TrueLayer nabs $130M at a $1B+ valuation as open banking rises as a viable option to card networks

Open banking — a disruptive technology that seeks to bypass the dominance of card networks and other traditional financial rails by letting banks open their systems directly to developers (and new services) by way of APIs — continues to gain ground in the world of financial services. As a mark of that traction, a startup playing a central role in open banking applications is announcing a big round of funding with a milestone valuation.

TrueLayer, which provides technology for developers to enable a range of open-banking-based services has raised $130 million in a funding round that values the London-based startup at over $1 billion.

Tiger Global Management is leading the round, and notably, payments juggernaut Stripe is also participating.

Open Banking is a relatively new area in the world of fintech — the UK was an early adopter in 2018, Europe then signed on, and it looks like we are now seeing more movements that the U.S. may soon also join the party — and TrueLayer is considered a pioneer in the space.

The vast majority of transactions in the world today are still made using card rails or more antiquated banking infrastructure, but the opportunity with open banking is to build a completely new infrastructure that works more efficiently, and might come with less (or no) fees for those using it, with the perennial API promise: all by way of few lines of code.

“We had a vision that finance should be opened up, and we are actively woking to remove the frictions that exist between intermediaries,” said CEO Francesco Simoneschi, who co-founded the company with Luca Martinetti (who is now the CTO), in an interview. “We want a financial system that works for everyone, but that hasn’t been the case up to now. The opportunity emerged five years ago, when open banking came into law in the UK and then elsewhere, to go after the most impressive oligopoly: the card networks and everything that revolves around them. Now, we can easily say that open banking is becoming a viable alternative to that.”

It seems that the world of finance and commerce is slowly catching on, and so the funding is coming on the heels of some strong growth for the company.

Services that TrueLayer currently include payments, payouts, user account information and user verification; while end users range from neobanks, crypto startups, and wealth management apps through to e-commerce companies, marketplaces and gaming platforms.

And the startup says it now has “millions” of consumers making open banking transactions enabled by TrueLayer’s technology, and some 10,000 developers are building services based on open banking standards. TrueLayer so far this year has doubled its customer base, picking up some key customers like Cazoo to enable open-banking based payments for cars; and it has processed “billions” of dollars in payments, with payment volume growing 400%, and payment up 800%.

The plan is to use the funding to invest in building out that business further — specifically to extend its payments network to more regions (and more banks getting integrated into that network), as well as to bring on more customers using open banking services for more regular, recurring transactions.

“The shift to alternative payment methods is accelerating with the global growth of online commerce, and we believe TrueLayer will play a central role in making these payment methods more accessible,” said Alex Cook, partner, Tiger Global, in a statement. “We’re excited to partner with Francesco, Luca and the TrueLayer team as they help customers increase conversion and continue to grow the network.”

Notably, Stripe is not a strategic investor in TrueLayer at the moment, just a financial one. That is to say, it has yet to integrate open banking into its own payments infrastructure.

But you can imagine how it would be interested in it as part of the bigger mix of options for its customers, and potentially also to build its own standalone financial rails that well and truly compete with those provided by the card networks (which are such a close part of what Stripe does that its earliest web design was based on the physical card, and even its name is a reference to the stripe on the back of them.

There are other providers of open banking connectivity in the market today — Plaid out of the U.S. is one notable name — but Simoneschi believes that Stripe and TrueLayer on the same page as companies.

“We share a profound belief that progress comes through the eyes of developers so it’s about delivering the tools they need to use,” he he said. “We are in a very complementary space.”

#api, #bank, #banking, #ceo, #cto, #europe, #finance, #financial-services, #funding, #london, #mobile-payments, #money, #online-banking, #online-commerce, #online-payments, #open-banking, #partner, #payment, #payments-infrastructure, #payments-network, #stripe, #tiger-global-management, #truelayer, #united-kingdom, #united-states, #web-applications

Airwallex raises $200M at a $4B valuation to double down on business banking

Business, now more than ever before, is going digital, and today a startup that’s building a vertically integrated solution to meet business banking needs is announcing a big round of funding to tap into the opportunity. Airwallex — which provides business banking services both directly to businesses themselves, as well as via a set of APIs that power other companies’ fintech products — has raised $200 million, a Series E round of funding that values the Australian startup at $4 billion.

Lone Pine Capital is leading the round, with new backers G Squared and Vetamer Capital Management, and previous backers 1835i Ventures (formerly ANZi), DST Global, Salesforce Ventures and Sequoia Capital China, also participating.

The funding brings the total raised by Airwallex — which has head offices in Hong Kong and Melbourne, Australia — to date to $700 million, including a $100 million injection that closed out its Series D just six months ago.

Airwallex will be using the funding both to continue investing in its product and technology, as well as to continue its geographical expansion and to focus on some larger business targets. The company has started to make some headway into Europe and the UK and that will be one big focus, along with the U.S.

The quick succession of funding, and that rising valuation, underscore Airwallex’s traction to date around what CEO and co-founder Jack Zhang describes as a vertically integrated strategy.

That involves two parts. First, Airwallex has built all the infrastructure for the business banking services that it provides directly to businesses with a focus on small and medium enterprise customers. Second, it has packaged up that infrastructure into a set of APIs that a variety of other companies use to provide financial services directly to their customers without needing to build those services themselves — the so-called “embedded finance” approach.

“We want to own the whole ecosystem,” Zhang said to me. “We want to be like the Apple of business finance.”

That seems to be working out so far for Airwallex. Revenues were up almost 150% for the first half of 2021 compared to a year before, with the company processing more than US$20 billion for a global client portfolio that has quadrupled in size. In addition to tens of thousands of SMEs, it also, via APIs, powers financial services for other companies like GOAT, Papaya Global and Stake.

Airwallex got its start like many of the strongest startups do: it was built to solve a problem that the founders encountered themselves. In the case of Airwallex, Zhang tells me he had actually been working on a previous start-up idea. He wanted to build the “Blue Bottle Coffee” of Asia out of Hong Kong, and it involved buying and importing a lot of different materials, packaging and of course coffee from all around the world.

“We found that making payments as a small business was slow and expensive,” he said, since it involved banks in different countries and different banking systems, manual efforts to transfer money between them and many days to clear the payments. “But that was also my background — payments and trading — and so I decided that it was a much more fascinating problem for me to work on and resolve.”

Eventually one of his co-founders in the coffee effort came along, with the four co-founders of Airwallex ultimately including Zhang, along with Xijing Dai, Lucy Liu and Max Li.

It was 2014, and Airwallex got attention from VCs early on in part for being in the right place at the right time. A wave of startups building financial services for SMBs were definitely gaining ground in North America and Europe, filling a long-neglected hole in the technology universe, but there was almost nothing of the sort in the Asia Pacific region, and in those earlier days solutions were highly regionalized.

From there it was a no-brainer that starting with cross-border payments, the first thing Airwallex tackled, would soon grow into a wider suite of banking services involving payments and other cross-border banking services.

“In last 6 years, we’ve built more than 50 bank integrations and now offer payments 95 countries payments through a partner network,” he added, with 43 of those offering real-time transactions. From that, it moved on the bank accounts and “other primitive stuff” with card issuance and more, he said, eventually building an end-to-end payment stack. 

Airwallex has tens of thousands of customers using its financial services directly, and they make up about 40% of its revenues today. The rest is the interesting turn the company decided to take to expand its business.

Airwallex had built all of its technology from the ground up itself, and it found that — given the wave of new companies looking for more ways to engage customers and become their one-stop shop — there was an opportunity to package that tech up in a set of APIs and sell that on to a different set of customers, those who also provided services for small businesses. That part of the business now accounts for 60% of Airwallex’s business, Zhang said, and is growing faster in terms of revenues. (The SMB business is growing faster in terms of customers, he said.)

A lot of embedded finance startups that base their business around building tech to power other businesses tend to stay arm’s length from offering financial services directly to consumers. The explanation I have heard is that they do not wish to compete against their customers. Zhang said that Airwallex takes a different approach, by being selective about the customers they partner with, so that the financial services they offer would never be the kind that would not be in direct competition. The GOAT marketplace for sneakers, or Papaya Global’s HR platform are classic examples of this.

However, as Airwallex continues to grow, you can’t help but wonder whether one of those partners might like to gobble up all of Airwallex and take on some of that service provision role itself. In that context, it’s very interesting to see Salesforce Ventures returning to invest even more in the company in this round, given how widely the company has expanded from its early roots in software for salespeople into a massive platform providing a huge range of cloud services to help people run their businesses.

For now, it’s been the combination of its unique roots in Asia Pacific, plus its vertical approach of building its tech from the ground up, plus its retail acumen that has impressed investors and may well see Airwallex stay independent and grow for some time to come.

“Airwallex has a clear competitive advantage in the digital payments market,” said David Craver, MD at Lone Pine Capital, in a statement. “Its unique Asia-Pacific roots, coupled with its innovative infrastructure, products and services, speak volumes about the business’ global growth opportunities and its impressive expansion in the competitive payment providers space. We are excited to invest in Airwallex at this dynamic time, and look forward to helping drive the company’s expansion and success worldwide.”

#airwallex, #articles, #asia, #asia-pacific, #australia, #bank, #banking, #blue-bottle-coffee, #cloud-services, #dst-global, #economy, #embedded-finance, #enterprise, #europe, #finance, #financial-services, #funding, #goat, #hr, #lone-pine-capital, #melbourne, #north-america, #papaya-global, #salesforce, #salesforce-ventures, #sequoia-capital-china, #series-d, #startup-company, #united-kingdom, #united-states, #veem

Fintech startup SellersFunding raises $166.5M in equity, credit round to support e-commerce sellers

SellersFunding secured $166.5 million in a combination of Series A equity funding and a credit facility to continue developing its technology and payments platforms for e-commerce businesses.

Northzone led the round and was joined by Endeavor Catalyst and Fasanara. SellersFunding CEO Ricardo Pero did not disclose the funding breakdown, but did say the company previously raised two seed rounds for a total of $40 million in equity and more than $100 million in credit facilities, including one that the company was expanding to $200 million.

SellersFunding, with offices in Florida, New York and London, created a digital platform that delivers financial tools and resources to streamline global commerce for thousands of marketplaces, including working capital, cross-border cash management, tax solutions and business valuation.

Pero got the idea for the company after spending 20 years in the financial industry. He left JP Morgan in 2016 with a drive to start his own company. He was consulting for a friend selling on Amazon who asked him to help make sense of Amazon’s fees and to review the next year’s budget because the friend was struggling to keep up with growth.

“I helped him address the fees issue, but when I went to talk to traditional lenders, I found that they have no clue about e-commerce and the needs of SMEs,” he said.

In addition to being a lending source for businesses selling on these marketplaces, SellersFunding leverages sales data provided by the marketplaces and e-commerce platforms to create sales and cash flow estimates based on the credit limits given to clients so that owners can better understand the fees they are paying and make more informed decisions.

He founded the company in 2017, and today has over 30,000 registered users and is approaching $10 billion in sales volume that is feeding data into SellersFunding’s daily models. The company makes money as both a lender and on fees it charges for payments collected by its customers. Merchants can collect money from marketplaces and pay their suppliers in local or foreign currency.

SellersFunding has consistently grown 300% year over year, Pero said. As such, he intends to use the new funding to scale globally, expand the team, create a marketing budget and look for two small acquisitions in the U.S. and Europe.

The company will continue to invest on the payments side and to promote cross-border payments.

“When I look at the payments landscape, companies are competing on pricing and I don’t think we will ever have a focus there, but instead will compete on customer experience,” Pero added. “Our core business will always be lending and our core investments will be payments and technology, but then we will extend to other services that our clients want.”

With an eye on expanding internationally, it fit to bring on Northzone as a partner, he added. The venture firm is based in Europe and was of a similar vision for thinking globally.

Jeppe Zink, general partner at Northzone, said via email that Pero and his team “are the most experienced in this category” and are building a category leader that is “more experienced and understanding of the lending side than its competitors.”

“We have seen this massive rise in e-shopping, most of the new ones coming from marketplaces like Amazon and Shopify, and if you look at the sellers, thousands are small businesses sourcing their goods which means that they are very important customers,” Zink added. “Normal banks like Barclay can’t check credit. SellersFinding is helping small businesses get this credit, and rightly so. In the same way we thought neobanks won with accounts created when it comes to delivering credit and banking products, they are nowhere to be found yet.”

#banking, #ecommerce, #endeavor-catalyst, #enterprise, #fasanara, #financial-tools, #funding, #jeppe-zink, #northzone, #online-lending, #payments, #recent-funding, #retailers, #ricardo-pero, #saas, #sellersfunding, #startups, #tc

Nuula raises $120M to build out a financial services ‘superapp’ aimed at SMBs

A Canadian startup called Nuula that is aiming to build a superapp to provide a range of financial services to small and medium businesses has closed $120 million of funding, money that it will use to fuel the launch of its app and first product, a line of credit for its users.

The money is coming in the form of $20 million in equity from Edison Partners, and a $100 million credit facility from funds managed by the Credit Group of Ares Management Corporation.

The Nuula app has been in a limited beta since June of this year. The plan is to open it up to general availability soon, while also gradually bringing in more services, some built directly by Nuula itself and but many others following an embedded finance strategy: business banking, for example, will be a service provided by a third party and integrated closely into the Nuula app to be launched early in 2022; and alongside that, the startup will also be making liberal use of APIs to bring in other white-label services such as B2B and customer-focused payment services, starting first in the U.S. and then expanding to Canada and the U.K. before further countries across Europe.

Current products include cash flow forecasting, personal and business credit score monitoring, and customer sentiment tracking; and monitoring of other critical metrics including financial, payments and eCommerce data are all on the roadmap.

“We’re building tools to work in a complementary fashion in the app,” CEO Mark Ruddock said in an interview. “Today, businesses can project if they are likely to run out of money, and monitor their credit scores. We keep an eye on customers and what they are saying in real time. We think it’s necessary to surface for SMBs the metrics that they might have needed to get from multiple apps, all in one place.”

Nuula was originally a side-project at BFS, a company that focused on small business lending, where the company started to look at the idea of how to better leverage data to build out a wider set of services addressing the same segment of the market. BFS grew to be a substantial business in its own right (and it had raised its own money to that end, to the tune of $184 million from Edison and Honeywell).  Over time, it became apparent to management that the data aspect, and this concept of a super app, would be key to how to grow the business, and so it pivoted and rebranded earlier this year, launching the beta of the app after that.

Nuula’s ambitions fall within a bigger trend in the market. Small and medium enterprises have shaped up to be a huge business opportunity in the world of fintech in the last several years. Long ignored in favor of building solutions either for the giant consumer market, or the lucrative large enterprise sector, SMBs have proven that they want and are willing to invest in better and newer technology to run their businesses, and that’s leading to a rush of startups and bigger tech companies bringing services to the market to cater to that.

Super apps are also a big area of interest in the world of fintech, although up to now a lot of what we’ve heard about in that area has been aimed at consumers — just the kind of innovation rut that Nuula is trying to get moving.

“Despite the growth in services addressing the SMB sector, overall it still lacks innovation compared to consumer or enterprise services,” Ruddock said. “We thought there was some opportunity to bring new thinking to the space. We see this as the app that SMBs will want to use everyday, because we’ll provide useful tools, insights and capital to power their businesses.”

Nuula’s priority to build the data services that connect all of this together is very much in keeping with how a lot of neobanks are also developing services and investing in what they see as their unique selling point. The theory goes like this: banking services are, at the end of the day, the same everywhere you go, and therefore commoditized, and so the more unique value-added for companies will come from innovating with more interesting algorithms and other data-based insights and analytics to give more power to their users to make the best use of what they have at their disposal.

It will not be alone in addressing that market. Others building fintech for SMBs include Selina, ANNA, Amex’s Kabbage (an early mover in using big data to help loan money to SMBs and build other financial services for them), Novo, Atom Bank, Xepelin, and Liberis, biggies like Stripe, Square and PayPal, and many others.

The credit product that Nuula has built so far is a taster of how it hopes to be a useful tool for SMBs, not just another place to get money or manage it. It’s not a direct loaning service, but rather something that is closely linked to monitoring a customers’ incomings and outgoings and only prompts a credit line (which directly links into the users’ account, wherever it is) when it appears that it might be needed.

“Innovations in financial technology have largely democratized who can become the next big player in small business finance,” added Gary Golding, General Partner, Edison Partners. “By combining critical financial performance tools and insights into a single interface, Nuula represents a new class of financial services technology for small business, and we are excited by the potential of the firm.”

“We are excited to be working with Nuula as they build a unique financial services resource for small businesses and entrepreneurs,” said Jeffrey Kramer, Partner and Head of ABS in the Alternative Credit strategy of the Ares Credit Group, in a statement. “The evolution of financial technology continues to open opportunities for innovation and the emergence of new industry participants. We look forward to seeing Nuula’s experienced team of technologists, data scientists and financial service veterans bring a new generation of small business financial services solutions to market.”

#articles, #atom-bank, #banking, #business, #canada, #ceo, #economy, #edison-partners, #enterprise, #entrepreneurship, #europe, #financial-services, #financial-technology, #fintech, #funding, #general-partner, #head, #honeywell, #innovation, #kabbage, #nuula, #paypal, #smb, #sme, #stripe, #united-kingdom, #united-states

‘Thin file’ loans startup Koyo closes $50M Series A led by Force Over Mass

Koyo, a fintech startup using open banking to offer loans to people with poor credit histories, has closed a Series A funding round of $50m in debt and equity led by Force Over Mass, with participation from existing investors Forward Partners, Frontline Ventures and Seedcamp. New investors in Koyo include Force Over Mass, Matt Robinson (founder of GoCardless, founder of Nested), and angel investors from the banking and lending sectors.  It last raised $4.9 million in 2019. With many sectors of the population having racked up debts during the pandemic, Koyo is likely to benefit from this underclass of consumer, normally rejected by the main loans companies.

The startup says it uses Open Banking data (bank transactions), rather than credit agency scores to underwrite risk for lending to consumers. In other words, it looks at how customers spend their money on a day-to-day basis, rather than what a credit agency says about them. The idea is to offer attractive rates and cheaper borrowing to a usually underserved market, usually known as ‘thin file’ customers (short or no credit history) or ‘near prime’ customers. The near-prime market equates to c13-15m people in the UK.

Thomas Olszewski, Koyo’s founder and a former VC with Frontline Ventures in London and Cavalry Ventures in Berlin, said in a statement: “Koyo launched at the start of the global pandemic and has proven that innovative use of open banking data results in better risk decisioning and ultimately has enabled us to grow the business during one of the toughest economic times the UK has faced. I’m proud to have continued to give many people in the UK access to competitively priced credit, during a time where most traditional lenders were quick to scale back their lending.”

Filip Coen, Force Over Mass partner, said, “We invest in companies that combine transformational technology with strong business models, and Koyo indexed strongly in both of those departments. Koyo has built a first-class foundation over the last 18 months of operation, and we’re excited to be part of its future”.

#bank, #banking, #berlin, #cavalry-ventures, #economy, #europe, #fintech-startup, #forward-partners, #founder, #frontline-ventures, #gocardless, #koyo, #london, #massachusetts, #matt-robinson, #nested, #open-banking, #seedcamp, #tc, #united-kingdom

All the reasons why you should launch a credit or debit card

Over the previous two or three years we’ve seen an explosion of new debit and credit card products come to market from consumer and B2B fintech startups, as well as companies that we might not traditionally think of as players in the financial services industry.

On the consumer side, that means companies like Venmo or PayPal offering debit cards as a new way for users to spend funds in their accounts. In the B2B space, the availability of corporate card issuing by startups like Brex and Ramp has ushered in new expense and spend management options. And then there is the growth of branded credit and debit cards among brands and sports teams.

But if your company somehow hasn’t yet found its way to launch a debit or credit card, we have good news: It’s easier than ever to do so and there’s actual money to be made. Just know that if you do, you’ve got plenty of competition and that actual customer usage will probably depend on how sticky your service is and how valuable the rewards are that you offer to your most active users.

To learn more about launching a card product, TechCrunch spoke with executives from Marqeta, Expensify, Synctera and Cardless about the pros and cons of launching a card product. So without further ado, here are all the reasons you should think about doing so, and one big reason why you might not want to.

Because it’s (relatively) easy

Probably the biggest reason we’ve seen so many new fintech and non-fintech companies rush to offer debit and credit cards to customers is simply that it’s easier than ever for them to do so. The launch and success of businesses like Marqeta has made card issuance by API developer friendly, which lowered the barrier to entry significantly over the last half-decade.

“The reason why this is happening is because the ‘fintech 1.0 infrastructure’ has succeeded,” Salman Syed, Marqeta’s SVP and GM of North America, said. “When you’ve got companies like [ours] out there, it’s just gotten a lot easier to be able to put a card product out.”

While noting that there have been good options for card issuance and payment processing for at least the last five or six years, Expensify Chief Operating Officer Anu Muralidharan said that a proliferation of technical resources for other pieces of fintech infrastructure has made the process of greenlighting a card offering much easier over the years.

#banking, #business-intelligence, #cardless, #credit-card, #debit-cards, #ec-column, #ec-fintech, #expensify, #finance, #financial-services, #financial-technology, #fintech-infrastructure, #fintech-startup, #marqeta, #mastercard, #mobile-payments, #online-payments, #payment-processing, #payment-processor, #payments, #startups, #synctera, #tc

Israel’s maturing fintech ecosystem may soon create global disruptors

“Even with its vast local talent, it seems Israel still has many hurdles to overcome in order to become a global fintech hub. [ … ] Having that said, I don’t believe any of these obstacles will prevent Israel from generating disruptive global fintech startups that will become game-changing businesses.”

I wrote that back in 2018, when I was determined to answer whether Israel had the potential to become a global fintech hub. Suffice to say, this prediction from three years ago has become a reality.

In 2019, Israeli fintech startups raised over $1.8 billion; in 2020, they were said to have raised $1.48 billion despite the pandemic. Just in the first quarter of 2021, Israeli fintech startups raised $1.1 billion, according to IVC Research Center and Meitar Law Offices.

It’s then no surprise that Israel now boasts over a dozen fintech unicorns in sectors such as payments, insurtech, lending, banking and more, some of which reached the desired status just in the beginning of 2021 —  like Melio and Papaya Global, which raised $110 million and $100 million, respectively.

Over the years I’ve been fortunate to invest (both as a venture capitalist and personally) in successful early-stage fintech companies in the U.S., Israel and emerging markets  —  Alloy, Eave, MoneyLion, Migo, Unit, AcroCharge and more.

The major shifts and growth of fintech globally over these years has been largely due to advanced AI-based technologies, heightened regulatory scrutiny, a more innovative and adaptive approach among financial institutions to build partnerships with fintechs, and, of course, the COVID pandemic, which forced consumers to transact digitally.

The pandemic pushed fintechs to become essential for business survival, acting as the main contributor of the rapid migration to digital payments.

So what is it about Israeli-founded fintech startups that stand out from their scaling neighbors across the pond? Israeli founders first and foremost have brought to the table a distinct perspective and understanding of where the gaps exist within their respective focus industries —  whether it was Hippo and Lemonade in the world of property and casualty insurance, Rapyd and Melio in the world of business-to-business payments, or Earnix and Personetics in the world of banking data and analytics.

This is even more compelling given that many of these Israeli founders did not grow within financial services, but rather recognized those gaps, built their know-how around the industry (in some cases by hiring or partnering with industry experts and advisers during their ideation phase, strengthening their knowledge and validation), then sought to build more innovative and customer-focused solutions than most financial institutions can offer.

Having this in mind, it is becoming clearer that the Israeli fintech industry has slowly transitioned into a mature ecosystem with a combination of local talent, which now has expertise from a multitude of local fintechs that have scaled to success; a more global network of banking and insurance partners that have recognized the Israeli fintech disruptors; and the smart fintech -focused venture capital to go along with it. It’s a combination that will continue to set up Israeli fintech founders for success.

In addition, a major contributor to the fintech industry comes from the technological side. It is never enough to reach unicorn status with just the tech on the back end.

What most likely differentiates Israeli fintech from other ecosystems is the strong technological barriers and infrastructure built from the ground up, which then, of course, leads to the ability to be more customized, compliant, secured, etc. If I had to bet on where I believe Israeli fintech startups could become market leaders, I’d go with the following.

Voice-based transactions

Voice technologies have come a long way over the years; where once you knew you were talking to a robot, now financial institutions and applications offer a fully automated experience that sounds and feels just like a company employee.

Israel has shown growing success in the world of voice tech, with companies like Gong.io providing insights for remote sales teams; Bonobo (acquired by Salesforce) offering insights from customer support calls, texts and other interactions; and Voca.ai (acquired by Snapchat) offering an automated support agent to replace the huge costs of maintaining call centers.

#artificial-intelligence, #banking, #column, #ec-column, #ec-fintech, #finance, #financial-services, #financial-technology, #israel, #machine-learning, #natural-language-processing, #open-banking, #tc

Suing your way to the stars

Hello friends, and welcome back to Week in Review!

I’m back from a very fun and rehabilitative couple weeks away from my phone, my Twitter account and the news cycle. That said, I actually really missed writing this newsletter, and while Greg did a fantastic job while I was out, I won’t be handing over the reins again anytime soon. Plenty happened this week and I struggled to zero in on a single topic to address, but I finally chose to focus on Bezos’s Blue Origin suing NASA.

If you’re reading this on the TechCrunch site, you can get this in your inbox from the newsletter page, and follow my tweets @lucasmtny.


The big thing

I was going to write about OnlyFans for the newsletter this week and their fairly shocking move to ban sexually explicit content from their site in a bid to stay friendly with payment processors, but alas I couldn’t help myself and wrote an article for ole TechCrunch dot com instead. Here’s a link if you’re curious.

Now, I should also note that while I was on vacation I missed all of the conversation surrounding Apple’s incredibly controversial child sexual abuse material detection software that really seems to compromise the perceived integrity of personal devices. I’m not alone in finding this to be a pretty worrisome development despite Apple’s intention of staving off a worse alternative. Hopefully, one of these weeks I’ll have the time to talk with some of the folks in the decentralized computing space about how our monolithic reliance on a couple tech companies operating with precious little consumer input is very bad. In the meantime, I will point you to some reporting from TechCrunch’s own Zack Whittaker on the topic which you should peruse because I’m sure it will be a topic I revisit here in the future.

Now then! Onto the topic at hand.

Federal government agencies don’t generally inspire much adoration. While great things have been accomplished at the behest of ample federal funding and the tireless work of civil servants, most agencies are treated as bureaucratic bloat and aren’t generally seen as anything worth passionately defending. Among the public and technologists in particular, NASA occupies a bit more of a sacred space. The American space agency has generally been a source of bipartisan enthusiasm, as has its goal to return astronauts to the lunar surface by 2024.

Which brings us to some news this week. While so much digital ink was spilled on Jeff Bezos’s little jaunt to the edge of space, cowboy hat, champagne and all, there’s been less fanfare around his space startup’s lawsuit against NASA, which we’ve now learned will delay the development of a new lunar lander by months, potentially throwing NASA’s goal to return astronauts to the moon’s surface on schedule into doubt.

Bezos’s upstart Blue Origin is protesting the fact that they were not awarded a government contract while Elon Musk’s SpaceX earned a $2.89 billion contract to build a lunar lander. This contract wasn’t just recently awarded either, SpaceX won it back in April and Blue Origin had already filed a complaint with the Government Accountability Office. This happened before Bezos penned an open letter promising a $2 billion discount for NASA which had seen budget cuts at the hands of Congress dash its hoped to award multiple contracts. None of these maneuverings proved convincing enough for the folks at NASA, pushing Bezos’s space startup to sue the agency.

This little feud has caused long-minded Twitter users to dig up this little gem from a Bezos 2019 speech — as transcribed by Gizmodo — highlighting Bezos’s own distaste for how bureaucracy and greed have hampered NASA’s ability to reach for the stars:

“To the degree that big NASA programs become seen as jobs programs and that they have to be distributed to the right states where the right Senators live, and so on. That is going to change the objective. Now your objective is not to, you know, whatever it is, to get a man to the moon or a woman to the moon, but instead to get a woman to the moon while preserving X number of jobs in my district. That is a complexifier, and not a healthy one…[…]

Today, there would be, you know, three protests, and the losers would sue the federal government because they didn’t win. It’s interesting, but the thing that slows things down is procurement. It’s become the bigger bottleneck than the technology, which I know for a fact for all the well meaning people at NASA is frustrating.

A Blue Origin spokesperson called the suit, an “attempt to remedy the flaws in the acquisition process found in NASA’s Human Landing System.” But the lawsuit really seems to highlight how dire this deal is to the ability of Blue Origin to lock down top talent. Whether the startup can handle the reputational risk of suing NASA and delaying America’s return to the moon seems to be a question very much worth asking.


Elon Musk, co-founder and chief executive officer of Tesla Inc., speaks during an unveiling event for the Boring Company Hawthorne test tunnel in Hawthorne, south of Los Angeles, California on December 18, 2018.

Photo: ROBYN BECK/AFP via Getty Images

Other things

Here are the TechCrunch news stories that especially caught my eye this week:

OnlyFans bans “sexually explicit content”
A lot of people had pretty visceral reactions to OnlyFans killing off what seems to be a pretty big chunk of its business, outlawing “sexually explicit content” on the platform. It seems the decision was reached as a result of banking and payment partners leaning on the company.

Musk “unveils” the “Tesla Bot”
I truly struggle to even call this news, but I’d be remiss not to highlight how Elon Musk had a guy dress up in a spandex outfit and walk around doing the robot and spawned hundreds of news stories about his new “Tesla Bot.” While there certainly could be a product opportunity here for Tesla at some point, I would bet all of the dogecoin in the world that his prototype “coming next year” either never arrives or falls hilariously short of expectations.

Facebook drops a VR meeting simulator
This week, Facebook released one of its better virtual reality apps, a workplace app designed to help people host meetings inside virtual reality. To be clear, no one really asked for this, but the company made a full court PR press for the app which will help headset owners simulate the pristine experience of sitting in a conference room.

Social platforms wrestle with Taliban presence on platforms
Following the Taliban takeover of Afghanistan, social media platforms are being pushed to clarify their policies around accounts operated by identified Taliban members. It’s put some of the platforms in a hairy situation.

Facebook releases content transparency report
This week, Facebook released its first ever content transparency report, highlighting what data on the site had the most reach over a given time period, in this case a three-month period. Compared to lists highlighting which posts get the most engagement on the platform, lists generally populated mostly by right wing influencers and news sources, the list of posts with the most reach seems to be pretty benign.

Safety regulators open inquiry into Tesla Autopilot
While Musk talks about building a branded humanoid robot, U.S. safety regulators are concerned with why Tesla vehicles on Autopilot are crashing into so many parked emergency response vehicles.


 

Image Credits: Nigel Sussman

Extra things

Some of my favorite reads from our Extra Crunch subscription service this week:

The Nuro EC-1
“..Dave Ferguson and Jiajun Zhu aren’t the only Google self-driving project employees to launch an AV startup, but they might be the most underrated. Their company, Nuro, is valued at $5 billion and has high-profile partnerships with leaders in retail, logistics and food including FedEx, Domino’s and Walmart. And, they seem to have navigated the regulatory obstacle course with success — at least so far…”

A VC shares 5 keys to pitching VCs
“The success of a fundraising process is entirely dependent on how well an entrepreneur can manage it. At this stage, it is important for founders to be honest, straightforward and recognize the value meetings with venture capitalists and investors can bring beyond just the monetary aspect..

A crash course on corporate development
“…If you’re going to get acquired, chances are you’re going to spend a lot of time with corporate development teams. With a hot stock market, mountains of cash and cheap debt floating around, the environment for acquisitions is extremely rich.”


Thanks for reading! Until next week…

Lucas M.

#afghanistan, #america, #astronaut, #banking, #blue-origin, #computing, #congress, #dave-ferguson, #elon-musk, #entrepreneur, #extra-crunch, #facebook, #federal-government, #fedex, #food, #google, #government-accountability-office, #greg, #jeff-bezos, #lunar-lander, #nasa, #nuro, #robyn, #social-media-platforms, #spaceflight, #spacex, #taliban, #tc, #tesla, #united-states, #walmart, #week-in-review, #zack-whittaker

OnlyFans’ porn ban is crypto’s opportunity of a lifetime

Today, OnlyFans dropped the massive bombshell that it will be banning “sexually explicit content” from the app later this year. This is obviously a wildly seismic shift for OnlyFans, which completely disrupted the adult content industry and gave performers a path towards greater independence by allowing them to connect directly with their fans via subscriptions. This shutdown is also the opportunity of a lifetime for the crypto industry which could capitalize on the shutdown and a recent wave of increasingly consumer-friendly crypto payments infrastructure products to create a platform that won’t crumble under the influence of payment providers.

OnlyFans, which has been trying to raise at a unicorn valuation and running into plenty of trouble doing so despite huge revenues, didn’t mince words on the reasoning for today’s fundamental change. “These changes are to comply with the requests of our banking partners and payout providers,” a statement on the news from OnlyFans partially read.

Despite popular culture’s ongoing destigmatization of sex work and adult content, banking institutions are still fundamentally conservative and wary to handle money flowing through these platforms. Most of the operators of these platform are forced to deal with constant uneasiness of knowing their platforms might one day lose favor among these providers and instantly lose everything. All the while, “vice clauses” present in plenty of venture capital firms’ underpinnings keep them from operating in these spaces as well and prevent these platforms from accessing growth capital. It’s clear that adult content platforms are probably never going to have a friendly relationship with these financial institutions and it’s likely time for the platforms — and the creators using them — to move on.

In a lot of ways, OnlyFans dumping porn seems like an outright betrayal of their creator network and one those creators will be sure to remember when embracing whatever copycats spring up in their wake. They are likely going to look at new platforms with renewed skepticism in how they’ll handle payment provider standoffs, but there likely isn’t going to be a different outcome for ambitious platforms looking to grow. That would likely be a different situation for crypto native platforms, but given the tiny adoption, it’s still a substantial risk for creators to embrace a platform their fans might not know how to pay for content on.

The porn industry has been embracing crypto payments, albeit slowly. In 2018, Pornhub first announced that they would begin accepting cryptocurrency payments, fast forward to 2020 when Visa and MasterCard dumped the platform, now crypto payments and ACH bank transfers are the only ways to pay for its premium subscription service. There are already a few crypto platform players in this space like CumRocket and SpankChain catering to niche audiences (and probably in need of rebranding), but with the OnlyFans juggernaut out of the way, there might actually be a space for an existing or upstart player to innovate and capture this market.

The real challenge is in making it simple to onboard new users to both a new platform and potentially their first crypto wallet — while staying compliant with regulatory guidelines — at a time when more conventional web payment structures have gotten so streamlined and free adult content is just as prolific as ever. Know your customer (KYC) guidelines that push users to upload their passport or driver’s license to verify crypto purchases probably aren’t the easiest onboarding ask for a new crypto porn site, but as the market matures a bit and the challenges of a user setting up their first wallet are decoupled from the onboarding process for the platform, there are plenty of benefits to be realized.

Porn has always been a launchpad of sorts for new technologies. While the popularity of crypto has surged in recent months and nearly eclipsed $2 trillion in total assets, crypto penetration among the apps that people are actually using remains extremely low. As new solutions and startups pop up aiming to demystify buying and sending crypto, it feels like there’s a chance the industry could be in the perfect place to fill the void left by OnlyFans’ exit and build a more innovative platform in its image that goes all-in on crypto.

#articles, #banking, #blockchain, #cryptocurrency, #marketing, #onlyfans, #sex-work, #venture-capital-firms, #video-hosting

One banks $40M to offer ‘all-in-one’ financial services to the middle class

One, a startup that aims to bring “all-in-one banking” to the middle class, announced today that it has raised $40 million in a Series B round of funding.

Progressive Investment Company (the insurance giant’s investment arm) led the round, which included participation from Obvious Ventures, Foundation Capital, Core Innovation Capital and others. The financing brings One’s total raised since its 2019 inception to $66 million.

Since making its product generally available in September of 2020, Northern California-based One has grown to have “hundreds of thousands” of customers, according to CEO and co-founder Brian Hamilton, who previously co-founded PushPoint (which was acquired by Capital One).

“Stretched middle-income households and working families deal with financial stress on a daily basis and are largely unsupported by current offerings,” Hamilton said. “This can be viewed as a kind of a noisy market, and so this funding has been a good validation of the vision and kind of the products, in that we have been able to stand out in that market.”

Over the past 11 months, the startup has worked to enhance its core product offering, launching overdraft protection, an auto-save feature that rewards automatic savings contributions at 3.00% APY, cash flow-based credit lines and a credit builder product to help its customers build financial health. One claims that it has helped its users automatically save over $2 million collectively since its launch, a number that grows daily, according to Hamilton.

The company is also trying to change up how people share financial goals and responsibilities with individually configurable “Pockets” that it says can be “easily” shared with others and accessed via virtual and physical cards. 

“What we’re doing really is to re-integrate and unify what is otherwise a pretty splintered financial life for middle income households and families that are attempting to manage finances on a daily, weekly and monthly basis,” Hamilton told TechCrunch.

Over the past few years, he said, there have been a number of different fintech and bank products that people use to run their life “and they’re all starting to converge.”

The company was founded on the premise that traditional banking exists “on a system of fractured accounts and billions of dollars in hidden fees that leave customers living paycheck to paycheck despite steady incomes.” One says it is built on a “proprietary” technology core that aims to deliver saving, spending, sharing, budgeting and borrowing in a single account.

“Everybody’s trying to do a piece of everything, but they all started doing one thing,” Hamilton said. “But it’s really hard to back into the others or to bolt them on afterwards if you didn’t begin with the end in mind, kind of on an integrated basis. So that is essentially what we set out to build with One, with the idea to reunify credit and debit and savings and reintegrate the sharing of money with other people so it didn’t have to be done on a one-off transactional basis through Venmo or PayPal or Zelle.”

One’s banking services are provided by Coastal Community Bank, Member FDIC. The startup emphasizes that it’s a financial technology company, and “not a bank.”

It plans to use the new funding toward “fueling” customer growth, hiring and expanding its product offerings.

Charles Moldow, Foundation Capital general partner and One investor, said that challenger banks such as Chime and Aspiration focus on a debit card offering to subprime customers who are looking for lower bank fees and access to paychecks sooner.  

“These customers are generally treated poorly by banks and charged a lot of fees because they don’t generate much revenue for banks outside of interchange fees on debit purchases with little disposable income,” he said.

The real money made by banks, according to Moldow, is against mid-prime customers for both debit and lending.  

“These customers are harder to acquire because banks hate to lose them due to their large lifetime values,” he said. “One differs from the challenger banks in the market in that they have created a superior mobile banking experience for the 80% of the market that is not super prime or subprime. They have both a debit and credit offering and a vastly better user experience.”

The fintech is able to offer a user experience that is “materially” different from standard large bank offerings in that their back end infrastructure is a “modern” core and One is able to handle core checking, lending, money transfer and savings all on the same back end.

This means One can fully integrate those experiences (the aforementioned integrated offering “Pockets”).

“This differs from traditional banks which have each of these systems on top of different tech stacks which prevents them from providing integrated offerings,” he said. 

Also, by not having brick and mortar branches, the company is able to offer lower fees, more points and rewards and higher savings rates, Moldow added.

#apps, #banking, #charles-moldow, #digital-banking, #finance, #financial-services, #fintech, #foundation-capital, #funding, #fundings-exits, #one, #progressive, #recent-funding, #startup, #startups, #venture-capital

Why fintechs are buying up legacy financial services companies

Oh, how the tables have turned.

It used to be that if you were a fintech startup or, for lack of a better term, a digitally native financial services business, you might be eyeing an acquisition from an incumbent in the industry.

It used to be that if you were a fintech startup or, for lack of a better term, a digitally native financial services business, you might be eyeing an acquisition from an incumbent in the industry.

But lately, fintech upstarts are the ones doing the acquiring. Over just the last year or so, we’ve seen:

So what’s going on here? Why are fintechs now acquiring legacy financial services businesses, instead of the other way around?

#banking, #ec-fintech, #figure-technologies, #fin-vc, #finance, #financial-services, #financial-technology, #fintech-startup, #golden-pacific-bancorp, #jiko, #lendingclub, #logan-allin, #ma, #money, #radius-bank, #sofi, #startups, #tc

Early-stage benchmarks for young cybersecurity companies

We’re quick to celebrate the extraordinary victories of Israel’s multiplying cybersecurity unicorns, but every success story must start somewhere. The early days of any young startup decide how successful it can be, which is why we’ve developed a focused, value-add program to support cybersecurity founders during this most critical stage and maximize their potential in building market-leading companies.

However, the early stages of cybersecurity company-building are often shrouded in mystery, only coming into the light for fundraising and feature announcements. This leaves many entrepreneurs we speak with asking what exactly cybersecurity companies are achieving behind the curtain to earn these huge victories.

Though every company’s journey is unique, we can tease out trends and patterns to establish performance benchmarks for the cybersecurity ecosystem as a whole. To most entrepreneurs, however, the sensitive data required to understand the early success of a company is often unavailable or obscured. Moreover, the industry has yet to formally define proxies for growth and momentum beyond fundraising — leaving cybersecurity founders aiming for landmarks without guideposts.

When it comes to contracts, timing can provide important insight into the quality and performance of the sales pipeline. On average, successful companies will have closed their first paying customers in the U.S. within 12 months of their seed round.

Entrepreneurs require guideposts to aspire to when building large companies, and critical customer and revenue expectations can be best established by looking at what already successful cybersecurity companies have accomplished. Such metrics have been previously established for wider areas of technology, such as SaaS.

Leveraging our experience and resources, we collect this knowledge to keep our founders informed with the most up-to-date cybersecurity-specific metrics for long-term and large-scale growth. We hope that sharing these unique insights into early-stage cybersecurity companies — based on our own portfolio companies’ average performance — will help entrepreneurs in the wider Israeli ecosystem more confidently build their budgets and roadmaps with industry evidence.

Benchmarks for early-stage cybersecurity companies

Image Credits: YL Ventures

What should revenue look like over the first few years?

Though today’s investors are growing more aggressive, $500,000 in annual recurring revenue (ARR) is a traditional baseline requirement for a successful Series A from strong investors, and hitting that mark quickly should remain every entrepreneur’s goal. Hitting this target indicates product-market fit and customer willingness to commit to your solution.

Discounting variances in pricing, the best companies we’ve seen are able to reach the $500,000 benchmark in less than 18 months. From there, top-performing companies can expect to gain momentum and reach $1 million in ARR in 18 to 24 months. Such momentum is contingent on a number of factors for Israeli cybersecurity entrepreneurs, but growth is mainly reliant on how well founders connect with relevant customers outside the Israeli market.

#banking, #column, #computer-security, #customer-success, #cybersecurity, #ec-column, #ec-cybersecurity, #entrepreneur, #entrepreneurship, #executive, #healthcare, #israel, #private-equity, #security, #startup-company, #startups, #united-states, #venture-capital, #yl-ventures

Embedded finance won’t make every firm into a fintech company

A short decade after software started eating the world, along came headlines about every company becoming a fintech thanks to innovation and growth in embedded finance business models.

This narrative oversimplifies the evolution that’s happening in the financial services sector. Storing and moving money and extending credit in a regulated environment is difficult. And differentiating your offering from incumbent financial institutions requires much more than superficial tweaks.

What really makes a fintech company extends far beyond user interface enhancements and delivering financial services to end customers. It’s what’s “under the hood” — the full-stack approach that allows fintech companies to truly innovate for their customers.

What really makes a fintech company extends far beyond user interface enhancements and delivering financial services to end customers.

Embedded finance helps companies and brands outside of the core financial sector distribute financial services. This requires varying levels of effort from the company and looks like anything from Starbucks offering an integrated wallet and payments within its app to Lyft offering a debit card to their drivers. But that doesn’t make Starbucks or Lyft fintech companies.

The fallacy behind the hype

The “every company will be a fintech” stance investors are bullish on conflates multiple approaches to inlaying financial offerings, coupling the resurgence of white-labeled financial services (which have been around for decades) with the rising banking, payments and lending-as-a-service players. The latter approach allows companies to customize their financial product experience while outsourcing many core financial services tasks. The former is simply distribution through embedded delivery.

There are four core tenets to fully operate as a financial services provider: a customer-facing product, transactional infrastructure, risk management and compliance, and customer servicing. In the case of lending, there is a fifth tenet: Companies also need to be able to manage capital. Embedded financial services help companies sidestep the majority of what it really means to be a fintech.

White-labeling versus “becoming a fintech”

While embedded finance is hot today, white-labeled financial services have been around for decades. Branded credit cards, for example, are a common paradigm for white-labeling. They quickly became a lasting way to incentivize consumer loyalty but don’t signal real effort or know-how in financial services. United and Alaska don’t run credit checks, configure billing or handle disputes for cardholding customers, nor do they assume any risk by embossing their logo on a card. The partnerships are major money makers for airlines while the risk stays on the financial institutions’ side (Chase, Bank of America and Visa). This risk can even account for significant loss on the financial side: According to American Express, 21% of its outstanding credit card loans belonged to people with a Delta credit card a few years ago.

This white-labeling approach is becoming common for other services, coming to life in forms like banking offerings from cell carriers, and it’s by design: Financial services are complex and highly regulated, so brands prefer to defer most of the work to the experts. So while United, Delta or T-Mobile offer financial services under their brand, they are definitely not becoming fintech companies.

In contrast, some corporations are seeing the opportunity to build financial services from the ground up. Walmart’s move to snag Goldman Sachs talent to lead its foray into finance (with Ribbit at the helm) shows promise for a true fintech spinout.

The investment in expertise in compliance and risk management furthers the company’s potential to build detailed and relevant infrastructure from the get-go — a significant step beyond the retailer’s many existing white-labeled financial partnerships.

The limitations of platforms as a service

Tools and turnkey solutions that help non-finance companies build financial applications more recently came into the mix: VCs are enthusiastic about new players building embedded payments, lending and, more recently, banking platform services (also known as BaaS) through APIs and backend tools.

As opposed to financial infrastructure services provided directly by sponsor banks or processors providing payments or ledger services, these platforms abstract the underlying infrastructure, wrap them with friendly-to-use APIs, and bundle core financial elements like risk management, compliance and servicing. While these platforms do offer some self-efficacy for companies to provide financial services, their major limitation is that they’re general purpose by design.

Fintechs found an opportunity to serve customers overlooked and underserved by traditional finance through specialization. Traditional financial institutions long applied the generalist model, carrying hundreds of SKUs and serving all segments. This strategy inevitably led banks to invest more in services for their most profitable customers, optimizing for their needs. Less profitable segments were left with stale and one-size-fits-all offerings.

Fintechs’ success with these underserved segments is derived from a relentless pursuit and laser focus on addressing core customers’ unique needs, building products and services designed for them. In order to deliver on this promise, fintechs must innovate across all layers of the stack — from the product experience and feature set to the infrastructure and risk management, all the way down to servicing.

UI is not nearly enough to differentiate, and addressing customers’ needs while minding overall unit economics is critical. One fintech’s choices on these matters may be completely different from another if they address different segments — it all boils down to tradeoffs. For example, deciding on which data sources to use and balancing between onboarding and transactional risk look different if optimizing for freelancers rather than larger small businesses.

In contrast, third-party platform providers must be generic enough to power a broad range of companies and to enable multiple use cases. While the companies partnering with these services can build and customize at the product feature level, they are heavily reliant on their platform partner for infrastructure and core financial services, thus limited to that partner’s configurations and capabilities.

As such, embedded platform services work well to power straightforward commoditized tasks like credit card processing, but limit companies’ ability to differentiate on more complex offerings, like banking, which require end-to-end optimization.

More generally and from a customer’s perspective, embedded fintech partnerships are most effective when providing confined financial services within specific user flows to enhance the overall user experience.

For example, a company can offer credit at the point of sale through a third-party provider to enable a purchase. However, when considering general purpose and standalone financial services, the benefits of embedded fintech are much weaker.

Building a product of choice

The biggest proponents of embedded finance argue that large companies and brands can be successful with finance add-ons on their platforms because of their brand recognition and install base.

But that overlooks the reality of choice in the market: Just because a customer does one facet of their business with a company doesn’t necessarily mean they want that company as their provider for everything, especially if the service is inferior to what they can get elsewhere.

While the fintech market booms and legacy brands continue to buy into the opportunity, verticalized, full-stack fintechs will trump their generic offerings time and time again. Some aspects of embedded finance and white-labeling will continue to crop up or prevail, like payment processing and buy now, pay later services. But customers will continue to choose the banks/neobanks, lenders and tools built for them and their own unique needs, bucking the “every company is a fintech” fallacy.

#banking, #banking-as-a-service, #column, #embedded-finance, #finance, #financial-services, #fintech, #opinion, #payment-processing, #risk-management, #tc

Wannabe ‘social bank’ Kroo swerves VCs to raise a $24.5M Series A from HNWs

Launched in February 2018, Kroo, the London-based consumer-facing fintech raised some seed funding last year for its prepaid card service which claims to offer more ‘social features’ in its drive towards offering full-blown banking services. Kroo’s pitch is that it removes friction from financial interactions with friends and family, and throws in some environmental initiatives as well, such as tree planting.

It’s now raised $24.5 million (£17.7 million) in a Series A funding round led by Rudy Karsan, a high-net-worth tech entrepreneur and founder of Karlani Capital. Kroo will use the funding in its drive towards a full banking license in early 2022.

The fund-raising is fairly unusual for a fintech startup that aspires to become a bank, given the lack of an institutional investor. However, this will give it a lot more freedom as it heads towards bank status next year.

Kroo currently offers a prepaid debit card plus an app to track personal and social finances, such as the ability to create payment groups with friends, track spending, and split and pay bills, removing the usual awkwardness around such things.

The company has also pledged to donate a percentage of profits to social causes, and launched a tree-planting referral scheme, so that every time a customer refers a friend, Kroo plants 20 trees.

Kroo CEO Andrea de Gottardo

Kroo CEO Andrea de Gottardo

CEO Andrea de Gottardo (pictured), who joined Kroo as Chief Risk Officer in 2018, said: “We want to build the world’s greatest social bank: a bank dedicated to its customers and to the world we live in. We’re going to do more than just work with Kroo customers to improve their relationship with money and provide them with access to fair loans. We’re going to offer them ways to actively take part in making our world a better place, like carbon offsetting and a tree-planting referral program.”

Karsan said: “The reason I’m excited about Kroo is that it has a concrete opportunity to dramatically change the way people feel about their bank, for good. Kroo has an exceptionally talented management team and a nimble tech stack that will enable the continuous delivery of banking features customers really care about.”

Speaking to me over a call, de Gottardo added: “We have raised, including the series A, over £30 million through high net worth individuals and syndicated investors. So we still haven’t done an institutional round. That was a choice.”

He elaborated: “We’re lucky enough to have Rudy Karsan, a high net worth, and an extremely supportive pool of investors that keep following on in the rounds. It was our intention get up to a Series A without any institutions, and to be free of the pressure from VC. It’s now highly likely we will go institutional for a Series B round.”

#bank, #banking, #ceo, #economy, #europe, #finance, #financial-services, #financial-technology, #fintech-startup, #ing-group, #london, #money, #tc

Element Ventures pulls in $130M to double-down on the FinTech enterprise trend

With the rise of Open Banking, Psd2 Regulation, InsurTech, and the whole, general Fintech boom, tech investors have realized that there is an increasing place for dedicated funds which double down on this ongoing movement. When you look at the rise of banking-as-a-service offerings, payments platforms, insurtech, asset management, and infrastructure providers, you realize that there is a pretty huge revolution going on.

European fintech companies have raised $12.3bn in 2021 according to Dealroom, but the market is still wide-open for a great deal more funding for B2B fintech startups.

So it’s little surprise that B2B fintech-focused Element Ventures, has announced a $130 million fund to double-down on this new FinTech enterprise trend.

Founded by financial services veterans Steve Gibson and Michael McFadgen, and joined by Spencer Lake (HSBC’s former Vice Chairman of Global Banking and Markets) Element is backed by finance-oriented LPs and some 30 founders and executives from the sector.

Element says it will focus on what it calls a “high conviction investment strategy,” which will mean investing in only around 15 companies a year, but, it says, providing a “high level of support” to its portfolio.

So far it has backed B2B fintech firms across the UK and Europe including Hepster (total raised $10M), the embedded insurance platform out of Germany which I recently reported on; Billhop (total raised $6.7M), the B2B payment network out of Sweden; Coincover (total raised $11.6M), a cryptocurrency recovery service out of the UK; and Minna (total raised $25M), the subscription management platform out of Sweden.

Speaking to me over a call McFadgen, Partner at Element Ventures, said: “Steven and I have been investing in B2B FinTech together for quite a long time. In 2018 we had the opportunity to start element and Spencer came on boar in 2019. So Element as an independent venture firm is really a continuation of a strategy we’ve been involved in for a long time.”

Gibson added: “We are quite convinced by the European movement and the breakthrough these Fintech and insure tech firms in Europe are having. Insurance has been a desert for innovation and that is changing. And you can see that we’re sort of trying to build a network around companies that have those breakthrough moments and provide not just capital but all the other things we think are part of the story. Building the company from A to C and D is the area that we try and roll our sleeves up and help these firms.”

Element says it will also be investing in the US and Asia. 

#asia, #asset-management, #banking, #economy, #element-ventures, #europe, #finance, #financial-technology, #germany, #hsbc, #money, #partner, #payment-network, #sweden, #tc, #united-kingdom, #united-states, #vice-chairman

With open banking on the horizon, the fintech-SME love story is just beginning

The fintech sector has been hugely successful (and hugely profitable) for much of the last decade, and even more so during the pandemic. But it might come as a surprise to learn that many in the industry believe that the story is just beginning and the sector is poised to achieve much more, with fintech’s next decade expected to be radically different from the last 10 years.

Long before the pandemic, the way in which banks were regulated was changing. Initiatives like Open Banking and the Revised Payment Services Directive (PSD2) were being proposed as a way to promote competition in the banking industry — allowing smaller challenger firms to break into a market that has long been dominated by corporate titans.

Now that these initiatives are in place, however, we’re seeing that their effect goes way beyond opening up a gap for challenger banks. Since open banking requires that banks make valuable data available via APIs, it is leading to a revolution in the way that small and mid-size enterprises (SMEs) are funded — one in which data, and not hard capital, is the most important factor driving fintech success.

Open banking and data freedom

In order to understand the changes that are sweeping fintech and reconfiguring the way that the industry works with small businesses, it’s important to understand open banking. This is a concept that has really taken hold among governmental and supranational banking regulators over the past decade, and we are now beginning to see its impact across the banking sector.

Allowing third parties access to the data held at banks will allow the true financial position of SMEs to be assessed, many for the first time.

At its most fundamental level, open banking refers to the process of using APIs to open up consumers’ financial data to third parties. This allows these third parties to design, build and distribute their own financial products. The utility (and, ultimately, the profitability) of these products doesn’t rely on them holding huge amounts of capital — rather, it is the data they harvest and contain that endows them with value.

Open-banking models raise a number of challenges. One is that the banking industry will need to develop much more rigorous systems to continually seek consumer consent for data to be shared in this way. Though the early years of fintech have taught us that consumers are pretty relaxed when it comes to giving up their data — with some studies indicating that almost 60% of Americans choose fintech over privacy — the type and volume shared through open-banking frameworks is much more extensive than the products we have seen up until now.

Despite these concerns, the push toward open banking is progressing around the world. In Europe, the PSD2 (the Payment Services Directive) requires large banks to share financial information with third parties, and in Asia services like Alipay and WeChat in China, and Tez and PayTM in India are already altering the financial services market. The extra capabilities available through these services are already leading to calls for the U.S. banking system to embrace open banking to the same degree.

Serving SMEs

If the U.S. banking industry can be convinced of the utility of open banking, or if it is forced to do so via legislation, several groups are likely to benefit:

  • Consumers will be offered novel banking and investment products based on far more detailed data analysis than exists at present.
  • The fintech companies who design and build these products will also see the use of their products increase, and their profit margins alongside this.
  • Arguably, even banks will benefit, because even in the most open models it is banks who still act as the gatekeepers, deciding which third parties have access to consumer data, and what they need to do to access.

By far the biggest beneficiary of open banking, however, will be SMEs. This is not necessarily because open-banking frameworks offer specific new functionality that will be useful to small and medium-sized businesses. Instead, it is a reflection of the fact that SMEs have historically been so poorly served by traditional banks.

SMEs are underserved in a number of ways. Traditional banks have an extremely limited ability to view the aggregate financial position of an SME that holds capital across multiple institutions and in multiple instruments, which makes securing finance very difficult.

In addition, SMEs often have to deal with dated and time-consuming manual interfaces to upload data to their bank. And (perhaps worst of all) the B2B payment systems in use at most banks provide very limited feedback to the businesses that use them — a lack of information that can cost businesses dearly.

New capabilities

Given these deficiencies, it’s not surprising that fintech startups are keen to lend to small businesses, and that SMEs are actively looking for novel banking products and services. There have, of course, already been some success stories in this space, and the kinds of banking systems available to SMEs today (especially in Europe) are leagues ahead of the services available even 10 years ago.

However, open banking promises to accelerate this transformation and dramatically improve the financial services available to the average SME. It will do this in several ways. Allowing third parties access to the data held at banks will allow the true financial position of SMEs to be assessed, many for the first time.

Via APIs, fintech companies will be able to access information on different types of accounts, insurance, card accounts and leases, and consolidate data from multiple countries into one overall picture.

This, in turn, will have major effects on the way that credit-worthiness is assessed for SMEs. At the moment, there is a funding gap facing many SMEs, largely because banks have been hesitant to move away from the “balance sheet” model of assessing credit risk. By using real-time analytics on an SME’s current business activities, banks will be able to more accurately assess this risk and lend to more businesses.

In fact, this is already happening in countries where open banking is well advanced – in the U.K., Lloyds’ Business ToolBox offers unlimited credit checks on companies and directors in addition to account transaction data.

Open banking will also allow peer comparison analytics far ahead of what we have seen until now. APIs can be used to provide SMEs real-time feedback on how they are performing within their market sector. Again, this ability is already available in the U.K., with Barclays’ SmartBusiness Dashboard offering marketing effectiveness tools as part of a customizable business dashboard.

These capabilities will be so useful to SMEs that they are likely to drive the popularity of any fintech product that offers them. For SMEs, this value will lie mainly in intelligent data-analytics-based insights, recommendations and automatic prompts that can be built on top of account aggregation.

Then, additional insights generated from these same monitoring tools could enable banks and alternative lenders to be more proactive with their lending — offering preapproved lines of credit, in a timely manner, to SMEs that would have previously found it difficult to access funding.

The bottom line

Crucially for the fintech sector, it’s almost a certainty that SMEs will be willing to pay fees for data-analytics-based value-added services that help them grow. This is why some startups in this space are already attracting huge levels of funding, and why open banking is at the heart of the relationship between tech and the economy.

So if fintech has had a good year, this is likely to be just the start of the story. Backed by open-banking initiatives, the sector is now at the forefront of a banking revolution that will finally give SMEs the level of service they deserve and unleash their true potential across the economy at large.

#alipay, #asia, #banking, #china, #column, #europe, #finance, #financial-services, #financial-technology, #fintech, #india, #online-lending, #open-banking, #opinion, #payment-services-directive, #payments, #paytm, #startups

The Chime banking app has been closing accounts, not returning money

A dollar floats in a museum-style plastic display case.

Enlarge / Putting the dollar in the box is easy—but getting it back out can sometimes be a months-long ordeal. (credit: PM Images)

Chime is a banking application which serves millions of users—but it’s not actually a bank. And it racked up an unusually large number of consumer protection cases over the last year—920 complaints at the Consumer Financial Protection Bureau and thousands at the Better Business Bureau. The majority of the CFPB complaints regard forced account closure—accounts closed against a consumer’s will without immediately refunding the consumer’s account balance in the process.

Unexpected account closures

Only 197 of the 920 complaints against Chime at the Consumer Financial Protection Bureau are tagged as involving a “closed account”—but as ProPublica reports, the CFPB complaints are inconsistently labeled, and details of many of the other 723 complaints involve forcible closures also. (By contrast, industry behemoth Wells Fargo has only 317 CFPB complaints tagged “closed account” over the same time period—and Marcus, a Goldman Sachs owned online bank with 4 million customers, has only seven.)

Although opening a Chime account is quick and easy—the app is straightforward, and the creation process requires no credit check and is done in minutes—account closures may happen just as rapidly. ProPublica recounts multiple similar stories of Chime customers who received cryptic emails stating, “Following a recent review of your Spending Account, we regret to inform you that we have made the decision to end our relationship with you at this time.”

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#bank, #banking, #chime, #fintech, #neobank, #neobanking, #tech

White label fintech platform Toqio secures $9.4M Seed led by Seaya and Speedinvest

The upside of the Open Banking regulations which have swept jurisdictions like the UK and the EU is that many more challenger banks have appeared. The headache for either incumbent banks or for upstart startups is the very proliferation of these new banks and financial tech products. But as we know, in gold rushes, the people selling the picks and shovels usually win. Thus, startups have turned their attention, not to launching full-stack banks, but to full-stack platforms that other people can launch their fintech startups and products upon.

The latest to join this brigade is Toqio, a fintech platform with a white label digital finance SaaS that allows anyone to launch a new fintech product.

The London-based startup has now secured an €8M / $9.4M seed round of funding led by Seaya Ventures and Speedinvest, with SIX FinTech Ventures participating.

Founded in 2019 by Eduardo Martínez and Michael Galvin, the teams behind Toqio previously built a small business SaaS startup, Geniac, which was acquired by Grant Thornton.

Eduardo Martínez, co-Founder and CEO, of Toqio, said: “Businesses and banks are looking to innovate in the FinTech sector, but to date, they have had to create and maintain complex software solutions to do this. This has also kept smaller niche businesses out of the market. We don’t want FinTech to end up like banking just with a new set of big incumbents trying to take control of financial services. We want to level the playing field.”

Toqio says its customers get access to pre-built products to create applications that can go to market quickly. Products include digital banking, card, and financing solutions, and a marketplace, aimed at financial institutions, FinTech startups, banks, and corporate brands.

Headquartered in London and Madrid, Toqio says it already has customers across Europe, including new Spanish bank Crealsa, business banking service Wamo in Malta, and alternative business lender Just Cash Flow in the UK.

Aristotelis Xenofontos, Principal at Seaya Ventures, said: ”We have spent many years following the Embedded Finance space and finally found the missing piece, a seamless enabler that glues everything together. Toqio is a truly end-to-end platform that provides a complete plug-and-play bank and allows any organization to offer a full suite of digital financial services in a rapid, painless, future-proof, and low-cost way.”

Stefan Klestil, General Partner at Speedinvest, added: “We’ve seen the rise of neo-banks, the change of regulations across multiple markets, and now we’re starting to see traditional businesses and big brands looking to embed financial products within their existing offerings. Financial services are going to change and expand at an unprecedented rate, and Toqio will be instrumental in enabling it.”

#articles, #bank, #banking, #digital-banking, #europe, #european-union, #finance, #financial-services, #financial-technology, #general-partner, #geniac, #london, #madrid, #malta, #money, #open-banking, #seaya-ventures, #speedinvest, #tc, #united-kingdom

TeamApt will use its new funding round to provide digital bank services for the unbanked

A great deal has changed since we last covered Nigerian fintech startup TeamApt two years ago. At the time, the company had just closed a $5.5 million Series A round from a single VC — Quantum Capital Partners, a firm owned by Zenith Bank billionaire Jim Ovia.

TeamApt has quite the story. CEO Tosin Eniolorunda started the company in 2015 after leaving Interswitch. He was going head-to-head with the billion-dollar company when TeamApt received a license to operate as a payment switch providing enterprise solutions for banks in the country.

TeamApt bootstrapped with revenue made on a per-project basis. By 2017, the company, which optimized core bank back-office operations was servicing 26 financial institutions and processing $160 million in monthly transactions without raising a dime. A year later, TeamApt began releasing direct consumer and business-facing products targeted at driving financial inclusion in the country.

Moneytor was a digital banking service for financial institutions to track transactions with web and mobile interfaces; Monnify, an enterprise software suite for small business management and AptPay, a push payment infrastructure to centralize services used on banking mobile apps. These products had varying degrees of success; however, Moniepoint, an agency banking platform launched months after the Series A, became the instant hit.

In developed markets where banking networks are sophisticated and have an extensive reach, the concept of agency banking is foreign. But in developing markets like Nigeria, it’s necessary because the bank to population ratio in Nigeria is low. According to reports, there are 4.3 branches per 100,000 people compared to the global average of 11.7 branches.

Agency banking serves as an alternative distribution strategy for traditional retail banking by using authorized personnel who acts as agents to expand the reach of the branch network. For many Nigerians, agency banking represents a financial access lifeline and one of the most viable options for accessing the financial services they need.

Moniepoint agents use mobile apps and point-of-sale terminals to offer these customers access to financial services like cash withdrawal, cash deposit, funds transfer, airtime purchase and bill payments. In less than two years, Moniepoint claims to account for 74% of agency banking transactions in Nigeria. The platform also processes about 68 million transactions worth over $3.5 billion monthly through 100,000 agents and 14 million customers. When transactions from Monnify are added, TeamApt said it processed $17.5 billion in the past 12 months.

But despite the seeming success, TeamApt is poised to add digital banking services to Moniepoint’s dominant agency banking play. “What is the reason behind this? With multiple players, was the agency banking space becoming too crowded that Moniepoint couldn’t acquire more market share?” I ask Eniolorunda.

“There’s still room for growth in the agency space. We can actually grow more and take more share as more agents continue to enter the market and consumers embracing agency networks and point-of-sale networks. So the reason we’re trying to do this is for two reasons — a mission and commercial reason,” he answered.

Most well-known digital banks in Nigeria cater to the already banked, neglecting the unbanked or underbanked consumers that banks do not serve. Eniolorunda’s “mission reason” is to provide financial services for them via launching a digital bank. The commercial reason? “We want to be the middle ground between banks and digital approaches to actually serve the next billion Africans. The reason why we can do this is that we have demonstrated our traction in Nigeria to become the largest agency network just in the period of two years,” the CEO added

Judging by the transactions made on Moniepoint and since existing digital banks capture the same customers as big commercial banks, TeamApt sits on a big opportunity if it can convert a chunk of its offline users online. Of course, this strategy isn’t new in itself. It is currently being adopted by another digital bank targeted at the unbanked, Bankly. However, the good news is that should any of these platforms show significant success, other platforms might widely adopt the approach and go a long way in providing digital banking services to the unbanked.

To test out this strategy at scale, TeamApt has secured another round of investment. Two months ago, Dutch entrepreneurial development bank FMO announced its participation in TeamApt’s Series A extension round with $2 million. But while FMO is among the grand list investors in this tranche of investment, the venture round has changed to a Series B, TeamApt confirmed. 

The $200 million Pan-African fund Novastar Ventures led the round. Dubai-based Global Ventures, CDC Group, Soma Capital, and Pan-African VC firms Kepple Africa and Oui Capital participated alongside some local angel investors.

TeamApt, while continuing its switching business for enterprise, will be looking to extend its offerings directly to customers and micro-SMEs with Moniepoint. In addition, and subject to regulatory approval, both agency and digital banking platforms will exist under Moniepoint.

Brian Waswani Odhiambo, the head of West Africa at Novastar Ventures, said the VC firm backed TeamApt after seeing the speed at which its agency network became the leading operator in Nigeria. The firm, “by providing TeamApt with sufficient capital to pursue its new phase of growth,” has no doubt the company will do the same with its digital banking platform.

In the past month, TeamApt has announced to anyone who cared to listen that it’s currently in the process of closing another round. Eniolorunda confirmed this to TechCrunch that it would be a Series C round. While that is in progress, TeamApt will be making expansion plans to other African countries with strong economies in every region — Central, East, North and South. The company is also keen on performing a few acquisitions along the way to tap significant opportunities for leveraging technology and offline distribution to provide financial services to Africa’s mass market.

#africa, #banking, #digital-banking, #finance, #financial-inclusion, #funding, #soma-capital, #tc, #teamapt

A bank for the creator economy, Karat Financial raises $26M in Series A funding

The creator economy is changing the way that people earn a living, whether you’re an Instagram influencer or a freelance graphic designer. But traditional banks haven’t caught up.

Take Alexandra Botez for example. The Stanford graduate earns six figures playing chess on Twitch, where she has 877,000 followers. But when she tried to apply for a business credit card, she was rejected twice. Meanwhile, when the creator behind TierZoo, a YouTube channel with 2.7 million subscribers, tried to rent an apartment, he was rejected because his landlord didn’t see his business as legitimate.

Eric Wei noticed this disconnect while he was a Product Manager at Instagram, where he helped build Instagram Live. With co-founder Will Kim, a previous investor with seed fund Lucky Capital, Wei launched Karat Financial, a better banking system for digital creators. Today, Karat Financial announced a $26 million Series A round led by Union Square Ventures with participation from GGV Capital and SignalFire.

“Banks need to understand you in order to trust you, and it’s only when they trust you that they’re willing to give you credit, process your payments, and hold your money,” Wei told TechCrunch. “If Alexandra Botez has 800,000 followers, and let’s say a tenth of them are paying a monthly subscription fee on Twitch, you can actually back into what these creators’ income streams are, and develop a better underwriting model than what the banks have today.”

But Karat isn’t solving a problem exclusive to the 1% of digital creators. Even for someone like a self-employed small business owner or a gig worker, it can be challenging to find a landlord that will rent an apartment without a proof of employment letter and regular paystubs. But the creator economy remains a fast-growing sector — more than two million creators make over $100,000 per year, and according to VC firm SignalFire, over 46.7 million people have enough of a following to monetize their content part-time.

“This whole industry exploded,” said Kim. “If it’s a flash in the pan, it’s a fifteen-year-old flash.”

Wei and Kim founded Karat in 2019, then earned a spot in Y Combinator’s Winter 2020 accelerator. By June 2020, Karat launched its first product, the Karat Black Card, a credit card for creators, and earned $4.6 million in seed funding from investors like Twitch co-founder Kevin Lin.

Image Credits: Karat

“Our vetting process is we try to evaluate creators as the businesses they are,” Wei said. The Karat Black Card doesn’t charge interest or fees, and only turns a marginal profit off of bank interchange fees. Karat will also advance credit for sponsorship payments at no cost to the creator. So if you’re an influencer and get paid $1,000 to make a video sponsored by a clothing company, it could take months to get paid. Karat will give you that $1,000 now, so long as you pay them back once the clothing company pays you.

Karat proved its concept with 50% growth from month to month and eight figures in transactions since launch last year. More than 30 creators have invested in Karat, including Jared Leto, 3LAU, Nas Daily, and Josh Richards — that’s all without any spending on influencer marketing.

“It turns out that when you do a good job for creators, they share you around with other people,” Wei said.

Since then, their portfolio of investors has grown to include YouTube co-founder Steven Chen, Twitter co-founder Biz Stone, Former TikTok CEO Kevin Mayer, and Former Wealthfront CEO Adam Nash, among others.

But Karat’s ultimate ambition isn’t to give creators a line of credit. They started out with the credit card to prove their concept, but in the long term, they hope to create a financial infrastructure for creators. That means helping them launch merchandise lines, incorporate their business, get a mortgage, take out business loans, and file their taxes. Wei says that would come after the company’s Series B, opening a more lucrative income stream than collecting bank interchange fees.

“We decided to roll Karat out with the same tried and true fintech playbook,” Wei said. “Start out with something simple before wedging and scaling into those other products. So for us, the card is just a means to an end. Our whole model is, we use the cards to develop our underwriting model and gain trust from creators, and eventually, we can build to be Square for creators.”

Already, Wei and Kim are getting texts from their internet celebrity clients, asking them to be their de-facto financial advisors.

“We’re just like, oh my gosh, we love you, but we’re not building those products yet,” Wei said. “We’ll do that when we hit our Series B, and yes, we’ll charge you fees, because we’re going to provide you with better service than what’s out there now.”

With the newly announced Series A round, Karat plans to double its staff with new hires and begin looking toward new product development.

#adam-nash, #articles, #banking, #ceo, #co-founder, #credit-card, #financial-infrastructure, #flash, #funding, #gig-worker, #jared-leto, #karat, #kevin-lin, #kevin-mayer, #merchant-services, #signalfire, #stanford, #steven-chen, #tiktok, #twitch, #union-square-ventures, #wealthfront, #y-combinator, #you, #youtube

How WesternUnion is fighting back against fintech startups

The saying goes that, “You can’t teach an old dog new tricks.” That may or may not be true, but at least one “old dog” is working hard to disprove that saying.

Western Union has been operating in the cross-border payments space for nearly 150 years (yes, you read that right – 150 years) and today, globally, it serves almost 150 million customers – representing senders and receivers.

In recent years, a number of fintech startups have emerged to challenge Western Union in the massive space – from Wise (formerly TransferWise) to Remitly to WorldRemit. But the payments giant seems up for the challenge and has been investing heavily in its digital operations in an attempt to beat fintechs at their own game

As we all know, the COVID-19 pandemic led to a massive acceleration of the trend of all things moving to digital in nearly all industries. Money transfer was no exception. In 2020, Western Union benefited from that acceleration. Its overall digital money transfer revenues – including WU.com and its digital partnership business – climbed by 38% to more than $850 million, up from over $600 million in 2019. 

Speaking of WU.com, the company’s online transactions site, it saw a nearly 30% gain in annual active customers to 8.6 million. 

This year, the company recently projected that its digital money transfer revenues are on track to exceed $1 billion in 2021 after first-quarter revenue growth of 45% to a new quarterly high of $242 million.

Today, Western Union claims to hold the largest cross-border, digital, peer-to-peer payments network in terms of scale, revenue and channels.

The emphasis on beefing up its digital operations – an initiative that actually began in the second half of 2019, according to the company – and expanding those digital offerings to more countries led to Western Union’s overall business profile shifting over the past 15 months. 

Digital channels in 2020 made up 29% of transactions and 20% of revenue for the company’s consumer-to-consumer (C2C) business, up from 16% and 14%, respectively, in 2019.

Western Union also “open sourced” its platform to third-party financial institutions in a move it says is a “step towards creating an end-to-end payments processing hub.”

TechCrunch talked with Shelly Swanback, Western Union’s president of product and platform, about the company’s digital strategy and what’s next beyond payments for the company (hint: it involves banking products). 

This interview has been edited for clarity and brevity.

TC: Let’s start out by hearing how the COVID-19 pandemic impacted your business, and what kinds of steps you took as a company to adapt?

Swanback: As COVID started playing out, just like any other company, I thought ‘What do we need to do to rally around our customers because our customers who rely on retail locations may not be able to get to their retail location as the COVID lockdowns started happening?’

One of the things we learned from that experience is this notion of everyday innovation. Innovation isn’t always blockchain or some emerging technology. Sometimes the best innovation is just about innovating every day with the products and services that you have. 

For example, we had some places in the world where we actually needed to figure out how we could do home delivery of cash. Delivering cash is different than delivering pizza as you can imagine, as there are a whole lot of regulatory items and security items. We very quickly figured out how we can deliver cash in Sri Lanka and Nepal, Jordan and some other places across the world. 

Another example lies in addressing how some folks were just a little intimidated by digital technology. I thought, ‘What if we set up a video digital location we called it where people could call in and do a video call with us and we could help them with their money transfer?’ It turned out that there actually wasn’t as much customer demand for that as we might have thought. 

But the great news — and this is a good lesson, I think, for many organizations — is what we actually did there in terms of KYC (Know Your Customer), which is a big thing in the financial services industry. So, all the technology we set up for this digital location for customers to upload their documents electronically and not have to be in front of an agent, we’re using today, just in a different way.

TC: I know Western Union has touted the fact that it has such a strong physical presence in so many locations actually benefits the growth of its digital operations as well as an expansion into other offerings beyond payments. Can you elaborate on that?

Swanback: The success and acceleration that we’re having in our digital business and of course the quarterly results are great, and we want to continue to do that. But for me, what’s most exciting is just the solid foundation and the basis gives us to build toward this idea of having a more meaningful account-based relationship with our customers and ability to offer them more than just money transfer. 

We have the fortune of having a trusted brand that’s known globally and trusted for something that’s very near and dear to our customers. What we’re hearing from our customers is they would trust us to provide additional services. So one of the things that we’re beginning to put plans in place for, and beginning to do some market tests on, is building an ecosystem or building a marketplace if you will. It will all be catered around the 270 million migrants across the world and really connecting them to each other, connecting them to their families and connecting them to merchants who want to sell them goods or provide them services that are very culturally relevant to them,  either where they happen to be living and working or providing them services back home to their families. 

Later in the fall, we’re going to be launching our first market test in Europe. We’re going to be offering a bank account, debit card, and multi-currency accounts tied of course into our money transfer services, as well as a few other things as we get closer to the market launch. But this really is our first test around providing a more comprehensive set of services.

TC: You recently announced a tie-up with Google Pay and some others. What is the significance of those partnerships?

Swanback: We want to be able to offer our cross-border capabilities and platform in more of a co-branded or white-label fashion, so that we can reach those customers that might still prefer to just be a customer of a bank. As an example, we recently announced that Google Pay users can log in to their app and can do cross-border transfers.

I think that’s an important part of our strategy– going after the direct relationship with customers and at the same time being able to offer our platform to others who already have a direct relationship with our customer. This is also part of our whole technology modernization right now of course. We’re very, very strong in the C2C segment, but the way we’re going about our technology modernization is one that provides us optionality to continue to expand in other segments  – whether it be consumer to business or business to consumer, or even business to business.

TC: Tell me more about this “modernization.”

Swanback: Like many financial organizations and many existing global organizations, part of our massive technology modernization program is moving to the cloud. So we were well on our way from migrating many of our applications to an AWS Cloud Platform. We’re pretty excited about the progress that we’re making there.

Also, over the last 12 to 18 months, we’ve migrated a good portion of our customer agent transactions, like the core of our data, to Snowflake. We;’ve mined 33 data warehouses, and we’ve got 20 petabytes of data in the cloud. And so, that in itself is just this is just the starting point. We’re modernizing our apps on top of this data foundation and really starting to use artificial intelligence and machine learning. But we’re not using it in the back end processes like many other organizations who were using it for operational interactions with our customers. We’re using it in the front office. For example, we launched a telephone money transfer product where a customer talks to a virtual assistant and it’s 100% digitized. It’s actually one of the best customer experiences we’ve seen.

#artificial-intelligence, #aws, #bank, #banking, #business, #cross-border-payments, #debit-card, #e-commerce, #economy, #europe, #finance, #google, #jordan, #machine-learning, #marketing, #nepal, #online-shopping, #payments, #payments-network, #peer-to-peer, #president, #remitly, #sri-lanka, #supply-chain-management, #tc, #virtual-assistant, #western-union, #worldremit

NFC flaws let researchers hack an ATM by waving a phone

NFC flaws let researchers hack an ATM by waving a phone

Enlarge (credit: Chalongrat Chuvaree | Getty Images)

For years, security researchers and cybercriminals have hacked ATMs by using all possible avenues to their innards, from opening a front panel and sticking a thumb drive into a USB port to drilling a hole that exposes internal wiring. Now, one researcher has found a collection of bugs that allow him to hack ATMs—along with a wide variety of point-of-sale terminals—in a new way: with a wave of his phone over a contactless credit card reader.

Josep Rodriguez, a researcher and consultant at security firm IOActive, has spent the last year digging up and reporting vulnerabilities in the so-called near-field communications reader chips used in millions of ATMs and point-of-sale systems worldwide. NFC systems are what let you wave a credit card over a reader—rather than swipe or insert it—to make a payment or extract money from a cash machine. You can find them on countless retail store and restaurant counters, vending machines, taxis, and parking meters around the globe.

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#atm, #banking, #biz-it, #hacking, #nfc, #security, #white-hat

In its first funding in 7 years, profitable fintech Lower raises $100M Series A led by Accel

Lower, an Ohio-based home finance platform, announced today it has raised $100 million in a Series A funding round led by Accel.

This round is notable for a number of reasons. First off, it’s a large Series A even by today’s standards. The financing also marks the previously bootstrapped Lower’s first external round of funding in its seven-year history. Lower is also something that is kind of rare these days in the startup world: profitable. Silicon Valley-based Accel has a history of backing profitable, bootstrapped companies, having also led large Series A rounds for the likes of 1Password, Atlassian, Qualtrics, Webflow, Tenable and Galileo (which went on to be acquired by SoFi). 

In fact, Galileo founder Clay Wilkes introduced the VC firm to Dan Snyder, Lower’s founder and CEO. The two companies have a few things in common besides being profitable: they were both bootstrapped for years before taking institutional capital and both have headquarters outside of Silicon Valley.

“We were immediately intrigued because Ohio-based Lower echoes both of these themes,” said Accel partner John Locke, who led the firm’s investment in Lower and is taking a seat on the company’s board as part of the investment. “Like Galileo, Lower will be one of the most successful bootstrapped fintech companies globally. The combination of a company built in a nontraditional region across the globe and a bootstrapped company reminds us of [other] companies we have partnered with for a large Series A.”

There were other unnamed participants in the round, but Accel provided the “majority” of the investment, according to Lower.

Snyder co-founded Lower in 2014 with the goal of making the homebuying process simpler for consumers. The company launched with Homeside, its retail brand that Snyder describes as “a tech-leveraged retail mortgage bank” that works with realtors and builders, among others. In 2018, the company launched the website for Lower, its direct-to-consumer digital lending brand with the mission of making its platform a one-stop shop where consumers can go online to save for a home, obtain or refinance a mortgage and get insurance through its marketplace. This year, it launched the Lower mobile app with a savings account.

Sitting (L to R): Co-founders Dan Snyder, Grayson Hanes
Standing (L to R): Co-founders Mike Baynes, Chris Miller
Not pictured: Robert Tyson; Image credit: Lower

Over the years, Lower has funded billions of dollars in loans and notched an impressive $300 million in revenue in 2020 after doubling revenue every year, according to Snyder.

“Our history is maybe a little atypical of fintech companies today,” he told TechCrunch. “We’ve had a view going back to the start of the company that we wanted to run it profitably. That’s been one of our pillars, so that’s what we’ve done. Also, we all grew up in the mortgage industry, so we saw firsthand the size of the market, but also how broken it was, so we wanted to change it.”

In launching the direct-to-consumer digital lending brand, the company was working to make the homebuying process more “digital, transparent and easier for consumers to access,” Snyder said.

At the same time, the company didn’t want to lose the human touch.

“We tried to design the app flow in a way where you can get as far along as you can in the application but if you want, at any point in time, to talk or chat with someone, we’re available,” Snyder added.

Image Credits: Lower

Lower’s typical customer is the millennial and now Gen Z who’s aspiring to own their first home, according to Snyder.

“They might be thinking, ‘OK, I might be living in an apartment now, but in the next few years I’m going to meet someone and/or have a child and I want to unlock the investment that is a home,’ ” he told TechCrunch. “And we’ll help them on that journey.”

Lower’s recently launched new app offers a deposit account it’s dubbed “HomeFund.” The interest-bearing FDIC-insured deposit account offers a 0.75% Annual Percentage Yield and is designed to help consumers save for a home with a “dollar-for-dollar match in rewards” up to the first $1,000 saved, Snyder said.

Lower works with more than 35 major insurance carriers nationally, including Nationwide, Liberty Mutual and Allstate. It has more than 1,600 employees, about half of which are based in Lower’s home state. That’s up from about 650 employees in June of 2020.

Looking ahead, the company plans to add more services and has an “aggressive roadmap” for adding new features to its platform. Today, for example, Lower sells primarily to Fannie Mae and Freddie Mac. And while it services the majority of its loans, like many large lenders, it uses a subservicer. That will change, however, in early 2022, when Lower intends to launch its own native servicing platform. 

And while the company intends to continue to run profitably, Snyder said he and his co-founders “think the time is now to gain share.”

“We want to become a global brand, raise money and gain market share,” he added. “We’re going to continue to double down on product and build out our capabilities. We are the best-kept secret in fintech and plan to change that with smart branding, advertising and sponsorships.”

And last but not least, Lower is eyeing the public markets as part of its longer-term roadmap.

“Ultimately, we know we can build a great public company,” Snyder told TechCrunch. “We’re of the scale to be a public company right now, but we’re going to keep our heads down and we’re going to keep building for the next few years and then I think we can be in a spot to be a strong public business.”

Accel’s Locke points out that in the U.S., mortgage and home finance are among the largest financial service markets, and they have primarily been handled by large banks.

“For most consumers, getting a mortgage through these banks continues to be an overly complex, slow-moving process,” Locke told TechCrunch. “We believe by providing consumers a great mobile experience, Lower will gain share from incumbent banks, in the same way that companies like Monzo have in banking or Venmo in payments or Trade Republic and Robinhood in stock trading.” 

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Transmit Security raises $543M Series A to kill off the password

Transmit Security, a Boston-based startup that’s on a mission to rid the world of passwords, has raised a massive $543 million in Series A funding.

The funding round, said to be the largest Series A investment in cybersecurity history and one of the highest valuations for a bootstrapped company, was led by Insight Partners and General Atlantic, with additional investment from Cyberstarts, Geodesic, SYN Ventures, Vintage, and Artisanal Ventures. 

Transmit Security said it has a pre-money valuation of $2.2 billion, and will use the new funds to expand its reach and investing in key global areas to grow the organization.

Ultimately, however, the funding round will help the company to accelerate its mission to help the world go passwordless. Organizations lose millions of dollars every year due to “inherently unsafe” password-based authentication, according to the startup; not only do weak passwords account for more than 80% of all data breaches, but the average help desk labor cost to reset a single password stands at more than $70. 

Transmit says its biometric-based authenticator is the first natively passwordless identity and risk management solution, and it has already been adopted by a number of big-name brands including Lowes, Santander, and UBS. The solution, which currently handles more than 9,000 authentication requests per second, can reduce account resets by 96%, the company says, and reduces customer authentication from 1 minute to 2 seconds. 

“By eliminating passwords, businesses can immediately reduce churn and cart abandonment and provide superior security for personal data,” said Transmit Security CEO Mickey Boodaei, who co-founded the company in 2014. “Our customers, whether they are in the retail, banking, financial, telecommunications, or automotive sectors, understand that providing an optimized identity experience is a multimillion-dollar challenge. With this latest round of funding from premier partners, we can significantly expand our reach to help rid the world of passwords.”

Transmit Security isn’t the only company that’s on a mission to kill off the password. Microsoft has announced plans to make Windows 10 password-free, and Apple recently previewed Passkeys in iCloud Keychain, a method of passwordless authentication powered by WebAuthn, and Face ID and Touch ID.

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