Hey Fintech Friends,
New quarter, new Signals Quarterly Roundup 😎.
For new readers, Signals is the subscriber-only edition of TWIF designed to get you away from the headlines and to explore the larger trendlines. Each quarter, we break down four key questions on fintech activity:
Which concepts are getting funded?
Where are exits, M&A, and SPACs concentrated?
Which firms are raising debt and venture funds for fintech?
Which products were launched over the last quarter?
If you haven’t already, subscribe to future editions here!
Tech is going through it
A lot of fintech activity went down in Q2, as did markets:
Fintech is getting particularly hard-hit by financial volatility and layoffs, all against a backdrop of heightened socio-political instability more globally*. With all of this, it’s worth calling out a few of the fintech updates that inspired hope in Q2.
Good things happened ✨
Incharge launched a banking app built specifically for Ukrainian refugees. The app offers no-cost banking services to Ukrainians in Europe, with a support channel staffed by Ukrainian-speaking volunteers.
CaixaBank launched Spain’s first credit card with payment details written in Braille to facilitate payments for the visually impaired.
* If you’re interested in supporting nonprofits providing aid in countries with the highest humanitarian need, check out: CARE, Doctors Without Borders, Save the Children [Charity Navigator: 1, 2, 3].
Let’s dive into fintech activity in Q2.
Which concepts are getting funded? 🤑
Fintechs rounded up over $29 billion in Q2, continuing to accrue towards earlier-stage rounds as investors shy away from the turbulence in public markets and late-stage venture:
See the full Q2 ‘22 data here (for paid subscribers only).
Areas that saw the highest activity were:
A few concepts received notable funding, including:
Platforms for independent workers, with funding to Creative Juice, Archie, Formations, ImaliPay, Moves, Winden, GoSolo, Juni, Qonto, Vergo, and Zippi empowering the growing population of freelancers, solopreneurs, creators, and gig workers with new-age financial management tools.
Cross-border trade, with funding to Coda Payments, Eurora, Leatherback, TransferMate, Kapaga, Talk360, Klasha, PayGlocal enabling more businesses to accept payments from international customers and to Finkargo financing small importers in Latin America.
Where are exits, M&A, and SPACs concentrated? 📈
B2C payments continue to globalize, with PayU acquiring Ding to double down on payment acceptance operations in Latin America, Worldline’s joint venture with ANZ Bank expanding their merchant acquiring services in Australia, and Pan-African payment gateway MFS Africa snagging U.S.-based Global Technology Partners in a move that positions the company for an upcoming US launch.
In consumer financing, banks are capitalizing on the rising rate environment to generate higher profits on mortgages, with Barclays buying Kensington Mortgage and Starling snapping up Masthaven’s mortgage book.
In personal financial & wealth management, wealth advisors and asset managers have been in a land grab for customers, with notable acquisitions by Goldman Sachs, Bain Capital, Mercer Advisors, Solomon Advisors, Lovell Minnick Partners, and Hawksmoor. Meanwhile, Truist and KeyCorp are taking a more product-led approach in their respective acquisitions of platforms Long Game and GradFin.
In lending infrastructure, Intercontinental Exchange Inc.’s $13.1B bid to buy Black Knight is being met with antitrust concerns as regulators look into whether combining the US’s two largest mortgage software platforms could potentially harm consumers downstream.
Which firms are raising debt and venture funds for fintech? 💰
A number of fintech-focused funds were launched, including:
Infinity Ventures’ inaugural $158M fund focused on fintech infrastructure & commerce enablement.
Plural, an investment platform led by Wise’s co-founder and other founders, announced a €250M fund targeting early-stage companies run by “unemployables” like themselves.
Conversion Capital closed its $122M Fund III, focused on early-stage fintech infrastructure.
There’s a lot of dry gunpowder to deploy in DeFi:
EToroset up a $20M fund to buy NFTs.
Fasanara Capital, a London-based asset manager, is raising a $350M crypto- and fintech-focused VC fund.
Binanceannounced a $500M fund targeting Web3 startups.
In geo-focused fund news:
Delta Partners, a Dublin-based VC, announced a €70M fund that will back seed and early-stage startups in Ireland.
Rali_cap, a fintech fund and collective focused on emerging markets, launched a $30M fund.
Upfin, a new fund focused on Nordic fintechs, announced the closing of its inaugural €30m fund.
1982 Ventures announced its $20M debut seed fund focused on early-stage startups in Southeast Asia.
MassMutual Ventureslaunched a $400M fund targeting fintechs in North America and Israel.
Which products were launched over the last quarter? 🚀
Apple threw its hat into the Buy Now, Pay Later ring despite a grim regulatory and financial outlook for BNPL companies. They were joined in launching BNPL solutions by Visa, PayPal, Revolut, Codebase, Tabby, ICICI Bank, and Tenet.
Checkout.com made the crypto payments plunge in revealing plans to let merchants accept Circle’s USDC stablecoin. Circle, in turn, announced the release of a Euro-backed stablecoin, EUROC.
Crypto payments are also racking up rewards with the launch of Abra’s Crypto Card, Gemini Credit Card, Visa and BlockFi’s Bitcoin Rewards Card, and Paystand’s DeFi Corporate Card,
In B2C payments, wallets are having a moment. Sila launched Virtual Accounts in a bid to hold users’ deposits. Krepling announced Krepling Pay as a tool to speed up eCommerce transactions. The central bank of Ghana launched GhanaPay, a mobile wallet promoting access to banking services for Ghanaians. Google Wallet re-launched (not to be confused with the original Google Wallet or with Google Pay) (but kind of)?
Q2 was also a boon for cross-border B2B & B2C payments. Form3 partnered with Goldman Sachs to roll out FX payments in 163 countries for financial institutions. Zai launched CurrencyFair to offer individuals and businesses cross-border transfers to over 150 countries at “up to eight times cheaper than the banks”.
Q2’22 Look-back: Cross border payments
Few concepts saw as much activity in Q2 as cross-border payments, an area still very ripe for disruption. Cross-border payment volumes are growing roughly 5% YoY and are expected to balloon from $150 trillion in 2017 to over $250 trillion by 2027 according to the Bank of England, largely fueled by emerging markets’ increased participation in B2C, B2B, and C2B commerce.
Yet sending money internationally remains costly– ranging from 5%-10% of the payment’s value– takes days to weeks to process, and often lacks transparency and safety. These issues are only compounded in emerging markets.
What’s the deal with cross-border payments?
A State of the [Western] Union
Historically, cross-border payments are facilitated through a system of correspondent banks (notably via the Society for Worldwide Interbank Financial Telecommunication or “SWIFT” network). Digital wallets like M-Pesa and regional networks like the Single Euro Payments Area have also sprung up to enable direct, secure bank-to-bank transfers within their geos (last quarter, Citi, TrueLayer, and Modulr all announced support for instant SEPA payments).
In the correspondent banking system, a sender’s bank likely doesn’t have a direct relationship with the recipient’s bank, so it initiates a payment instruction to a correspondent bank who does. Or if no direct correspondent exists, the first correspondent bank will find another correspondent bank, and so forth.
Each stopover generates additional fees and increases lag time, because maintaining a correspondent banking program creates hefty:
Operational hassle from maintaining relationships with networks and meeting technological requirements;
Capital lock-ups, as banks must pre-fund local accounts to support speedy pay-outs (and in foreign currency, creating FX exposure);
Compliance risks that arise from complying with money laundering, fraud, tax, and regulatory considerations in different countries.
Banks in less affluent countries are less inclined to take on these burdens, so payment systems stay fragmented, so emerging markets remain underserved by payment providers.
Side note: If you’re looking to nerd out on why international payments are so broken, this Intro to B2B Cross-Border Payments by Jackson Bubala is great material. Bon appétit.
Getting to T+0
In Q2 alone, a number of fintech solutions launched to address these barriers:
Stablecoinpayments settle in real-time, eliminating the need for cross-border payment providers to lock up capital at correspondent banks, take on FX risk, or reconcile transfers. Arf’s international payment network, powered by USDC, exemplifies how stablecoin transfers can drive a better cross-border commerce experience.
Virtual accounts in local geographies let merchants accept funds on their own books immediately. Rapyd’s Virtual Accounts will enable businesses to accept bank transfers in over 25 currencies and 40 countries.
Supply chain financing helps relieve the cash flow disruptions businesses see when selling to international customers. Finkargo, which raised $7.5 million in seed funding in Q2, makes financing available to small importers in Latin America– a market historically underserved by credit providers.
Different types of cross-border payment will prioritize different needs– for example, smaller personal remittances may index more highly on fees than B2B invoicing. Short of an international real-time gross settlement payment network, there is no single solution that will solve for the needs of all players globally. But these innovations, in combination with new standards like ISO 20022, are bringing us closer to a world where sending money is a reliable, safe, and cost-effective process for all.
