Payments FinTechs should brace themselves for a tough H2 ??; Another FinTech gem from LatAm??????; European InsurTech giant in the making ??

???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. Stripe slashes internal valuation from $95B to $74B ?? What does it mean?
2. European Robinhood launches across the EU. Excitement vs. the risks involved ??
3. Bitcoin to completely recover in 6 months?! ??
4. US-Mexico remittance corridor is too big to ignore??
5. Meta’s existential problem it can do nothing about ??
6. European startup funding doesn’t look good ??
7. FinTech megadeal that didn’t happen ??

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

Last week (11-15 July) was another super exciting and hot week in FinTech.?We will look at payments FinTechs and that they should brace themselves for a tough H2; neobanks buying banks & another FinTech gem from LatAm; European InsurTech giant in the making, 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.

Payments FinTechs should brace themselves for a tough H2 ??

Klarnageddon is finally official ???Klarna, the Swedish Buy Now, Pay Later FinTech darling that was once Europe’s most valuable private tech company, has officially seen its value slashed by 85% to $6.7 billion in its latest round of fundraising.

The Swedish FinTech firm said it raised $800M in fresh funding from existing investors Sequoia and Silver Lake, as well as attracted new backers including the Canada Pension Plan Investment Board, and Abu Dhabi’s Mubadala Investment Company.

Spotting the trends ???Misery loves company, and when it comes to funding challenges and valuation collapses, Klarna is not alone. The first half of 2022 was tough for many payments FinTechs

• FinTech behemoth?Stripe?has seen its valuation falling 35% from the start of the year, according to Business Insider. Investor?Fidelity?has slashed Stripe’s valuation every month in 2022 except for March.?That’s harsh???
• The valuation of the POS FinTech?SumUp?fell from $22B to just $8B after its latest funding haul.?That’s a >63% loss…
• Shares in publicly listed?Affirm?are down more than 80% this year.?Block’s?and?PayPal’s?have dropped more than 60% each.

What does it mean? ???It’s clear that economic uncertainty is causing a lot of pain across industries, and FinTech isn’t immune to that too. Firms will definitely have to adapt to a more challenging climate in H2.

Here’s the takeaway on what the payments FinTechs should do and what can we expect from the market in the upcoming H2:

?? THE TAKEAWAY

Harder, better, faster, stronger ???Klarna as well well as the broader FinTech market with lower valuations clearly reflect a harsher funding climate characterized by reduced investor confidence. The worst thing? Market sentiment isn’t likely to improve anytime soon, so FinTechs need to brace themselves for a tougher, leaner, and meaner second half of the year. On the bigger picture view, this means a few things. First,?cost-cutting.?The increasing cost of capital and subsequent drop in funding means payments firms will have to conserve cash and possibly scale back growth plans. Smaller, loss-making FinTechs will be particularly vulnerable without the safety blanket of easy financing to protect against missteps. Second,?diversification. Branching out into other payment types and broader financial services beyond just your core offering can minimize risk and create additional revenue streams. This might be easier for the bigger guys though (think Stripe, the same Klarna and/or Revolut). Finally,?M&As. FinTechs with strong balance sheets will definitely pick up struggling FinTechs at a steep discount to widen their product offerings and bring in new tech and customers. Hence, more consolation in the space is probably inevitable with harder, better, faster, and stronger players further solidifying their positions.

Neobanks buying banks & another FinTech gem from LatAm??????

The news ???Earlier this week I briefly covered that Brazilian FinTech?Creditas?has raised a solid amount of funding and is buying a bank. This is a very important development related to yet another FinTech gem from LatAm, so today we’re taking a closer look at it.

More on this ?? Credit?is an online consumer loan platform. It just raised $200M and is finalizing the acquisition of?Andbank, a Brazilian bank with roughly $30B in assets under management. This will effectively give them a Brazilian banking license. This is a big deal because:

• Creditas will begin accepting deposits immediately. Retail deposits will help improve the platform’s margin.
• The lender also purchased mortgage marketplace?Kzas, which will allow it to offer even more loans from various lenders.
• The deal is reportedly worth $100M, but it is still awaiting approval from the Brazilian central bank and CADe, Brazil’s antitrust regulator.

But there’s more to that. Creditas’ recent growth and strategy moves it closer to becoming a proper?Super App?rather than just a FinTech lender. In fact, it might soon become as big and as an important market player as Nubank currently is.

Let’s take a closer look at it.

More about Creditas???The Brazilian FinTech is 10 years old but it continues taking the country by storm:

• In January, it raised $260M as a $4.8 billion valuation.
• The FinTech specializes in auto loans, insurance, and used cars.
• It prides itself on offering cheap finance, something that is rare in Brazil (this is exactly what gave Nubank a massive boost and facilitated its crazy growth).
• The FinTech firm has been strategically using its revenue (which increased 233% to $48.6M from Q3 2020 to Q3 2021) to build out its platform. A platform that’s leaning towards a Super App status.

Another Super App in LatAm? ???Creditas’ desire is to be “a one-stop solution for those seeking a digital-first experience in everything related to their house, car, motorcycles, and salary-based benefits.” And their continued acquisitions and new ventures are definitely built on that desire, if not an even bigger goal - to become a Super App:

• Creditas currently operates?Creditas Auto, a car marketplace;?Creditas Store, an e-commerce platform with a payroll-deductible buy now, pay later (BPNL) model; and?Voltz Motor, which offers electric motorcycles.
• In 2021, the FinTech acquired four companies, including credit and financing provider?Bcredi, and auto insurance firm?Minuto Seguros.
• And in 2022, it’s about to purchase a bank.

What does it mean? ???There’s a new FinTech gem ?? in LatAm, and it could be as exciting as Nubank. Here’s the takeaway:

?? THE TAKEAWAY

A new Super App in town ???First, let’s talk about the banking license. If Creditas gains approval for its bank acquisition, it will allow the FinTech to enter into the concentrated Brazilian banking industry. Why does this matter? The Brazilian lending space is known for its high-interest rates, hence, Creditas’ cheap financing options can make it easier for Brazilians to borrow money. Furthermore, Brazil’s banking market is also highly profitable. Thus, through its lending operations and increased margins through retail deposits, Creditas could easily become one of the very few profitable neobanks globally. And that would fuel their growth even further. Zooming out, we must also talk about Creditas’ ability to connect with Brazilian customers in a unique way. This will effectively will open doors for it to bring on and retain customers. More cross-selling and engagement opportunities will open as the FinTech will ramp up its Super App efforts. Having said that, it will be interesting to see how it will compete with another Brazilian FinTech super star - Nubank, which continues to build out its super app structure and focuses on reaching profitability.

European InsurTech giant in the making ??

The news ???Berlin-based InsurTech?wefox?has closed a Series D funding round of $400 million. The funding consists of a mix of debt and equity, with Mubadala Investment Company leading the equity raise. Eurazeo, LGT, Horizons Ventures, OMERS Ventures, and Target Global also participated.

The newest round sees wefox increase its valuation from $3 billion to $4.5 billion in one year.?Not too shabby!

The USP ???Founded out of Berlin in 2015, Wefox sells various insurance products through a combination of in-house and external brokers, bypassing the direct-to-consumer model of InsurTech competitors which include rival German startup Getsafe.

The numbers ???This way of growing users, by getting third-party brokers to use Wefox to advise their own customers, is exactly how CEO and founder Julian Teicke reckons helped the company double its revenues to $320M last year. Moreover, it has already generated $200M in the first four months of 2022, putting it on target to hit $600M in turnover by the end of the year, and recently passed 2M customers across the board.

?? THE TAKEAWAY

InsurTech giant in the making ???Wefox is a bit of an outlier and only among a few InsurTechs that haven’t been really affected by the current economic downturn. In the past month alone, Policygenius cut a quarter of its workforce shortly after raising $125M, while Next Insurance is scaling back by around 17%.?Elsewhere, a host of publicly traded InsurTech companies are trading way down on their initial IPO price, including Root, Hippo, and Lemonade (all combined worth less than wefox right now ??), the latter also reportedly laying off a portion of its staff back in April. That said, it seems that wefox’s business model of indirect distribution (all others go direct to consumer) is really working, and reportedly has been their secret sauce that has enabled the company to scale faster than any other InsurTech in the world. Now with new capital, they can not only accelerate the pace of their growth but also look for bargains in the market for M&A activity. It seems that there’s an InsurTech giant in the making…

Extra Reads & Quick Bites for Curious Minds??

• Another one… ???Senior?Revolut?executive Deirdre Halligan is set to leave?the FinTech after 2 years with the company. The only woman on the executive leadership team at the global financial super app, Halligan was head of global affairs, wealth, and trading, involved with authorizations and regulatory affairs, according to her LinkedIn profile. The news of Halligan’s exit follows the departure of chief compliance officer Harry Gill a few months ago and comes ahead of yet another compliance exec leaving the biz over the last couple of years.?This seems to become a pattern showing that things aren’t right when it comes to risk management & compliance at Revolut…
• Profits Now, IPO Later ???Global money transfer startup?Zepz ,?the parent company of?WorldRemit ,?is reportedly putting its planned initial public offering (IPO) on hold while it focuses on profitability amid management turnover and alleged account issues.?HQed in London, Zepz was founded in 2010 as WorldRemit and recently has seen several senior management exits while some customer accounts weren’t checked in a timely manner. Zepz was hoping to go public in the US this year at a valuation that was estimated at high of $6B.?That clearly wouldn’t sell these days…

Money Moves??

• Boston-based restaurant Software-as-a-Service (SaaS) and POS system provider?Toast?has acquired?Sling, a company that offers employee scheduling and management tools, folding the latter’s features into Toast Payroll and Team Management products, which include payment features.
• UK-based financial education app and pre-paid debit card provider for kids?GoHenry ?has expanded into Europe with the acquisition of French startup?Pixpay .
• Protagonist , a fairly new crypto fund and incubation lab, has launched its first $100M fund to focus on early-stage crypto companies. The firm began at the beginning of 2022 and originally was called Ship Capital, but changed its name soon after.

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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