Early-stage, next generation fintechs are the target of the new accelerator program launched by IBM this week: The IBM Hyper Protect Accelerator Powered by IBM LinxuOne. Selected companies will collaborate with IBM and its partners, IBM Alpha Zone, Queen City Fintech, and MEDICI as they work to turn their startups into “sustainable and scalable companies.”
A total of fifteen early-stage, pre-Series A startups from both fintech and healthtech will be selected for the program. The application window closes at the end of July, and companies are expected to be selected in September. Later that fall, startups will participate in an in-person workshop event where they will have the opportunity to demo their solutions before an audience of IBM partners, customers, and investors.
IBM will provide the companies with a virtual mentorship of monthly one-on-one and quarterly all-hands check-ins for two years after completing the program. The startups will also benefit from a one-year business mentorship, with monthly and quarterly consultations, and the opportunity for the startup to participate in a second in-person demo day.
Companies in the program will be able to access technical workshops from IBM, and take advantage of a 300+ member network of business mentors and technical support. Startups will also have access to up to $10,000 a month in IBM cloud technology credits that can be applied each month to access IBM Cloud Hyper Protect Services. Up to $120,000 in credit can be earned by startups by the end of the program.
IBM will leverage its LinuxONE server platform to power IBM Cloud Hyper Protect Services and provide the kind of highly secure environment necessary for fintech and healthtech companies that need to protect sensitive data in cloud native apps. The highly scalable platform will also ensure that program participants will enjoy maximum uptime and availability.
IBM has been a Finovate alum since 2016 when it demonstrated its Client Insight for Wealth Management solution. The company has also been a participant in our developers conferences, presenting the Implementation of the Hyperledger Project at IBM with Blockchain as a Service at FinDEVr Silicon Valley 2016. Most recently, IBM Security demonstrated its IBM Trusteer New Account Fraud solution at FinovateEurope 2018.
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.
In a marriage between payments innovators from Sweden and Silicon Valley, Trustly has announced that it has agreed to merge with U.S.-based PayWithMyBank. The merger comes a little over a year after Nordic Capital announced taking a majority stake in Stockholm’s online banking payments provider.
“This transformative merger creates the first and only online banking payments network with transatlantic coverage and accelerates our path towards global coverage,” Trustly CEO Oscar Berglund said. He credited PayWithMyBank for being an online banking pioneer going back to 2000. “Together we’re thrilled to be able to offer merchants and billers a unique alternative to card payments,” Berglund said, “allowing them to accept payments from 600 million consumers across Europe and the U.S.”
According to Trustly spokesperson Meredith Popolo, the two companies will continue to operate under their own brands “for now.”
Just this week, we took a look at the rise in M&A activity among fintechs. The news that Trustly and PayWithMyBank will combine into a global payments entity with revenues of more than $120 million (€100 million) in 2018 serves as further evidence of this trend. The merger between payment specialists also supports the trend toward enabling consumers to pay directly from their bank accounts – cutting out the card networks altogether.
Trustly’s straightforward, three-step process makes it easy for consumers to shop and pay directly from their bank accounts. Via the Trustly option during checkout, users select their bank from a drop-down menu and log on as usual. Then they choose the account from which they want to pay, and confirm the payment with the authentication option of their choice. The technology helps merchants improve conversions and reduce churn while providing bank-grade security.
PayWithMyBank CEO Alexandre Gonthier pointed out that the idea to merge with Trustly was in some ways a function of demand. “Our large, U.S.-headquartered customers were all asking us to expand our consumer coverage globally beyond the U.S.,” Gonthier said. “So, joining forces with Trustly, the established leader in our space in Europe, was a natural strategic next step for PayWithMyBank, the emerging leader in the U.S.”
Redwood City, California-based PayWithMyBank was founded in 2012, and provides a high-UX conversion, high-payment authorization, low-cost, no-chargeback alternative to checks as well as other popular payment methods such as Visa, Mastercard, and PayPal. The firm’s client list includes Western Union, First Data, United Way, and a number of social media and telecommunications firms and utility companies.
As a result of the merger, Gonthier will serve as U.S. CEO, where he will oversee the U.S. market and report to Oscar Berglund, who will serve as Group CEO.
Founded in 2008, Trustly demonstrated the Direct Debit feature of its platform at FinovateEurope 2017. Direct Debit enables recurring charges and one-click payments on bank accounts, providing faster, safer transactions for customers and merchants.
More recently, Trustly announced a partnership with Collector Bank to bring instant payments to merchants in the Nordics. Last month, the company introduced its automated invoice payment solution, Pay Your Invoice, for both customers and merchants. With offices in Stockholm, Sliema, London, Orebro, Cologne, Barcelona, and Helsinki, the company celebrated adding its 300th employee this year.
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.
A new strategic investment from ABN AMRO Digital Impact Fund “strengthens the current operational relationship” between the bank and Israel-based cybersecurity innovator ThetaRay, fund director Hugo Bongers said today. The investment, amount undisclosed, adds to the company’s reported $66.5 million in funding.
ThetaRay leverages its big data analytics platform and solutions to provide advanced cybersecurity and risk mitigation for financial services companies. The company, founded in 2013, demonstrated its technology at FinovateFall 2015, and showed how its approach to anomaly detection provides protection against unknown, next generation cyberattacks while delivering low-false positives. ThetaRay’s IntuitiveAI platform helps spot money laundering activity, fraud, and dangerously risky loans, as well as helps firms become more efficient operationally and identify new potential growth areas.
“We’re very proud that ABN AMRO, a customer that benefits from ThetaRay’s intuitive artificial intelligence technology to combat financial cybercrime and operational failures, has now also become an investor,” ThetaRay CEO Mark Gazit said. He praised the company as a “visionary” that recognizes the role of AI-enabled technologies to help financial services companies better serve their customers. “We see ABN AMRO Digital Impact Fund as a true partner for creating a safer world,” Gazit said.
ThetaRay is not the first Finovate alum to receive funding from ABN AMRO Digital Impact Fund. The €50 million corporate venture entity has also invested in Tink, BehavioSec, and Cloud Lending Solutions. The strategic nature of the firm’s investment in ThetaRay, however, brings with it specific dividends, according to Bongers. “ABN AMRO stands to benefit from access to the Israeli ecosystem of cybersecurity and financial crime detection firms, as well as the leading venture capital investors operating in this business, such as JVP (Jerusalem Venture Partners) and OurCrowd,” he said.
Named one of 10 Security Startups to Watch by Network World earlier this year, ThetaRay was honored by the 2019 Fortress Cyber Security Awards last month, earning recognition in the Software & Applications category. The company added veteran marketing talent in May, hiring former Arachnys and Axioma executive Steve Mann as its new CMO.
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.
Bento Pay is a first of its kind digital payment solution that makes it easier for businesses to pay businesses. The technology marries the ease of use of digital, check-free consumer payments with enterprise-grade security and spend controls business owners and managers need.
B2B business payments solutions provider Bento for Business announced the new solution this morning. Available to customers in July, Bento Pay will only require the payee’s email address in order to send payments rather than force fund recipients to set up new accounts or share personal financial information. Funds can be received by single-use virtual card or an ACH transfer.
Highlighting the efficiency of banking and payments in the consumer area, Bento for Business CEO and co-founder Farhan Ahmad believes business payments can be made better. “Businesses today are demanding the same level of convenience and control,” he said. “They want to move away from complex, high-cost workflows towards a solution that is flexible and secure. Bento Pay users can smoothly and securely complete business payments to their suppliers while controlling their cash from one central place.”
As such, Bento Pay is a significant contribution to the company’s product suite, which now features debit and virtual cards, real-time payments, and ACH transfers. The new offering also validates the company’s evolution from a spending and expense management innovator into a holistic payments solution provider for small businesses.
“Until now, we’ve seen no meaningful revolution in the B2B fintech space that can viably address the underserved needs of SMBs,” Ahmad said. “We envisioned Bento as the financial operating platform of choice for SMBs, and the addition of real-time payment capabilities is a continuation of our vision.”
San Francisco, California-based Bento for Business demonstrated its first offering, the Bento Mastercard, a prepaid commercial card solution for SMEs, at FinovateSpring 2015. The card gives owners and managers the ability to empower employees and workers to make necessary business expenditures, while maintaining a high degree of control and transparency into all activity on the card.
Last month, Bento made a pair of major, C-level hires, adding Paula Bachman as Chief Financial Officer and Tracey Hansen as Chief Marketing Officer. Bachman is most recently from data analytics firm, Networked Insights. Hansen was formerly CMO of education software company, Renaissance Learning. This spring, the company announced a partnership with Visa that added a new payment card option for small business owners using the Bento for Business platform.
With $18.5 million in funding from investors including Comcast Ventures, Edison Partners, and MissionOG, Bento for Business was one of 15 investors to back Bipsync, a research automation platform for investors, at the beginning of the year. Bento was founded in 2014.