SoftBank unblocks Revolut from getting UK banking license; Apex launches Fractional Fixed Income

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Hi Fintech Futurists —?

You’re the best, today’s agenda below.

1. NEOBANKS: Revolut strikes share deal with SoftBank to remove barrier to UK license
2. WEALTHTECH: Apex to Launch Fractional Fixed Income, Opening Up Low-Cost Access for Retail Investors to Bonds in Industry First
3. LONG TAKE: Is Apple Wallet's Open Banking integration a fintech extinction event? (link here)
4. PODCAST CONVERSATION: Applying artificial intelligence to investing and finance, with Auquan CEO Chandini Jain (link here)
5. CURATED UPDATES

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Digital Investment & Banking Short Takes

NEOBANKS: Revolut strikes share deal with SoftBank to remove barrier to UK license

Revolut, the most valuable UK neobank with nearly 35MM customers, wants a banking license in order to generate net interest and lend out capital. But it does not have one in the UK, its largest market, even after applying over two years ago. One of the blockers is that the Bank of England (BoE) has asked Revolut to collapse its six classes of shares, which are the result of its multiple funding rounds over the past 8 years. Not surprisingly, if you are an investor holding a liquidation preference, this is an unappealing request.

Investors TCV, Tiger Global Management, Ribbit Capital and Balderton Capital agreed to transfer shares into a single class. However, the final hurdle has been SoftBank, which led an $800MM round in 2021, valuing Revolut at $33B.

Despite the limitations from not having a license — preventing the neobank from offering lending services or accessing the UK deposit insurance scheme — SoftBank has been unwilling to give up its priority shares without compensation. The fund was asking for twice the amount of common stock in exchange for its preference. But it looks like SoftBank relented, and a deal has been finalized that does not require new issuance to SoftBank. This implicitly means they are taking a write-down.

Hurdles still remain as Revolut is still under pressure by the BoE to produce clean and punctual financial accounts after reporting issues in 2021 and 2022. The neobank also came under fire for failing to block accounts, worth ￡1.7MM, flagged as suspicious by the UK’s National Crime Agency.?

Still, consumer sentiment remains high in neobanks, with over 80% of users likely to recommend their neobank services compared to 60% for traditional banks, and profitability, or at least reduced losses, are starting to be realized.?

While Revolut has had an EU banking license in Lithuania as of 2021, but a UK banking license also provides the legitimacy needed for applying to other major national regulators, such as in the US, Singapore, and Australia. If?Revolut can obtain those, its offering will grow closer to financial product manufacturing, which in turn will drive profits.

?? Related Coverage ??

Long Take: Revolut's $100MM opportunity cost and faltering profitability without a UK banking license

Read full story

The AFC Policy Summit serves as a pivotal gathering for industry leaders, regulators, academics, and policymakers to exchange ideas, explore emerging trends, and shape the future of responsible financial technology.?

Confirmed speakers include Congressman French Hill, Chairman of the Subcommittee on Digital Assets, Financial Technology & Inclusion, Congressman Mike Flood,?Renaud Leplanche, CEO, Upgrade,?Ram Palaniappan, CEO, Earnin, among many more.?

?? Register to Attend

WEALTHTECH: Apex to Launch Fractional Fixed Income, Opening Up Low-Cost Access for Retail Investors to Bonds in Industry First

Apex Fintech Solutions launched a fractional fixed income investing platform with Moment Technology. Since 2012, Apex has been powering many of the functionalities of modern fintech platforms — custody & clearing, fractional trading, and digital account management. As of June, they serve over $120B in client assets across 24MM+ accounts, with customers including brokerages and RIAs like Ally Invest, Betterment, eToro, M1 Finance, and SoFi Wealth.

The timing of the new product aligns well with the macro regime shift towards fixed income. Investors are paying close attention to rates, particularly in US treasuries, which are now at 16-year highs, and the selloff of long-duration treasuries, like TLT (iShares 20 Plus Year Treasury Bond ET), approaching 3 years of consecutive negative returns.?

While asset allocation models using a traditional 60/40 portfolio have been hurting, the risk-free rate on a US 2-YR note stands at 5.08%.?

The uncertainty of a looming recession has seen investor funds flow to short-term bonds for safety and, in other cases, pile into cash via Money Market funds. These dynamics have given fixed income a re-birth after a dormant decade of low rates. In the words of Churchill, “Don’t waste a good crisis!”

This is a positive dynamic for tech-forward custodians like Apex, and other embedded investment tech platforms. The convergence in asset management over the last few years has eliminated many of the traditional barriers to entry (illiquidity, high investment minimums, fees, pricing opacity, dealer-to-dealer relationships, among others) and grown retail participation across asset classes like crypto and alternatives — firms like Moonfare, Yieldstreet, Fundrise, Equi come to mind.?

Bonds, and other fixed income products, historically have high barriers to entry, but the current economics and customer demand will chip away at that over time. Wealthtechs like Wealthfront and Singapore-based exchange, BondbloX, are emerging players; crypto-native players like Ondo as well as traditional asset managers are also tokenizing these assets for easier access. Given the asset class is valued at $133T, we are excited about the news ways it becomes automated and widely available.?

?? Related Coverage ??

Long Take: Why $ billions are flowing out of Banks into Money Market Funds, and how startups can benefit

Read full story

Podcast: The $100B fintech custodian powering digital investing, with CEO of Apex Bill Capuzzi

Read full story

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Blueprint Deep Dives

Long Take: Is Apple Wallet's Open Banking integration a fintech extinction event?

Sharks, once apex predators, now face decline, contrasting with the rapid evolution and growth of humans, attributed to our general intelligence.

Drawing parallels in fintech, specialized ATMs grow in underbanked areas, while adaptable smartphones, embodying human-like versatility, reshape global finance. Apple's embrace of UK's open banking, merging bank data with the ApplePay wallet, hints at a future where standalone bank apps might become obsolete. As tech giants potentially adopt Web3 wallets, they could overshadow national regulations, heralding a future where generative AI shapes global finance.

Podcast Conversation: Applying artificial intelligence to investing and finance, with Auquan CEO Chandini Jain

In this conversation, we chat with Chandini Jain - CEO and founder of Auquan. She has 6+ years of global experience in finance.

She started her career with Deutsche Bank Mumbai/New York and worked as a derivatives trader with Optiver, the world's largest market-maker, in Chicago and Amsterdam from 2013-2016. Since 2017, she has been working on Auquan, an early-stage fintech startup bridging the gap between data science and finance. At Auquan, she is employing new and cutting-edge ML and Deep Learning techniques to solve financial prediction problems.

??Listen to Podcast

Curated Updates

Here are the rest of the updates hitting our radar.

AI

• ? Vyzer Secures $6.3 Million in Seed Funding to Transform Wealth Management with AI - Cision
• MANTLE SECURES $10.5M SEED FINANCING - Private Capital Jornal
• Visa launches $100 mln venture fund for generative AI startups - Reuters

Payments

• ? Metropolis Technologies, Inc. to Acquire SP Plus Corporation for $1.5 Billion - Metropolis
• Startup Stampli Raises $61?Million, Aims?to Bring AI to Accounts Payable - Bloomberg
• Kafene Closes Series B Extension with $12.6 Million in Additional Equity Investment to Capitalize on Recent Business Momentum - PR Newswire
• Build Credit Debt-Free with the New Experian Smart Money? Digital Checking Account & Debit Card - Businesswire

Wealthtech

• ? Indonesian Fintech Startup Investree Raises $231 Million Series D, Sets Up Joint Venture In Qatar - Forbes
• Frec steps out of stealth with $26M in funding, aiming to democratize sophisticated investing - VentureBeat

Financial Operations

• ? Open banking led to a fintech boom — as Brite raises $60M, account-to-account payment grows - TechCrunch
• Recapitalization, $60M Series D support growth of e-commerce financier Clearco - TechCrunch
• Stitch raises $25M Series A extension led by Ribbit Capital, increasing the round’s total to $46M - TechCrunch

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