Robinhood: Robbing the Poor to Give to the Rich?; NAB to Acquire 86 400; Brazil’s Nubank Nets Massive $400M Series G at $25B Valuation

Hey, ?? fellow FinTech enthusiasts! Trust you are all keeping well and safe. What a week it was... The best Weekly FinTech Digest yet is out!

P.S. Before we dive into what happened in FinTech last week, check out my Connecting the Dots Newsletter, where you will get much more. Every Week (Month in FinTech for January coming out soon)????

Last week (25-29 January) was one hell of a week in FinTech... Robinhood has won this week by being at the epicenter of the GameStop Stock Pop Saga, which made it probably the single FinTech in the world that has so much pressure and hate right now. On the other side of the world, National Australia Bank (NAB) has agreed to buy out neobank 86 400, ending another Australian neobank’s quest to challenge the Big Banks; Brazilian neobank Nubank has raised $400M at a $25B valuation and has nearly tripled its users since 2019, becoming he fourth-most valuable financial institution in Latin America, and by far the largest challenger bank in the world, and other super interesting news and developments.

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

Robinhood: Robbing the Poor to Give to the Rich?

Robinhood, one of the most popular consumer trading apps, has restricted its users from making some popular investments including GME and AMC citing risk management decisions to protect Robinhood and its clearinghouses.

Robinhood is probably the single FinTech in the world that has so much pressure and hate right now. Here’s how it all happened and why it is important.

It all began when a bunch of Reddit users on WallStreetBets sub-Reddit found out that GameStop (GME) was shorted by more than 100%. This means that investors had bet more shares than existed in the company with an expectation that it will lose value.

This has raised a lot of eyebrows and the big idea was born: if institutional investors had bet more shares than GME had in existence that it would lose value, what would happen if lots of retail investors started buying the stock?

They hence started doing that. On a massive scale. GME stock skyrocketed, forcing the hedge funds and other big players to decide whether to hold onto their negative bet and take strong paper losses as GameStop rallied, or cover their short, buying the stock at a higher price than they initially paid for it, losing money.

Surprisingly, covering shorts would require buying the stock at high prices, perhaps boosting its value yet again. As an effect, the wildest short-squeeze was born.

A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock's price (Investopedia)

The effect? Short-sellers have lost more than $5 billion so far thanks to GameStop’s rapid appreciation.

Robinhood, thanks to its gamified trading platform, has found itself at the epicenter of the GME saga. The company announced on Thursday it was restricting trading on a number of stocks, including GameStop, citing risk management decisions to protect Robinhood and its clearinghouses.

While the specific reasons may have been short-term and mainly technical (Robinhood made a public statement saying that it ran low on capital and had to make some hard decisions, quickly), but their choice definitely looked corrupt to the average person.

This has led to crazy social media anger, hundreds of thousands of negative app reviews (which later were deleted by Google), and obviously, people ditching Robinhood for other retail brokers.

THE TAKEAWAY

Robinhood has learned some very hard lessons this week. First and foremost, it’s about the fragility of the brand. Trust is everything, especially in financial services. Robinhood has spent 7 years building confidence in its platform, but it took them only 7 minutes to ruin it. And while the real reasons might have been indeed technical, the way they did it was so bad that the narrative of them democratizing finance turned completely against them. Second, centralized systems failing yet again will only continue the push towards decentralized solutions and DeFi. Finally, it’s a good lesson for other FinTechs in the retail trading space - they are not safe, and innovation is crucial right now.

NAB to Acquire 86 400

National Australia Bank is to acquire 86 400, one of a few new digital banks which have struggled to break the dominance of Australia's Top Four banks.

National Australia Bank (NAB) has agreed to buy out neobank 86 400 for approximately AU$220 million (~$168M), and combine it will its own digital-only bank, UBank. One must note that NAB already holds a minority stake of approximately 18.3% in 86 400.

Founded by Cuscal Ltd and led by CEO Robert Bell, 86 400 has more than 85,000 customers, $375 million of deposits, $270 million in approved residential mortgages, and 2,500 accredited brokers.

The app-only bank had raised over $120 million in its bid to disturb the dominance of Australian incumbents. But like now defunct rival startup Xinja, the challenge of raising yet more capital to fund growth has become an increasing burden.

THE TAKEAWAY

Incumbents 2 - Neobanks 0. This is yet another illustration that FinTech is hard. 86 400 selling to NAB is probably more an admission of defeat than a win or a desirable exit strategy. It’s an illustration that the neobank wasn’t able to scale and raise enough capital. On the other hand, it’s a good deal for NAB to further strengthen their positions, especially in the digital-only banking race.

Brazil’s Nubank Nets Massive $400M Series G at $25B Valuation

Brazilian neobank Nubank raised $400M at a $25B valuation and has nearly tripled its users since 2019.

The Brazilian digital-only banking giant's Series G funding brings its valuation to a whopping $25 billion, up from $10 billion in 2019.

Beyond becoming the fourth-most valuable financial institution in Latin America, Nubank is by far the largest challenger bank in the world: its user base has nearly tripled from 12 million in 2019 to 34 million today.

The neobank plans to use the funding to continue growing its business both in Brazil and its two international markets, Mexico and Colombia.

THE TAKEAWAY

Nubank is a textbook example of the FinTech revolution. Launched in 2013, it was Brazil’s first neobank and has thus benefited from regulations looking to stimulate FinTech competition in the market. Incumbent banks' dominance and soaring fees have made financial services inaccessible to many Brazilians, not to mention trust in banks is low. With its lower-cost banking alternatives, Nubank seized on catering to the country's 55 million underbanked consumers early, and it also leveraged high internet penetration to make its services widely accessible via a digital-only model. What’s even more fascinating is that Nubank has zero spending on customer acquisition or marketing. Nubank has relied "solely on word of mouth," according to CEO David Velez. In September 2020, Nubank was onboarding 41,000 new customers every day. Having a massive fundraise and being cash-flow positive, Nubank has everything for profitable future growth. First, driving more value from existing customers. Then, focusing on Mexico and Colombia as well as looking for expansion opportunities in Latin America.

Extra Reads & Quick Bites for Curious Minds??

• Digital payments company Payoneer is in talks to go public via SPAC at a $2.5 billion valuation.
• Sweden-based payments company Trustly has announced plans to launch an IPO in late April or early May 2020, with a valuation of up to $11 billion.
• Payments firm Flywire plans IPO at a $3 billion valuation (Reuters).

??Money Moves??

• Technology company NCR closes in on a deal to buy ATM operator Cardtronics for $1.7B.
• France-based Alma raises $59.4M for its installment payment option.
• Quantifind gets $22M to automate financial crime investigations.
• CapBay, a Malaysia-based multi-bank supply chain finance, and peer-to-peer financing platform have raised $20M in Series A round.
• Melio, a digital payments company for SMEs, has raised an additional $110M in funding, putting its valuation at $1.3B.

Quote of the Week/Food for Thought??

Robinhood clearly didn’t follow Warren Buffett’s advice.

Graph of the Week ??

GameStop Stock Pop got everyone’s attention this week ?? $GME closed Friday at $325.

Week in Brief

Robinhood, one of the most popular consumer trading apps, has restricted its users from making some popular investments including GME and AMC citing risk management decisions to protect Robinhood and its clearinghouses.

National Australia Bank is to acquire 86 400, one of a crop of new digital banks that have struggled to break the dominance of Australia's Top Four banks.

Brazilian neobank Nubank raised $400M at a $25B valuation and has nearly tripled its users since 2019.

Continue reading by subscribing to Connecting the Dots Newsletter. You will receive fresh news about FinTech with hot takeaways every week (the newest edition is already out!).

P.S. You might enjoy my earlier pieces as well:

?? Robinhood: Robbing the Poor to Give to the Rich? A Story about the Fragility of the Brand

?? Cutting Through the Noise: Bitcoin Fundamentals & Why it Was Created

***

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.

If you've enjoyed this piece, don't hesitate to press like, comment on what you think, and share the article with others. Let's spread the knowledge together!

For more, hit the subscribe button, follow me on LinkedIn & Twitter. I'm building the best community the social world has ever seen!????