The bumpy road ahead for Revolut's global ambitions ??; NU continues strong growth & profitability momentum ??; Klarna - a $1 trillion biz? ??

?? Hey, Linas here! Welcome to a ?? monthly free edition ?? of my daily newsletter. Each day I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech.

If you’re not a subscriber, here’s what you missed last month:

1. Capital Investment Model Template ?? [leverage this tool for smart investing ??]
2. After disastrous 2022, PayPal might be one of the biggest opportunities in the market right now ?? [a look at its latest earnings, why PayPal doesn’t deserve the current valuation + more bonus reads & deep dives]
3. PE Returns Model Template ?? [use this to maximise Private Equity returns]
4. Paradigm shift: JPMorgan launches Programmable Payments ??
5. Klarna's remarkable comeback: how the FinTech giant went from valuation collapse to potential 2024 IPO ??
6. Customer Intelligence Template ?? [use this to engage with your customers more effectively ??]
7. Apple Pay emerging as a key revenue driver for Apple ?? [how Apple is positioning iPhone as the central financial hub + more bonus reads & deep dives]
8. Decentralized Identity: the missing link for Digital Finance? ?? [why it matters]
9. CME becomes top Bitcoin Futures Market as institutions eye crypto ??
10. The ultimate list of 140+ Family Offices in Germany, Austria, and Switzerland ?? [use this list to find investors who align with your company mission and goals ??]
11. BREAKING: Binance. CZ to step down & Binance to pay $4.3 billion in fines ?? [a closer look at this craziness with the details, data + what it means for the industry & what’s next]
12. Strong growth & profitability: Affirm is becoming a force to be reckoned with ??

and more! Don't miss out and join the community here????

November was an absolutely wild month in FinTech. We will look at the bumpy road ahead for Revolut's global ambitions (holistic view at Revolut’s strategy and moves thus far + lots of bonus reads & deep dives); Nubank that continues strong growth and profitability momentum (a closer look at their latest numbers, what’s driving crazy revenues + more bonus reads & deep dives); Klarna whose CEO thinks they could be a $1 trillion company (how likely is it + a closer look into Klarna’s remarkable transformation), and other interesting news and developments.

Without further ado, let us dive into what happened in the financial technology sector last month. Let’s connect the dots.

The bumpy road ahead for Revolut's global ambitions ??

The struggles ?? Revolut, the digital banking juggernaut, faces mounting scrutiny from investors and regulators that threatens to derail its global expansion plans.

The London-based FinTech has struggled to obtain regulatory approval for a full UK banking license, raising concerns about its financial reporting and compliance standards.

Let’s take a brief yet holistic view of where Revolut is now and what’s next for them.

More on this ?? Revolut's 2021 financial statements arrived months late and contained qualifications from its auditor about the accuracy of its revenues. That’s never good.

ICYMI: Revolut revenue drama ?? [a deeper dive into the numbers]

This in turn sparked unease among investors like Molten Ventures, which wrote down the value of its stake by 40% this year. Other VCs later joined the pack too.

ICYMI: More investors wipe 40% off Revolut valuation ?? [& why there’s no way Revolut’s worth $33B now + a few more deeper dives into the FinTech giant]

On top of that, the company also admitted delays to its 2022 results, further eroding trust. Unsurprisingly, regulators are now said to be disappointed (if that’s the right word to use here) by Revolut's dismissive stance on the accounts issue.

Licensing ?? The company's global licensing strategy, which differs from competitors like Nubank's targeted approach , has added even more complexity.

Progress in Australia remains opaque, while Revolut's application for a US charter turned out to be merely a draft. This perceived lack of transparency about its expansion plans has left regulators wanting more clarity and commitment. At the end of the day, it’s getting very unclear as to what Revolut is trying to achieve in the first place…

ICYMI: Revolut is yet to file a formal US banking license application ??????

Super App play ?? Then there’s the Super App Play. Revolut's rapid growth and ambitions for becoming a leading Super App globally have complicated its path toward compliance across diverse regulatory regimes.

Because the more you do, the more questions the regulators are going to ask. And compliance is non-negotiable in post-Wirecard days.

On top of that, frequent senior staff departures have also concerned regulators assessing its stability (or the lack of thereof). Its board reportedly lacks adequate banking and technology expertise to challenge management, prompting calls for an expanded board.

ICYMI: Tell me Revolut is in trouble without telling me Revolut is in trouble ??

?? THE TAKEAWAY

So what’s next? ?? One BIG thing Revolut has managed to resolve recently is its shareholder issues with Softbank. Nevertheless, while this is a strong step forward, major hurdles remain. In essence, restoring investor confidence and satisfying regulators' demands for robust controls, governance, and transparency will determine the viability of its global aspirations. Of course, that won’t be easy. Zooming out, we can once again stress that securing the UK license is pivotal for growth in its home market and later on in the US (though the latter seems very questionable). Hence, Revolut currently faces a very bumpy road ahead, but its ability to steer through the pending storms and navigate challenges will ultimately shape its future as a global FinTech leader. And it sure can become one.

ICYMI: Grab’s slowing growth and brutal layoffs reflect Super App challenges ?? [this is relevant to all Super Apps + a bonus deep dive into Apple as potentially the first Super App of the West]

Nubank continues strong growth and profitability momentum ??

Earnings call ?? Brazil's FinTech gem Nubank reported their 3Q 2023 earnings this week. LatAm’s financial powerhouse backed by Warren Buffett's Berkshire Hathaway absolutely crushed them!

The growth and numbers Nubank is showing makes it the best-run digital bank ever ??

Let’s take a look.

More on this ?? Here are the key numbers you must know:

?? 89.1 million customers (+27% Year-over-Year)

???? 51% of the adult population of Brazil now uses Nubank

????It's now the 5th largest financial institution in Latin America

???? In Mexico, Nu’s customer base grew to 4.3 million

???? In Colombia, Nu now counts ~800,000 customers

?? $19.1 billion worth of deposits (+26% YoY)

?? $2.1 billion in revenues (+53% YoY)

?? $303 million in profit (they lost $29.9M in Q2 2022)

What's even more impressive is that their average customer is now using 4 products ??

Cross-selling is how you generate high LTVs per customer in FinTech, and NU is cross-selling multiple products like nobody else in the market. So, in addition to 38.9 million credit cards and ~64.7 million bank accounts, NU now has: ?? 7.3 million personal loans ?? 1.2 million insurance policies ?? 12.4 million investment customers ?? 10.5 million NuCoin customers (launched just in March 2023) But here comes the crazy part. 80-90% of Nubank's customers are acquired organically through word-of-mouth or unpaid referrals. That's the power of a brand coupled with amazing user experience.

ICYMI: Customer Intelligence Template ?? [use this to engage with your customers more effectively ??]

Show me the money ?? Taking all the above into account, then comes a natural question - what's the key driver of Nubank's revenue?

The answer is both simple and not.

At the surface of it, it’s the increase in monthly revenue per active customer (ARPAC). It grew by an 18% increase in monthly ARPAC to $10.

The increase in ARPAC is thus attributed to:

1. More active and primary banking account customers compared to a year ago
2. These customers using a larger and more profitable set of financial products
3. The compounding effect of more engagement and cross-selling driving ARPAC expansion

But much more important is Nubank's Net Interest Income (NII) which reached $1.2 billion in Q3 2023, up 111% year-over-year on an FX-neutral basis.

The growth in NII was driven by:

1. Expansion of the credit card and personal loan portfolios - these grew 46% and 48% respectively year-over-year on an FX-neutral basis.
2. Increasing the mix of interest-earning installment balances within credit cards to 21% of the total card portfolio. This is up from 10% a year ago.
3. Improved portfolio yields from things like higher origination yields on personal loans.
4. The stable cost of funding around 80% of the Brazil CDI rate.

In other words, the higher interest-earning balances and yields are expanding Net Interest Margin, which helps drive NII growth. And NII makes up the majority (~81%) of Nubank's total revenues. Solid.

?? THE TAKEAWAY

What’s next? ?? First and foremost, we must note that seeing this level of growth in a 10-year-old company while maintaining solid profitability and growing customer engagement is just phenomenal. Secondly, Nubank’s NIM (which helps drive NII growth) is what European and US banks can only dream about. And with that, I must only repeat that Nubank is not only one of the best digital banks in the world. It's one of the best-run FinTechs ever. Super bullish.

ICYMI: A path towards $100B FinTech Giant: Nubank applies for a banking license in Mexico ?????? [why this is a huge step towards building a $100B FinTech goliath + a deeper dive into NU & dLocal]

Disclaimer: this isn’t investment advice and I’m a shareholder of Nu.

Klarna CEO thinks they could be a $1 trillion company ??

The money ?? In a recent interview with Yahoo Finance, Klarna CEO Sebastian Siemiatkowski discussed the Swedish FinTech startup's ambitions to become a trillion-dollar company.

More on this ?? He believes the buy-now-pay-later (BNPL) market presents a massive opportunity as an alternative to credit cards.

Klarna currently has over 150 million users globally. The company has been profitable for three straight quarters and plans to go public in 2024.

Despite Klarna facing challenges from economic fluctuations and rising interest rates, Siemiatkowski wants to transform BNPL pioneer into a global retail banking powerhouse through the use of AI.

He sees Klarna evolving to advise consumers on finances and mortgages in the long run.

?? THE TAKEAWAY

Looking ahead ?? Despite the economic hurdles, Klarna has strong financials and a large user base that positions it well for more growth in the future as well as the IPO. However, competition is increasing in the BNPL space, not to mention the growing regulatory scrutiny. Having said that, a $1T price tag for a finance company seems to be a bit too optimistic and without little rationale behind it. In fact, $500B sounds unbelievable right now as it would make Klarna more valuable than J.P. 摩根 . But I’m happy to be proven wrong here as their comeback is already impressive…

ICYMI: Klarna's remarkable comeback: how the FinTech giant went from valuation collapse to potential 2024 IPO ?? [latest numbers, how we got here, and what’s next + a look at how leveraging AI Klarna is building the 谷歌 of Shopping]

Extra Reads & Quick Bites for Curious Minds ??

• Visa moves ?? Payments giant Visa disclosed findings from an e-HKD CBDC pilot with HSBC and Hang Seng Bank testing tokenized deposits for B2B payments. The trial focused on simulating property payments and acquirer-merchant settlement use cases. Visa says the pilot demonstrated the potential benefits of tokenized deposits including faster settlement, improved risk control, resilience, and transparency. Visa's Nischint Sanghavi says the tests highlighted various potential CBDCs benefits like quicker settlements and transparency, delivering pivotal learnings not just for a hypothetical e-HKD but also for shaping the future payment ecosystem. He says tokenized deposits could enable secure, timely high-value transactions like property payments and be a "transformative" acquirer-merchant settlement method, with advantages of increased transparency and faster settlement. ICYMI: Game-changer: Visa just expanded stablecoin settlement capabilities ?? [why + more bonus deep dives]
• NatWest’s Cora ?? NatWest is enhancing its chatbot Cora with generative AI capabilities from IBM, enabling more human-like conversations with customers. The evolved Cora+ can access previously inaccessible information across products, services, bank info, and careers to provide personalized support. Customers can have more natural conversations, asking questions and getting conversational responses with links to requested details. NatWest's Wendy Redshaw says this leverages the latest generative AI innovations to make Cora feel more "human" and become a trusted digital partner for customers. Building on Cora's five years of service, the upgrades aim to strengthen NatWest's relationship banking in a digital world through more meaningful, personal engagement. ICYMI: ChatGPT can now predict the direction of interest rates ?? [+more dives into how AI + Finance will change the game]
• More bets on AI ?? Finance giant Visa launched an AI Advisory Practice through its consulting arm Visa Consulting & Analytics to provide insights enabling clients to utilize generative AI. Leveraging a global network of over 1,000 experts, the new service guides clients through AI discovery, planning, and implementation to define responsible AI strategies meeting business goals. Visa has 30 years of AI experience enhancing its services and says it has invested over $3 billion in AI/data infrastructure in the past decade. The launch follows Visa's $100 million generative AI ventures initiative to invest in startups shaping the future of commerce and payments with transformative generative AI. Through its expertise and investments, Visa aims to empower clients to adopt AI, including emerging generative technologies, to grow and redefine their customer service. ICYMI: Riding the hype: Visa creates $100M Generative AI Venture Fund ?? [+ lots of more reads]

Money Moves ??

• AI anti-fraud detection software company, Lynx, has recently announced it secured a Series A funding round of EUR 17M, with the participation of Forgepoint Capital. ICYMI: RegTech market set to surge to $45.3 billion by 2032 ??
• The Bitcoin-focused Ordinals startup Taproot Wizards?raised?$7.5M in seed funding.
• Private investment management platform Arch has raised $20M in a Series A funding round led by Menlo Ventures.

Continue reading by subscribing to Linas's Newsletter. You will receive fresh news about FinTech with hot takeaways every day.

P.S. You might enjoy my earlier pieces as well:

?? Top Resources for Startup Founders, CEOs, Investors & VCs ??

?? Top FinTech stories of 2023, a year of AI ??

?? AI x Jeff Bezos: 23 Essential Business Lessons for Every FinTech & AI Startup ??

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About: I am a business developer, sales professional, and FinTech strategist, as well as a 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 the company's expansion into Europe, I'm an active member of the FinTech community and a TechFin evangelist.

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