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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Many analysts predicted the latter half of 2020 would be flush with M&A deals. As the economic effects of the pandemic begin to take their toll, some fintechs are more open to exiting earlier than they had planned.
Additionally, volatile stock market conditions are making IPOs less appealing. This may be what swayed Kabbage, which had long-been rumored to IPO after becoming an early fintech unicorn, to agree to be acquired by American Express.
These factors have made August, which is typically a very sleepy month for fintech news, into a busy time for M&A activity. Here’s an aggregation of some of the top deals this month.
What catches your eye when it comes to fintech headlines? A big IPO? A major venture capital investment? Or a huge move on the M&A front?
For those whose eyebrows bounce highest when a major acquisition is the talk of the day, one reason why is that acquisitions often but not always signal a major recognition of value in both an individual company and in a line of business. If a venture capitalist investing in a startup is putting its money where its mouth is, then an incumbent acquiring a startup is putting its business where its mouth is, and that’s a moment worth paying attention to.
In this context, NerdWallet’s decision to acquire U.K.-based Know Your Money – announced over the weekend – is a testament to the way personal finance comparison platforms are helping consumers navigate the world of loans, mortgages, and small business banking. A financial service price comparison site in operation for fifteen years, Know Your Money helps consumers in the U.K. by providing deals on financial products and services from brands ranging from Virgin Money and Funding Circle to ANNA and Countingup.
“Recently, the volatility of the stock market, unemployment, and plunging interest rates have consumers facing financial challenges they’ve never dealt with before and searching for content and products to help them navigate their new normal,” NerdWallet CEO Tim Chen said. “Because of this, there has never been a better time to expand the reach of our financial guidance and grow our business, and there is no better place to start than the U.K.”
Terms of the acquisition were not disclosed. But NerdWallet’s interest in expanding to the U.K. likely comes as welcome news to a financial services community that has seen a number of fintech departures from the country in 2020. To this end, post acquisition, the Know Your Money team will become a NerdWallet subsidiary, with all of the company’s executive and workers remaining with the firm. Know Your Money is the premier financial services website in the U.K. with more than five million consumers and 1.2 million businesses using its platform.
San Francisco, California-based NerdWallet was founded in 2009 and has raised $105 million in funding from investors including Camelot Financial Capital Management and IVP. Know Your Money is the personal finance company’s second acquisition; NerdWallet purchased retirement planning firm aboutLife in 2016. NerdWallet boasts 160 million users and annual revenues of more than $150 million.
The buy now, pay later (BNPL) trend has been accelerating since the beginning of this year, and today PayPalannounced plans to get in on the action.
The payments giant is releasing Pay in 4, a short-term payments installment product for U.S. customers. When consumers opt to use Pay in 4, merchants receive payment upfront, and the buyer pays for the purchase over the course of a six week period. PayPal takes on the credit risk.
Consumers can use Pay in 4 for transactions between $30 and $600. Purchases do not incur interest and buyers can set up automatic repayments. Additionally, there are no fees for the buyer or the merchant.
“In today’s challenging retail and economic environment, merchants are looking for trusted ways to help drive average order values and conversion, without taking on additional costs. At the same time, consumers are looking for more flexible and responsible ways to pay, especially online,” said Doug Bland, SVP of Global Credit at PayPal. “With Pay in 4, we’re building on our history as the originator in the buy now, pay later space, coupled with PayPal’s trust and ubiquity, to enable a responsible and flexible way for consumers to shop while providing merchants with a tool that helps drive sales, loyalty and customer choice.”
Today’s release is the newest in PayPal’s line of Pay Later tools. The company’s other financing options include PayPal Credit, a line of credit with built-in promotional offers, Easy Payments, a BNPL service available in the U.S. and U.K. PayPal also offers Pay Later tools across the globe in Germany, France, Australia, Canada, Spain, and the Netherlands.
After the BNPL trend began burgeoning earlier this year, PayPal has joined the likes of Affirm, Sezzle, Klarna, and even Goldman Sachs, as well as a handful of others in offering BNPL options to online shoppers. The popularity of these services is attributed to an uptick in unemployment brought on by COVID-19. Not only are consumers making less money, some have maxed out their credit cards and are seeking alternative ways to keep afloat.
Pay in 4 will be available in the 4th quarter of this year.
In a new process called primary direct floor listing, the U.S. Securities and Exchange Commission (SEC) recently implemented a rule that will help companies raise capital through direct listings.
A direct floor listing will enable companies to issue new shares to the public via an auction that matches buy and sell orders, establishing the company’s offering price. This process differs from the traditional direct floor listing method, which was exclusive to existing investors and did not allow the company itself to raise funds via the offering.
The new listing method serves as an alternative to the traditional initial public offering process and eschews formal marketing and shareholder lock-up. Additionally, the new process doesn’t require underwriters to price shares.
“Allowing for multiple pathways for private companies to achieve exchange listing would encourage more companies to participate in public equity markets and provide investors a broader array of attractive investment opportunities,” explained a commenter to the SEC’s rule change.
In some ways, direct floor listings will benefit the company, rather than the shareholders. For example, after going public, first day gains will go to the company itself, rather than new investors.
Minimum market value requirements for direct floor listings, which are imposed to ensure sufficient liquidity, are $100 million and, for primary direct floor listings, $250 million. This is more than double the minimum value requirement for IPOs, which is $40 million.
According to the Financial Times, two technology companies have already expressed a desire to take advantage of direct listings. Both Palantir and Asana have filed paperwork with the SEC for direct listings.
Ever wonder what your favorite fintech CEO’s first job was? Or if they would rather invest in gold or bitcoin? Or what their best Halloween costume was?
While those are questions may have come up during a casual networking session, face-to-face (or mask-to-mask) networking isn’t possible this year, so it may be difficult to have such casual banter. Fortunately, I have two pieces of good news for you.
First, FinovateFall Digital, taking place September 14 through 18, is offering as much quality networking time as possible during the event. We’re offering lots of ways to communicate with your fellow audience members. And if you’re not a social butterfly (or if you prefer PJs over a polo shirt), you can make your opinion heard through polls or communicate via chat.
The second piece of good news: we’ve started a video series called 25 in 5 where we ask 25 questions to demo companies and they answer them all within 5 minutes. It is not only a great way to get to know the company, but also serves as an introduction to a CEO and the culture they’ve built.
Interviewing Glance CEO Tom Martin
All of the 25 Questions interview videos will be available as exclusive, on-demand content within the FinovateFall Digital event platform. If you’re registered, keep an eye out for early access to schedule meetings and curate your event-day agenda with the sessions that most interest you.
And don’t worry about missing out. There’s still time to register, and with no need to buy a plane ticket and book a hotel room, FinovateFall is more accessible than ever.
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
Nacha’sPhixius is a platform for securely exchanging payment-related information utilizing technology and rules within a network of credentialed service providers.
Features
Enable electronic payments while maintaining control of data
Leverage an API based data exchange with no bi-lateral agreements
Benefit from a trusted provider, rules-based network
Why it’s great Phixius enables the secure exchange of payment-related information utilizing technology and rules within a network of connected service providers.
Presenters
Peter Tapling, Technology Advisor Tapling serves as Technology Advisor to Nacha, is Managing Director of PTap Advisory, and Board Member of the U.S. Faster Payments Council. LinkedIn
Eli Polanco, CEO & Founder, Nivelo Polanco is CEO and Founder of Nivelo. Earlier, Polanco was an Executive Director at J.P. Morgan leading various R&D initiatives related to digital payments. LinkedIn
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
DQLabs is an AI/ML augmented data quality platform that provides a simple way for organizations to handle issues around data quality, governance, curation, and master data management effectively.
Features
Discover trustable high quality data in minutes using AI/ML
View a unified platform for data management needs
Conduct data ingestion, catalog, profiling, curation, governance, and MDM– all done in a few clicks
Why it’s great DQLabs helps you to manage data smarter and automatically learns and improves data quality as business strategy shifts. Say bye to rules, ETL, and workflow. Welcome into the AI/ML world of data management.
Presenter
Raj Joseph, CEO Joseph is a thought leader and visionary in the fields of modern data management and augmented analytics, and has two decades of experience around data science, AI/ML and enterprise data solutions. LinkedIn
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
Icon is the first fully portable, universally accessible workplace retirement savings plan. Built for today’s workforce, it’s the next generation retirement savings plan and an alternative to 401k plans.
Features
Employer can offer a plan in 10 minutes
No ongoing cost for employer
No federal reporting, no fiduciary burden
Why it’s great Your retirement savings plan should follow you from job-to-job with no rollovers or lost accounts.
Presenter
Laurie Rowley, CEO Rowley is the CEO and co-founder of Icon. She has years of experience in retirement savings and startups. LinkedIn
The following is a guest post from John Mason, Senior Director at Zafin.
Open Banking in Australia kicked-off in earnest in July when it became mandatory for the country’s big four banks to share product reference data (including interest rates, fees and charges, and product eligibility criteria) with accredited data recipients, typically fintech companies who provide alternative products and comparison shopping services to consumers. Also, in July, the same big four started sharing their consumer customers’ data—specifically data associated with deposit, credit, debit and transaction accounts—with alternative providers as requested by the customer.
In an effort to anticipate what lies ahead for Australian banks and consumers as the country joins the worldwide movement to give consumers greater access to products and services that can improve their financial lives via Open Banking, we decided to take a look at an island nation more than 9,000 miles away, boasting 2.5x Australia’s population but just 3% of its land mass—the U.K.
The United Kingdom embarked on its own Open Banking journey almost exactly four years back. In August 2016, the United KingdomCompetition and Markets Authority (CMA) directed its nine largest banks to provide accredited fintechs with access to previously proprietary customer data (pending customer approval, of course) down to the transaction level for current accounts.
Here is what’s happened in the U.K. that may be instructive for Australia:
Consumer up-take for Open Banking capabilities is sizable. As of January 2020, according to the Open Banking Implementation Entity (OBIE), there are one million users of Open Banking services in the U.K., representing a two-fold increase in just six months’ time. Further, the ecosystem of regulated open banking service providers is expanding rapidly. As of May 2020, it stands at 249, up from 100 at year end 2018.
Open Banking’s impact on the payments arena is particularly notable, with 50,000 consumers turning to third party applications to make payments from their current accounts in the month of December 2019 alone.
Investment is strong and widespread. Tink, the open banking platform, surveyed almost 300 senior financial services executives about their Open Banking investments. Almost ¾ indicated that spend had risen year-over-year, while a third stated that their financial institution was spending €100 million or more on Open Banking initiatives, and half projected positive payback on capital invested in Open Banking in four years or less.
Despite strong adoption and investment, consumer awareness of Open Banking is low—perhaps pitifully so. In a 2019 study by Crealogix, two thirds of respondents had no idea what Open Banking was, much less its potential benefits.
Some banks see opportunity in the transition to Open Banking, whereas others view Open Banking as just another compliance obligation. One example of a visionary is Barclays, who empowered its U.K. customers to better manage their finances with the ability to attach non-Barclays accounts to its mobile app—taking a big and bold step forward to participate in the industry’s emerging platform economy.
Interest in the capabilities Open Banking enables varies substantially by different generational cohorts. For example, according to Crealogix research in the U.K., GenZs and millennials are twice as likely to adopt new open-banking capabilities and applications relative to baby boomers.
Many positives and much innovation notwithstanding, for the most part, Open Banking’s promise to drive positive changes for financial inclusion have not yet been realized.
Based on what we’ve observed in the U.K., here are three predictions for how we expect Open Banking to play out in Australia.
Some banks will respond with vision and vigor, delivering new experiences that resonate with their customers and create advantage in the marketplace.
Other banks will view a more open financial ecosystem as a threat and put their heads in the sand, leading to short term investment savings and long-term competitive disadvantages.
Investors—inside banks and outside in the broader fintech ecosystem—will bet on advancing technologies and evolving customer expectations by placing smart bets on future possibilities in the Open Banking arena.
While consumers may never know what Open Banking is, their desire to benefit from new and compelling digital banking services will ultimately lead the overall banking industry to a brighter future—in Australia and the rest of the world. As in the U.K., the advent of Open Banking in Australia will hasten progress, create opportunity and change an industry.
Here’s some acquisition news that slipped past our radar: CryptoNumerics, an enterprise software company based in Toronto, Ontario, Canada, was acquired by California-based, cloud data warehousing startup Snowflake last month.
And while terms were not disclosed when the deal was announced in July, Private Capital Journal reported that an IPO filing from Snowflake this week noted that the company had “acquired certain assets from a privately-held company for $7.1 million in cash.” Both companies have remained mum about the transaction; it is possible that Snowflake will be in a better position to discuss its recent activity, including its “business combination” after the company goes public in the next few months.
CryptoNumerics specializes in enabling businesses to create privacy protected datasets with quantifiable privacy risk. Founded in 2018, the company made its Finovate debut last spring at our west coast conference. At the event, company co-founders Holboke and Bhatti demonstrated CryptoNumerics’ CN-Protect technology that leverages differential privacy and AI to allow institutions to analyze consumer data while maintaining CCPA, GDPR, and HIPAA compliance.
Last fall, CryptoNumerics unveiled its Re-Identify solution, which enables companies to determine whether or not the identities of users in their datasets are secure. Based on CryptoNumerics’ CN-Protect, Re-Identity helps deal with a problem in typical de-identification techniques such as masking and tokenization which can fail to completely protect data.
“Our early enterprise customers are excited to partner with Cryptonumerics because we not only solve their privacy concerns but we also enable them to leverage their data assets to build cross enterprise models that create new revenue opportunities,” CryptoNumerics executive chairman and co-founder Ashfaq Munshi said.
CryptoNumerics has raised $2.5 million (CAD$3.3 million) in funding from 11.2 Capital, Data Capital Management, and Lux Capital. Last fall, the company was named one of Canadian Innovation Exchange’s top 20 most innovative startups in Canada.
The following is a sponsored blog post by Chris Papathanassi, Global Solution Lead, Lending with Finastra. Papathanassidiscussesthe two challenges facing lenders: data quality and ensuring a true “golden source” and leveraging real value through data connections. Find out more in the full report >>
Today, digital is the only way to do business. But even though everything they do can be expressed in ones and zeros, most financial service organizations simply aren’t set up to be truly digital. In the context of the current disrupted, volatile and remote-working global economy, doing digital brilliantly is now a matter of survival and urgency for many financial firms – no longer simply a ‘nice to have’.
Digital transformation is difficult for even the simplest business models, and in lending in particular, there is a real challenge. When it can take up to three months to get cash out of the door, it’s hard to see how any bank can keep up with the digital shift. There is a continued dependency in lending on paper documentation and face-to-face contact.
Despite this, the challenges of digitalization are more than balanced out by the potential benefits. You’re likely aware of a few of these already:
Increased efficiency – removing repetitive, non-value-added work and moving towards real-time processing
Personalization – delivering relevant customer service even in a socially-distanced context
Improved credit management – providing integrated, rules-based systems for greater decision speed and transparency
Proactive risk management – using APIs and platforms to “join up” the risk and sales processes
Self-service for corporates – providing a digital channel that empowers corporate customers
Unlocking the value of data – bringing data together from disparate sources so its true value as a commodity can be leveraged
So, what needs to happen for lending to get there?
One of the key issues is data quality and the “golden source”. The bespoke nature of lending makes it hard to maintain data quality and consistency. Lenders have their own individual nuances and conventions. And corporate borrowers that have lending relationships with many different organizations will download and manipulate data so it’s in a format they can work with.
Can you trust the data?
As one major bank asked us: “How can we ensure what the source of truth is across different applications?”
What’s more, as data moves through different systems in a digitalized and connected world, it changes too.
This points to the second challenge, which is that digitalized lending data is only valuable when it can be connected to the other pieces of the puzzle, to provide the big picture lenders and borrowers need. Right now, firms are still downloading data into Excel, manipulating it, and re-sending it.
Digitalization plus API capabilities, however, makes it possible for stakeholders to see the same pieces of data in the same state. It’s this connectivity that is key to realizing the full benefits of digitalization and addressing the “source of truth” issue.
Digitalization also opens data to new technologies such as AI, machine learning, and robotic process automation, which can create new efficiencies and value for banks and customers. And for processes such as syndicated lending that have multiple players, it can be combined with cloud technology to enable more collaboration and better access to a single source of truth.
APIs in the cloud can make innovation more accessible to banks, overcoming the challenges of integrating in-house and external products. In essence, on platforms, banks have access to pre-integrated, interoperable solutions and better access to the broader financial services ecosystem, where they can explore innovations and consume them at speed.
This potentially changes the shape of the lending industry, opening up interesting questions. What do banks want to be? Leaders in the lending business or providers of specialist products? With digitalization both options are possible, creating an opportunity for lenders to add value and build their lending businesses – or to disintermediate healthily.
For the second year in a row, Deutsche Bank is teaming up with Google, Atos, TechQuartier to help make a difference for women in fintech. The bank announced the launch of its second Female FinTech Competition this week, featuring a spot in Atos’ Fintech Programme as the competition’s top prize.
“The Female FinTech competition is not only a wonderful opportunity to showcase technology talent, it is also a way for Deutsche Bank to engage and support a community of female founders and help foster innovation,” Global Head of Deutsche Bank’s Strategy & Innovation Network Gil Perez explained.
Fintech companies with a female founder – or with women in their top management – are encouraged to apply. The first prize – participation in the Atos FinTech Program – also features access to the FinHub, a fast-track onboarding program that connects companies with Atos’ network of financial services organization partners – and Atos Financial Services Sandbox – which makes it easy for fintech startups to combine their expertise to develop and test new ideas and solutions.
In addition to the first prize, other program winners will have the opportunity to access resources from both Deutsche Bank and Google Innovation, including the chance to work in Deutsche Bank’s Innovation Lab with the team’s experts and coaches.
The Female FinTech Competition is also in the market for coaches. Women interested in coaching program entrants are also encouraged to sign up and indicate their area of knowledge and expertise.
The deadline for applications is September 23, with applicants submitting their business cases by September 30. A short list of six finalists will be announced on October 15, with the winners announced on October 29.
“We still have a gender gap in the finance industry,” said Sima Ohadi, Chief Behavioral Officer at Odonatech and the program’s inaugural winner last year. “Yet the future looks bright in part thanks to initiatives like the Atos Female Fintech Competition. I participated as a co-founder of Odonatech in the Atos Fintech Competition last year, which helped me get to know some very ambitious and innovative women in this field.”
