Let’s review what’s been going on in FinTech.
The COVID-19 catastrophe brought the sustainability of lending businesses into question. Half a year into “*cough*, **cough** Wait - I don’t have coronavirus. I just choked on my tiramisu“ my anticipation is shaping into a trend: SALES. Based on the evidence below on prices versus valuations however, it might be time for alternative lending investors to consider a ‘haircut’.
Kabbage: US Small-business lender Kabbage could be seeking to go against this ‘down-trend’ looking for up to $1B through a sale, according to Barron’s. This is compared with a recent prior valuation of $1.2B. So this will still be a haircut, but perhaps just a ‘tidy-up’ rather than a head-shaving experience. Three weeks ago, the company launched a checking account for SMBs and was included in Forbes Fintech50 in 2019.
RateSetter: Metro Bank announced its intention to acquire P2P lending company RateSetter for just £12M. RateSetter was founded in 2010 and originated £4B of credit since its inception and was valued at £261M in 2018, resulting in a 95% write down Based in the UK, Ratesetter is a peer-to-peer matching service for both lender and borrower acting as a ‘referee’ rather than actually providing funding.
Ondeck: Once upon a time ‘lending diva’, OnDeck was acquired by Enova for $90M. Founded in 2006, OnDeck went public in 2014 at a share price of $18 with a valuation at IPO of $1.3B, meaning this latest round is a write down of 93%. At the time of the purchase OnDeck’s share price was worth less than a dollar. The lender originated more than $13B of capital.
The graphic below illustrates major fundings in payments companies in 2020.
Move your $ without touching paper money because anything physical is ‘lava’ (if you don’t get the reference...)
Square: As more and more consumers turned to digital payments due to the pandemic, Square P2P payments app’s gross profit rose 167% YoY to $281M driving Square’s overall performance in the second quarter (+64% jump YoY). The app now serves more than 30M users. The share price surged as much as 11% after its better than expected earnings.
Volante Technologies: The Payments as a Service company bagged $35M in growth equity financing led by Wavecrest Growth Partners. BNY Mellon, Citi Ventures, Poste Italiane and Visa also participated in the funding.
How about a “Zoom background bookshelf” that can be paid over 6 months? Sign me up.
Afterpay: The company’s share price has skyrocketed since its low-low in March. It went up to over AUD$70 from AUD$8.90. Marketed in the uk as ‘Clearpay’.
Again, is the growth of BNPL (buy now pay later) really sustainable? Under-fire Klarna launches campaign telling shoppers to spend less.
Digital saviors grow
So if lending has significant challenges especially when based on ‘buy now pay later’ is used for impulsive or aspirational spending, how about focussing on just ‘payments’? Can you make money from just ‘the crumbs from cutting the cake’, explained to a young Kirsten Dunst, here in ‘Bonfire of the Vanities’? Based on these companies below, who appear not to have been impacted by the pandemic, it would appear so.
Remitly: Transferwise competitor Remitly raised $85M Series F led by PayU, valuing the company at $1.5B. The customer growth has increased 200% YoY and this valuation is over 50% up on the 2019 round.
Airwallex: Global payments infrastructure company Airwallex onboarded Alibaba as an investor. The company has previously raised $160M in Series D this April and Alibaba Entrepreneurs Fund joined the Series in late July, driving a new valuation of $1.8B being 80% up on the 2019 round. With significant operations and business in Hong Kong things could get ‘interesting’ as the US-Sino relationship continues to deteriorate.
The graphic below maps out major challenger banks’ valuation, funding and number of customers. The sizes of the circles show the number of customers and the banks that have secured funding during the pandemic are shown in orange bubbles.
Revolut: Revolut added $80M to Series D from TSG consumer partners extending the series to $580M. The valuation stays at $5.5B.
Varo: Varo has been granted a national bank charter. Founded in 2015, the bank has more than 2M accounts.
Monzo: UK based Monzo’s annual post-tax losses doubled from £47.1M to £113.8M. The challenger bank’s valuation got slashed by 40% in July.
If we can just print money now when we need it why don't we use some of that ‘magic internet money’ for lending and borrowing? Well that's exactly what the ‘DeFi’ craze is all about. Although it was already a craze in 2019, it has really taken off in 2020. Stay tuned for our in depth article on ‘DeFi’ coming soon.