FinTech Zapping - 26th October

FinTech Whispers

??R3 acquires e-title’s electronic Bill of Lading platform

Trade Finance is a topic really close to my heart, soon I will do a FinTech reflection on it. It’s been a long time since we have heard any developments or exiting news on the space. Four years ago everyone was turning heads to how blockchain was going to revolutionize international trade, an industry dominated by physical paper and manual intervention. There are some FinTech survivors from that time, for example Wave (LINK) a fantastic solution to digitize trade documents or Tradeteq (LINK), but we also have seen consortiums growing to established distributed platforms (e.g Demica, we.trade and others). Now its is time for R3 through its consortium approach – Contour (former Voltron) – moving ahead by doting it with electronic bill of lading capabilities

??The end of free bank accounts is bad news for Monzo and its rivals

Current revenue models for some of the largest neobanks have proven not profitable, especially since lookdown restrictions have deeply affected their main source of revenue, interchange fee. The subscription driven model has proved not enough to attract active users to open a new account and stay active. Let’s remember that users are seeking new banking experiences not only around usability and value-added tools but also in pricing. The truth is whether you call it commission, fee or subscription neobanks are slowly shaping really like incumbents. It’s time to be creative and open new revenue sources to keep the party going, although the current scenario doesn’t allow for much room to test what works and what doesnt

??Paypal’s New service is a $50 billlion stimulus check for Bitcoin

A couple of weeks ago we talked about Coinbase’s newest product launch, which was fantastic, but it didn’t cause the effect that we are seeing this week with Paypal’s announcement to dive directly into the crypo world. We have seen both positive and negative comments, some of them are summarized on this article. The truth is PayPal entering the crypto world opens a new audience of potential users (retail and merchants) but it also jeopardizes the fundamentals of blockchain which is the opportunity to self-custody your crypto assets

??Funding Circle plc: Two years on

The SME lender is maneuvering through a strange tide since its IPO in 2018, when it went public at a valuation of ￡1.5B while today it has a capitalization of ￡235M. Yet analyst still see potential on the firm, thanks in part to its participation in both UK and US relief plans (CBILS and PPP program) which has been an endorsement of its capabilities to distribute funds and reach the underserved. We are seeing how p2p models are losing ground, Ondeck was acquired by Enova for as little as $90M when it went public at a valuation of $1.3B or Lendingclub moving away from its p2p model (the US fintech acquired Radius bank in Feb’20) … the question is what would be Funding Circle’s next move?

??Chinese Fintech Company Lufax Seeks Up to $2.4 Billion in U.S. IPO

It seems that we are going to see a lot of exit activity at the end of the year. Once, one of the largest p2p lending companies in China that managed to pivot into their WM business after the p2p crisis in China, it’s now applying for an IPO in the US.

FinTech Reflection – Disrupting Auto Finance

In the last 3 years we have witnessed the emergence of FinTech solutions targeting at Automotive industry. Now a days the auto industry is suffering deeply from the economic and social impacts from Covid, which could present a good opportunity for innovative and creative solutions offering more flexible ways to purchase automobiles.

For a long time and still today most of auto industry is dominated by OEMs captive financial arms and dealerships financing, acting as gatekeepers. Like in any other segment FinTechs have started to re-envision the buying journey:

Digital Finance Marketplace

If you can not fight them join them, which I think it was the idea behind these marketplaces. The success of these platforms was tied to the number of dealerships that they could onboard, to offer potential buyers a single place from where to search for cars and financing options, streamlining the process and solving existing frictions (e.g. saving time and offering more transparency through the process). As a side note for Autogravity, once a pioneer on the space has pivoted its business model to Car subscriptions

Examples: Autofi, Zuto, Autogravity*

Auto Loans

Here we can find regular alternative lenders offering auto loans as part of their Consumer Finance offering, by pivoting on an enhanced credit underwriting process and a digital experience. Companies like SoFi or Avant are offering personal loans instead of traditional named auto loans to finance car purchases, which often crashes with dealerships or OEMs financial options tied to potential discounts on final price. Also, we can find toher dedicated players in the space not only targeting at loans to acquire new cars but also financing options for car repairs

Examples: SoFi, Avant, DigniFi

Car Buying Marketplaces

The bulk of solutions in the space are targeting at the used car market, a huge opportunity for these players pivoting on flexible financing options through a full digital experience. Unlike traditional dealerships, not having a physical presence allows these players to offer more competitive prices. There are some big names in the space attracting a decent number of sales volumes recently - e.g. Clicars (Spanish ecommerce site for used cars) selling ~10k cars monthly or Carvana experiencing a 25% sales increase during Q2’20. The latter one has experienced a rally on its market shares, with 120% YTD growth

Examples: Clicars, Carvana, Shift, Vroom

Car Subscription

The new kid in the block, and honestly a real threat challenging traditional ways of buying cars. We are living in a world where our needs shift rapidly, and every day the need for flexible solutions is increasing. Car subscription is a new type of leasing/renting option that allows users to access to cars for a period of time with all relevant side cost included in the monthly payment (e.g. insurance, maintenance). Companies have managed to re-build the experience by offering users the possibility to rent a car for smaller periods of time, providing a full digital experience and eliminating initial down payment. I really think the concept “Car as a Service” will see great adoption in the next years,

Examples: Drover, Fair

Not only FinTechs are exploring new ways at offering auto finance to users, also we are seeing developments from Incumbents looking ahead to re-envision the buying journey. Some OEMs are exploring different alternatives by launching apps to supporting customers and dealerships during the buying process or moving to the car subscription wave – this last one has been tested unsuccessfully since we have seen large OEMs pulling out of deals or projects (e.g. Ford selling Canvas to Fair). On the other hand, banks have joined the wave too by launching new platforms (BBVA launching Niw a used car marketplace – LINK) or by partnering with Startups to enhance digital capabilities (e.g. Capital One partnering with CarGurus to enhanced digital offering)