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.”

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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

PassFort, a RegTech SaaS for KYC and AML, nets $16.2M

London-based PassFort, a SaaS provider that helps business meet compliance requirements such as KYC (Know Your Customer) and AML (Anti-Money Laundering) reporting, has closed a $16.2 million Series A led by US growth equity fund, Level Equity.

The 2015-founded startup‘s existing investors OpenOcean, Episode 1 and Entrepreneur First also participated in the round. The Series A is a mix of equity and debt, with $4.89M worth of venture debt being provided by Shard Credit Partners.

PassFort tells TechCrunch it now has 54 customers in total, saying the majority are in the digital payments space. It’s also selling its SaaS to customers in foreign exchange, banking and (ofc) crypto. It also touts some “major” customer wins preceding this raise — name-checking the likes of Curve and WorldRemit.

The new funding will be put towards stepping up its growth globally — with PassFort noting it’s hired a new C-suite for its growth team to lead the planned global push.

It’s also hiring more staff in business development and marketing, and plans to significantly bump spending across marketing, sales and customer support roles as it gears up to scale up.

“On the product side we are developing the solution to meet the demands of the changing digital economy and the threats it faces,” says CEO and co-founder Donald Gillies. “This means investing heavily into our new compliance policy cloud, system-to-system integrations with market-leading CRM and transaction monitoring systems as well as building a data team capable of deriving valuable real-time insights across our customer network.”

PassFort says its revenues grew ~2.5x over the past 12 months.

Gillies credits COVID-19 with really hitting the digital “accelerator” and driving adoption for compliance tools, as fintechs and regulated businesses look to streamline their approach to customer on-boarding and risk monitoring.

Alongside this accelerated digital transformation, he also points to a rise in cyber crime and increasingly sophisticated financial crime driving demand for compliance tools, and a “huge” rise in the number of regulations announced since COVID-19, noting: “Estimates from those who track regulatory changes stated that by August 2020, more than 1,330 COVID-19 related regulatory announcements had been made globally by regulators.”

As well as serving up an “always-on picture of risk”, as PassFort’s marketing puts it, the platform offers a single place to access and manage customer profiles, while also centralizing records for audit purposes.

PassFort’s SaaS also tracks efficiency — supporting customers to see where holdups in the onboarding process might be, to help with customer experience as well as the wider support it offers to compliance teams.

The startup says its integration model is such that it can “ingest datasets from any provider and interoperate with any system”, so — for example — it has pre-built connectors to more than 25 data providers at this stage.

It also offers a single API to integrate with a customer’s existing back-office system.

Another feature of the SaaS it flags is a focus on “low to no-code” — to increase accessibility and help customers with high complexity in their compliance needs (such as multiple customer types, multiple product lines and multi-jurisdictions. This includes a smart policy builder with a ‘drag and drop’ interface to help customers configure complex workflows.

On the competitive side, PassFort names Dublin-based Fenergo as its closest competitor but says it’s targeting a broader market — likening its own product to ‘Salesforce for compliance teams’ and saying its goal is to get the SaaS into the hands of “every financial crime and compliance team in the world”.

Commenting in a statement, Charles Chen, partner at Level Equity — who’s now joining PassFort’s board of directors — added: “Over the last few years, financial institutions and organisations have experienced exponential growth in business volumes and data, which has only increased the complexity in staying compliant with ever-evolving regulatory laws. In parallel, we’ve experienced an unprecedented rise in sophisticated financial crime activity as channels into financial systems have been digitized.

“This has underscored the importance of compliance matters such as AML/KYC, yet companies often have to weigh the trade-offs between speed, compliance and automation. PassFort has solved this challenge by providing a next-generation RegTech software solution that enables customers to offer a seamless customer onboarding experience, maintain best-in-class monitoring capabilities, and balance automation vs. human touch via its intelligent orchestration engine. We are thrilled to partner with the industry thought leader in this space and look forward to supporting the company’s future growth initiatives.”

#crm, #europe, #financial-regulation, #financial-services, #fundings-exits, #know-your-customer, #level-equity, #london, #money-laundering, #passfort, #recent-funding, #regulatory-compliance, #regulatory-technology, #saas, #software-as-a-service, #startups, #tc, #worldremit

Rezilion raises $30M help security operations teams with tools to automate their busywork

Security operations teams face a daunting task these days, fending off malicious hackers and their increasingly sophisticated approaches to cracking into networks. That also represents a gap in the market: building tools to help those security teams do their jobs. Today, an Israeli startup called Rezilion that is doing just that — building automation tools for DevSecOps, the area of IT that addresses the needs of security teams and the technical work that they need to do in their jobs — is announcing $30 million in funding.

Guggenheim Investments is leading the round with JVP and Kindred Capital also contributing. Rezilion said that unnamed executives from Google, Microsoft, CrowdStrike, IBM, Cisco, PayPal, JP Morgan Chase, Nasdaq, eBay, Symantec, RedHat, RSA and Tenable are also in the round. Previously, the company had raised $8 million.

Rezilion’s funding is coming on the back of strong initial growth for the startup in its first two years of operations.

Its customer base is made up of some of the world’s biggest companies, including two of the “Fortune 10” (the top 10 of the Fortune 500). CEO Liran Tancman, who co-founded Rezilion with CTO Shlomi Boutnaru, said that one of those two is one of the world’s biggest software companies, and the other is a major connected device vendor, but he declined to say which. (For the record, the top 10 includes Amazon, Apple, Alphabet/Google, Walmart and CVS.)

Tancman and Boutnaru had previously co-founded another security startup, CyActive, which was acquired by PayPal in 2015; the pair worked there together until leaving to start Rezilion.

There are a lot of tools out in the market now to help automate different aspects of developer and security operations. Rezilion focuses on a specific part of DevSecOps: large businesses have over the years put in place a lot of processes that they need to follow to try to triage and make the most thorough efforts possible to detect security threats. Today, that might involve inspecting every single suspicious piece of activity to determine what the implications might be.

The problem is that with the volume of information coming in, taking the time to inspect and understand each piece of suspicious activity can put enormous strain on an organization: it’s time-consuming, and as it turns out, not the best use of that time because of the signal to noise ratio involved. Typically, each vulnerability can take 6-9 hours to properly investigate, Tancman said. “But usually about 70-80% of them are not exploitable,” meaning they may be bad for some, but not for this particular organization and the code it’s using today. That represents a very inefficient use of the security team’s time and energy.

“Eight of out ten patches tend to be a waste of time,” Tancman said of the approach that is typically made today. He believes that as its AI continues to grow and its knowledge and solution becomes more sophisticated, “it might soon be 9 out of 10.”

Rezilion has built a taxonomy and an AI-based system that essentially does that inspection work as a human would do: it spots any new, or suspicious, code, figures out what it is trying to do, and runs it against a company’s existing code and systems to see how and if it might actually be a threat to it or create further problems down the line. If it’s all good, it essentially whitelists the code. If not, it flags it to the team.

The stickiness of the product has come out of how Tancman and Boutnaru understand large enterprises, especially those heavy with technology stacks, operate these days in what has become a very challenging environment for cybersecurity teams.

“They are using us to accelerate their delivery processes while staying safe,” Tancman said. “They have strict compliance departments and have to adhere to certain standards,” in terms of the protocols they take around security work, he added. “They want to leverage DevOps to release that.”

He said Rezilion has generally won over customers in large part for simply understanding that culture and process and helping them work better within that: “Companies become users of our product because we showed them that, at a fraction of the effort, they can be more secure.” This has special resonance in the world of tech, although financial services, and other verticals that essentially leverage technology as a significant foundation for how they operate, are also among the startup’s user base.

Down the line, Rezilion plans to add remediation and mitigation into the mix to further extend what it can do with its automation tools, which is part of where the funding will be going, too, Boutnaru said. But he doesn’t believe it will ever replace the human in the equation altogether.

“It will just focus them on the places where you need more human thinking,” he said. “We’re just removing the need for tedious work.”

In that grand tradition of enterprise automation, then, it will be interesting to watch which other automation-centric platforms might make a move into security alongside the other automation they are building. For now, Rezilion is forging out an interesting enough area for itself to get investors interested.

“Rezilion’s product suite is a game changer for security teams,” said Rusty Parks, senior MD of Guggenheim Investments, in a statement. “It creates a win-win, allowing companies to speed innovative products and features to market while enhancing their security posture. We believe Rezilion has created a truly compelling value proposition for security teams, one that greatly increases return on time while thoroughly protecting one’s core infrastructure.”

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MaxRewards banks $3M to reveal best payment methods that reap the most rewards

When Anik Khan graduated from college, his first job was working on credit cards and business expenses at Accenture. There, he found that someone could bring in a couple of thousand dollars just by having the right credit cards and following the rewards and promotions.

It was back in 2017 when he and David Gao got the idea for his company MaxRewards, a digital wallet app that manages credit cards and automatically activates benefits like rewards, cashback offers and monthly credits. It also makes recommendations at the point of purchase on which card would yield the best reward for that purchase.

Going after the some 83% of Americans that have a credit card, the app version was officially launched in 2019, and now the Atlanta-based company is announcing a $3 million seed round co-led by Dundee Venture Capital and Calano Ventures. Also backing the company are Techstars, Fintech Ventures Fund, Service Provider Capital and Fleetcor president Nick Izquierdo.

Tracking his own credit cards manually prior to MaxRewards, Khan recalled in one year, getting $16,000 in rewards. However, utilizing those benefits was time-consuming and difficult, because the rewards and savings aren’t always made evident by the credit card companies.

“Other companies have tried to do something similar, but the issue is you don’t have the reward information or the offers,” Khan told TechCrunch. “If you were to aggregate this information, you still would have to activate all of these things and use them before they expired.”

Users connect their accounts and when they make a purchase, their location is cross-referenced with the merchant and an algorithm is applied to tell the user which card to use. The average app user has six credit cards.

MaxRewards is free to download and use, and the majority of the app’s functionalities are free. Users who want additional features, like the auto activation or rewards, can join MaxRewards Gold and are given the opportunity to choose their own monthly price — the average is over $25 per month — based on the value they expect to gain, Khan said.

MaxRewards offers and benefits. Image Credits: MaxRewards

Ron Watson, partner at Dundee, said his firm invests in seed-stage companies between the coasts and is interested in consumer and e-commerce companies. Watson said he was impressed with what MaxRewards has been able to do with a team of three. He also relates to the company’s mission, having grown up in a lower, middle-class family that did not frequently go on vacations.

When he got his first job and was suddenly flying everywhere, he recalls building up so many rewards to the point where he was able to go on a vacation to Hawaii and only spend maybe $100, he said.

“I used to put my points into a spreadsheet, but as I got older and had kids, I realized how hard it was for the average person to do that and how important it is to have automation,” Watson said. “I downloaded the app, and on the first day, saved $20.”

The company is often compared to NerdWallet or Mint, but in terms of functionality, Khan said he feels MaxRewards is unique due to its credit card system connectors. Rather than rely on third-party aggregators to discover the rewards, MaxRewards leverages its own proprietary connectors to card systems.

There are hundreds of thousands of offers to be discovered, and consumers are asking for even more features, so Khan decided it was time to go after seed funding. He had raised a small seed, about $200,000, from his time at Techstars, but the new funding will enable him to add to his team of three people. He expects to be at 20 by the end of the year. Khan also wants to accelerate its user acquisition, product improvement and compliance.

Next up, the company is going to automate rewards and savings across additional platforms like debit cards, payment apps and cashback apps, as well as create browser extensions and a web app. Khan also wants to do more on the education side with regard to using credit cards in a smart manner.

Arron Solano, managing partner at Calano, met Khan through Techstars and said he is an advocate for using credit cards in the right way. His firm was looking for a company like MaxRewards.

“During our first call, I remember telling my partner that Anik was a bulldog who knew what he was talking about, especially at that stage,” Solano added. “He had strong team members, his vision lined up well and that checked off a massive box for us. He energized us and showed he could find a market with insanely high ‘super users.’ ”

#anik-khan, #apps, #arron-solano, #calano-ventures, #credit-cards, #david-gao, #debit-card, #dundee-venture-capital, #ecommerce, #financial-services, #fintech-ventures-fund, #funding, #loyalty-program, #maxrewards, #mobile, #nick-izquierdo, #payments, #recent-funding, #ron-watson, #service-provider-capital, #startups, #tc, #techstars, #web-app

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

Sequoia Heritage, Stripe and others invest $200M in African fintech Wave at $1.7B valuation

Francophone Africa has its first unicorn, and if you’ve been following tech on the continent, you will be very unsurprised to hear that it’s coming from the world of fintech.

Wave, a U.S. and Senegal-based mobile money provider, has raised $200 million in Series A round of funding. The investment is the largest-ever Series A round for the region, and it values Wave at $1.7 billion.

Four big-name backers jointly led the round — Sequoia Heritage, a private investment fund and a subsidiary of Sequoia; Founders Fund; payments upstart Stripe; and Ribbit Capital. Others in the round include existing investor Partech Africa and Sam Altman, the former CEO of Y Combinator and current CEO of OpenAI.

The mobile money market in sub-Saharan Africa is growing exponentially. This past year, up to $500 billion has moved through the accounts of 300 million active mobile money users in the region. But despite being one of the largest alternative financial infrastructures known globally, this represents only a fraction of the overall market. 

The International Monetary Fund says that as of 2017, only 43% of adults in sub-Saharan Africa were “banked” by way of a traditional bank or mobile money account. When it comes to growing that proportion, however, mobile money — based on simpler technology and with an easier onboarding process — wins out, and it is set to capture more market share faster than traditional banking in the region. And this has investors, especially foreign ones, excited and looking to get on board.

(Neobanking, based on mobile technology too, falls somewhere in the middle of the two).

From Sendwave to Wave

If you’re wondering why you haven’t heard of Wave, the reason might be because you don’t know it’s a spinoff from Africa-focused remittance provider Sendwave.

Drew Durbin and Lincoln Quirk founded Sendwave in 2014 to offer little or no fee remittances from North America and Europe to select African and Asian countries. The YC-backed company became a WorldRemit subsidiary last year when the global fintech paid up to $500 million in cash and stock for Sendwave.

Wave

L-R: Drew Durbin and Lincoln Quirk

But before that, the team stealthily worked on a mobile money product described as having no account fees and “instantly available and accepted everywhere.”

In 2018, the product was piloted as Wave in Senegal but it was still within the Sendwave ecosystem. When WorldRemit acquired Sendwave, Durbin and his team turned their focus to Wave.

“We saw an opportunity to make a bigger impact by trying to build a better, much more affordable mobile money service than the telcos are building throughout much of sub-Saharan Africa,” Durbin told TechCrunch in an interview. “We didn’t see any companies besides the telcos trying to solve that problem.”

Going up against incumbents

Telecom operators and banks have been the early entrants in the mobile money space, not least because they control much of the infrastructure in the process, from having mobile subscribers using handsets on their networks through to building the financial services to manage money and payments at the back end, and everything in between. 

Third-party providers, mostly fintechs, have tried to capture some market share from these incumbents. Wave, however, wants to disrupt it.

Durbin tells TechCrunch that unlike M-Pesa, the mobile payment provider led by Safaricom, and other products of telecom operators like Orange and Tigo, Wave is building a mobile money service that is “radically affordable.”

The Dakar-based platform is akin to PayPal (with mobile money accounts, not bank accounts) runs an agent network that uses their cash on hand to service Wave users. According to the company, users can make free deposits and withdrawals and charge a 1% fee whenever they send money.

Durbin says this is 70% cheaper than telecom-led mobile money and whenever there is a transfer problem, refunds are made instantly, unlike with incumbents where users might need to wait for some days.   

Wave’s technology also differs from telecom-led mobile money. Whereas the incumbents mostly focus on USSD (although there are provisions to use applications), Wave is solely app-based. For users without a smartphone, Wave also provides a free QR-card to transact with an agent.

By building its own infrastructure full-stack — agent network, agent and consumer applications, QR cards, business collections, and disbursements — Wave has been able to fuel its growth to several million monthly active users and billions of dollars in annual volume.

Wave

Image Credits: Wave

The two-year-old startup claims to be the largest mobile money player in Senegal and that over half of the country’s adults are active users. That pegs the number of users between 4 million and 5 million, and Wave wants to replicate this growth in Ivory Coast, the second market it officially expanded to last year.

This sort of growth pressure on telecom operators. That has indeed been the case for the leading telecom operator in both regions, Orange. In June, the telecom operator stopped users in Senegal from purchasing Orange airtime via Wave’s mobile application.

Per this report, Wave argued that Orange was applying anti-competitive tactics by restricting it from selling directly or via an approved wholesaler. Orange said it had made proposals “in line with those offered to its other providers” and that Wave wanted special treatment.

To reach a fair decision, both parties are working with the regulatory body in charge, Regulatory Authority for Telecommunications and Posts (RATP). And if the regulator isn’t capable of settling the issue, BCEAO, the regional bank of Francophone countries, is the next in line to resolve the dispute.

According to Wave’s CEO, the bank’s regulatory approach is one reason why Wave has been able to take on the telecom operators in the first place. But among all the West African countries where mobile money is prevalent, why start with Senegal, an emerging market?

“Senegal is a big enough market that we would have to work really hard to potentially win the market. But also a small enough market that if we were doing well, we could win the market quicker than if we were in a giant country. And so that combination of those two things made it seem like a good place to start,” Durbin remarked.

Following this fundraise, Wave will deepen its presence in Senegal and Ivory Coast and grow its already 800-strong team across product, engineering, and business. In addition, Wave will expand into other markets it feels are regulatory-friendly like Uganda.

I think there’s a pretty broad array of countries that have strong central banks and clear regulations are open to new players, or even want new players to come in and try to compete with the telcos. And so we have a lot of licenses that are in progress, and we’ll try to prioritize the countries where we’re able to get started sooner over the ones that it takes longer.”

A unicorn after two rounds

While some reports say Wave had raised $13.8 million prior to this, Durbin declined to comment on the figure when asked. However, he did mention that Partech, the French outfit with an African fund, invested in a seed round alongside other investors like Founders Fund and Stripe.

In addition to Sequoia and Sam Altman, the same crop of investors also participated in this monster Series A round.

In a market that has typically lacked innovation, Partech general partner Tidjane Deme says the investment will help Wave improve its service.

“Since 2018, we’ve supported Wave because we were convinced mobile money is still an unsolved problem in Africa,” he said in a statement. “Wave has great product design, stellar execution, and a strong financial trajectory. We are proud to see it become the first unicorn from Senegal.”

In May, Sequoia Capital invested in Egyptian fintech Telda, its first big deal on the continent. The Wave investment, meanwhile, is coming via subsidiary Sequoia Heritage and is the latter’s first investment in an Africa-focused startup. 

In a call with TechCrunch, Altman said that Wave ticked the boxes he considers before an investment — strong founders, an important problem in a large market, working product, and traction.

“I’ve known these founders for a long time, and I think they’re like off the charts good. I’ve been super impressed with their ability to figure out what users want and how to grow,” he said. “I think the company is solving the most important problem around money transfer in Africa and fixing the inefficient agent networks.”

The largest venture rounds for any venture in Africa remain OPay’s recent $400 million fundraise and Jumia’s equivalent in 2016. Both were Series C rounds. The next biggest rounds include Interswitch’s $200 million investment from Visa and Flutterwave’s $170 million Series C.

All these companies attained unicorn status following their respective rounds. The same goes for Wave but more spectacularly, considering the company bagged it in a Series A round, it’s transcending the region and is one of the largest A-rounds globally this year.

Wave joins OPay and Flutterwave as the newly minted unicorns in Africa this year — that is, startups valued above $1 billion — and the fourth African unicorn after Interswitch. Other billion-dollar companies include publicly traded Jumia and Egyptian fintech Fawry.

Funding rounds in Africa keep getting bigger and the continent has reached an inflection point. However, some skeptics have questioned the valuations of previous unicorns; Wave wouldn’t be an exception.

The argument would be around why Wave commands such a high valuation when for instance, two prominent telecom operators, Airtel and MTN, are looking to list their mobile money businesses between $2 to $6 billion despite being in the operations for several years across multiple African countries.

Yet like any investor optimistic about a portfolio company, Altman doesn’t believe Wave is overvalued. In fact, he thinks the company is undervalued.

“The opportunity in front of the company is massive. But plenty of times, I’ve gotten it wrong, so you never know. However, I have been fortunate to make a number of great investments and I feel Wave has as good of a shot as you can ask for,” he said. “Africa is going to be the fastest growing and most important market over the next coming decades for many companies. I think people are realizing how big the market opportunity is and how much value is going to be created and we’ll see a lot more things like this happen.”

#africa, #finance, #financial-services, #founders-fund, #funding, #m-pesa, #mobile-money, #online-payments, #orange, #payments, #startups, #tc, #wave

Financial comparison “super app” Jeff raises $1.5M seed extension

Financial services, especially those for people who don’t have access to traditional bank accounts or lines of credit, are proliferating in Southeast Asia. Jeff App wants to give consumers a “super app” where they can compare many financial products and apply for them using the startup’s proprietary data-scoring models. For service providers, Jeff serves as a distribution channel, helping them find and retain customers. The startup announced today it has raised a seed extension of $1.5 million, led by J12 Ventures. Other participants included iSeed Ventures and Toy Ventures, and returning investors EstBAN, Startup Wise Guys and other angels.

The funding brings Jeff’s total raised to about $2.5 million. It announced a $1 million seed round back in March. Founder and chief executive officer Tom Niparts told TechCrunch that Jeff had a net profitable second quarter and wasn’t planning on raising again, but investors were interested because of its strong growth since the beginning of the year. The startup claims that since the end of January, its users have tripled to 700,000, who compared a total of four million products over the past six months.

Founded in 2019, the startup is operational in Vietnam and has applied for a license to launch in Indonesia. It also plans to enter the Philippines in the third quarter. Part of the funding will be used to increase Jeff’s team from about 15 people now to more than 40 employees for its offices in Latvia and Southeast Asia.

Before launching Jeff, Niparts was CEO of Spain for Digital Finance International, a fintech company that is part of the Finstar Financial Group. During that time, Niparts saw that in many Southeast Asian countries, people struggled to get loans not because of their credit history or income, but because they simply didn’t have enough personal financial data. Jeff was created to develop alternative data scoring models for financial services.

Niparts said Jeff’s goal is to become a main distribution channel for financial services in Southeast Asia and the top place for consumers to compare products and apply for them.

One of the reasons Jeff enjoyed strong growth during the first half of this year was by honing its user acquisition strategy in Vietnam. At first, it relied on global channels for user acquisition, like Google and Facebook ads, but now its top acquisition channel is through partnering with local affiliates, including bloggers and social media influencers who have grown considerable followings with educational content about finances.

“What we were surprised about is that in Europe, for instance, TikTok would never work for financial services, but in Vietnam we saw that it is a pretty amazing channel,” said Niparts.

While one of Jeff’s main features is loan comparison, the company has started expanding its offerings because most people only borrow money once in a while.

To create incentives to return to Jeff, instead of offloading the app once they secure a loan, Jeff is also offering coupons, like Shopee discounts and planning to launch telecom top-ups with cashback offers and a user referral functionality. It is also working on neobank and mobile wallet comparisons, payment functionalities, installment financing, services for micro-to small-sized merchants and a data science model to increase conversions for providers.

#alternative-credit-scoring, #asia, #financial-aggregator, #financial-services, #fundings-exits, #indonesia, #jeff, #jeff-app, #loan-comparisons, #philippines, #southeast-asia, #startups, #tc, #vietnam

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

PayEm comes out of stealth with $27M and its answer to the expense report

Itamar Jobani was a software developer working for a medical company and “hated that time of the month” when he had to use the company’s chosen reimbursement tool.

“It was full of friction and as part of the company’s wellness team, I felt an urge to take care of the employee experience and find a better tool,” Jobani told TechCrunch. “I looked for something, but didn’t find it, so I tried to build it myself.”

What resulted was PayEm, an Israeli company he founded with Omer Rimoch in 2019 to be a spend and procurement platform for high-growth and multinational organizations. Today, it announced $27 million in funding that includes $7 million in seed funding, led by Pitango First and NFX, with participation by LocalGlobe and Fresh Fund, as well as $20 million in Series A funding led by Glilot+.

The company’s technology automates the reimbursement, procurement, accounts payable and credit card workflows to manage all of the requests and invoices, while also creating bills and sending payments to over 200 territories in 130 currencies.

It gives company finance teams a real-time look at what items employees are asking for funds to buy, and what is actually being spent. For example, teams can submit a request and go through an approval flow that can be customized with purchasing codes tied to a description of the transaction. At the same time, all transactions are continuously reconciled versus having to spend hours at the end of the month going through paperwork.

“Organizations are running in a more democratized way with teams buying things on behalf of the organization,” Jobani said. “We built a platform to cater to those needs, so it’s like a disbursement platform instead of a finance team always being in charge.”

The global B2B payments market is valued at $120 trillion annually and is expected to reach $200 trillion by 2028, according to payment industry newsletter Nilson Report. PayEm is among many B2B payments startups attracting venture capital — for example, last month, Nium announced a $200 million in Series D funding at a $1 billion valuation. Paystand raised $50 million in Series C funding to make B2B payments cashless, while Dwolla raised $21 million for its API that allows companies to build and facilitate fast payments.

Meanwhile, PayEm itself saw accelerated growth in the second quarter of 2021, including increasing its transaction volume by four times over the previous quarter and generating millions of dollars in revenue. It now boasts a list of hundreds of customers like Fiverr, JFrog and Next Insurance. It also launched new features like the ability to create corporate cards.

The company, which also has an office in New York, has 40 employees currently, and the new funds will enable the company to triple its headcount, focusing on hiring in the United States, and to bring additional features and payment capabilities to market.

“Each person can have a budget and a time frame for making the purchase, while accounting still feels in control,” Jobani added. “Everyone now has the full context and the right budget line item.”

#api, #artificial-intelligence, #b2b-payments, #enterprise, #financial-services, #funding, #glilot, #itamar-jobani, #nfx, #omer-rimoch, #payem, #payments, #pitango-first, #recent-funding, #saas, #startups, #tc

Olsam raises $165M to buy up and scale consumer and B2B Amazon Marketplace sellers

On the heels of Heroes announcing a $200 million raise earlier today, to double down on buying and scaling third-party Amazon Marketplace sellers, another startup out of London aiming to do the same is announcing some significant funding of its own. Olsam, a roll-up play that is buying up both consumer and B2B merchants selling on Amazon by way of Amazon’s FBA fulfillment program, has closed $165 million — a combination of equity and debt that it will be using to fuel its M&A strategy, as well as continue building out its tech platform and to hire more talent.

Apeiron Investment Group — an investment firm started by German entrepreneur Christian Angermayer — led the Series A equity round, with Elevat3 Capital (another Angermayer firm that has a strategic partnership with Founders Fund and Peter Thiel) also participating. North Wall Capital was behind the debt portion of the deal. We have asked and Olsam is only disclosing the full amount raised, not the amount that was raised in equity versus debt. Valuation is also not being disclosed.

Being an Amazon roll-up startup from London that happens to be announcing a fundraise today is not the only thing that Olsam has in common with Heroes. Like Heroes, Olsam is also founded by brothers.

Sam Horbye previously spent years working at Amazon, including building and managing the company’s Business Marketplace (the B2B version of the consumer Marketplace); while co-founder Ollie Horbye had years of experience in strategic consulting and financial services.

Between them, they had also built and sold previous marketplace businesses, and they believe that this collective experience gives Olsam — a portmanteau of their names, “Ollie” and “Sam” — a leg up when it comes to building relationships with merchants; identifying quality products (versus the vast seas of search results that often feel like they are selling the same inexpensive junk as each other); and understanding merchants’ challenges and opportunities, and building relationships with Amazon and understanding how the merchant ecosystem fits into the e-commerce giant’s wider strategy.

Olsam is also taking a slightly different approach when it comes to target companies, by focusing not just on the usual consumer play, but also on merchants selling to businesses. B2B selling is currently one of the fastest-growing segments in Amazon’s Marketplace, and it is also one of the more overlooked by consumers.”It’s flying under the radar,” Ollie said.

“The B2B opportunity is very exciting,” Sam added. “A growing number of merchants are selling office supplies or more random products to the B2B customer.”

Estimates vary when it comes to how many merchants there are selling on Amazon’s Marketplace globally, ranging anywhere from 6 million to nearly 10 million. Altogether those merchants generated $300 million in sales (gross merchandise value), and its growing by 50% each year at the moment.

And consolidating sellers — in order to achieve better economies of scale around supply chains, marketing tools and analytics, and more — is also big business. Olsam estimates that some $7 billion has been spent cumulatively on acquiring these businesses, and there are more out there: Olsam estimates that there are some 3,000 businesses in the UK alone making more than $1 million each in sales on Amazon’s platform.

(And to be clear, there are a number of other roll-up startups beyond Heroes also eyeing up that opportunity. Raising hundreds of millions of dollars in aggregate,  others have made moves this year include Suma Brands ($150 million); Elevate Brands ($250 million); Perch ($775 million); factory14 ($200 million); Thrasio (currently probably the biggest of them all in terms of reach and money raised and ambitions), HeydayThe Razor GroupBrandedSellerXBerlin Brands Group (X2), Benitago, Latin America’s Valoreo and Rainforest and Una Brands out of Asia.)

“The senior team behind Olsam is what makes this business truly unique,” said Angermayer in a statement. “Having all been successful in building and selling their own brands within the market and having worked for Amazon in their marketplace team – their understanding of this space is exceptional.”

#amazon, #amazon-marketplace, #artificial-intelligence, #asia, #berlin-brands-group, #business, #christian-angermayer, #co-founder, #e-commerce, #ecommerce, #entrepreneur, #financial-services, #founders-fund, #funding, #latin-america, #london, #marketing, #peter-thiel, #retailers, #sales, #united-kingdom

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

LOVE unveils a modern video messaging app with a business model that puts users in control

A London-headquartered startup called LOVE, valued at $17 million following its pre-seed funding, aims to redefine how people stay in touch with close family and friends. The company is launching a messaging app that offers a combination of video calling as well as asynchronous video and audio messaging, in an ad-free, privacy-focused experience with a number of bells and whistles, including artistic filters and real-time transcription and translation features.

But LOVE’s bigger differentiator may not be its product alone, but rather the company’s mission.

LOVE aims for its product direction to be guided by its user base in a democratic fashion as opposed to having the decisions made about its future determined by an elite few at the top of some corporate hierarchy. In addition, the company’s longer-term goal is ultimately to hand over ownership of the app and its governance to its users, the company says.

These concepts have emerged as part of bigger trends towards a sort of “web 3.0,” or next phase of internet development, where services are decentralized, user privacy is elevated, data is protected, and transactions take place on digital ledgers, like a blockchain, in a more distributed fashion.

LOVE’s founders are proponents of this new model, including serial entrepreneur Samantha Radocchia, who previously founded three companies and was an early advocate for the blockchain as the co-founder of Chronicled, an enterprise blockchain company focused on the pharmaceutical supply chain.

As someone who’s been interested in emerging technology since her days of writing her anthropology thesis on currency exchanges in “Second Life’s” virtual world, she’s now faculty at Singularity University, where she’s given talks about blockchain, A.I., Internet of Things, Future of Work, and other topics. She’s also authored an introductory guide to the blockchain with her book “Bitcoin Pizza.”

Co-founder Christopher Schlaeffer, meanwhile, held a number of roles at Deutsche Telekom, including Chief Product & Innovation Officer, Corporate Development Officer, and Chief Strategy Officer, where he along with Google execs introduced the first mobile phone to run Android. He was also Chief Digital Officer at the telecommunication services company VEON.

The two crossed paths after Schlaeffer had already begun the work of organizing a team to bring LOVE to the public, which includes co-founders Chief Technologist, Jim Reeves, also previously of VEON, and Chief Designer, Timm Kekeritz, previously an interaction designer at international design firm IDEO in San Francisco, design director at IXDS, and founder of design consultancy Raureif in Berlin, among other roles.

Explained Radocchia, what attracted her to join as CEO was the potential to create a new company that upholds more positive values than what’s often seen today —  in fact, the brand name “LOVE” is a reference to this aim. She was also interested in the potential to think through what she describes as “new business models that are not reliant on advertising or harvesting the data of our users,” she says.

To that end, LOVE plans to monetize without any advertising. While the company isn’t ready to explain its business model in full, it would involve users opting in to services through granular permissions and membership, we’re told.

“We believe our users will much rather be willing to pay for services they consciously use and grant permissions to in a given context than have their data used for an advertising model which is simply not transparent,” says Radocchia.

LOVE expects to share more about the model next year.

As for the LOVE app itself, it’s a fairly polished mobile messenger offering an interesting combination of features. Like any other video chat app, you can you video call with friends and family, either in one-on-one calls or in groups. Currently, LOVE supports up to 5 call participants, but expects to expand that as it scales. The app also supports video and audio messaging for asynchronous conversations. There are already tools that offer this sort of functionality on the market, of course — like WhatsApp, with its support for audio messages, or video messenger Marco Polo. But they don’t offer quite the same expanded feature set.

Image Credits: LOVE

For starters, LOVE limits its video messages to 60 seconds for brevity’s sake. (As anyone who’s used Marco Polo knows, videos can become a bit rambling, which makes it harder to catch up when you’re behind on group chats.) In addition, LOVE allows you to both watch the video content as well as read the real-time transcription of what’s being said — the latter which comes in handy not only for accessibility’s sake, but also for those times you want to hear someone’s messages but aren’t in a private place to listen or don’t have headphones. Conversations can also be translated into 50 different languages.

“A lot of the traditional communication or messenger products are coming from a paradigm that has always been text-based,” explains Radocchia. “We’re approaching it completely differently. So while other platforms have a lot of the features that we do, I think that…the perspective that we’ve approached it has completely flipped it on its head,” she continues. “As opposed to bolting video messages on to a primarily text-based interface, [LOVE is] actually doing it in the opposite way and adding text as a sort of a magically transcribed add-on — and something that you never, hopefully, need to be typing out on your keyboard again,” she adds.

The app’s user interface, meanwhile, has been designed to encourage eye-to-eye contact with the speaker to make conversations feel more natural. It does this by way of design elements where bubbles float around as you’re speaking and the bubble with the current speaker grows to pull your focus away from looking at yourself. The company is also working with the curator of Serpentine Gallery in London, Hans Ulrich-Obrist, to create new filters that aren’t about beautification or gimmicks, but are instead focused on introducing a new form of visual expression that makes people feel more comfortable on camera.

For the time being, this has resulted in a filter that slightly abstracts your appearance, almost in the style of animation or some other form of visual arts.

The app claims to use end-to-end encryption and the automatic deletion of its content after seven days — except for messages you yourself recorded, if you’ve chosen to save them as “memorable moments.”

“One of our commitments is to privacy and the right-to-forget,” says Radocchia. “We don’t want to be or need to be storing any of this information.”

LOVE has been soft-launched on the App Store where it’s been used with a number of testers and is working to organically grow its user base through an onboarding invite mechanism that asks users to invite at least three people to join you. This same onboarding process also carefully explains why LOVE asks for permissions — like using speech recognition to create subtitles, or

LOVE says its at valuation is around $17 million USD following pre-seed investments from a combination of traditional startup investors and strategic angel investors across a variety of industries, including tech, film, media, TV, and financial services. The company will raise a seed round this fall.

The app is currently available on iOS, but an Android version will arrive later in the year. (Note that LOVE does not currently support the iOS 15 beta software, where it has issues with speech transcription and in other areas. That should be resolved next week, following an app update now in the works.)

#a-i, #android, #animation, #app-store, #apps, #berlin, #blockchain, #ceo, #chief-digital-officer, #co-founder, #computing, #curator, #deutsche-telekom, #encryption, #facebook-messenger, #financial-services, #google, #ideo, #instant-messaging, #london, #love, #marco-polo, #messenger, #mobile, #mobile-applications, #recent-funding, #san-francisco, #serial-entrepreneur, #singularity-university, #social, #social-media, #software, #speaker, #startups, #technology, #whatsapp

Ramp and Brex draw diverging market plans with M&A strategies

Earlier today, spend management startup Ramp said it has raised a $300 million Series C that valued it $3.9 billion. It also said it was acquiring Buyer, a “negotiation-as-a-service” platform that it believes will help customers save money on purchases and SaaS products.

The round and deal were announced just a week after competitor Brex shared news of its own acquisition — the $50 million purchase of Israeli fintech startup Weav. That deal was made after Brex’s founders invested in Weav, which offers a “universal API for commerce platforms”.

From a high level, all of the recent deal-making in corporate cards and spend management shows that it’s not enough to just help companies track what employees are expensing these days. As the market matures and feature sets begin to converge, the players are seeking to differentiate themselves from the competition.

But the point of interest here is these deals can tell us where both companies think they can provide and extract the most value from the market.

These differences come atop another layer of divergence between the two companies: While Brex has instituted a paid software tier of its service, Ramp has not.

Earning more by spending less

Let’s start with Ramp. Launched in 2019, the company is a relative newcomer in the spend management category. But by all accounts, it’s producing some impressive growth numbers. As our colleague Mary Ann Azevedo wrote this morning:

Since the beginning of 2021, the company says it has seen its number of cardholders on its platform increase by 5x, with more than 2,000 businesses currently using Ramp as their “primary spend management solution.” The transaction volume on its corporate cards has tripled since April, when its last raise was announced. And, impressively, Ramp has seen its transaction volume increase year over year by 1,000%, according to CEO and co-founder Eric Glyman.

Ramp’s focus has always been on helping its customers save money: It touts a 1.5% cashback reward for all purchases made through its cards, and says its dashboard helps businesses identify duplicitous subscriptions and license redundancies. Ramp also alerts customers when they can save money on annual vs. monthly subscriptions, which it says has led many customers to do away with established T&E platforms like Concur or Expensify.

All told, the company claims that the average customer saves 3.3% per year on expenses after switching to its platform — and all that is before it brings Buyer into the fold.

#airbase, #api, #brex, #concur, #corporate-spend, #e-commerce, #ec-fintech, #ec-news-analysis, #enterprise, #finance, #financial-services, #fintech-startup, #fundings-exits, #ma, #mergers-and-acquisitions, #paypal, #ramp, #startups, #stripe, #weav

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

Branch raises $48M from Lee Fixel’s Addition, Indeed to provide accelerated payments to workers

Branch, which has built a flexible workforce payments platform, announced today it has raised $48 million in Series B funding and closed on a $500 million credit facility.

Lee Fixel’s Addition –– which has also backed the likes of Flipkart, Stripe and Coinbase – led the equity financing while the credit facility was secured in the form of purchased assets from funds managed by Neuberger Berman.

Drive Capital, Crosscut Ventures, Bonfire Ventures, Matchstick Ventures, and HR Tech Investments LLC, a subsidiary of Recruit Holdings Co., Ltd. (an affiliate of job search site Indeed) also participated in the equity funding, among other investors. With the latest investment, Minneapolis-based Branch has brought in a total of $58 million in equity funding since its 2015 inception.

The raise marks Branch’s first since 2017.

Branch CEO and founder Atif Siddiqi declined to reveal at which valuation the company’s current round was raised but did note that it saw 300% revenue growth year over year in 2020, and a 700% increase in the number of enterprises using its platform.

Branch was founded to give companies a more cost-effective, faster way to pay employees and  contractors, which in turn theoretically can maybe help them attract and retain talent and save money compared to using traditional payment methods. 

When Siddiqi first started the company, Branch was focused on a use case of helping workers pick up additional hours at companies they already worked at to grow their income. But then the team started looking for other ways to help these workers financially.

One of our strengths was that we were connected to a lot of very disparate enterprise systems. And we were collecting a lot of really interesting employment data,” Siddiqi told TechCrunch. “With that data, we realized we could really build a better financial service experience for this consumer.”

Branch typically focuses on low to moderate income users, and sits between the company and its worker payment flows.

It started off with earned wage access and then began accelerating payments for workers. It has since expanded into use cases such as digital tip payments.

“One of the things we saw when we were working with a lot of Domino’s franchisees is that a lot of them didn’t have enough cash at the end of the day to tip out their drivers,” Siddiqi explains. Rather than be forced to go to an ATM to get cash, some turned to Branch’s Wallet offering, which gives franchise owners the ability to push tip payments in real time after a driver finishes a shift.

“Tips represent about 40% of a driver’s income on a monthly basis so that’s pretty significant,” Siddiqi said.

Branch then expanded into contractor payments, such as helping companies pay their 1099 contractors faster with a “uniform” payment experience.

“We realized we could rebuild a better financial service experience from the ground up, and that’s where you find Branch today,” Siddiqi said.

Siddiqi said the company tries to provide as many free options as possible such as not charging for instant transfers into the Branch Wallet and non-instant transfers to another financial account.

Like many other fintechs, the startup monetizes primarily off of interchange fees. It also charges a transaction fee for pushing funds instantly from the Branch Wallet to another financial account.

“Faster payments is a compelling and transformative benefit expected by today’s workforce,” Siddiqi said. “We’ve seen how it can significantly improve cash flow for both companies and workers, so we’re excited to deliver instant payments and other engaging tools to more sectors and workforces, from other workers living paycheck to paycheck to independent contractors growing their own businesses.”  

As part of the company’s efforts to grow beyond the multi-billion dollar earned wage access market, it has expanded into contractor and influencer payments with a new deal with influencer marketing platform Tagger and other on-demand delivery platforms. 

Branch also recently inked an agreement with Kelly, a global staffing firm. Other customers include Delivery Drivers, Inc. (DDI), an independent contractor management solution specializing in last-mile delivery, and HR and IT management platform Rippling.

The company is similar to another fintech, GigWage, but the biggest difference – according to Siddiqi –– is that Branch has built its own payment rails and system to push out funds instantly, and also has offerings for W-2 workforces.

Drive Capital Partner Andy Jenks believes that the company’s financial services address pay cycle gaps and cash flow challenges in a way “that can save time and costs for both workers and the companies they work for.”

“We’ve seen how impactful Branch’s acceleration of payments for employers and the W-2 workforce has been,” he wrote via email, “and look forward to their expansion into contractor payments where they can serve a range of rapidly growing industries such as last-mile delivery, logistics and influencers.”

#apps, #bonfire-ventures, #branch, #contractor, #crosscut-ventures, #drive-capital, #finance, #financial-services, #fintech, #funding, #fundings-exits, #matchstick-ventures, #minneapolis, #online-payments, #payments, #recent-funding, #startup, #startups, #tc, #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

How the law got it wrong with Apple Card

Advocates of algorithmic justice have begun to see their proverbial “days in court” with legal investigations of enterprises like UHG and Apple Card. The Apple Card case is a strong example of how current anti-discrimination laws fall short of the fast pace of scientific research in the emerging field of quantifiable fairness.

While it may be true that Apple and their underwriters were found innocent of fair lending violations, the ruling came with clear caveats that should be a warning sign to enterprises using machine learning within any regulated space. Unless executives begin to take algorithmic fairness more seriously, their days ahead will be full of legal challenges and reputational damage.

What happened with Apple Card?

In late 2019, startup leader and social media celebrity David Heinemeier Hansson raised an important issue on Twitter, to much fanfare and applause. With almost 50,000 likes and retweets, he asked Apple and their underwriting partner, Goldman Sachs, to explain why he and his wife, who share the same financial ability, would be granted different credit limits. To many in the field of algorithmic fairness, it was a watershed moment to see the issues we advocate go mainstream, culminating in an inquiry from the NY Department of Financial Services (DFS).

At first glance, it may seem heartening to credit underwriters that the DFS concluded in March that Goldman’s underwriting algorithm did not violate the strict rules of financial access created in 1974 to protect women and minorities from lending discrimination. While disappointing to activists, this result was not surprising to those of us working closely with data teams in finance.

There are some algorithmic applications for financial institutions where the risks of experimentation far outweigh any benefit, and credit underwriting is one of them. We could have predicted that Goldman would be found innocent, because the laws for fairness in lending (if outdated) are clear and strictly enforced.

And yet, there is no doubt in my mind that the Goldman/Apple algorithm discriminates, along with every other credit scoring and underwriting algorithm on the market today. Nor do I doubt that these algorithms would fall apart if researchers were ever granted access to the models and data we would need to validate this claim. I know this because the NY DFS partially released its methodology for vetting the Goldman algorithm, and as you might expect, their audit fell far short of the standards held by modern algorithm auditors today.

How did DFS (under current law) assess the fairness of Apple Card?

In order to prove the Apple algorithm was “fair,” DFS considered first whether Goldman had used “prohibited characteristics” of potential applicants like gender or marital status. This one was easy for Goldman to pass — they don’t include race, gender or marital status as an input to the model. However, we’ve known for years now that some model features can act as “proxies” for protected classes.

If you’re Black, a woman and pregnant, for instance, your likelihood of obtaining credit may be lower than the average of the outcomes among each overarching protected category.

The DFS methodology, based on 50 years of legal precedent, failed to mention whether they considered this question, but we can guess that they did not. Because if they had, they’d have quickly found that credit score is so tightly correlated to race that some states are considering banning its use for casualty insurance. Proxy features have only stepped into the research spotlight recently, giving us our first example of how science has outpaced regulation.

In the absence of protected features, DFS then looked for credit profiles that were similar in content but belonged to people of different protected classes. In a certain imprecise sense, they sought to find out what would happen to the credit decision were we to “flip” the gender on the application. Would a female version of the male applicant receive the same treatment?

Intuitively, this seems like one way to define “fair.” And it is — in the field of machine learning fairness, there is a concept called a “flip test” and it is one of many measures of a concept called “individual fairness,” which is exactly what it sounds like. I asked Patrick Hall, principal scientist at bnh.ai, a leading boutique AI law firm, about the analysis most common in investigating fair lending cases. Referring to the methods DFS used to audit Apple Card, he called it basic regression, or “a 1970s version of the flip test,” bringing us example number two of our insufficient laws.

A new vocabulary for algorithmic fairness

Ever since Solon Barocas’ seminal paper “Big Data’s Disparate Impact” in 2016, researchers have been hard at work to define core philosophical concepts into mathematical terms. Several conferences have sprung into existence, with new fairness tracks emerging at the most notable AI events. The field is in a period of hypergrowth, where the law has as of yet failed to keep pace. But just like what happened to the cybersecurity industry, this legal reprieve won’t last forever.

Perhaps we can forgive DFS for its softball audit given that the laws governing fair lending are born of the civil rights movement and have not evolved much in the 50-plus years since inception. The legal precedents were set long before machine learning fairness research really took off. If DFS had been appropriately equipped to deal with the challenge of evaluating the fairness of the Apple Card, they would have used the robust vocabulary for algorithmic assessment that’s blossomed over the last five years.

The DFS report, for instance, makes no mention of measuring “equalized odds,” a notorious line of inquiry first made famous in 2018 by Joy Buolamwini, Timnit Gebru and Deb Raji. Their “Gender Shades” paper proved that facial recognition algorithms guess wrong on dark female faces more often than they do on subjects with lighter skin, and this reasoning holds true for many applications of prediction beyond computer vision alone.

Equalized odds would ask of Apple’s algorithm: Just how often does it predict creditworthiness correctly? How often does it guess wrong? Are there disparities in these error rates among people of different genders, races or disability status? According to Hall, these measurements are important, but simply too new to have been fully codified into the legal system.

If it turns out that Goldman regularly underestimates female applicants in the real world, or assigns interest rates that are higher than Black applicants truly deserve, it’s easy to see how this would harm these underserved populations at national scale.

Financial services’ Catch-22

Modern auditors know that the methods dictated by legal precedent fail to catch nuances in fairness for intersectional combinations within minority categories — a problem that’s exacerbated by the complexity of machine learning models. If you’re Black, a woman and pregnant, for instance, your likelihood of obtaining credit may be lower than the average of the outcomes among each overarching protected category.

These underrepresented groups may never benefit from a holistic audit of the system without special attention paid to their uniqueness, given that the sample size of minorities is by definition a smaller number in the set. This is why modern auditors prefer “fairness through awareness” approaches that allow us to measure results with explicit knowledge of the demographics of the individuals in each group.

But there’s a Catch-22. In financial services and other highly regulated fields, auditors often can’t use “fairness through awareness,” because they may be prevented from collecting sensitive information from the start. The goal of this legal constraint was to prevent lenders from discrimination. In a cruel twist of fate, this gives cover to algorithmic discrimination, giving us our third example of legal insufficiency.

The fact that we can’t collect this information hamstrings our ability to find out how models treat underserved groups. Without it, we might never prove what we know to be true in practice — full-time moms, for instance, will reliably have thinner credit files, because they don’t execute every credit-based purchase under both spousal names. Minority groups may be far more likely to be gig workers, tipped employees or participate in cash-based industries, leading to commonalities among their income profiles that prove less common for the majority.

Importantly, these differences on the applicants’ credit files do not necessarily translate to true financial responsibility or creditworthiness. If it’s your goal to predict creditworthiness accurately, you’d want to know where the method (e.g., a credit score) breaks down.

What this means for businesses using AI

In Apple’s example, it’s worth mentioning a hopeful epilogue to the story where Apple made a consequential update to their credit policy to combat the discrimination that is protected by our antiquated laws. In Apple CEO Tim Cook’s announcement, he was quick to highlight a “lack of fairness in the way the industry [calculates] credit scores.”

Their new policy allows spouses or parents to combine credit files such that the weaker credit file can benefit from the stronger. It’s a great example of a company thinking ahead to steps that may actually reduce the discrimination that exists structurally in our world. In updating their policies, Apple got ahead of the regulation that may come as a result of this inquiry.

This is a strategic advantage for Apple, because NY DFS made exhaustive mention of the insufficiency of current laws governing this space, meaning updates to regulation may be nearer than many think. To quote Superintendent of Financial Services Linda A. Lacewell: “The use of credit scoring in its current form and laws and regulations barring discrimination in lending are in need of strengthening and modernization.” In my own experience working with regulators, this is something today’s authorities are very keen to explore.

I have no doubt that American regulators are working to improve the laws that govern AI, taking advantage of this robust vocabulary for equality in automation and math. The Federal Reserve, OCC, CFPB, FTC and Congress are all eager to address algorithmic discrimination, even if their pace is slow.

In the meantime, we have every reason to believe that algorithmic discrimination is rampant, largely because the industry has also been slow to adopt the language of academia that the last few years have brought. Little excuse remains for enterprises failing to take advantage of this new field of fairness, and to root out the predictive discrimination that is in some ways guaranteed. And the EU agrees, with draft laws that apply specifically to AI that are set to be adopted some time in the next two years.

The field of machine learning fairness has matured quickly, with new techniques discovered every year and myriad tools to help. The field is only now reaching a point where this can be prescribed with some degree of automation. Standards bodies have stepped in to provide guidance to lower the frequency and severity of these issues, even if American law is slow to adopt.

Because whether discrimination by algorithm is intentional, it is illegal. So, anyone using advanced analytics for applications relating to healthcare, housing, hiring, financial services, education or government are likely breaking these laws without knowing it.

Until clearer regulatory guidance becomes available for the myriad applications of AI in sensitive situations, the industry is on its own to figure out which definitions of fairness are best.

#algorithmic-bias, #apple, #apple-card, #artificial-intelligence, #casualty-insurance, #cfpb, #column, #data-discrimination, #discrimination, #diversity, #federal-trade-commission, #financial-services, #fintech, #machine-learning, #occ, #opinion, #payments

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

Jerry raises $75M at a $450M valuation to build a car ownership ‘super app’

Just months after raising $28 million, Jerry announced today that it has raised $75 million in a Series C round that values the company at $450 million.

Existing backer Goodwater Capital doubled down on its investment in Jerry, leading the “oversubscribed” round. Bow Capital, Kamerra, Highland Capital Partners and Park West Asset Management also participated in the financing, which brings Jerry’s total raised to $132 million since its 2017 inception. Goodwater Capital also led the startup’s Series B earlier this year. Jerry’s new valuation is about “4x” that of the company at its Series B round, according to co-founder and CEO Art Agrawal

“What factored into the current valuation is our annual recurring revenue, growing customer base and total addressable market,” he told TechCrunch, declining to be more specific about ARR other than to say it is growing “at a very fast rate.” He also said the company “continues to meet and exceed growth and revenue targets” with its first product, a service for comparing and buying car insurance. At the time of the company’s last raise, Agrawal said Jerry saw its revenue surge by “10x” in 2020 compared to 2019.

Jerry, which says it has evolved its model to a mobile-first car ownership “super app,” aims to save its customers time and money on car expenses. The Palo Alto-based startup launched its car insurance comparison service using artificial intelligence and machine learning in January 2019. It has quietly since amassed nearly 1 million customers across the United States as a licensed insurance broker.

“Today as a consumer, you have to go to multiple different places to deal with different things,” Agrawal said at the time of the company’s last raise. “Jerry is out to change that.”

The new funding round fuels the launch of the company’s “compare-and-buy” marketplaces in new verticals, including financing, repair, warranties, parking, maintenance and “additional money-saving services.” Although Jerry also offers a similar product for home insurance, its focus is on car ownership.

Agrawal told TechCrunch that the company is on track to triple last year’s policy sales, and that its policy sales volume makes Jerry the number one broker for a few of the top 10 insurance carriers.
“The U.S. auto insurance industry is an at least $250 billion market,” he added. “The market opportunity for our first auto financing service is $260 billion. As we enter more car expense categories, our total addressable market continues to grow.”

Image Credits: Jerry

“Access to reliable and affordable transportation is critical to economic empowerment,” said Rafi Syed, Jerry board member and general partner at Bow Capital, which also doubled down on its investment in the company. “Jerry is helping car owners make the most of every dollar they earn. While we see Jerry as an excellent technology investment showcasing the power of data in financial services, it’s also a high-performing investment in terms of the financial inclusion it supports.” 

Goodwater Capital Partner Chi-Hua Chien said the firm’s recurring revenue model makes it stand out from lead generation-based car insurance comparison sites.

CEO Agrawal agrees, noting that Jerry’s high-performing annual recurring revenue model has made the company “attractive to investors” in addition to the fact that the startup “straddles” the auto, e-commerce, fintech and insurtech industries.

“We recognized those investment opportunities could drive our business faster and led to raising the round earlier than expected,” he told TechCrunch. “We’re eager to launch new categories to save customers time and money on auto expenses and the new investment shortens our time to market.”

Agrawal also believes Jerry is different from other auto-related marketplaces out there in that it aims to help consumers with various aspects of car ownership (from repair to maintenance to insurance to warranties), rather than just one. The company also believes it is set apart from competitors in that it doesn’t refer a consumer to an insurance carrier’s site so that they still have to do the work of signing up with them separately, for example. Rather, Jerry uses automation to give consumers customized quotes from more than 45 insurance carriers “in 45 seconds.” The consumers can then sign on to the new carrier via Jerry, which can then cancel former policies on their behalf.

Jerry makes recurring revenue from earning a percentage of the premium when a consumer purchases a policy on its site from carriers such as Progressive.

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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.”

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Financial concierge startup Zeni banks $34M to show SMBs their finances in real time

Zeni, a Palo Alto fintech company providing real-time financial services data to venture-backed startups, raised $34 million in Series B funding led by Elevation Capital.

The new investment comes just five months after Zeni announced $13.5 million in a combined seed and Series A round. The company has now raised $47.5 million in total since it was co-founded in 2019 by twin brothers Swapnil Shinde and Snehal Shinde.

Elevation was joined in the new round by new investors Think Investments and Neeraj Arora, as well as existing investors Saama Capital, Amit Singhal, Sierra Ventures, Twin Ventures, Dragon Capital and Liquid 2 Ventures. As part of the investment, Ravi Adusumalli, founder and managing partner at Elevation Capital, will join Zeni’s board.

The Shinde siblings started the company after selling their last company, Mezi, a travel concierge, to American Express in 2018. Zeni’s AI-powered finance concierge platform offers bookkeeping, accounting, tax and CFO services, managing these for a flat monthly fee starting at $299 per month. Founders have real-time access to financial insights via the Zeni Dashboard, including cash in and out, operating expenses, yearly taxes and financial projections. They can also download the financial data in the “slice” that they want.

At the time of its seed/Series A round, the company was managing more than $200 million in funds each month, and that has ballooned to more than $500 million, CEO Swapnil Shinde told TechCrunch. Its customers range from pre-revenue startups to businesses generating more than $100 million in annual revenue.

In addition to the cash in and cash out analysis, the company also created a search function for transactions and spend and income trends on every customer and vendor, Snehal Shinde, chief product officer, said.

Zeni Dashboard. Image Credits: Zeni

Zeni experienced 550% revenue growth year-over-year, while the company’s customer base grew 375%, driven by referrals and organic growth, Swapnil Shinde said.

Despite the growth, the Series B came as a surprise to the siblings. The company was already “very well capitalized,” with a majority of the previous round still around, Swapnil Shinde said.

However, Zeni began receiving so many inbound inquiries that he said it was too exciting to pass on. Especially with the addition of Elevation Capital as an investor. Shinde said that was appealing because the firm was an investor in Paytm, and “knows how to partner and build unicorns.”

The new funding will be used to continue scaling and building the bookkeeping and accounting functions and to accelerate hiring, particularly in the engineering, sales and finance team verticals. Shinde expects to double or triple the finance team in the next year.

“As our customers scale through to their Series B, the more you can use our solution in real time to see what is happening with your finances, especially with startups and businesses having more of a remote workforce,” Swapnil Shinde added. “Zeni fits with that.”

Ash Lilani, managing partner at Saama Capital, one of Zeni’s earliest and largest investors, said he knew how big the total addressable market was — $200 billion — and how much these kinds of financial services were a giant pain point for startup companies.

“To know where you stand financially in real time is hard to do, usually, you get that information at month-end,” Lilani said. “I believe we have the opportunity to build a large company. Though Zeni is going after startups today, the small and medium markets can be leveraged. As they grow, Zeni will become their controller on the back end, while companies can just hire a CFO for the strategic decisions.”

 

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