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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Earned wage access startup PayActivclosed $100 million today for its technology that helps companies offer their employees their pay on a daily basis rather than wait for their bi-weekly paycheck.
The Series C round was led by Eldridge and includes existing investors Generation Partners and the Ziegler Link•Age Fund II. The investment brings PayActiv’s total funding to $134 million.
The company will use the funds to expand its client base, which currently consists of 1,400+ businesses and organizations representing more than four million employees. Walmart, Wayfair, and Ibex Global are some of the major employers in PayActiv’s portfolio.
“American families are facing more financial stress than they have in generations,” said PayActiv CEO and Co-Founder Safwan Shah. “The timing gap between work and wages is the main reason workers get hit with punitive late fees, overdraft fees and other penalties. Cumulatively, these fees reduce wages by seven percent every month. The PayActiv platform is the only system where everyone wins: employers lift worker morale with little to no cost and huge dividends; employees get wages when they actually need them most; and cash re-enters the economy faster, making communities financially healthier.”
PayActiv was founded in 2011 and has emerged as a major financial wellness tool for employers. In addition to offering flexibility around how frequently employees receive payment, PayActiv also gives employees multiple options of how they receive payment. Workers can opt for direct cash pickup, a PayActiv prepaid card, an instant Visa or Mastercard debit card load, an ACH payment, or use their wages to pay bills, make purchases on Amazon, or purchase rides on Uber.
The company also offers financial wellness and planning tools that help employees to save, budget, and manage their money. Additionally, PayActiv announced today that it will offer employers a retirement benefit in partnership with Security Benefit, a retirement services provider based in Kansas.
Demand for earned wage access tools are on the rise, especially in today’s post-COVID economy. Sending employees their paychecks on a daily basis can help them avoid overdraft fees and high interest financing options such as payday loans and credit card debt.
“The future of pay is not a two-week cycle,” said Eldridge Co-founder, Chairman, and CEO Todd Boehly. “By simply giving people access to their wages as they earn them, PayActiv increases the velocity of money, stimulating the economy and serving employers and employees by driving costs down and efficiencies up.”
Describing the opportunity to use AI to create tools and solutions that make society better off, Pablos Holman (pictured right) said, “we get the chance to work for the humans yet to come.”
I like the way of looking at a controversial technology in such a positive light. Instead of focusing on the potential of AI to displace us at our jobs or make our lives unfair in some ways, maybe it is better to examine how we can use AI to craft products, technologies, and services that make our world better to live in.
To do this we need to ask ourselves and the community we work in, “All of this technology is in our hands, what do we want to accomplish with it?” It’s important to ask questions like these in the fintech sector, so that the industry can control how we use new technologies such as AI. As Holman puts it, “Speculate about the possibilities, focus on the positives.”
Holman is a hacker, inventor, entrepreneur, and technology futurist who is on a quest to solve the world’s problems through the innovation of technology. He will be the keynote speaker kicking off FinovateFall on September 14, offering his thoughts on innovating in the post-COVID landscape.
He is certainly a speaker you won’t want to miss. Holman has helped build spaceships; the world’s smallest PC; artificial intelligence agent systems; and the Hackerbot, a robot that can steal passwords on a Wi-Fi network. He is a world-renowned expert in the fast moving 3D printing space, and is currently working on printing the food of the future among other things.
Holman will discuss some of the invention projects under way at the Intellectual Ventures Lab, and their efforts to create an Invention Capital market. He will also be showing off some of the super powers that hackers possess.
FinovateFall Digital will run September 14 through 18 and will be broadcast live in Eastern Standard time. There’s still time to register (at a discount!) so take advantage and book your ticket today.
Have you ever heard of open-banking-infrastructure-as-a-service? American Express has, and it has tapped U.K.-based Yapily as the provider.
The open banking infrastructure company has signed an agreement with American Express to take the financial service giant’s open banking payment initiation product, Pay with Bank Transfer, to select European markets. Yapily’s API will enable Amex’s end users to complete a payment without being redirected to a different channel or website.
Pay with Bank Transfer is self-explanatory– it leverages open banking to enable users to transact via bank transfer. The payment method uses biometric authentication and instant payment APIs for faster, more simple, and secure payments.
“The partnership is the first real step to bringing open banking payments to everyone across Europe and the U.K.,” said Yapily CEO and founder Stefano Vaccino. “Now, a significant number of international merchants will finally be able to access, and benefit from, an open banking API.”
Yapily was founded in 2017 to help financial service providers leverage the open banking opportunity by connecting them with banks. The company enables its clients to access data in 15 countries across Europe, and at more than 180 financial institutions. Yapily has raised $18.4 million.
Mortgagetech has historically been one of the last sectors of fintech to see innovation. However, with digitization en vogue because of COVID-19, there has been an uptick in interest in companies looking to make closing on a home mortgage easier.
As evidence, U.S.-based Blend is gaining attention today for a fresh round of funding and a new valuation. The company landed $75 million in Series F funding, bringing its total raised to $365 million and increasing its valuation to almost $1.7 billion.
The round was led by Canapi Ventures. Existing investors Temasek, General Atlantic, 8VC, Greylock, and Emergence also participated.
“Financial institutions have traditionally taken time to modernize legacy systems, but digital is now table stakes. Shelter in place and social distancing mandates have forced banks and other lenders to accelerate digital transformation plans from years to months,” said Jeffrey Reitman, a partner at Canapi Ventures. “Blend is at the forefront of this innovation, offering flexible digital solutions to help lenders like Wells Fargo, U.S. Bank, Truist, M&T Bank, and other key regional banking institutions meet their accelerated timelines and their customers’ changing needs.”
Blend, a banking-as-a-service company that aims to create a “less stressful, more accessible lending experience,” will use the funds to expand its products and broaden its strategy. Specifically, Blend will likely bolster the consumer banking and auto loans offerings it launched late last year.
“Our goal is to deliver software that gives lenders the flexibility to meet the evolving needs of consumers,” said Marc Greenberg, head of finance at Blend. “We’re committed to being the digital layer that enables millions of people to gain access to the capital they need, while helping our customers be there as trusted advisors for every milestone in a consumer’s financial journey.”
Among Blend’s new launches this year are a digital closing solution for mortgages and home equity loans, a mobile app for loan officers, and new reporting tools for lenders. Since the start of 2020, Blend has brought on 130+ new employees and helped its bank clients process more than $771 billion in consumer loans– over $3.5 billion each day.
Adding to the big-bank-to-big-tech partnerships announced in recent weeks, Standard Charteredsecured a three-year partnership with Microsoft today.
The bank will leverage Microsoft to take a multicloud approach that will port its significant applications to the cloud. Specifically, Standard Chartered is planning to make its core banking and trading systems and digital ventures such as virtual banking and banking as-a-service cloud-based by 2025.
“Cloud is a cornerstone of Standard Chartered’s strategy to meet the present and future banking needs of our clients,” said Group Chief Information Officer of Standard Chartered, Michael Gorriz. “Using cloud services improves our ability to be agile and innovative, while increasing our operational efficiency and resilience. As disruption in the financial industry continues, we can focus on client benefits by deploying our solutions quicker and allowing for faster integration of new business models and partners.” Gorriz added that today’s partnership is a “major milestone” in Standard Chartered’s journey to become cloud-first.
Standard Chartered will pilot the launch by moving its trade finance systems to Microsoft Azure. The move is expected to facilitate cross-border trade at the bank.
The partnership extends to Microsoft’s workplace tools. Standard Chartered’s 84,000 employees will be working on Office 365 and communicating via Microsoft Teams.
This news comes during a time of widespread digital transformation across the banking sector. Banks and fintechs are seeking to move their operations to the cloud to update their infrastructure and create a better customer experience. There are two factors driving this change: the global health crisis that has moved many in-person interactions to online channels and the rise of competition from challenger banks.
“Cloud computing is an enabler for financial institutions to modernize their infrastructure and systems, to gain the agility they need to respond to competitive pressures, regulatory environments and customer demand,” said Bill Borden, Corporate Vice President of Worldwide Financial Services at Microsoft. “We are committed to helping Standard Chartered Bank in its ongoing digital transformation journey as it strives to address evolving customer needs and build the next generation of banking experiences.”
For better or for worse, modern society has adapted to expect things instantly. We want a quick lunch delivery, a fast Uber pick-up, and we expect Netflix to buffer our movies in microseconds. Even Amazon’s two-day shipping takes too long.
Recognizing the value of the real-time economy, Orumlaunched its flagship product, Foresight, last week. The new tool helps banks move money in real time for instant account funding, overdraft protection, and consumer-focused pre-delinquency tools.
Instead of leveraging the blockchain for real-time transfers like Ripple does, however, Orum takes a different route. The startup uses AI to predict the availability of funds within an account and pre-authorizes transactions, incurring limited risk.
“At Orum, we are creating a paradigm shift for the way money moves,” said Orum founder and CEO Stephany Kirkpatrick. “We are leaving behind siloed accounts and manual transactions and building toward fully automated and point-to-point money movement. Technology has created an on-demand economy, but our money has yet to catch up.”
In addition to Kirkpatrick, Orum’s team includes former N26 employee Ryan Cooke and former Stash VP Christine Hurtubise.
Along with Orum’s new product announcement, the New York-based company landed $5.2 million in Seed funding led by Homebrew with contributions from Inspired Capital, Acrew, Bain, Clocktower, Box Group, and angel investors. Impressively, the round was both opened and closed during a pandemic.
“Today’s tools for immediate money movement leave enterprises decades behind what customers demand. Orum is tackling this challenge head on,” said Homebrew Partner Satya Patel. “We’re excited about Orum’s vision. The early demand they’ve seen—both from cutting-edge fintechs and incumbent financial institutions—speaks for itself. It’s clear the market understands the value of moving money in a new, more efficient way.”
According to Crunchbase, Orum is already working with 50 customers and has a waiting list.
The incumbents in the real-time payment (RTP) space in the U.S. have seen some traction, however none have seen widespread adoption. Aside from Ripple, other players working on RTP solutions include The Clearing House, which launched its RTP scheme in 2017 and now counts 32 banks and 19 technology providers as clients. According to Forbes, however, fewer than half of these members are operational on the RTP platform.
The U.S. Federal Reserve is also in on the game, having announced its own RTP scheme, FedNow, last year. Since its announcement, there has been much debate within the fintech industry over whether or not the government can effectively compete with the private sector with real time payments. However, given the lack of traction in the area, the Federal Reserve ultimately decided to pursue FedNow. In true government fashion, however, the offering is not slated to launch until 2023 or 2024.
Remember how society expects everything to happen instantly? The slow traction of incumbent players in the RTP space isn’t meeting expectations. That said, there is a lot of room for Orum in the RTP space and I think we’ll be hearing about a lot more traction from them in the second half of this year.
2020 may be a tough year overall, but it has been quite good to the cryptocurrency space. PayPal announced plans for a cryptocurrency offering, Visa revealed plans to incorporate cryptocurrencies into its payment network, and Mastercard expanded its existing cryptocurrency program.
Late last week, another development took shape: cryptocurrency payments platform Wirex announced it received its first money transmission license in the U.S. The license, issued by the State of Georgia Department of Banking and Finance, comes two years after Wirex received its e-money license from the U.K. Financial Conduct Authority.
Receiving the license is a major step in the direction of a U.S. launch. In fact, Wirex said it will formally launch in the U.S. “in the coming months.”
“We are very excited to receive our license as a money transmission business for the State of Georgia,” said Wirex CEO and co-founder Pavel Matveev. “With the sector growing rapidly, approval of this license is an important step in Wirex’s endeavor to ensure the company complies with money transmission regulations and cryptocurrency laws worldwide. This is an important step in realizing our vision to grow cryptocurrency adoption and use with a mainstream audience in the U.S.”
Wirex was founded in 2014 and helps its 3 million customers in 130 countries buy, hold, and exchange fiat money and cryptocurrencies. Among the company’s offerings is a contactless, crypto-compatible debit card that enables customers to transact at the 54+ million locations where Visa is accepted. Wirex is also known for Cryptoback, a cryptocurrency rewards scheme that offers up to 1.5% back, paid in Bitcoin, to customers who use their Wirex card in-store.
The fintech industry will look back at 2020 as a year of change in many areas, including digital transformation, payments, and in-person services. However, one of the most impactful changes taking shape this year is the broader acceptance and usage of cryptocurrencies.
Part of the evidence here is the formation of partnerships between crypto companies such as Wirex and traditional incumbents such as Mastercard. Last month, the two struck a deal that allows Wirex to directly issue cards on Mastercard’s network.
Wirex has received $3.2 million in funding and became profitable earlier this year.
Place another notch in the belt of the challenger banking crowd. This week banking alternative Bnextextended its Series A round by $13.08 million (€11 million), adding to the $26.7 million (€22.5 million) the bank brought in last October.
Bnext’s Series A round now stands at $39.2 million (€33 million) and its total funding is now in excess of $47 million (€40 million). Existing investors DN Capital, Redalpine, Speedinvest, Founders Future, Enern, Digital Horizons, Kreos Capital, and Cometa contributed to this week’s follow-on round.
Bnext will use the funds to further its growth in its home territory of Spain, as well as build its presence in Latin America by focusing on its expansion into Mexico. The bank initially launched in Mexico at the beginning of this year and now has 60,000 users in the region.
“At Bnext we have always had a clear objective: to be a banking alternative that allows our users to end the bad experiences of traditional banks,” said Bnext CEO Guillermo Vicandi. “Since its launch, our growth has been constant both in services and products and in users, and we are proud to have the support of the best investors to design and execute a strategy that allows us to achieve our objective. Our position to change the banking sector in the Spanish-speaking world is unbeatable and we have a duty to take advantage of it.”
The challenger bank has amassed 400,000 clients since it launched in 2018 and currently processes $119 million (€100 million) per month in transactions. Last month Bnext launched its Premium account and added to its Rewards program.
Point of sale financing is all the rage in fintech right now. Consumers are looking to continue buying habits despite lower income and merchants are vying for ways to boost consumer spending.
So when it comes to one of the biggest online merchants launching a buy-now-pay-later offering, its a big deal. It is, anyway for Citi, which struck up a partnership with Amazon this week to provide a buy-now-pay-later option for Citi credit cardholders.
The tool is called the Citi Flex Plan and offers Citi credit cardholders a way to pay for larger purchases over time. Loan terms range from three to 48 months with terms ranging from 6.74% APR to 8.74% APR depending on the amount financed. Borrowers face no credit inquiries, no incremental fees, and are not required to fill out a formal application.
“Amazon is one of the most popular destinations for our customers to shop and redeem ThankYou Points,” said CEO of Citi U.S. Consumer Bank Anand Selva. “We want to meet them where they are with another instant, convenient and easy payment option.”
Essentially, Citi cardholders have two forms of credit in one when they shop on Amazon. How do the logistics work? When they place their order, the total purchase amount will be deducted from their available credit. The monthly payment– the amount that varies based on the purchase price– is due to Citi at each billing cycle.
After Citi initiated a partnership with Google in 2019 and yesterday’s news of six more traditional banks following suit, today’s announcement comes as no surprise. Challenger banks are on the rise, and consumers are opening new accounts with these alternative banking providers at a faster rate than before.
By providing its customers with the new buy-now-pay-later option, a traditional financial services provider such as Citi is appealing to the lower income group that is most attracted to challenger banks. The bank is also helping to position its card at the top of consumers’ virtual wallets when they shop at Amazon. This is key since more than one-third of active Citi cardmembers made at least one purchase on Amazon in the past year.
Additionally, partnering with a big tech company helps Citi align more with the tech side of banking. And indeed, the bank has been closer to the forefront of fintech than many of its rivals. At our developers conference Citi showcased its developer hub and sandbox.
Super app Grab is becoming a lot more super. That’s because the Southeast Asia-based company that specializes in transportation, food delivery, and payment solutions is expanding into direct-to-consumer services.
Three new consumer-focused services are launching under Grab’s Thrive with Grab strategy. The new initiative builds off of the company’s merchant services strategy, Grow with Grab, that launched last year. In contrast, Thrive with Grab “aims to empower individuals to grow their personal wealth, manage their finances and protect what they value.”
At launch, Grab’s three consumer-focused services include a loan marketplace that aggregates loan offers from third party providers, a buy-now-pay-later payment offering with partner merchants, and AutoInvest, a micro-investment solution that allows users to invest small sums of money while spending in Grab’s ecosystem.
“As a leading fintech company in Southeast Asia, our ‘Thrive with Grab’ strategy will enable users to build their wealth, manage their finances, and protect what they value during this uncertain period,” said Grab Senior Managing Director Reuben Lai. “By offering innovative micro-transaction-based financial services, convenient financial management tools, and access to products from leading global financial institutions, we hope to unlock the tremendous potential in financial services in the region in ways that serve all Southeast Asians.”
The launch of the three new services is Grab’s second foray into the direct-to-consumer space. The company launched an insurance offering in April of last year and has since issued more than 13 million insurance policies.
Reuben said that the goal of the new launch is to “empower individuals and small businesses across the region to meet their diverse needs through financial services by delivering products and solutions that are accessible, transparent, and convenient.”
Grab raised $856 million in February and yesterday announced a $200 million round, bringing its total raised to over $10 billion and boosting its valuation to over $14 billion. Anthony Tan co-founded the company in 2012 with Tan Hooi Ling and now serves as CEO.
This is a guest post written by Shannon Flynn, managing editor at ReHack.com.
People in the fintech industry have inevitably heard about smart contracts. Here’s how they’re shaping the sector and why some parties may ultimately decide not to adopt them yet.
How do smart contracts tie into the rise of decentralized finance?
Anyone who asks a search engine “What is a smart contract?” will quickly discover it’s a computer code on the decentralized digital ledger system called the blockchain.
Entities ranging from utility to health insurance companies are investigating how smart contracts could help them do business while keeping information safe. Their increasing popularity helped spark the creation of the decentralized finance sector — DeFi for short.
A person located anywhere in the world could access a DeFi account with an internet connection. They can then carry out transactions typically associated with banks without going through those entities or intermediary influences.
Estimates say there are about a billion dollars connected to the DeFi industry now. That’s a relatively small amount compared to centralized finance, but DeFi is worth people’s attention. It offers new opportunities to invest, borrow, and lend, appealing to parties unhappy with traditional investment options. Some DeFi companies using smart contracts let individuals earn cryptocurrency tokens redeemable for platform governance rights.
What’s happening with smart contracts so far?
You can think of smart contracts as business rules translated into software since they work on an if-then basis. One required action triggers a related event. The parties involved set the parameters, and the smart contract automatically upholds them.
In one trial, Spanish banks investigated using smart contracts to administer instant credit transfers. The company that assisted with the rollout clarified the system could work for sending money for any reason.
Similarly, in Singapore, financial authorities recently completed the fifth phase of an initiative called Project Ubin by examining blockchain-based options across a multicurrency payments network. Real-world tests validated smart contracts for various arrangements, including conditional payments and escrow for trade.
IBM announced an upgrade to its smart contracts offering, too. It allows multiple parties to propose and amend alterations to existing smart contracts instead of only accepting or denying others’ proposals.
How do smart contracts work when used with property purchases or loans?
People in the fintech industry often encounter individuals who need business loans or want to take out mortgages for their dream homes. Research indicates about 83% of people are slightly or not at all familiar with cryptocurrencies. Education could show them that smart contracts and related technologies ease the stress of milestone transactions.
Increased speed is one smart contract benefit. However, advantages span beyond the initial signing of paperwork. Once a person’s loan gets approved, they could use an encrypted key to sign the offer, and their signature becomes a unique blockchain entry. Funding and property title transfers also become entries on the ledger. Mortgage approvals and loan term agreements take days, not months.
Smart contracts and the blockchain can help mortgage servicers track borrowers’ payments, too. Plus, if a homeowner wants to refinance a mortgage or sell their property, the blockchain records for the duration of the smart contract to confirm ownership.
What other benefits exist?
Ironing out financial agreements with smart contracts could also make good cost sense. One company offering smart contract-based mortgages in California and New York plans to offer lower rates than banks, and customers may get loans packaged together and sold as securities.
Some analysts think smart contracts could help the economy stave off a recession, preventing prolonged challenges in the housing market. Each intermediary that finalizes a home-buying process adds 1% to 2% of the total property value to the transaction costs, statistics show. Smart contract automation can reduce third-party involvement, cutting costs and delays.
Efforts to use smart contracts could close the gap between investors and investment managers as well. An investment manager might initiate a smart contract that carries out a client’s wishes and avoids missed opportunities.
Several companies are investigating smart contracts to facilitate vacation rentals at lower-than-average rates. They believe the smart contracts would settle disputes faster and facilitate speedier cross-border payments.
What are the downsides of smart contracts?
Smart contracts aren’t without potential faults. One investigation showed that 25% of smart contracts studied contained critical bugs, with 60% having at least one security flaw.
Moreover, these contracts are only as “smart” as the programmers creating them. The code cannot recognize and bypass mistakes. Although errors could be less frequent than traditional contracts — especially with experienced, meticulous developers — the possibility remains.
A World Bank examination of smart contracts concluded they’re not always the best choice for every scenario. One example was that they could lower the cost of providing insurance and perhaps automate payouts. However, if used with short-term unsecured loans, smart contracts would not significantly improve a borrower’s creditworthiness.
Not all analysts agree that the benefits of smart contracts surpass those associated with conventional ones. They see them as an interesting idea that works best in the experimental realm instead of the real world. Smart contracts are still relatively rare, too. People in fintech and other industries may balk at using them since they’re newer and could introduce unforeseen issues. That could change if overall adoption rates rise, however.
Food for thought in fintech
This overview introduces how smart contracts work and proposes appealing ways to use them in the financial sector. Given the associated limitations, you may still have some unanswered questions, and that’s okay. The ideal approach is to view smart contracts as options that could positively change the industry but are not problem-free.
ShannonFlynn is a technology and culture writer with two plus years of experience writing about consumer trends and tech news.
Step aside, challenger banks. Google and a band of eight traditional FIs are coming for you.
News broke this morning that six financial institutions have joined Citi and Stanford Federal Credit Union in offering checking and savings accounts through Google Pay. The new banks include BankMobile, BBVA USA, BMO Harris, The Coastal Community Bank, First Independence Bank, and SEFCU.
These new accounts will leverage Google Pay’s existing infrastructure, which will serve as the front end of a fully digital banking experience.
BBVA announced today that its accounts will launch in 2021 as co-branded, FDIC-insured accounts. The bank will provide the account, while Google will provide the front-end, user experience, and financial insights. The collaboration will be facilitated by the BBVA Open Platform, the bank’s open banking initiative.
“BBVA has focused for decades on how it could use digital to advance the financial industry and, in so doing, create more and better opportunities for customers to manage their financial health,” BBVA USA President and CEO Javier Rodríguez Soler said. “Collaborations with companies like Google represent the future of banking. Consumers end up the true winners when finance and big tech work together for their benefit.”
Aside from the list of bank partners, there are not many details available about the new, hybrid accounts. Tech rumor site 9 to 5 Google speculates, however, that Google with leverage the partnerships to issue its own branded debit card.
