Klarnageddon begins? Klarna to lose 70% of its valuation ??; Bear market is perfect for Nubank to scale in LatAm ??; C2C is the future of commerce ??

???Hey,?Linas here!?Welcome to a????weekly 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 this week:

1. FTX is Crypto’s Berkshire Hathaway while its CEO is the new J.P. Morgan ??
2. Why tech layoffs are hitting late-stage startups the hardest? ??
3. Elon Musk sees payments & crypto as part of Twitter’s future ??
4. Brex ditches SMEs, the vertical that gave them their name ??
5. Monzo’s crypto ambitions & challenger banks’ strategy triangle ??
6. Open Banking is the Next BIG Thing in FinTech since Plastic ??

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

Last week (20-24 June) was one of the craziest weeks in FinTech this year.?We will look at the beginning of Klarnageddon and Klarna losing 70% of its valuation as it seeks fresh funding; why the bear market is perfect for Nubank to scale in Latin America; understand why C2C (Connect-to-Consumer) is the future of commerce, and other interesting news and developments.

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

Klarnageddon begins? Klarna to lose ~70% of its valuation as it seeks fresh funding ??

The scoop ???Swedish BNPL giant?Klarna?is reportedly looking into raising more funds at a significantly lower valuation, as per WSJ. This is yet another sign of how dire the current macro environment for tech companies is.

More on this ???It was earlier reported (and I’ve covered it?here) that Klarna was seeking to raise as much as $1B at a $30B valuation, which was still a cut of around 30% of their last private valuation at a whopping $46B.

The company’s new talks could now result in a deal valuing the company at around $15B which means it might lose close to 70% from its peak valuation. One must add though that the current talks might end up with $500M – with no guarantee of a deal going forward.

Zooming out ???Let’s zoom out a bit and look at Klarna from a distance:

It’s clear that growing more than 8 times in ~2 years wasn’t sustainable. It’s also clear that their growth is still impressive (not valuation-wise only), but the worrying sign is about Klarna’s future.

So Klarnageddon begins? Here’s the takeaway:

?? THE TAKEAWAY

Klarnageddon (2022)???Klarna struggling to raise fresh capital (and effectively convince investors that it’s not over-priced) is the ultimate highlight of the current crisis of the Buy Now, Pay Later business model. And we can remember that exactly the BNPL feature helped Klarna to become Europe’s largest privately held company. But that’s about to change. Falling discretionary spending, the growing likelihood of customer defaults (and hence a rise in bad debt), and rising interest rates are among the key macro drivers that are shaking up the BNPL market like a storm. If that wasn’t enough, the growing competition (think PayPal & Visa/Mastercard, and now?Apple), as well as intensifying regulatory scrutiny, indicates that the BNPL sector is currently being heavily repriced and reassessed. Coming back to Klarna, we must repeat again that it’s obvious that nobody likes a down round and cutting their valuation. But this is a hundred times better than not raising money at all and inevitably dying, so Klarna is trying to raise fresh capital because it needs to do so. The bigger problem here is its future. In addition to the aforesaid challenges, mounting losses and BNPL transitioning to a feature-only should make everyone think as to whether Klarna can be a sustainable business (so as other BNPL players). 2022 could be the beginning of Klarnegeddon, and it won’t be pretty.

Bear market is perfect for Nubank to scale in Latin America ????

The news ???A month after recording its “strongest?quarter” in history, Brazilian neobank?Nubank?has shared plans for consolidation in Latin America, as per FT.

More on this ???Already one of the largest digital financial service platforms in Latin America, the company plans to continue expanding by picking up acquisitions at low prices, the company’s CEO?told the?Financial Times. The neobank secured a $650M credit line to expand across Mexico and Colombia in April and is now looking to maximize on the impending “shakeout” in the area’s fintech sector.

“There’s going to be a rationalization of some of the FinTechs that are in the market, there will probably be some consolidation,” Nubank founder and CEO David Vélez told the Financial Times.?

“This will enable the survival of the fittest.”??

?? THE TAKEAWAY

Bears are for scaling ???Brazil has around ~40 different digital banks. That's way too much. Nobody wants to have 20-30 different apps on their phone. M&As will soon start shaking up the space and the survival of the fittest will begin. All bullish signs for Nubank. Additionally, Vélez also said that some conversations it was having around a year ago are now coming back at a 70% discount. If that’s really the case, the LatAm FinTech ecosystem is about to be shaken up by quite a bit. Also, being down by 66% since the IPO, $NUseems to be super undervalued.

C2C (Connect-to-Consumer) is the future of commerce ??

The news ???Social media giant?Twitter?and e-commerce star?Shopify?have teamed up to expand social shopping features as consumers are increasingly buying through their feeds.

More on this ???Shopify users who install the new Twitter add-on can connect their Twitter account with Shopify and then start building out a store on Twitter with the platform’s Shop Module. Twitter’s giving Shopify merchants the option to display up to 50 products on their profiles, plus features like live-stream hauls.

The impact? ???Insta Shop,?TikTok?Shopping, and now?Twitter Shops, it’s yet another sign that big businesses are moving from D2C to C2C (Connect-to-Consumer), and it’s the future of commerce. Here’s the takeaway:

?? THE TAKEAWAY

Be where your customer is ???As ad revenues are slowing down, social media giants like Twitter or Meta (Facebook) are expanding shopping features to drive more growth (and effectively - revenues). And at the center of it all is social commerce. While social vertical still makes up less than 5% of online shopping, it’s growing rapidly - Shopify said that orders placed through social apps like?Snap?and TikTok quadrupled last quarter from a year ago. That’s huge! Zooming out, there’s another important trend worth noting - the move from direct to consumer (D2C) to connect to consumer (C2C). Today it’s no longer enough for companies to have a website, one-click?checkout, and shipping. To really connect with your buyers, brands have to be where consumers are?most connected, and that is, fortunately, or not, social media. That’s why US social sales could?hit?$168B by 2027 — which is nearly five times bigger than last year. So if you’re a FinTech (like Shopify, Meta, etc.), and you don’t have a C2C strategy already, you must act now.

Extra Reads & Quick Bites for Curious Minds??

• Neobanking in Japan???? Minna Bank, Japan’s first digital bank, has notched up over 1M app downloads, and over 400,000 new accounts in their first 12 months. Minna Bank developed the first full cloud core banking system and plans to roll out its core banking systems to numerous international financial institutions. A spokesperson from the bank told Finextra that they have confirmed interest from several financial institutions across the globe and that their latest digital banking system is “in the process of considering the best way to meet the needs of various potential partners.”
• China isn’t messing around ?????China?released?new policies that will now ban accounts on WeChat, the country's top social media platform with close to 1.1 billion users, from providing access to crypto or NFT services. The new policies state issuance, trading, and financing of either asset?will now fall under the "illegal business" category.

Money Moves??

• US-based payments startup?Settle?has raised $280M in debt to expand support for emerging e-commerce businesses.
• Immutable, an Australia-based Web3 gaming firm, launched an inaugural $500M developer and venture investment fund. The capital will be used to fund projects building web3 games and NFT-focused companies on its layer-2 Ethereum-focused platform, Immutable X.
• Israel-based FinTech?Rewire?has acquired?Imagen?to provide prepaid debit cards for migrants in Israel.

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:

?? Bitcoin in 2021: a story in 5 graphs, and what might come in 2022

???A Wise pitch deck that led to London’s biggest and most successful direct listing ever

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About: I am?a business developer, sales professional, FinTech strategist, as well as 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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