Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you’re reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, we’ll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there and it’s our job to stay on top of it — and make sense of it — so you can stay in the know. — Mary Ann and Christine
Brex bid for SVB portfolios
The FDIC finally released the various financial institutions that bid for parts of Silicon Valley Bank’s portfolio. As our fellow fintech enthusiast Alex Johnson pointed out, there was one name that stood out on that list for being “not like the others”: fintech startup Brex.
TechCrunch spoke with Brex co-CEO and co-founder Henrique Dubugras, who confirmed that the company did in fact put its name in the hat for SVB but only for the early-stage and growth portfolios within its business.
The idea actually came from a customer, he said, who thought Brex “could handle those customers better than big banks.” The first week after the SVB meltdown, the FDIC was not going to accept any bids from entities other than banks. During that time, Brex worked to step up for SVB customers in other ways. Then the following week, the FDIC said it was open to selling it by parts — and also open to non-banks submitting bids.
“That’s when we submitted our bids,” Dubugras said.
While the offer didn’t pan out, he doesn’t regret Brex taking a shot at it. “In the end, we think it was just easier for them to sell the whole thing in one piece,” he added.
Still, the startup continues to “keep seeing [its] deposits materially increase,” as not every startup or early-stage that once banked at SVB wants to move their cash over to a big bank.
Today, Dubugras said that’s not something he thinks is in Brex’s future. — Mary Ann
Digital banking for seniors
Different demographics can have different banking needs. So it’s no surprise that we have seen a flurry of financial technology startups offering banking services catered to certain populations based on factors such as age and ethnicity.
For example, numerous fintech startups cater to younger users — from Greenlight to Step to Current and now, Acorns. There are banks that target specific ethnicities and/or races. Greenwood wants to serve Black and Latinx consumers; Cheese started out targeting Asian American consumers; numerous (TomoCredit, Welcome) are eager to serve immigrants.
But far less common are fintechs dedicated to serving older members of our society. Enter Charlie, a new startup offering banking services for the 62+ community, which launched last week with $7.5 million in funding led by Better Tomorrow Ventures. The company’s goal, according to co-founder and CEO Kevin Nazemi (who also co-founded now publicly traded Oscar Health), is to help retirees and soon-to-be-retirees “make the most of their limited resources.”
My ears perked up when I got this pitch, as it’s a concept that hasn’t come across my inbox in all my years of covering fintech. I realized that (1) older Americans have fewer options when it comes to digital banking and (2) the COVID-19 pandemic really did lead to a lot of people who were once resistant to online banking being won over by the ease and convenience. And while trust probably remains an issue for some, I suspect a decent segment of this population would welcome more options.
Perhaps Jake Gibson, founding partner of Better Tomorrow Ventures, said it best. He told TechCrunch that he believes that the “vast majority of founders, including in fintech, tend to build products for people that look like themselves.”
“That’s why we have so many repetitive neobanks, social investing apps, etc. Meanwhile you can probably count on one hand the number of fintech companies serving the needs of seniors, despite that being such a huge population,” he added. — Mary Ann
Financial crime prevention
One of the fun stories I wrote this week was on Cable, a company that provides automated assurance and risk assessment. I don’t normally dabble in the financial crime sector of fintech, but what co-founders Natasha Vernier and Katie Savitz are doing is pretty interesting.
Why? Well, people in the U.S. reported $8.8 billion of financial fraud in 2022 to the Federal Trade Commission. And as Vernier explained to me, much of the controls monitoring by banks and fintechs to make sure they can prevent fraud is still done manually.
By automating this process — which is something Vernier believes Cable is the only company doing right now — banks and fintechs can monitor all of their accounts to know, in real time, if they are compliant with regulations and if their failure controls are working as expected to combat breaches.
The concept is catching on: In the past year, the company increased its revenue five times, and raised $11 million in Series A capital, led by Stage 2 Capital and Jump Capital, with participation from existing investor CRV.
“Regulators are particularly interested in effectiveness testing, but also, just the volatility in the banking industry right now, with COVID and if we are in a recession or not, there is increased financial crime,” Vernier said. “We’ve certainly seen, globally, an increase in fraud and other types of financial crime over the last few years. And, as real-time payments get rolled out in the U.S., we’ll see more financial crime.” — Christine
Alex Wilhem was on fire last week when it came to analyzing the fintech space. In this piece, he looked at how both Coinbase and Robinhood reported better-than-anticipated revenue in the first quarter. He wrote: “The changing revenue mix at both Coinbase and Robinhood makes it clear that their ability to generate material amounts of revenue off cash balances (and the crypto equivalent) is changing the game in their favor. Studying public company performance is a great way to better understand what’s happening in that segment of the market, so that’s what we’re doing today with Coinbase and Robinhood. As always, we’ll relate what we’ve learned back to startups.”
Alex also leapt off how PayPal saw its stock drop despite the company reporting better-than-expected revenue and profit in the first quarter. He wrote: “Indeed, fintechs haven’t fared well at all even when you account for the broader dip in valuations at tech companies. It almost feels unfair. Comparing data from F Prime’s fintech index with valuation marks for SaaS and cloud companies in terms of historical revenue multiples, it appears that fintech companies are being clobbered a little too much. So why are fintechs today worth less than they were before the recent venture boom? Why are cloud companies faring better?” More here.
Christine, too, was busy covering Capchase’s move into the buy now, pay later space. In a nutshell, Capchase Pay is aimed at helping software-as-a-service companies close deals faster by giving them a way to collect the full contract value for their software while also providing their customers with flexible payment terms. Though SaaS growth didn’t take as big of a hit as previously thought, Miguel Fernandez, co-founder and CEO of Capchase, told TechCrunch “that SaaS companies did see a shift in their return on investment when sales cycles delayed as buyer’s asked for more flexible financing terms." He called buy now, pay later offerings "one of the last B2B payment frontiers to be done in software.” More here.
Christine also wrote about the District of Columbia Attorney General announcing an agreement with SoLo Funds, a fintech company that enables peer-to-peer lending, to settle a lawsuit that alleged SoLo Funds engaged in predatory lending practices. As Christine wrote, SoLo denied the allegations in the Complaint and denied that it had violated any law or engaged in any deceptive or unfair practices. More here.
Reports Manish Singh: “After India and Brazil, WhatsApp is launching the ability to pay businesses within a chat in Singapore. Meta has partnered with Stripe to roll out the feature in the region. WhatsApp has built this payment feature using Stripe Connect and Stripe Checkout solutions, making in-app payments available online and offline. Customers can pay businesses using credit cards, debit cards or Singapore’s PayNow fund transfer system.” More here.
“In recent weeks, a number of brand-name mainstream financial institutions have been rolling out new crypto products and services in an attempt to make the space more accessible. At the end of April, Mastercard, PayPal and Robinhood all independently talked about the measures they’re taking to do so at Consensus 2023 and how they are furthering their moves into the crypto ecosystem.” More here.
It is still hard to start a business, and there is still too little cross-border finance, and Stripe is helping with that.
Stripe processed transactions totaling $817 billion in 2022, and Collison said that “it could be in the general vicinity of” $1 trillion this year.
When asked about why Stripe hasn’t gone public, Collison said, “The world in Q1 of 2023 didn’t seem like a phenomenal time to go public.” He noted that the company raised $6.5 billion in March instead to help employees with their equity awards “to do right by them.” Collison went on to say that “Silicon Valley seems to get caught up in transactions and IPOs, but look, we're just focused on building something useful for people and having a good business that is self-funding.”
Fast co-founder Domm Holland is back with a new venture, Trady. After seeing his last two companies go bust, we have to say he’s certainly, uh…bold.
Earnings of note
Affirm reported a quarterly loss of 69 cents per share for the quarter ended March 2023, compared to a loss of 19 cents per share a year ago. However, it said revenue was $381 million, an increase of 7.4% over the same period in 2022. Its gross merchandise volume was up 18% to $4.6 billion, and the company said it represents a 43% compounded annual growth rate on a two-year basis. In terms of transactions, Affirm reported that 88% of them were from repeat customers, while transactions per active consumer increased by 34%.
Robinhood also posted mixed earnings for the first quarter, including a net loss of 57 cents in earnings per share on net interest revenue of $208 million. That compares to a net loss of 19 cents per share on net interest revenue of $167 million for the fourth quarter of 2022. In addition, the company launched 24 Hour Market, which it said makes “Robinhood the first brokerage to enable customers to trade individual stocks at their convenience, 24 hours a day, five days a week.”
Dave, a neobank, reported that it narrowed its loss, posting a net loss of $14 million on revenue of $58.9 million, for the first quarter ended in March. That compared to a net loss of $32.8 million, on revenue of $42.6 million, for the same period in 2022.
Courtesy of Jason Mikula of Fintech Business Weekly: “Varo did reduce its overall loss by about 11% vs. Q4 2022 but, at nearly $29 million, the fledgling neobank is still a long way off from profitability — which helps to explain why the company raised an additional $50 million in equity at a substantially reduced valuation, as first reported by Fintech Business Weekly. Still, the additional capital extends Varo’s runway by less than six months, based on its current burn rate. The additional $50 million in funding was finalized in April, per management comments in the call report, and thus is not reflected in Varo’s Q1 data.” More here.
Funding and M&A
Seen on TechCrunch
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As always, we're so grateful for your readership and support! Have a wonderful week ahead!! xoxoxo, Mary Ann and Christine