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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Buy Now Pay Later (BNPL) is having a moment in fintech. And one of the leading players in the space is expanding its innovations into the offline realm.
Minnesota-based Sezzle unveiled its virtual payments card this week, helping users benefit from its BNPL technology during their in-store shopping trips. The company has partnered with card issuing platform Marqeta to power its new virtual card.
Sezzle virtual cardholders will be able to use Sezzle’s installment payments technology in-store at retailers that already accept Apple Pay and Google Pay, as well as online. The purchases are interest-free and can be split into four installments, paid out over six weeks.
Sezzle Virtual Card
“As traditional, in-store retail re-emerges, it’s critical that we support our merchant partners by giving them new tools to jump-start sales, both online and in-store,” said Sezzle Co-founder and Chief Technology Officer Killian Brackey. “As a proven solution for driving incremental sales and new customer growth, we are thrilled to publicly announce an easy way for U.S. retailers to offer Buy Now, Pay Later in store.”
The in-store user experience is simple. At checkout, consumers authenticate themselves and tap their phone at the point-of-sale terminal, which will activate their Sezzle card.
Sezzle’s news comes on the heels of PayPal’s announcement that it plans to add a BNPL competitor. The payments giant revealed on Monday the launch of Pay in 4, a short-term payments installment product for U.S. customers.
Four-year-old Sezzle, which listed on the Australian Stock Exchange (ASX) last summer, has seen a recent uptick in adoption, spurred by the economic effects of the coronavirus. The company added 325,000 new users in the second quarter of this year, up 326% from the same period last year. Sezzle has a market capitalization of $848 million.
I was pretty excited for my first ride in my nephew’s brand new Tesla. The car was a major upgrade from his previous vehicle: a Jeep with “character” that had both broken down and been broken into a few times too many. His visit – and the Tesla’s – also marked the first time my wife and I would have company over for dinner since the COVID-19 pandemic struck, so there was more than a little to look forward to.
And while the Greek burgers were good and the tzatziki and baklava even better, my ride in the brand new Tesla was … kinda underwhelming.
Admittedly the experience as a rider in a Tesla is not identical to the experience as a driver. But as I slowly emerged from my initial shock at the lack of ornamentation, the absence of anything even resembling a full service dashboard and began to appreciate the machine’s unnaturally silent acceleration, its “It’s-All-on-the-Tablet” functionality, and “front trunk,” it dawned on me just how dramatically Tesla had reduced the driving experience to its most essential features and then turned them up to eleven.
What does this have to do with banking?
My Tesla experience reminded me of the challenge of distilling customer experience into its most necessary aspects. This is what drives innovation in everything from PFM apps that provide account balances without requiring login to mobile brokerages that cut out the stock market’s most hated middle man – commissions. Yet what is a trifle to one customer can be a can’t-do-without attraction to another. In the same way that I found myself in my nephew’s Tesla actually missing the dials, buttons, and other dashboard gizmos that had once defined automotive technological sophistication, so will many consumers find the leanness of new digital banks, for example, and perhaps even the trend away from what might be called “the human touch” in financial services to be a less appealing customer experience rather than a more fulfilling one.
In this way, I wonder if it is helpful to think of two innovation tracks for banks and financial services. One track is the one we spend most of our time reading and thinking about in fintech circles: the digital-first if not digital-only mobile bank that caters to the young, the mobile and, ironically, to both the hyper social connected individual and the asocial consumer who believes that automated checkouts at the grocery store are the best thing since sliced bread. Here the innovations are mostly technological, leveraging AI, machine learning, Big Data, and other leading technologies to provide more data, more services, faster, with a premium on seamless, frictionless, no frills interactivity.
But there is – or at least could be – another bank. And while it is digital, as well, and provides many if not most of the same basic financial services as any other bank, this bank focuses more on responding to the personal and social worlds of its customers. This bank puts financial inclusion and wellness at the center of its mission, sponsoring and providing educational opportunities for members of the local community – including their children who are likely getting precious little financial education in school. In-person credit counseling and financial planning would also be a good fit for an institution like this, which would play a role in the private sphere of a community that is similar to the role a local library or post office plays in the public sphere. At more advanced levels, coursework and training for individuals looking for careers in financial services could be offered, as well.
Not necessarily 100% or exclusively brick and mortar, this truly community-based financial institution would provide a customer experience that would be very different from its all-digital cousin, but one that could be just as innovative by using technology to make finance and financial services easier to understand and easier to incorporate constructively in the average working and middle class person’s life.
A new partnership between device identity and authentication innovator Entersekt and fellow Finovate alum NuData Security will integrate the latter’s NuDetect behavioral analytics solution into Entersekt’s Secure Platform (ESP) to provide real-time, seamless identity verification.
“By combining our leading techniques, we unlock new ways to remove friction for users interacting online, on web or mobile,” Entersekt Chief Strategy Office Dewald Nolte said. “The combination is like none other on the market, in usability and security, and is another exciting leap forward in our mission to make the digital world safer and more user-friendly.”
NuDetect leverages both device-based and behavioral data to identify and distinguish legitimate users from potential fraudsters in real-time. The technology features an additional level of protection, a step-up authentication process, involving an in-app push prompt, FIDO-certified security key, or other option, which can be triggered in higher-risk circumstances. The result is a fast, secure, digital identity authentication experience that verifies legitimate users whether logging in, creating an account, or completing a transaction seamlessly.
“By adding behavioral analytics to the Entersekt Secure Platform,” NuData Security SVP Michelle Hafner said, “we provide an additional layer of protection while simultaneously reducing friction and improving the customer experience.”
The Entersekt Secure Platform helps businesses ensure rapid deployment and integration of Entersekt services such as Transakt for digital security and authentication, Connekt for digital payments enablement, and Interakt for non-app-based authentication. The platform enables banks and other large companies to better identify their customers’ specific needs, engage them effectively with smart messaging (and accurately with robust authentication), and empower them to get more done with less effort.
Headquartered in Cape Town, South Africa, and founded in 2008, Entersekt began this year working with Netcetera to help the company provide enhanced authentication technology to card issuers in Germany, Austria, and Switzerland. This summer, Entersekt announced a successful technical integration with Huawei Mobile Services, and released its updated security guidance for financial institutions in light of new digital security threats with the onset of the public health crisis.
Current, a challenger bank focused on underbanked consumers, locked in a partnership with InComm, a prepaid solutions company.
By teaming up with InComm, Current will allow its 1.4 million accountholders to deposit cash to their Current account at select physical retail locations.
The new solution is powered by InComm’s Vanilla Direct platform, which will leverage a barcode on the Current app. While visiting one of 60,000 participating retail chains, including 7-Eleven, Dollar General, and Family Dollar, accountholders can give the cashier their cash deposits. The cashier, in turn, scans the barcode on the customer’s Current app, and the cash is delivered to their account.
“Our VanillaDirect mobile barcode solution is perfectly aligned with Current’s vision of bringing financial services to its customers, and in this instance providing their customers with a simple and convenient experience for making cash deposits in an extensive network of retail locations across the United States,” said Tim Richardson, Senior Vice President at InComm.
Traditionally, users at online-only banks deposit cash via ATMs. This solution, however, may not be appealing to underbanked users. Additionally, it would require Current to form ATM network partnerships.
If the future is digital –which it is– then the future must also be in real time. And while our industry typically thinks about real-time in terms of payments, there’s one fintech that’s working to bring information into the real time realm.
Banking technology company Plaid is launching instant account activity today. The new release allows financial institutions on Plaid Exchange to send user-permissioned transactions data to Plaid developers within seconds of the user’s activity. As a result, the consumer receives an up-to-date picture of their finances.
During a time when many consumers are working in the gig economy and budgeting for their expenses on a day-by-day basis, having the most recent information about their account balances is critical and could make the difference between overdrafting or staying afloat.
“Instant, real-time data has become standard for consumers today and it’s a critical piece of information that our users need to make sound financial decisions,” said Atif Siddiqi, CEO of Plaid client, Branch. “Plaid provides our users with the most current picture of their transaction history, empowering their daily financial decisions.”
Today’s development is the latest in a string of updates for Plaid, which recently launchedPlaid Exchange, an open finance solution that offers banks a way to provide open banking connectivity to their clients while keeping their clients’ data safe and giving them control of their data.
Last week, the company announced an addition to its suite of payment products with the launch of standing orders in the U.K. With standing orders, end users can make recurring payments with a single authorization for things like gym memberships and rent payments.
Plaid is an alum of Finovate’s developer conference. In 2014, the company’s CEO and co-founder, Zach Perret, showcased the Plaid API for financial institutions.
A new partnership between digital banking solution provider Finzly and independent hedge advisory firm Derivative Logic will help regional banks better serve their commercial borrowers.
“We see our mission as helping community banks and credit unions better compete in the marketplace by offering services and capabilities on par with – and even exceeding – those of much larger institutions,” Finzly CEO and founder Booshan Rengachari said. “By partnering with an industry leader like Derivative Logic, our financial institution customers, and their own commercial borrowers, benefit from access to world-class hedge advisory services that are proven to positively impact their balance sheets.”
Finzly’s open, cloud-based bank operating system, BankOS, enables financial institutions to integrate and offer a wide variety of third-party services. Courtesy of this partnership with Derivative Logic, the company will enable banks to offer interest rate hedge capabilities to their commercial clients. Derivative Logic Managing Director Jim Griffin called these services “a true strategic differentiator for banks and credit unions” when it comes to attracting commercial customers.
“Through our partnership with Finzly, we help small-to-mid-size financial institutions overcome the complexity of offering these capabilities as we advise and assist our bank customers with pricing, swap documentation, compensation plans, negotiations with dealers, hedge accounting as well as assist with borrower-facing processes,” Griffin said.
Finzly’s partnership announcement is only the latest in headline-making news from the Charlotte, North Carolina-based fintech. Since its debut at FinovateFall a year ago, the company has partnered with a regional bank in California to drive the institution’s international banking services, teamed up with Arvest Bank to streamline the Arkansas-based community bank’s trade finance operations, and announced the availability of its contactless consumer digital account opening solutions.
See Finzly for yourself as the company returns to the Finovate stage for FinovateFall Digital, September 14 through 18. Visit our registration page today and save your spot for our latest all-digital fintech event.
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.
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.
