$2B Vanished from the Balance Sheet of Wirecard; WhatsApp Launches Payments in Brazil; Monzo Closes Funding Round at 40% Discount; Pagaya Raises $102M

Last week (15-19 June) was one of the most interesting weeks in FinTech this year. The hottest piece of news undoubtedly came from German FinTech Powerhouse Wirecard whose shares have crashed after auditors Ernst & Young reported spurious cash balances reported by a third party and insufficient evidence of €1.9 billion in escrow accounts held with two Asian banks. In addition to that, WhatsApp has finally pulled the trigger on payments in its app - the Facebook-owned messaging service announced that users in Brazil would be the first to be able to send and receive money by way of its messaging app, using Facebook Pay; UK challenger bank Monzo has sealed a ￡60 million funding round at a valuation of ￡1.25 billion - a 40% discount on its previous sky high pricetag of ￡2 billion, and so much more!

Without further ado, let us dive into what has happened in the financial technology sector this week.

Starling to Provide in-app Integration to Slack, Energy Switching and Health Insurance

Starling Bank continues to beef up its business banking platform, adding health insurance, energy switching services and Slack integration to its range of third party marketplace offers.

The Slack, Bionic and Equipsme integrations are a first for the Starling Marketplace in the areas of communications, energy and health, and extend the available options for business customers to 26 complementary business services. The new additions will be available to Starling’s 177,000 SME customers from today.

Anne Boden, founder and CEO of Starling Bank, commented:

These new Marketplace integrations are bringing added value to our business customers, helping them to save money on utilities, incentivise their staff with health insurance and sync their Starling app with Slack so their teams can enjoy real-time spending notifications wherever they’re working.

Starling last month raised ￡40 million to spur its assault on the small business arena, where the digital challenger holds a 2.6% share of the UK's SME banking market. It has almost ￡500 million of SME lending on its balance sheet, with further commitments raising the total to almost ￡1 billion.

Metro Bank in Talks to Buy P2P Lender RateSetter

Metro Bank has confirmed that it is in exclusive talks to buy the UK's biggest P2P lender RateSetter.

The move comes just weeks after the P2P lender slashed the interest rate paid to investors by 50% in anticipation of a wave of defaults under Covid-19. RateSetter says six percent of borrowers have requested a payment freeze and, as a result, it has increased its projected loan losses from ￡27.5m to ￡39.2m.

Responding to weekend media speculation of a possible buy out, Metro Bank states:

The company regularly assesses various opportunities in the market and accordingly confirms that it has entered in to a period of exclusivity with RateSetter, but discussions regarding the potential acquisition are at an early stage.

There can be no certainty at this stage that a formal agreement will be reached, nor as to the terms of any agreement.

The Covid-19 pandemic is upending the business models of alternative lenders, gripped by fears of a rash of payment defaults. RateSetter is not alone in taking action to shore up its business. Lending Works has slashed all rates to zero and banned withdrawals for a 90-day period that ends in July. Funding Circle, meanwhile, continues to pay interest, but has stopped all cash withdrawals by investors.

Filipino Digital Bank Tonik Raises $21M

Philippines-based digital banking startup tonik has raised $21 million in a Series A funding round led by Sequoia India and Point72 Ventures. Existing investors Insignia and Credence joined the round for tonik, which plans to launch in the third quarter.

Having secured its banking licence earlier this year, the neobank will initially focus on retail deposits and consumer loans, targeting a $140 billion retail deposit market, and a $100 billion unsecured consumer lending opportunity.

The firm is the brainchild of Greg Krasnov, who had previously incubated four fintech start-ups in the consumer finance space in Asia.

It has already engaged with Finastra to implement its cloud-based core banking proposition, Fusion Essence, and with Nice Actimize for the deployment of AML technology.

Says Krasnov:

Covid-19 is causing consumers all over the globe to save more for emergencies, to care more about the safety of their money as well as about earning a fair interest rate on their deposits while having access to their funds for easy withdrawal and transfer.

In the Philippines, where over 70% of the population remains unbanked, we are observing a rapid jump in consumer demand for digital banking and digital transfers since the start of the year.

WhatsApp Launches Payments, Starting in Brazil

After months of talks and trials, WhatsApp has finally pulled the trigger on payments in its app. On 15 June the Facebook-owned messaging service announced that users in Brazil would be the first to be able to send and receive money by way of its messaging app, using Facebook Pay, the payments service WhatsApp owner Facebook  launched last year.

WhatsApp says in its blog post that the payments service — which currently is free for consumers to use (that is, no commission fee taken) but businesses pay a 3.99% processing fee to receive payments — will work by way of a six-digit PIN or fingerprint to complete transactions.

You use it by linking up your WhatsApp account to your Visa or Mastercard credit or debit card, with initial local partners including Banco do Brasil, Nubank and Sicredi. Cielo, a payments processor, is also working with WhatsApp to complete transactions. “We have built an open model to welcome more partners in the future,” it noted.

The news comes as bit of a surprise. WhatsApp had been testing its payments service among users in India for months (that trial uses another system, not Facebook Pay but UPI), so many assumed that the world’s second largest internet market would be the debut region for the service.

But Facebook remains stuck in a regulatory maze in India that has prevented it from expanding the payments service beyond a small, limited launch, in what is otherwise the app’s biggest market in terms of users. India has 400 million monthly active users, while second-largest market Brazil has 120 million MAUs.

WhatsApp had been adopted informally for commercial purposes almost from the very start: Small business owners have used it to exchange messages with users around the sale of goods, what is in stock and so on. But under the wing of Facebook — which acquired the company in 2014 for $19 billion — WhatsApp started in earnest the big task of bringing in a more formal set of business services.

That’s included the launch of WhatsApp Business, which lets SMBs post catalogues and stock links within the app; advertisers on Facebook also can create links through to their WhatsApp accounts.

But now with payments, WhatsApp, which has amassed over 2 billion users, is finally taking a more comprehensive commercial plunge, giving people not just a place to chat about a product, or even send payment details, but now to actually transact.

And that, in turn, gives WhatsApp and Facebook another shot at building a revenue stream based on its vast scale, one which does not turn the app over to monetising its users through ads and the data that is amassed around them — the primary business model today behind Facebook and Instagram, another major app in the Facebook stable.

“Payments on WhatsApp are beginning to roll out to people across Brazil beginning today and we look forward to bringing it to everyone as we go forward,” the company said.

Users in Brazil will be able to use the payments service on WhatsApp to make purchases from local businesses without leaving their chat, the Facebook-owned service said.

“The over 10 million small and micro businesses are the heartbeat of Brazil’s communities. It’s become second nature to send a zap to a business to get questions answered. Now in addition to viewing a store’s catalog, customers will be able to send payments for products as well,” the company wrote in a blog post.

Monzo Closes Funding Round at 40% Discount

UK challenger Monzo has sealed a ￡60 million funding round at a valuation of ￡1.25 billion - a 40% discount on its previous sky high pricetag of ￡2 billion.

First reported by Business Insider, the downround reflects a waning investor appetite for pouring funds into loss-making FinTech startups, particularly in the crowded challenger bank segment.

Monzo remains the fastest growing app-only bank in the UK, with some four million customers on the books. The downgrade on its valuation is likely to be reflected in other FinTech Unicorns that rely heavily on large marketing expenditures and discounted pricing to generate growth.

Monzo has been cutting jobs and furloughing staff in an effort to stem the damage from the pandemic. Earlier this month it axed a further 120 jobs, hitting around eight per cent of the UK-based startup's workforce. They are separate from the 295 positions which were furloughed in March and the 165 redundancies associated with the planned closure of a Las Vegas customer support office.

The shake-up has also seen Monzo chief Tom Blomfield make way for TS Anil, a former global head of payment products and platforms at Visa, as the firm strives to reach a target of becoming cash-flow positive in 2021.

Investors in the new round, include Swiss fund Reference Capital and Vanderbilt University alongside existing investors Y Combinator, Accel, Thrive Capital, and Passion Capital.

TransferGo Rraises $10M Additional Funding, Launches in 11 New Markets

TransferGo, the London-based international money transfer service, has raised another $10 million in funding, as it discloses that its customer numbers have surpassed two million.

The round was co-led by Seventure and Vostok Emerging Finance,  with follow-on funding from Hard Yaka, Revo Capital and Bootstrap Europe.

The startup is also announcing it has launched in 11 new markets, including Japan, New Zealand, Saudi Arabia, Singapore and Ghana. That’s a doubling down on South East Asia and African market expansion, beyond its original focus on Europe.

Founded in 2012, TransferGo’s  customer base is predominantly made up of migrants who send money home to their families. It positions itself as offering one of the fastest international money transfer services on the market. This sees it able to provide international “cross-network” transfers, claiming to be the only Pan-European money transfer company that can guarantee your money will reach its destination in 30 minutes.

Countries where money can be sent now top more than 65, while you can send money from 33 countries, at the last count. Different pricing tiers are available depending on how speedily you require the payment to arrive. If you aren’t time-sensitive or perhaps are transferring larger amounts, you can elect to use the free/low-cost tier. If you need a guaranteed arrival time, it costs a little more.

Since launching, TransferGo says it has facilitated more than seven million transactions, with the number of remittances made daily increasing significantly since the coronavirus crisis and many countries went into lockdown earlier this year.

Explains TransferGo CEO and co-founder Daumantas Dvilinskas:

With footfall decreasing dramatically in high-street financial services companies, anyone looking to send money abroad to friends and family has become reliant on digital-first money transfer services. With a continued march towards a cashless society, our service is becoming more vital than ever, and we’re working diligently to support the evolving needs of both new and existing customers in these challenging circumstances.

Furthermore, Dvilinskas says TransferGo has grown 30% over the lockdown period, with “significant uptake” in organic growth, signifying what he frames as accelerated digitisation in emerging markets. “India, Turkey, Ukraine and Nigeria now among the fastest growing,” he says. “This indicates that these markets are likely to leap the cash side, [just] like African markets made a leap to mobile, bypassing the PC.”

Credit Sesame Buys Canadian Challenger Bank Stack

American FinTech Credit Sesame is moving into the Canadian market through the acquisition of challenger bank Stack. Terms of the deal were not disclosed.

Credit Sesame began life as a tool to help Americans access and boost their credit scores, winning over 15 million members. However, late last year it teamed up with Stack to develop a digital bank account, called Sesame Cash, that promises to help consumers grow their cash and credit together in one place.

Following a pilot, the account was launched in mid-May and has signed up more than 200,000 users in less than a month. Credit Sesame has now bought its partner, with all Stack employees, including CEO Miro Pavletic, joining the team.

The acquisition is the first step toward Credit Sesame's international business expansion plans. Later this year, its credit services will be integrated with Stack's offering in Canada.

Adrian Nazari, CEO of Credit Sesame, said:

Together with Stack, we are combining the power of smart banking and AI-driven credit management to create a new kind of personal finance.

Pagaya Raises $102M for Asset Management AI

Pagaya, a startup bringing AI to the asset management industry, has raised $102 million in a Series D funding round led by an unnamed "prominent financial institution".

Aflac Global Ventures, Poalim Capital Markets, Viola, Oak HC/FT, former American Express CEO Harvey Golub, Clal Insurance, GF Investments, and Siam Commercial Bank joined the round for US-Israeli Pagaya.

In the four years since launching, Pagaya has grown to manage over $1.6 billion of assets for banks, insurance companies, pensions funds, asset managers, and sovereign wealth funds entirely with its sophisticated AI.

The new funding will be used to hire more data scientists and to pursue new asset classes, such as real estate and other fixed-income assets like auto loans, mortgages, and corporate credit.

"The world is changing quickly and investors need a performance edge — more and more are turning to Pagaya," says Gal Krubiner, Pagaya CEO. "We continue to unlock unprecedented value with our AI even during extreme market stress."

Wirecard Shares Crash on Missing ￡1.9B in Cash

Shares in German payment processor Wirecard have crashed after auditors Ernst & Young reported spurious cash balances reported by a third party and insufficient evidence of €1.9 billion in escrow accounts held with two Asian banks.

Wirecard issued a statement saying that there were indications that the trustee to the accounts had attempted “to deceive the auditor and create a wrong perception of the existence of such cash balances”.

The share price fell through the floor on the news, dropping by 66% as markets responded to the latest setback to the troubled firm, which has already delayed its annual report on three previous occasions as allegations about financial impropriety swirled.

The Financial Times reported in October that Wirecard staff appeared to have conspired to fraudulently inflate sales and profits at subsidiaries in Dubai and Dublin and mislead EY, the group’s auditor for a decade.

Markus Braun, CEO of Wirecard stated:

We are in contact with the trustee present on site. Previously issued confirmations by the banks were no longer recognised by the auditor. All parties involved are endeavouring to clarify the matter as quickly as possible. It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred. Wirecard AG will file a complaint against unknown persons.

Late in the day, Wirecard suspended chief operating officer Jan Marsalek and brought forward the already announced appointment of James Freis to take charge of a newly created department 'Integrity, Legal and Compliance'.

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About: I am a business developer, sales professional, FinTech strategist, as well as Cryptocurrency and Blockchain enthusiast. I'm highly passionate about Financial Technology and Digital Innovation, and strongly believe that it will change the world for the better. Apart from my daily job at a global payments startup where I'm leading company's expansion into Europe , I'm an active member of FinTech community and a TechFin evangelist.

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