FinTech Zapping - 18th January

FinTech whispers

??Visa Abandons Planned Acquisition of Plaid After DOJ Challenge

Last week we mentioned the pending issues of Visa’s acquisition, while only one week later we have learned that the deal is off. What was one of the blockbuster deals of last year, has ended up in big upset for the Payment company. It is yet to see the ripple effects for future similar transactions, and now Plaid should focus on moving forward and define what would be the next step for them… we might have another IPO in the horizon

??Checkout.com is Europe’s most valuable FinTech again, following $450m fundraise

Massive funding round to start the year, which takes the EU PSP player to higher end of most valuable private FinTech in the region. The ongoing need for digital payment solutions and the massive move to digital channels across industries is propelling companies like Checkout.com to see their revenues double in just a year. Now, the question is whether this revenue jump justify a company valuation to jump ~$10B in just a year

??Lender Affirm soars in public debut: Here's how the stock is doing

As anticipated last week the leading BNPL player in the US has gone public, and their performance has been quite good in the markets. The company has seen more than 6 million consumers opting to use its POS financing product, representing a YoY growth of ~90% in terms of revenue. These numbers are quite impressive and have fueled recent massive funding waves received that have accelerated the company’s plan to go public. There’s been a lot of speculation on the business ethics behind BNPL players, but for now what we can see is that both Affrm and Afterpay are performing very well on and off the markets

??FinTech startup MX, Blend each raise $300 million

I have been stressing out for the last few months the growing importance of embedded finance solutions, and only a few weeks into the new year two big names specialized in the redefinition of banking products as we know them have raised a massive $300M each. Again, these funding round further strengthen the growing importance of embedded finance and its role into the transformation of Financial Services

FinTech Reflection – ??My top 10 predictions for 2021

The FinTech ecosystem can be many things, but for sure we can all agree that is everything but boring. Last year has been an incredible run for FinTechs, and like I said last week my belief is that the ecosystem has jumped a few years ahead. This is a post that I was really looking forward to creating, my predictions for 2021 which in some cases are safer bets than others. Nevertheless the whole objective of expressing my view for next year is to create a playground to discuss which would be the driving forces shaping the FinTech ecosystem, and of course my intention is to recap by mid year to see where we are on my projections

#1 Largest IPO run for FinTech players

In the last half of 2020 we started to see many players positioning to IPO in the next year, and it’s only been 18 days since we said goodbye to 2020 and we already have Affirm trading at almost double its initial price, while Sofi will go to the markets through SPAC. The list of players is long, and it seems this year we will see the largest strike of players going public. Covid has accelerated the time to IPO, which in some case would have happened down the road but due to the pandemic investors are looking to cash out investments and let the market decide the path and future of a given company. Today, any digital driven financial solution is seeing with good eyes however we must not forget the last waves of IPO where initial rush to take companies to public markets ended up in rapid down trend on companies shares, mainly due mistakenly categorizing FinTechs as Financial Service players instead as Technology companies serving the FI space ??

#2 Growth through acquisitions

Every day hot spots across the FinTech ecosystem are targeted not only by a pool of big FinTechs dominating their core segments, but also by Banks, Tech providers and also Non Fi players that are encapsulating their value proposition to deliver FI products as well. If this year is going to be big for FinTech going public, I can see a similar trend for large merges. 2020 has been pretty intense in terms on FinTech M&A activity (including major setback for Visa and Plaid acquisitions plans), and current state of landscape continues to indicate that we will most likely continue the same trajectory. Now, the question is where we will see the biggest blockbuster, which in my opinion will be in the Neobank space where I think pure Challengers must upgrade their capabilities and offering if they want to compete in a pretty crowded market with lots of competition from different angles. Followed by players within the embedded finance field, looking to expand or strength their capabilities.

#3 Funding will shrink compare to 2020

If we leave aside the funding raised from IPOs and M&A activity, I believe this 2021 is going to be lower in absolute funding numbers compare to 2020. I know this could seem a bit odd, since you may think pandemic has driven funding numbers down already but in fact 2020 was not a bad year if we look at absolute numbers for funding activity, since there have been more mega rounds (>$100M funding rounds) than ever before. The reason behind my thinking is that if the big players cash out, massive funding rounds will not flow so easily to medium size companies. The biggest hurdle in the short term will be to see smaller/medium companies to jump to the next level, as investors are increasing scrutiny on their bets and the non-profit business strategy outlooks have come to an end. Nonetheless, I still think this year will reach massive levels of funding (surpassing 2018 levels) but not enough to exceed 2019 or 2020.

#4 Embedded finance FinTechs capturing the largest funding share

A good infrastructure is everything when it comes to progress and development, as it enables all participants to communicate, creating a richer ecosystem. Embedded finance players have boomed during the past year, since the growing need for digital solutions across all industry levels have boosted the demand for their services. I believe players under the embedded finance umbrella will grow the most in terms of market reach, product catalog, client base and of course funding received. We only need to look at last week’s $300M funding rounds raised by MX technologies and Blend, following Checkout.com massive $450M latest funding. Players on this space will drive overall funding growth globally, and their presence in emerging FinTech hubs (like LatAm) will increase rapidly.

#5 P2P lending schemes will fade away

After the 2008 financial crisis p2p lending schemes arise as a result of credit shortage and lack of reliable investment opportunities. For a very long time this type of financing-investing mechanism has enabled FinTech players across markets to launch new solutions. The idea was pretty smart, build a platform that matches borrowers and investors needs while also creating a securitized market for loan packages. Questions around the validity and long-term reliability of these models started to come up when some of these schemes started to fall apart. In markets like China these models have been banned (or heavily regulated) after a series of bankruptcies that drove millions of users to lose all their savings. For me the acquisition of Ondeck, Kreditech (aka Monedo) filing for bankruptcy or Lendingclub shutting down their p2p business and moving to Challenger bank space mark the end for these models. However, there are still survivors out there, that for sure will find their way to continue make it work.

#6 Leading pure neo/challenger bank scene will shrink

Don’t get me wrong, the neo/challenger landscape is looking greater than ever. Lots of players being founded all over the world, regulators launching specific licenses to foster the development of these players, and of course many players from different fields targeting the space. In fact, this last thought is what will impact the most the segment. The fierce competition brought by players from different segments (and industries) will force leading pure neo/challengers banks to upgrade their game, since today the pressure to reach profit pools is greater than expected a year ago. I think that we might see some mid/large players being acquired or merge with other players as a result of this situation, and probably big names will be on the table.

#7 LatAm FinTech scene largest growing hub

The next big thing for FinTech, LatAm landscape singularities present a perfect canvas for FinTech to grow and further expand its reach. LatAm has been growing with double digits since 2017, and it’s the fastest growing region across the globe. I would summarize the reasons behind this boom in: A) Large unbanked & underserved population; B) Boost in smartphone penetration; C) Global Tech waves arriving to LatAm; D) Emerging market representing attractiveness for investors; D) Early introduction of FinTech regulation fueling the awareness and development of solutions across countries. I have no doubt that this year is going to be huge for FinTech in LatAm where we will see large players further consolidating their positions across regions, more foreign funding propelling local solutions and of course a greater number of foreign players targeting the space.

#8 Open Banking driving force for FinTech growth

Hand by hand with embedded finance solutions, Open Banking will propel FinTech to further connect with users and businesses across all regions. We have seen recent regulatory developments across many geographies to regulate open banking activity, which is seen as fuel for Digital innovation in Financial Services. I know this prediction is a safe bet, but still the growing importance of Open Banking is a constant variable across the ecosystem that is worth including on this year’s list.

#9 Cryptocurrencies further embedded in our daily lives

Aside from the crypto-trading fever, once again bitcoin breaking its price record, we cannot deny cryptocurrencies are being put to test into real life. From crypto wallets converting crypto assets into fiat, accounting software evolving to include crypto transactions as part of business activity, to players like PayPal or Square betting strongly on opening up crypto to the mass affluent market. Regardless this second wave of crypto fever, providers are working extensively to bring closer the crypto world to real life use cases, and we should expect further solutions on this space becoming a reality for more users.

#10 RegTech will continue consolidating

The massive move to digital channels by consumers and business have streamlined the need for compliance solutions helping to regulate all legal and security aspects surrounding the activity across digital channels. Regulatory scrutiny is increasing fast, since the awareness and adoption of FinTech solutions is spreading rapidly. RegTech players are and will play an important role helping financial institutions, FinTechs and Non Fi companies meet regulatory obligations and improve compliance effectiveness