24th April 2022 - Robinhood Acquires Ziglu, Coinbase NFT Marketplace and why isn't there a global consumer Fintech company yet?
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Hey Fintech Nerds 👋
Being in New York for Fintech Week is always a great time to reflect on where we are as an industry. Massive shout out to Jon Zanoff for being the OG of New York Fintech week and organizing all of this.
The Fintech industry has been through a lot in 12 months, as the largest sector in arguably “the biggest tech bubble of all time.” We’ve seen incredibly high valuations, perhaps some too high. But also some great businesses are being built. We're disrupting the very foundations of the global economy and $trillions in TAM in every direction. That matters.
We've also seen VCs ape into Web 3, NFTs, and Metaverse in a way that would not happen if they hadn't raised massive funds. It's hard to look at this and not see too much capital, too little quality. Does the world need another Bored Apes, Doodles, or Moonbirds? It's not obvious that we do. But then, did the world ever need art or expression or culture?
The world of the 1920s to 1940s was also a time of massive invention and great instability. Economic collapses, wars, new currency standards, and massive technological change often happen together, and in the middle of the chaos, it's hard to see how this all plays out. Yet we see cars, radar, planes, computers, and telecoms, all born during this time. All very specific and "useless" to most people at first.
But innovation compounds.
But if you zoom out, like, way way out. We're building a new global, internet-native, digital economy with new financial rails, new digital goods, and new experiences. Today, the Metaverse looks garish and experimental but will eventually be a great way to feel like you're in the same room with people who live 1000s of miles away.
All of that VC funding into things that seem silly in aggregate may just be what pulls us through the weird times. If we bet on innovation and bet on optimism.
There's still so much to do.
We need to rebuild global supply chains, find new ways to fund manufacturing, radically improve the effectiveness of AML and maybe, just maybe, save the fucking planet and species from extinction.
PS. We'll be back in New York on the 24th of May for Fintech Insider After Dark. Keep an eye on the Fintech Insider Twitter if you want to join a live podcast recording, and you're in town then :).
PPS. We need something better than the petrodollar. KWH is the ultimate energy source neutral, commodity-based, global standard. Is anyone trying to tokenize KWH (Kilowatt Hours)? (Or have views on something like that?)
Weekly Rant 📣
The difficulty of global expansion in Fintech
Why don't we have a consumer Big Fintech firm like Big Tech? Apple, Google, and Facebook are arguably more universal (outside of China) than Stripe, Chime, or Nubank.
You could argue that PayPal is that company, but in the US (with Venmo), it is a very different beast from PayPal in its other markets. For the most part, Google is the same (or very similar) in most markets it operates. Meta has its core products in nearly every market it operates in. iPhones are almost identical.
So why is being big Fintech hard?
I think it comes down to a handful of challenges:
Regulation is a specialist subject.
Regulation often rhymes and has similar themes everywhere.
But the detail really matters.
Each jurisdiction has its own licenses, terminology, and regulators. Having a regulatory license in one jurisdiction may help with another, but only slightly. Getting a regulatory license is still a case of submitting complicated forms, meetings with regulators, and possibly lawyers.
While great infrastructure companies abstract some compliance complexity, if you're doing anything in consumer or B2B at scale, you will need your own regulatory stamp of approval. That's incredibly hard to do remotely.
Infrastructure varies wildly.
Most countries have their own domestic payment rails, and getting direct access to these isn't always possible.
You either have to build the capability to handle the local rails or find local providers who can.
It is now common for at-scale Fintech companies to know their local rails so well; they know what works and what doesn't and craft great user experiences around aging infrastructure. But for that new rail and infrastructure, what are the errors? What are the things that could go wrong? And how do you handle that?
Or, if the Fintech company wants to buy from a local supplier, how do they pick? Which one is good?
Trying to hire at scale in another country is hard.
Hiring Fintech talent in a competitive home market is hard enough; now imagine trying to do that remotely and at scale. It's slightly better going to an adjacent market in the same region. But trying to expand to another continent or another language can be exceptionally challenging.
You will need to hire some senior folks who can set up a team and have a solid track record to launch at scale. But you're also going to need to spend a lot of time there (or send people who can) who understand the existing assets and platform.
Market entry requires a ton of focus.
A big home market can be a blessing and a curse.
Companies with a massive home market have an advantage. Nubank in Brazil, Robinhood or Chime with the US, and PayTM in India are massive. But it's often so much higher value to continue to grow in that home market than to expand to another market.
Market entry is expensive, time-consuming, and complicated. It often takes longer than anticipated and throws up countless surprises. Unless leadership is fully bought in and keeps funding the effort, the risk of failure is high.
And for venture-backed businesses, trying to enter a market without seeing customer acquisition is a tough investment to justify. For a publicly-traded Fintech company, maybe now isn't the right time to expand. And even if it was, perhaps a better way to hit OKRs is to get more efficient in the home market(s).
(Incidentally, this is why I think Chase has a shot at the UK market because they've set aside a bazooka of cash and have been at it for a few years already).
Culture often means propositions have to change.
Something that worked as a wedge product in one market may not have the same pull in another.
Getting paid early drove Chime's customer acquisition flywheel, and consumers love real-time payments in products like Cash App. Consumers in Europe, APAC, and even some LATAM and African markets wouldn't care about those features. The inverse is true; N26 and Monzo tried to launch in the US, and that didn't go so well.
Some folks have done well.
Revolut is a consumer Fintech company that operates in the US, the entire European Economic Area (EEA), Japan, Switzerland, Australia, and Singapore. But it's also fair to say Revolut isn't the same product in those markets. Revolut in the US is not as complete as in the UK.
(It would be remiss of me if I didn't mention that Nubank is attracting millions of customers outside of Brazil and may be an exception to the rule, but it's also regional expansion rather than truly global to date).
There are likely other good exceptions to the rule I'm missing. Google Pay or Apple Pay is in a ton of markets. But a consumer "Big Fintech" who has the same offering in 100s of countries? I can't think of one.
And the next generation looks interesting.
There is an increasing wave of "global by default" Fintech companies. The first example that comes to mind is Jeeves (which is actually B2B, not consumer). Jeeves is the corporate card available in Mexico, Canada, the US, and Europe.
Fintech companies like Jeeves really suit anyone who operates an international company. Companies like Revolut and Wise targetted the international traveler or remittance market.
So the lesson here is companies that start out intending to be international or trading across borders tend to have a much easier time expanding internationally.
What's impressive about Jeeves is it only launched in March of 2021. The pace of its growth and the number of markets it operates in are truly impressive.
And I think we'll see more of this.
Fintech infrastructure hasn't been global.
Infrastructure providers will tell you how global they are. Still, the reality is most support a limited number of geographies, or if they're in many geographies, their product is very different.
Have you ever hit your favorite Fintech infrastructure company's website via a VPN? Go look at Stripe from, say, the UK or Australia. It's there but doesn't have things like Atlas or Issuing in most markets (I don't mean to pick on Stripe, an incredible company, but this example helps folks sometimes).
Issuer processing is also a whole other beast. Companies like GPS (literally, Global Processing Services) have impressive international coverage but don't operate in the US at scale. Galileo is making strides in LATAM and is likely to continue to expand; Marqeta is opening offices rapidly. But there isn't an obvious choice for "global by default."
There's some infrastructure that is global by default.
Companies like PPRO help companies support local payments infrastructure via an API, and folks like NIUM package pay-ins, payouts (in 190 markets), cards (in 35 markets), and banking-as-a-service. There are countless companies I could name here, too so sorry if I forgot your company) but the trend is more international by default.
It's also interesting how things like US Stocks have international demand. There's a "Robinhood for X market" in almost every geo.
And don't forget Crypto.
Imagine what you could build if you remixed all these capabilities?
Regulation, talent, focus, and culture will all matter. But with the new infrastructure, I get excited by the possibilities for new Fintech propositions (and DeFi mullets).
4 Fintech Companies 💸
1. Winden - The Neobank for solo entrepraneurs
Winden is a Neobank for Shopify, Stripe, and Freelances businesses often run by a single person (either as a primary or secondary income). It provides cashback on ad-spend, no fees, and free transfers (via ACH or check). Winden also features "get paid instantly," unlimited virtual cards, and a dashboard for cash flow and lending.
🤔 Where Ramp and Brex have become the canonical corporate card, the solopreneur space still has room for design improvements. The founder is a former Apple card designer who ran a freelance design agency. As someone who's also seen many Fintech apps getting designed, it becomes pretty easy to spot what is missing in the market. This product has all of the features and non of the fees, which I assume means they're primarily monetizing debit/credit card interchange. Folks like Catch have been at this for some time, so I'm curious to see what it takes to become a category leader in the freelancer/solopreneur space.
2. Oasis - Leveraged DeFi yield for consumers
Oasis allows users to "multiply" their DeFi yield by borrowing against Crypto as collateral. For example, a user with 10 ETH could earn a yield against ~40 ETH. Oasis sits on top of MakerDAO and DAI, the stablecoin and "central bank" for the internet that DeFi pros have been using for years to generate more yield with leverage.
🤔 DeFi is full of opportunities to take on enormous risks and drive a significant return. For those who know what they're doing, the returns can be steady and much better than in traditional markets. But I always worry when we're finding slick ways for consumers to take on leverage. Oasis is simpler to use than many DeFi platforms that do the same and comes packaged with education to help users up the knowledge curve. But, assets can still be entirely liquidated. This is secured lending, and users need to manage it accordingly. I'd love to see something that automatically helps users think through risk appetite based on available capital and manage collateral. That would be cool.
3. Fishtail - Supply Chain Finance for SMBs
Fishtail provides financing to companies of any size in any geography. Customers upload a purchase order or invoice, and Fishtail will begin to underwrite that invoice. Small businesses face delays of up to 120 days to get paid but have to build inventories to make new sales. Large corporates are well served by incumbent banks, but the US dominates the supply chain finance industry. Fishtail aims to differentiate by focussing on smaller and non-domestic companies.
🤔 For a long time, SMBs have gotten the rough end of supply chain finance, but this is because they're high risk and low margin for lenders. Fishtail claims to have a best-in-class underwriting engine, but that's 1000x more complex in the supply chain because you're dealing with the risk of counterfeit goods, delays, non-delivery, etc. Add to that the global supply chain chaos we're living in, and this is a massive gamble of a market to enter and a massive opportunity if they can be much more data-driven and reduce the cost to serve this segment.
4. Fungyproof - Automated NFT project diligence
Fungyproof simplifies NFT due diligence by automatically scoring things like the smart contract (for security flaws), the images, and the community momentum. Users can also find NFT projects by staking potential, GameFi, or social impact.
🤔 Finding and dilligencing NFT projects is a massive time-sink and a grind. For every Moonbirds, there are 100s of projects that could be great or terrible that are hard to tell apart. Analytics and dashboards will play an increasingly important role for NFT funds, especially if NFTs gain more utility.
Things to know 👀
Robinhood has agreed to acquire the UK Crypto App Ziglu, allowing users to buy, sell, hold, gain yield and use a Crypto Debit card. Ziglu was founded by a former Starling Bank Co-Founder, Mark Hipperson, and was one of the few apps to secure registration with the UK regulator, the FCA, for its Crypto app.
🤔 Ziglu is regarded as one of the easiest to use UK services for the Mainstream. Unlike the US, the UK did not have many Crypto debit card services, with a simple off-ramp and earn product. Had raised $22.8m to date (more than half of this via crowdfunding from retail investors).
🤔 The FCA registration is significant for Robinhood. We've seen countless large Crypto businesses and even folks like Revolut struggle to get the specific FCA Crypto registration. Many folks I speak to in the industry are frustrated by how slow (and frankly, unhelpful) the FCA has been by its own standards with Crypto registration. But for Robinhood, if the regulator approves this acquisition, they skip to the front of the line.
🤔 UK Market entry is hard. Few large US consumer Fintech apps are at scale in the UK. Not Cash App, no Venmo, no Chime. Several have tried, but it's rarely a focus vs. scaling their US operation. Even infrastructure companies like Stripe look very different in the UK (and Europe) to the US.
🤔 It's hard to find talent that understands the local payment systems, regulators, and how to execute, especially when trying to hire remotely. As a result, I think we'll see a lot more M&A as US consumer Fintech companies' growth begins to slow. I also wonder if the SMB and corporate cards will look to acquire (Ramp, Brex?). The upside is you get talent, tech, and regulation, and the downside is dealing with a whole different tech stack and culture to integrate.
Coinbase launched its beta NFT marketplace for collections on the Ethereum L1 blockchain. The marketplace has no transaction fees "for a limited time" and will increase to a "low single-digit fee" soon. The platform supports the Coinbase wallet, or any self custody wallet users prefer (e.g., Metamask, Rainbow). Unlike others, Coinbase will also support social features like following, commenting, or engaging with content and creators. Coinbase says it aims to progressively decentralize its marketplace over time.
🤔 Opensea has been wildly successful but also left the room to innovate on several dimensions. Opensea, by default, displays an entire collection but not a curate collection. It also has little or no social features and no ways to engage with creators. Lastly, competitors like LooksRare are much more decentralized and share the "take rate" (or fees) with their user base. Coinbase has clearly taken notes, and its beta marketplace messaging is thoughtful.
🤔 Social features = Instagram for NFTs? Today social engagement with creators is distributed across Twitter, Discord, and various other platforms. Creating more engagement with the creator via the platform is smart but could be really useful for creators. It could also be Youtube comment hell. Execution will matter here.
🤔 Is the "progressive decentralization" actually possible for Coinbase? Coinbase has 89 million users, most of which use the centralized exchange and wallet service. That's a great wedge and brand to bring people into the NFT space, but it's also a publicly traded, regulated business. In principle, progressive decentralization makes sense. It takes a small group of people to build something, but over time arguably, there are better network effects if the users and community benefit from the "take rate" of the platform. I'm curious to see if Coinbase can actually pull this off.
🤔 Coinbase knows its danger is becoming incumbent and is looking for growth, but the NFT space is highly competitive. Every day there are countless creative NFT funds, projects and apps launched. Opensea still dominates, but its position isn't guaranteed. Opensea also risks being the Myspace of NFT marketplaces. In principle, NFTs can be traded on any marketplace; but Opensea has network effects today. Tomorrow, a user can take their Web 3 wallet and NFTs anywhere else if there are better features. But what are those features, and what causes the jump?
Good Reads 📚
Low-key, the IMF has a killer blog and is an excellent window into the psyche of the progressive side of regulatory thinking.
The pace of Fintech growth is a challenge for regulators, especially as some (not all) will take significant risks as they grow. Neobanks are not subject to the same liquidity requirements as banks if they lend and potentially have a higher risk of default. Fintech companies also add pressure to the banks, who ultimately have to backstop lending and risk as the "shock absorber" in financial markets.
Policies that target traditional banks and Fintech companies "proportionately" are needed. The goal is to not damage innovation but manage the emerging risks. This might mean some capital and risk management rules for Neobanks. Incumbent banks too need to have their existing business models and technology examined, which "may be less sustainable over the long term."
🤔 It's great to see the IMF recognize the benefits of Fintech companies for consumers and the market. Fintech does have risks it needs to manage, but banks don't get let off the hook here. If banks (especially smaller ones) just sit back and hope that Neobanks get "regulated out of profitability," complacency won't be tolerated. Unfortunately, that's a mindset in some regional and smaller banks.
🤔 Regulation could easily make building a Neobank much harder if it's not thoughtful. Markets like Singapore and the Philippines have created their own "digital banking" license. But the capital requirements were quite stringent. Singapore asks potential "digital banks" to demonstrate they will have $1.5bn SGD ($1.1bn US) as a capital reserve before becoming "fully functioning." Now it's fair to say these are banking licenses, not money service licenses (e.g., an MTL or e-money). But when I read "capital requirements for Neobanks" in the IMF blog, you can see why I worry.
Tweets of the week 🕊
That's all, folks. 👋
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