption of Tax Filing, an income tax filing API, and Tax Refund Unlock, the tool it is launching today.
Tax Refund Unlock is a product that allows banks and fintechs to offer their users advance access to their tax refunds in monthly payments. Column Tax CEO Gavin Nachbar explained that the new product will help Americans to access their refunds year-round, so that they can “save, invest, pay off debt, and meet ongoing obligations throughout the year, all with greater peace of mind.”
Column Tax is launching the new offering in partnership with Atomic FI, a fintech that offers APIs to drive consumer engagement; and Klover, a fintech that offers free cash advances and financial tools in exchange for customers’ data. With the Klover app, users can unlock access to their future tax refunds.
“Americans should be able to access their money when they need to. Increasing your paycheck by a couple hundred dollars can be life changing for millions of people,” said Klover CEO Brian Mandelbaum. “At Klover, we want to level the playing field by helping consumers get access to fair financial services. We already offer free access to your paycheck, real-time price comparisons, money management and saving tools, and a lot more. This is the next logical step in doing right by our consumers.”
Column Tax is headquartered in California and was founded by Gavin Nachbar, Michael R. Bock, and Shehan Chandrasekera.
While some European fintechs are exiting the U.S. market, consumer payment services firm Klarna is doubling down. The Sweden-based company announced it is adding its Pay Now option to its U.S. payment services.
The Pay Now tool does exactly what it implies. Instead of using Klarna’s signature buy now, pay later (BNPL) payment structure, it allows users to pay immediately and in full at retailers where Klarna is accepted. This move offers U.S. shoppers more options when paying with Klarna at the point of sale. Users can now pay in full using Pay Now or pay over time with Pay in 4 and Pay in 30 solutions which allow users to split a purchase into four interest-free payments or pay over the course of 30 days, respectively.
“Consumers continue to reject double digit interest rates and fee-laden revolving credit, while simultaneously seeking more choice, control and flexibility in how they shop and pay both online and in store,” said Klarna Co-founder and CEO Sebastian Siemiatkowski. “With the introduction of ‘Pay Now’, Klarna now offers U.S. consumers the choice to pay immediately and in full, alongside our sustainable interest-free services.”
As a result of adding the Pay Now option, U.S. retailers can now offer Klarna users a more well-rounded payment experience. By offering the option to pay in installments or pay immediately, consumers will be more likely to choose Klarna as a payment option regardless of whether or not they want to use a BNPL tool or pay in full immediately.
Klarna also announced it will launch its physical debit card to the U.S. market. The company wasn’t specific about timing but said it plans to introduce the new product “very soon.” Klarna refers to its debit card as a “tangible extension of the Klarna app experience” because it allows users to pay for their purchases over time and connects to the Klarna app to help users track their purchases. The card is also integrated with Klarna’s loyalty program, Vibe, which offers users rewards, deals, and discounts.
The past year has been quite an active one for BNPL companies. Klarna almost doubled its U.S. customer base this year, now reaching 21 million customers. “By launching ‘Pay Now’ and introducing the Klarna Card in the US, we are continually developing our services to meet consumers’ changing needs,” added Siemiatkowski.
Across the globe, the company counts 90 million active customers in 19 countries who make two million transactions per day at Klarna’s 250,000 merchants, including big brands such as H&M, IKEA, Expedia Group, Samsung, ASOS, Peloton, Abercrombie & Fitch, and Nike. Since it was founded in 2005, Klarna has raised $3.7 billion. The company now has a valuation of $45.6 billion and 4,000 employees.
Ohio-based KeyBank made its sixth acquisition today. The bank purchased Banking-as-a-Service company XUP, a platform that helps banks take control of the merchant experience. Terms of the deal were not disclosed.
Founded in 2018, XUP connects merchants, third party financial service providers, and acquirers across channels to help banks offer a more integrated and seamless payments experience. KeyBank will use XUP’s technology to improve its embedded banking strategy and improve the user experience for its commercial users. The bank describes the move as the “next step in providing digital innovation at scale.”
Today’s news is only the latest development in the relationship between KeyBank and XUP. The bank contributed to XUP’s $3 million Seed round closed in February and the two were strategic partners. According to KeyBank, XUP helped accelerate the volume growth of its merchant payments capabilities. The bank now counts 150 million card transactions each year, accounting for $13.6 billion in annual card volume.
“We’ve long embraced the software innovation that’s sweeping through the financial services industry, and the acquisition of XUP allows us to continue to be a leader in this space,” said KeyBank’s Head of Enterprise Payments & Analytics Ken Gavrity. “XUP’s highly experienced team has accelerated us on the journey to build connectivity across our systems, our partners, and our customers, to make it easy to do business with Key.”
XUP will continue to operate as its own entity and support its customer base. “Our end-to-end software solutions, combined with Key’s scale and deep financial services expertise, will perfectly blend to provide clients a best-in-class payment experience,” said XUP President Chris May.
KeyBank was founded in 1825, has $187 billion in assets under management, is headquartered in Cleveland, Ohio, and has 1,000 branches across the U.S. The bank’s other acquisitions include AQN Strategies, Finovate alum HelloWallet, First Niagara Financial Group, EverTrust Financial Group, and Leasetec. Among the company’s strategic partners are AvidXchange, BillTrust, and Bill.com.
