Bitcoin ETF trades top $4.6 billion in ‘Ground-Breaking’ day; It was a tough year for almost every bank not named JPMorgan;

In this edition:

1?? Stablecoin Issuer Circle Internet Files for IPO

2?? Bitcoin ETF Trades Top $4.6 Billion in ‘Ground-Breaking’ Day

3?? Revolut could face million-dollar damages after biometric data lawsuit

4?? The magic of smart routing

5?? It Was a Tough Year for Almost Every Bank Not Named JPMorgan

6?? Shopify’s growth strategy

7?? 2024 prediction: Shopify acquires Stripe

News

Stablecoin Issuer Circle Internet Files for IPO

The company filed a confidential draft S-1 document to the U.S. Securities and Exchange Commission (SEC), it said in a statement. The number of shares to be offered and the price range for the proposed offering have not yet been determined, according to the filing.

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Bitcoin ETF Trades Top $4.6 Billion in ‘Ground-Breaking’ Day

Over $4.6 billion worth of shares traded between the almost a dozen US spot Bitcoin exchange-traded funds on Thursday. The Grayscale Bitcoin Trust, which converted into an ETF, saw about $2.3 billion in volume, according to data compiled by Bloomberg. Meantime, BlackRock’s iShares Bitcoin Trust—IBIT— saw over $1 billion change hands.

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Revolut could face million-dollar damages after biometric data lawsuit

Revolut could face millions of dollars in damages after being hit by allegations of illegally collecting, storing and using its customers’ biometric data in a fresh lawsuit filed in the US.

Insights

The magic of smart routing

In the Ecommerce world, merchants are probably too familiar with the issue of failed transactions and how they can have a strong impact on conversion rates and revenue. When looking at failed payments, what falls under the umbrella are the ones rejected by the acquirer or the issuer in the payment flow, due to reasons like incomplete or incorrect card or contact information, authentication tools and insufficient funds on the account. Some of these problems cannot be tackled by the merchant because they are related to issues on the customer’s end.

If we take a look at the impact PSD2 and Strong Customer Authentication have had on Ecommerce in Europe, it is easier to understand how sensitive the issue is. During the first quarter of 2021, 25.5% of authentications performed with the Mastercard scheme did not succeed, the vast majority resulting in failed payments. In the second quarter, according to new data released by Mastercard, only 76% of 3DS authentications were successful, which means that the improvement over the previous period was only about 1.5%.

Smart routing

In order to minimise the number of failed transactions due to technical problems, choosing a payment infrastructure based on dynamic routing is certainly a great way to start. Payment processing is what happens after the customer clicks on the “pay now” button of the check-out page, for Ecommerce purchases.

From that moment the transaction “route” entails different steps:

? Authentication

? Authorisation

? Clearing

? Settlement

These are taken care of by payment service providers, acquirers, issuers and fraud prevention services.

When we look at static routing, a transaction’s route is directed to the acquirer via manual configuration by following a pre-determined route. This means that transactions are sent to a determined PSP for processing and directed to a specific acquirer, following one pathway. In the case of a company working with only one PSP and acquiring bank this process is linear and the reconciliation is simple. The downside is that in case of technical failures on the one payment route there is no back-up to redirect the transaction to. Moreover, there is less flexibility with geographical regions, because the merchant is dependent on the chosen payment gateways, PSPs and acquirers, which may be available in some countries but not in others. However, companies can choose static routing and work with a number of different payment gateways, PSPs and acquirers.

We can therefore say that the main disadvantages of static routing are:

? Lack of flexibility in geographic regions for transactions

? Lack of back-up to redirect failed transactions

? Inability to take into consideration changing parameters and adapt to a specific transaction

Source Fabrick

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It Was a Tough Year for Almost Every Bank Not Named JPMorgan

More than a decade after regulators vowed to tame the risks of too-big-to-fail banks, White House officials were on a call. Why, one attendee asked, was JPMorgan Chase & Co. allowed to buy First Republic Bank that morning in a government-led auction?

The answer came, flatly, from Treasury Secretary Janet Yellen: They had the highest bid.

After a year marred by the biggest US bank failures since the 2008 financial crisis, the nation’s largest lender is on familiar footing — scooping up a weakened rival, reeling in its clients and minting record profits along the way.

Yet for most of the industry, 2023 was bleak. In the first half, dozens of regional lenders swooned — and some collapsed — as rising interest rates slashed the value of assets on their books, saddling US banks with $684 billion of unrealized losses. Many firms have since spent heavily to keep depositors from leaving. Some started raising the possibility of defaults on commercial real estate loans. Bond-rating firms have downgraded banks in batches.

As all that trouble started spilling into view in March, nervous depositors showed up at JPMorgan with more than $50 billion. The firm’s executives raised expectations for net interest income – the difference between what a bank earns on loans and what it pays out to savers – a whopping four times throughout the year, eventually pulling in so much that the managers have taken to warning that it’s “over-earning.”

That’s put JPMorgan on track for the biggest annual profit in the history of American banking. Its earnings from the first nine months alone would rank as the company’s second-best year ever. Analysts predict that by the end of this month, its annual net income will be 36% higher than last year — while the combined earnings of the next five largest banks rises about 1%.

JPMorgan’s stock has soared to a record, gaining 26% in 2023 and outpacing every major competitor. The 24-member KBW Bank Index and 50-firm KBW Regional Banking Index are both down.

Source Yahoo / Bloomberg

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Shopify’s growth strategy

Despite a host of challenges, Shopify keeps on ticking.

Amid a plateau in e-commerce growth and profit challenges — which have led to drops in Shopify’s stock price as well as layoffs — the e-commerce infrastructure leader continues to invest in solutions that will help its roughly 1.8M merchants grow.

The goal is to keep them locked into the Shopify ecosystem: Subscriptions to Shopify’s site builder tech are one way the company makes money; another is its partner program, where over 2,000 B2B affiliates sell services that allow merchants to enhance their e-commerce sites. The e-commerce platform builder also entered the lending business in 2016, providing loans to merchants at fixed rate.

Two of Shopify’s 2022 acquisitions are consistent with its start in building online storefronts: first, in Dovetale, a creator management software, and second in Remix, an open source website developer. But its acquisition of Deliverr plants a bigger stake in fulfillment and delivery.

Source CB Insights

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2024 prediction: Shopify acquires Stripe

Stripe graduated from Y Combinator in 2010.

It’s been nearly 14 years and investors have plowed $9.4B into the company.

Stripe is now one of the most valuable payments companies.

But its recent valuation trend has been downward as can be seen below.

Shopify is a strategic partner of Stripe and also invested in 2021 (likely at or near the peak $95B valuation).

Why should Shopify acquire Stripe?

? Seamless e-commerce experience with integrated payment processing.

? New revenue streams and reduced transaction costs would boost profitability.

? Access to valuable transaction data for better consumer insights.

? Global expansion with Stripe’s wide reach.

? Already has a deep partnership with Stripe both product and financially via its investment.

? Aligned with Shopify’s strategy as the below CB Insights Strategy Map highlights.

Source CB Insights

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Ramp passes Brex

Sacra estimates that Ramp has overtaken Brex in total payments volume (TPV), hitting $30B annualized at the end of 2023 off the growth of Ramp's second product, Bill Pay. Now, the battleground has shifted away from card volume towards B2B subscription SaaS.

Key points:

?? In 2018, Brex launched a corporate card for startups with 10x the credit limit of American Express and soon became one of the fastest-growing startups of all time, raising $1.5B at a $12.3B valuation off $12B annualized TPV at the end of 2021. Ramp launched its competing corporate card two years later in 2020, positioning itself around cost savings for the business rather than rewards like airline miles and points.

??In 2022, Brex shifted its strategy away from TPV as a north star metric to focusing on net revenue and profitability, becoming a mash-up of Ramp (B2B SaaS) and Mercury (banking). Brex's revenue from deposits grew 302% from ~$26M in 2022 to roughly $105M annualized in 2023 as $3B+ flowed into their business accounts after SVB’s March 2023 collapse.

??Sacra estimates that Ramp has surpassed Brex on total payments volume, flippening them in 2023 as they hit $30B in TPV across both card and bill pay, growing 209% year-over-year. Amid a wider pullback on card spending—see total volume on American Express cards growing just 7% last quarter to $1.68T annualized, their weakest growth in ten quarters—Ramp's TPV growth was sustained by expanding customers into its second product, bill pay, which has a lower monetization rate of ~0.1%.

??Ramp’s strategy is to leverage their ownership over card and bill pay workflows into their higher margin SaaS product Ramp Plus while keeping headcount relatively low—with about 900 employees vs. Brex’s 1500—for capital efficiency. That up-market motion brings Ramp into competition with enterprise spend management companies like SAP Concur (~$2B in revenue, 20%+ YoY growth), Coupa ($725M in revenue), and Zip ($1.5B valuation).

??Post-ZIRP, the fintech narrative has moved on from the vanity metric of TPV towards net revenue (1.6% of total payment volume for cards), high-margin software revenue and true recurring subscription revenue. While Brex's main rival Ramp gravitates towards enterprise SaaS, Brex now looks more like Mercury in retrograde—where 90% of Mercury’s revenue comes from interest on deposits and about 10% comes from interchange, Brex's revenue is about 61% interchange, 33% deposits, and 6% SaaS—with both competing over the all-in-one SMB finance and banking solution.

Source Sacra

Reports

State of the Banking Industry

Wipfli surveyed 390 financial institutions across 28 states to reveal a snapshot of where financial institutions are headed in 2024, including the industry’s top growth strategies and biggest areas of concern.

Among the key findings:

?? 56% of banks expect growth of only 1%-5%

?? 78% of banks plan to buy, down from 90%

?? 43% cite both cybersecurity and employee issues as a top concern

?? 61% cite digital customer engagement as a top strategy

?? 65% of banks report at least one identified instance of unauthorized access to data or networks

?? 51% say risk is a top barrier to using AI

?? 56% of banks have no strategy to serve unbanked or underbanked populations

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