Fintech Fire Alarms: July, 2021

Travel + Fintech, BNPL goes crazy, and more.

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from July 2021, that should be setting off alarms in your organization.

1. BNPL isn’t a feature; it’s the feature.

What happened?

(takes a deep breath)

  • A bunch of BNPL providers raised money.

    • Sezzle, a buy-now-pay-later platform, raised $30 million from Discover, in an agreement which will also allow the network to launch Sezzle’s services to its customers.

    • Zilch, a UK buy-now-pay-later provider, raised £80 million in combined debt and equity from Goldman Sachs.

    • Buy-now-pay-later provider Behalf raised $100 million in debt.

  • BNPL providers, B2B fintech companies, and revenue-based financing platforms all realized they’re basically in the same business.

    • Buy-now-pay-later provider Sezzle is launching a working capital platform for merchants.

    • Revenue-based financing platform Capchase launched its own buy-now-pay-later platform.

    • Biller, a buy-now-pay-later service for B2B purchases, launched in Europe.  

    • Klarna embedded Liberis to add revenue-based financing to its platform.

  • BNPL expanded internationally in several interesting directions.

    • Citi is launching buy-now-pay-later in Australia.

    • PayPal launched no-fee buy-now-pay-later in Australia.

    • Grab and Adyen are partnering to provide buy-now-pay-later across Southeast Asia.

  • BNPL companies announced plans to launch a number of new products.

    • SplitIt is launching buy-now-pay-later loans for in-store purchases.

    • Afterpay launched a consumer money management app.

    • Afterpay plans to launch a consumer banking app in October.

  • Klarna went shopping.

    • Klarna acquired Hero, an in-store social shopping platform.

    • Klarna bought German discount shopping app Stocard for €113 million.

    • Klarna acquired marketing platform APPRL.

    • Klarna is potentially sizing up its Australian rival Zip (a publicly-traded firm) for acquisition, having acquired 4% of the $160 million lender.

  • More attention was given to the risks posed by BNPL.

    • A survey found that UK BNPL users think that the average time to pay off their debts is now up to 9 months.

    • TikTok banned buy-now-pay-later ads.

  • And big players made big moves into the BNPL space.

    • Visa launched a buy-now-pay-later API.

    • Goldman Sachs and Apple are planning to collaborate on a buy-now-pay-later product in the US.

    • Square acquired Afterpay in a $29 billion all-stock deal.

So what?

Most companies that offer financial services want to, eventually, sit at the intersection of consumer spending and merchant commerce enablement.

Visa and the card networks are obviously the standard bearers for this model, but you can see the same blueprint being methodically executed by big tech (Apple embedding Apple Pay at the operating system-level in its ecosystem and slowly expanding its consumer banking product suite) and by fintech (Square merging its seller and consumer product ecosystems to create a closed-loop payments network).

BNPL, it turns out, may be the ideal product feature for aligning the interests of merchants and consumers and accelerating companies’ digital shopping and commerce enablement roadmaps.

2. B2B fintech goes vertical.

What happened?

  • Karat, a corporate card and banking solution for the creator economy, raised a $26 million Series A.

  • Juni, a neobank for e-commerce and online marketing companies, raised a $21.5 million Series A.

  • Willa, a fintech platform for freelancers and the creative economy, raised an $18 million Series A.

  • Canopy, a technology provider for accounting firms, raised $11 million in funding.

  • Coast, a payments platform for trucking fleets, raised a $6 million seed round.

  • Greenphire, a financial software for clinical trials, raised strategic funding from Thoma Bravo.

  • Anduin, an invoice and billing solution for professional services firms, raised a $14 million seed round.

  • ProjectPay has launched a solution to streamline construction payments.

So what?

We talk a lot about specialization in B2C fintech and the emergence of digital community banks like Daylight and First Boulevard, but as competition (and funding) in B2B fintech ramps up it’s becoming increasingly clear that specialization, particularly vertical specialization, is becoming the key to long-term competitive differentiation. After all, if you’re a general contractor, would you rather manage payments and chase invoices using a generic tool like Bill.com or one tuned to your industry-specific needs like ProjectPay?

3. Travel + Fintech

What happened?

  • Revolut is launching “Stays”, a travel booking feature to compete with Booking.com and Expedia.

  • Booking.com launched an internal fintech unit to build travel financial services.

  • Travel booking behemoth Amadeus is partnering with travel app developer Hopper, adding fintech offerings to product line.

So what?

An area of embedded finance that may have gotten a bit left behind over the last year was travel. This is understandable given the headwinds the industry faced during the height of the pandemic, but now things are starting to pick back up:

The nation’s 11 largest airlines are planning to offer nearly as many seats this July as they did in July 2019, according to Cirium, an aviation data firm, though schedules could still change.

“There is no doubt the pace of the recovery is accelerating,” American’s chief executive, Doug Parker, said.

After a series of stops and starts over the past year, travel started to recover meaningfully in early March, driven by leisure travel within the United States or just outside its borders, to places like Mexico, the Caribbean and Latin America.

Assuming this continues (obviously not a certainty … please get vaccinated, if you haven’t!), I expect that we will see a profusion of new fintech products and experiences focused on the travel industry.

Revolut-style super apps that incorporate travel booking will be one vector to watch (maybe PayPal next?), but I think a huge area of growth will be travel booking platforms (like Booking.com) starting to solve for new financial services use cases for consumers and businesses. Taking a leaf from the vertical B2B fintech trend discussed above, what if Airbnb built out an end-to-end business management platform for its hosts?

4. Credit builder products are next.

What happened?

  • Sequin launched a credit building debit card for women.

  • Kikoff, a personal finance platform for building consumer credit, raised a $30 million Series B.

  • Esusu, a credit building startup, raised $10 million.

  • Credit Sesame unveiled a credit builder service that enables consumers to use debit to build and improve credit.

So what?

One of the things that makes leading neobanks like Chime so successful is an uncanny ability to pick out the most annoying value deficits within banks’ existing product sets and business models, create superior alternatives, and market the holy hell out of them.

When this playbook works well it forces traditional banks to respond (see: overdraft fees and early access to direct deposits).

Established neobanks (and a growing cohort of fintech startups) are all in on credit builder products. Will this pressure drive more financial institutions to respond with new products of their own?

I’m betting yes.

5. Can we make crypto feel safer and more accessible?

What happened?

  • Robinhood is testing a new feature to protect crypto traders from volatility.

  • Square is building a hardware wallet for bitcoin and cryptocurrencies and a platform for decentralized financial services.

  • New Jersey’s Attorney General issued a cease and desist order to crypto lending platform BlockFi. Other states quickly followed suit.

  • 650 US banks will soon be able to offer bitcoin purchases to 24 million consumers through partnerships with NCR and NYDIG.

  • Eco, a decentralized finance neobank for the future of money, raised a $60 million Series B.

So what?

In a recent interview, I asked Current’s CTO, Trevor Marshall, to characterize the experience of using DeFi apps to generate yield.1

It feels scary. It feels dangerous. It’s not the way you should interact with this stuff. Here’s the generally accepted mechanism for how you interact with DeFi today — first thing, you create a MetaMask account. What is MetaMask? It’s a Chrome browser extension that has an Ethereum wallet built in, which you can back up somewhere else. You then navigate to the DeFi app, which will have a hook into MetaMask. You then set up the transaction in the browser, you confirm the transaction, pay the gas fees, and then you can start allocating and managing your new assets to generate yield.

This answer, which made me a little trepidatious just listening to it, might explain why lots of surveys2 on consumers’ attitudes towards crypto tend to produce results that look like this:

And this:

Consumers want to take advantage of the benefits of crypto, but many need the rough edges sanded down first. That sanding down may be accomplished through product innovation (Robinhood, Square), trusted entities like banks getting involved (NCR & NYDIG), regulatory intervention (BlockFi), or simply better communication (Eco).


Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson

LinkedIn: Linkedin.com/in/alexhjohnson/

1

Current, which has deep roots in crypto, is doing some interesting things with DeFi. I wrote a bit about that a couple of months ago.

2

Check out Jason Mikula’s full survey findings on consumer crypto usage here: Who’s Using Crypto, How, & Why