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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
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.
Merchant services aggregator and mobile payments company Square is making online merchants’ lives easier with a new launch today.
The Square Photo Studio app helps sellers take high-quality pictures of merchandise and sync them to their online store.
The app, which is available to both Square sellers and anyone with a Square Online Checkout link, guides merchants through easy-to-follow prompts to help them take the best photo. The photo studio automatically isolates the product from the background then helps users stylize the photo with backgrounds, shadows, and colors.
Once the seller has optimized their photo, they can connect their images to the corresponding items in their Square catalog or create a new item. After merchants list items in the catalog, they can start selling immediately.
“It’s no secret that products with professional-looking photos perform better than those without,” said Head of eCommerce at Square David Rusenko. “Unfortunately, the cost, skill set, and labor involved with taking those photos was often prohibitive. Now, with Square Photo Studio, sellers can give their items the look of a professional photo studio shoot from the comfort of their home, the office, or on the go.”
The Square Photo Studio app is available to everyone in the Apple App store, which creates a lower barrier to entry for anyone who wants to sell physical goods. Because the app is very accessible and easy-to-use, it has the potential to increase the number of transactions from Square sellers.
Buy Here, Pay Here (BHPH) crowdsourced securitization firm Agora Data is coming out with a new financing tool this week. The Texas-based company is introducing a reducing interest rate line of credit for BHPH dealers and small-to-mid-size finance companies to offer their sub-prime borrowers more vehicle financing options.
With the new reducing rate line of credit, the interest rate decreases over time. The loans also come with other advantages not typically found with traditional financing options, including no personal guaranty or recourse, flexibility to draw cash as needed, and no origination or unused line fees.
“With AgoraCapital, we remove the obstacles dealers confront in traditional lines of credit and empower them with the same secret sauce enjoyed by larger national dealer groups,” said Agora Data CEO Steve Burke. “Agora’s innovative, best-in-class financing options and robust data analytics are leveling the playing field for an underserved and underbanked industry.”
Agora Data was founded in 2017 and its team of auto retail, finance industry experts, and top data scientists leverage AI to bring BHPH car dealers a simplified experience when it comes to selling auto loans. Agora Data aids dealers in selling their auto loans to banks, finance companies, hedge funds, and private equity firms. The selling tool groups all firms’ offers together and analyzes each one in order to provide the dealer with the most competitive offer.
In addition to the selling service, the company offers AgoraInsights, a product that helps dealers maximize portfolio performance, reduce risk, and manage cashflow. “Agora is already making a positive difference for the BHPH industry by helping our members strengthen their financial footing and realize unprecedented growth, knowledge, ability to compete and ultimately build wealth,” added Burke.
News about auto financing has consistently appeared in the fintech headlines since the beginning of the COVID pandemic. However, while Agora Data’s announcement is aimed at auto financing for the underbanked community, most of the news we’ve seen in this sector has focused on digitizing and managing the loan application portion of auto loans and refinances. One such company, MotoRefi, partnered with SoFi in April of this year and received $45 million in funding in May.
The modern world has witnessed three major economies. First, there was the industrial economy in which people earned money through physical activity. Then came the consumer economy in which people made money performing services. Next, the knowledge economy enabled people to earn money through leveraging intellectual capital and insight.
In these past few years, we’ve been witnessing the birth of the creator economy, a new economy fueled by social media platforms and video sharing. This new working order democratizes the ability for anyone to become a celebrity. Here’s a look at four key facts of this new economy.
Who
While many consider the creator economy to be limited to YouTubers and Instagram influencers, it actually has a wider breadth. In essence, everyone with an online presence is a creator, since we are all making content and sharing it online in some form.
A more exclusive definition of a creator is anyone who monetizes content online. This represents not just social media influencers, but also includes those who create and sell NFTs, ebooks, podcasts, digital art, etc.
Because there are such low barriers to entry in the creator economy, even kids can do it. In fact, one of the most famous YouTube creators is Ryan, an 11-year-old with 30.9 million subscribers who posts videos of himself playing with toys. Ryan is reportedly worth $32 million.
The participation of kids in the creator economy is influencing how younger generations view their future. According to a recent study, one third of kids between ages eight and 12 want to be either a YouTubber or Vlogger when they grow up.
Size
The current size of the creator economy is over $100 billion and growing. YouTube alone expects a $30 billion stream of revenue by the end of 2021. Of the 50 million people that consider themselves a creator, around two million of these are professionals making six-figure salaries.
Where’s the money?
Just like other economies, one of the ways that creators are recognized for their contributions is by getting paid. While this payment used to come from ads, branded content, or sponsorships, today’s monetization looks different. That’s because, instead of relying on third party sponsorships and brands to receive payments, creators now receive payments via subscriptions, tips, and even by payments directly from the user.
One of the latest examples of this is TikTok, which recently introduced the concept of in-app tipping. Users with more than 100,000 followers can apply to begin receiving tips from their fan base. When they receive a tip, 100% of the compensation goes to the creator; TikTok doesn’t take a commission.
Creators aren’t just getting paid in dollars. Owners and creators of non-fungible tokens (NFTs) receive payment in cryptocurrencies in exchange for their work. For more on how NFT compensation works, check out our piece 7 Things to Know about the NFT Craze.
How to leverage the opportunity?
The most important part about the creator economy for banks and fintechs is knowing how to leverage the opportunity. The future of this economy is unlike any we’ve ever seen in that payment and monetization may not rely on traditional banking infrastructure. In fact, many participants’ future revenue will be decentralized.
What we know for sure, however, is that personalization and customer experience matter and will continue to reign, even when payments are thrown off the rails. Many digital banks are already capitalizing on this opportunity. Just take a look at Nerve, a bank for musicians; Karat Financial, a bank for digital creators; and Willa, an invoicing tool for creators.
These financial services firms are different from banks in that they understand the unique challenges that come with being a creator. For example, creators experience many of the same difficulties as the self-employed, such as difficulty qualifying for a loan. They also often times have lumpy cashflow and need help with budgeting and financial planning.
There is still time for traditional banks to come up to speed in the creator economy. The key to serving this unique customer base will be to expand your existing resources for self-employed customers by offering new services such as revenue-based financing and on-demand wage access. As with most things in today’s digital banking era, the only way to properly serve this new user base will be through partnerships.
MoneyLion made a move today that will help it catch the eye of prospective customers and retain its existing ones. The digital bank acquired MALKA, a creator network and content platform, to help it better engage with consumers and connect with communities.
MALKA was founded in 2012 and works with creators to develop content across digital mediums including advertising campaigns, original branded content, e-gaming livestreams, podcast series, feature length documentaries, sports representation, and marketing. One of MALKA’s differentiating factors is that it maintains a talent base of 170 employees in-house in order to maintain relationships instead of working with different freelancers on different projects.
MALKA will help MoneyLion, which already offers MoneyLife content, in its mission to become a daily destination by bringing evergreen content to educate, inform, and support customers’ financial decisions. Ultimately, integrating MALKA’s content into MoneyLion will support the digital bank’s marketing and brand-building efforts.
“Through this acquisition, which we anticipate will be accretive and cash flow positive in 2022,” said MoneyLion Co-Founder and CEO Dee Choubey, “we will now be able to fully leverage MALKA’s capabilities so that the MoneyLion brand can truly live wherever our customers are investing their attention.” CMO Bill Davaris added, “This fundamental shift will allow us to own and not rent the relationships we are cultivating with new and existing MoneyLion customers.”
At face value, a tie-up between a digital bank and a content creation company seems a bit odd. The acquisition, however, can be seen as MoneyLion simply buying its own creative marketing and content department. No matter how you look at it, the acquisition is a hat tip to the new creator economy and speaks to how content-driven today’s consumers are.
MALKA will operate independently from MoneyLion and the company’s Founder and CEO Louis Krubich and Co-Founder and President Jeff Frommer will continue to lead daily operations. “This partnership will allow us to exponentially grow our creator network and engage with millions of more fans,” said Krubich.
MoneyLion launched in 2013 and offers a full-service platform that delivers mobile banking, lending, and investment solutions. Earlier this year the company teamed up with Zero Hash to launch the ability for users to buy, sell, and hold cryptocurrencies. The company went public on the New York Stock Exchange in September via a SPAC merger with Fusion Acquisition Corporation.
Analytics and decision management technology company FICOlaunched a loan origination tool called FICO Originations Solution that automates the entire customer journey leveraging the FICO platform.
The cloud-based tool leverages FICO’s enterprise intelligence network to streamline and personalize loan originations. The new tool helps financial services providers do two key things. First, it helps remove friction from the customer experience. Second, it empowers loan originators by helping them make more precise origination decisions and better manage risk, ultimately helping them grow more profitable portfolios.
This enhanced decision-making is thanks in part to FICO’s data library that offers lenders access to 130+ global data sources. The ever-increasing data source helps firms make faster and better customer decisions.
The FICO Originations Solution starts with a completely digital onboarding experience. The tool considers an organization’s goals, including the types of borrowers they want to attract, their ideal conversion rate, and profitability goals. FICO offers simulation capabilities to test the user experience to determine if decreased friction results in increased fraud or if changing an application question increases the conversion rate.
FICO Originations Solutions’ customers have access to FICO’s suite of tools that includes interactive messages, fraud prevention capabilities, and pricing optimization.
“Financial services providers today need data-hungry, analytics-ready, agile, extensible systems in order to compete in a digital-first economy,” said FICO VP and Head of Product Management Tim Van Tassel. “FICO Originations Solution, Powered by FICO Platform provides the digital and analytic sophistication that enables financial institutions to offer the safety, convenience, and personalization that customers look for during the account opening process through their chosen channel, while closely managing customer-level risk.”
FICO was founded in 1956 and is headquartered in California. The company is best known for the consumer FICO score that is calculated based on information in credit reports maintained by Experian, Equifax, and TransUnion. The company also offers fraud and compliance as well as debt collection and recovery solutions.
Alternative credit provider and digital bank Upgradeannounced a $280 million investment this week. The Series F round brings the company’s total funding to $600 million and boosts its valuation to $6 billion, which is almost double its last valuation of $3.3 billion in August.
The round was led by Coatue Management and DST Global with participation from Dragoneer Investment Group, Gopher Asset Management, G-Squared, Koch Disruptive Technologies, Old Well Partners, Ribbit Capital, Sands Capital, Ventura Capital, and Vy Capital.
Upgrade was founded in 2016 and offers a variety of low-cost personal loans and credit cards that come with rewards ranging from Bitcoin cashback to 3% cashback. Earlier this year the company debuted a checking account with a debit card that pays 2% cashback for common expenses.
The company differentiates its card, which is issued by Sutton Bank, from traditional credit cards by combining monthly charges into installment plans that the borrower repays over 24 to 60 months. Upgrade structures the repayment this way to get its users into the habit of paying down their balance every month and avoid getting trapped in a continuous cycle of debt.
The funding news comes four months after Upgrade closed its $105 million Series E round. Company CEO Renaud Laplanche said that the round “demonstrates Upgrade’s rapid growth and commitment to delivering innovative financial products that benefit consumers.”
The “rapid growth” Laplanche references has been seen in recent acclamations. Earlier this year the Financial Times selected Upgrade as the fastest growing company in the Americas and the Nilson Report recognized the Upgrade Card as the fastest growing credit card in America, placing Upgrade among the top 50 U.S. credit card issuers.
Since launching its credit card in 2017, Upgrade has delivered $10 billion in total credit to customers via the company’s credit cards and loan products. The majority of this credit has been issued this year alone; the company is on track to deliver $8 billion in credit in 2021.
Upgrade is headquartered in California with an operations center in Arizona and a technology center in Canada. The company is partnered with Cross River Bank and Blue Ridge Bank for credit lines and banking services, NYDIG for Bitcoin rewards, and Sutton Bank for card issuance.
