Fintech ?? Food - 13th Sep 2020

Why does the Fed own 1/3rd of all mortgages? What does this mean for fintech infrastructure? Plus how to be a brand in a more crowded fintech market. Plus plenty of fintech's you should know All this and more in this week's ????

Fintech has had it's biggest ever year, during a pandemic. Whether it's M&A, funding, or just hype, it's not about challenger banks. It's gone both down towards the infrastructure and up towards vertical solutions for niches.

I wonder if the mega-banks are feeling comfortable? They've "done digital transformation" now, and mostly not been wiped out of existence by the arrival of challenger banks. But the arrival of ever more niche players and the changing infrastructure landscape could upset the market. What's the strategy for how the market is about to change?

Perhaps most significantly, this week saw Citi name a female CEO, making Jane Fraser the first in the USA's history. The banking sector has mostly moved sideways in the past decade since the financial crisis. It needs new strategies and talent. Meanwhile, fintech has been on a tear. Sure, you can argue that markets are overpriced, but tech is always overpriced in the short term. It's delivering growth. Growth is everything in this market. The real question for banks is where growth will come from in the next decade? There's so much inspiration by looking at what fintech is doing, and it's doing a ton. 

As always, 4 fintechs, good reads and things you should know. So let's get started with 4 fintech's worth your attention.

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4 Fintech's ??

This week I had a list of 15 that I've whittled down to these four but had to include some honorable mentions. Too much happening not to.

1. Volt.io - Real time Open banking payments for merchants 

• If you sell products online, it can take days to get paid via card, and often the card payment will cost you upwards of 2% of the overall transaction amount. ??  For most sellers, transaction fees feel expensive. Volt helps solve that by plugging into open banking payments, which are often much cheaper (usually closer to 0.2% or lower).
• What's unique about volt is its global approach to open banking. Volt is pitching a "single switch" that connects to many gateways in Europe, then later, the rest of the world. ?? They're very dev focussed (the website wouldn't look out of place for Unity or Epic's game engines). Hard to tell if this is the team that gets it done; traction will be everything. There are some very experienced founders out there doing great things, and A2A feels inevitable.  
• Open Banking & "fast" one-click merchant payments are ??, with vyne, banked and existing big names like Truelayer making waves in Europe for A2A payments. But experience will be everything.  The first time payment journey for A2A is a little fiddly.  Click pay, find your bank, switch to your banking app, verify, switch back to the checkout, and pay. From then on, though, you have, in effect, a great wallet like experience.
• Merchant acceptance will be critical. These payment types are as good as the number of merchants that use them. It's not surprising then that Visa, Mastercard, and Amex all have investments in the A2A payments space (e.g., Truelayer and Visa).

2. Be Money - The LGBT+ focussed neo bank ??

• LGBT+ communities have unique challenges like lower mortgage approvals, higher fees, and facing considerable hidden costs (for example, surrogacy, or typically living in expensive urban neighborhoods for safety).
• Despite being more than 30m Americans who identify on the LGBT+ spectrums with a $1trn buying power, the segment remains poorly served. While there are apps focused on low financial literacy or people of color, the LGTB+ community lacks a truly digital neo bank offering, and be-money could well be it. ????
• Be-money has a team of experienced founders, with backgrounds in tech, financial services, and neo banks. Like all Neo's, the key will be to gain user growth momentum, then shift to a solid cross-sell model. Many Neo's have either struggled to do that or are still on that journey, but their timing could be great given their industry background and watching others struggle with that transition.  
• Neo's that have tried to be marketplaces have failed mainly (or have delivered, but it's not driving revenue for them).  The choice appears to be between getting a banking license or being a marketplace, but don't try both.  Be-Money seems to be very focussed on banking and financial services revenue models, which is encouraging.  ??

3. Atticus - Estate, inheritance and probate platform ??

• Dealing with a loved one's death is hard and not just because of the massive emotional loss. The complexity of what comes next is astonishing to anyone who's not been through it. There are all kinds of forms, local laws, different insurance policies, property management of assets (e.g., art, cars, everyday items). Atticus guides the user through this process, connects multiple bank accounts, and generates reports at any time.  
• For either $15 a month or a one time $175 this is another example of a niche fintech, solving a hard enough problem that justifies SaaS style pricing. It's also very cheap; the closest comparison I could find was Farewill in the UK, which is around ￡600 for probate.  
• ?? Trend watch, things that aren't banks, that solve complex problems around finance and justify a SaaS style pricing model

4. Deel - Global payroll for a global future ??

• Deel is a platform that can onboard and pay contractors or perm staff in 100 currencies, which is where the fintech bit comes in and just raised $30m. 
• If we're moving to a more global, more socially distanced world, why shouldn't companies look to the world's market to hire the best talent from around the world? Well, it turns out that's harder than it should be. Again, those pesky global laws, tax regs, and fees get in the way of hiring a global workforce. Consider also the costs of trying to pay people globally without getting gauged by FX rates.
• ?? Trend watch, anything SMB fintech or fintech tools that have a bit of fintech.

Honorable mentions ??

• Flow bank - Robinhood on expert mode or Swiss Banking meets Robinhood.  Access 50+ markets, with one multi-currency account.  
• Peak - Acorns for the Netherlands, but built by a bank.  I hope this succeeds; the attention to detail in the app's UI is ??
• Thunes - API Gateway connecting emerging market wallets to developed market payment systems. Formerly known as TransferTo, just raised $60m. Remittance is huge but complicated; this gateway potentially helps solve the last mile problem.
• Cachet - is real-time motor insurance for gig economy drivers in Estonia and Latvia, but looking to expand across Europe. They recently raised €1.1, used by 25% of all drivers in markets where it's available. Chris Adlesbach, Europe's Fintech super-angel, is an investor.

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Good Reads ??

1. FT Partners Monthly CEO Update (Slide Deck ??)

• ??My Analysis: Fintech P/E multiples are nutso.  Price to earnings for all tech has rocketed as the pandemic eased, as central bank money printing kicked in. This chart from the guys at FT partners suggests prices will come back down to earth a little. But not massively. 
• ??My Analysis: Bankers often think all tech is overpriced as a way to justify their poor share price performance (sorry, but it's true ??). The reality is that tech prices represent market expectations of growth, and without question, fintech has momentum.  The real problem for bankers is where they will find this kind of growth in a market with low-interest rates and an unclear picture of lending for the foreseeable future.

• ??My Analysis: It has unquestionably been a massive year for M&A skewed by Ellie Mae, Credit Karma, and Plaid. With Ant Financial about to IPO, fintech platforms are mainstream, and you can see it in the data.
• ??My Analysis: For investors, the question is, is this trend just beginning, or is it over?  I think fintech is 1% finished ?? (and enjoy Matt Harris' perspective of fintech as the fourth central platform of technology). The trend of "just another Neo" is over. But we'll see; 1 a shift to the layer above banking (SaaS models for niche's), 2 re-inventing the bank as a platform (eventually!) 3, a re-aggregation of all the niche players (where is TBD because big tech in the west can't quite make it click).

The full document is here, and you should check out FT partners webinars :)

2. How to be a brand when everyone is a fintech 

(? Blog by Alex Johnson)

• Alex interviews the outstanding Anna Money (my fav fintech account). Picking them as an example of a brand that answers the question "in a world where any brand can become a bank, how do you ensure that your brand stands out from the crowd?" ? Alex "first learned about ANNA from a tweet thread:

• Anna Money developed the meowing card and auditioned cats for the meow ??. Anna Money have around 20k SMB customers. The Wirecard issues also impacted them in the UK. Anna is a brand with a hilarious tone on its social accounts that can also do serious and responsible. If you're in marketing, Anna Money's strategy is worth watching.
• ??My Analysis: It hurts me to say this because I love the brand so much, but I worry about them as a going business.  Being a neo bank is hard. The brand alone won't cut it; they need a pricing pivot or something. That's not the fault of their brand team, though, who are simply flawless.  
• ??My Analysis: In the 11:FS Bank as a Service report, we discuss the split between brands, providers, and license holders. Anna is a brand, and IMO brands need to one of two paths.  They either become a license holder and generate more profit per customer. Or they solve deeper problems to justify a SaaS pricing model.

3. The Fed owns 1/3rd of all mortgages (? Article TheStreet.com)

• "The Fed has snapped up $1 trillion of mortgage bonds since March. Buying the securities has pushed mortgage rates lower, with the average 30-year rate falling to 2.91% as of last week from 3.3% in early February."
• In late March, Morgan Stanley analysts pointed out that the buying was running at eight times the pace seen in prior episodes of Fed purchasing under programs known as quantitative easing.
• ??My Analysis: I know we're in unprecedented times, but wow. ?? We see even more easing if we see markets pull back as the Fed switches off the money printing. That won't be without consequences.

Speaking of unprecedented times:

4. Bitcoin meets the real world in Africa (??Reuters Long read)

• Chinese suppliers to African businesses are want to receive payment in Bitcoin ??. Small business owners like this because it's a lower fee and they're not losing money in the currency conversions 
• Chainalysis (analytics firm) shows that crypto transfers to Africa jumped 55% to more than $360m in H1 2020.  According to the world bank, this amount is tiny compared to the estimated $48bn in 2019 of remittances into Africa.  
• ??My Analysis: The away here is that China's growing amount is driven against a backdrop of China using fewer dollars and the USA printing dollars like they're going out of fashion. The world is changing. China is developing its digital currency (no doubt seeing the emerging value in getting around the dollar-based financial system). It's no surprise then that global central banks are looking to the same.

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Things you should know ??

1. Wall St finally has a female CEO (Citi Press release)

• ??My Analysis: Quite aside from the fact more diverse management teams produce better results, this is phenomenal for everyone who couldn't see themselves represented. Jane Fraser and Citi now join Natwest, Santander, Handlesbanken, and Starling as companies with female CEOs. 

2. ECB's head Christine Legard talks Digital Euro (??ECB Speech)

• The speech suggests that Europe should develop a digital Euro. It also acknowledges the financial infrastructure now has competition on the international stage (without saying China, they mean China)
• ??My Analysis: The ECB is saying between the lines, the USA is getting protectionist, China is developing its own CBDC, big tech is making more payments, and we need to keep up, or they will lose the ability for policy changes to impact the economy. According to Reuters, Chinese suppliers open to things like Bitcoin get around the protectionist US financial system. Europe is rightly considering its options in light of this.
• ??My Analysis: Europe has a history of long slow integration projects (SEPA, Target 2). They tend to roll on forever, and slowly, gradually deliver something that's not bad but not nearly as good as what China has. Europe's payment efforts historically were about integration. Still, with the geopolitical landscape changing, I sense the CBDC would be about not being subject to either a China run or private sector run (*cough* libra *cough). 

Quick Hits: ??

• Brex launches an "inbox zero" approach to expenses. ?? Love how they've taken Superhuman style goal-based product design and put it in fintech. Bravo! ??
• Nubank acquires Easynvest.  ?? It seems like a logical move to quickly "do a Robinhood." Also, a way to drive new revenue, smart.
• Gaming firm Razer exploring a banking license in the US and Europe. ?? OMG yes. Gamers are such an underserved segment, why not. Unclear what their prop will be, but I'm such a big fan of Razer that it doesn't matter. ??
• Santander is spinning out its $400m corp VC fund. ?? This VC isn't your typical corporate VC; they were early into fintech's like Curve and Ripple and could be one to watch.
• Google names Derek White to lead Cloud FS business. ?? Derek is a legit fintech start-up background (early of Juniper bank) and was a big part of the early UK Fintech scene in 2013 / 2014. Google is making big moves in fintech. I was fortunate to count Derek as a boss and mentor when we worked at Barclays. He is one heck of a get for the big G. Google also re-launched google finance.
• Credit Suisse builds a Neo bank. A few big banks have tried this, not all have succeeded, but it feels like the efforts are getting better with time.
• Standard Chartered launches Mox in Hong Kong to it's 20k pre-registered customers. ??As a case study for how a big bank can do a neo/challenger launch, there's possibly none better than Mox.  They deeply understood the customer and created a distinct culture and vision for the venture. This cultural separation from the mothership has allowed them to execute at pace. (Disclosure, 11:FS helped with the proposition development for Mox)

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Tweet of the week ??

The pandemic has been tough on brand perceptions:

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That's all, folks. ??

What a week! 

Neo's are becoming ever more niche, but need to figure out the pricing model that works for them and their market. They are trending to have either a big market and nail cross-sell, or solve a deep enough problem that justifies SaaS pricing.

Solving a deep pain for start-ups and involving fintech is still a great place to be, but the vast, hairy challenges are still out there. Who will build the stitch fix for investing? Who's going to solve digital identity? When does corporate banking get not to suck?

I hope you enjoyed this week's (Grammarly mode: on) editioni??. Please do drop me an email with any suggestions for future editions ??