Fintech 🧠 Food - Nov 7th 2021 - Nubank's Numbers, Chipper Cash is a Unicorn, and Why US Fintech is so hot right now
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Weekly Rant 📣
What I learned after 3 weeks on the road in the US as a Fintech Nerd
Fintech in the US reminds me of the UK in 2016. There's an optimism and sense like anything is possible. I described to everyone I met on the trip that "America is a cheat code" most of the time, but more so now.
Things that happened regularly in the US that rarely occur in the UK or Europe
Nearly everyone at a Fintech event is an operator/angel investor or VC
Everyone you meet offers to connect you to three other relevant people for a subject you bring up
People will refer business to you and your company like its a handshake
The pandemic was rocket fuel for Fintech.
Fintech has exploded in the US in the past 24 months like nowhere else on earth. Chime, Current, Bond, Unit, Ramp, Brex, Persona, Alloy, Plaid, MX, etc. Nowhere on earth has the velocity of Fintech company creation, and this many large Fintech companies all coming of age around the same time.
Part of the reason for this is the mature US investor ecosystem. The UK is great at seed, terrible at growth. The European companies that did manage global scale all have US investors (or Softbank) in their cap table if you look at the European companies. Klarna, Monzo, Revolut, Wise all of them. These companies are the exception rather than the rule. They managed to make it big enough to make the radar of the global investor community. I believe tons of things would get funded in the US currently struggling in the UK or Europe, many of them great potential businesses.
But investors are starting to look global.
Fintech is a global phenomenon, and massive rounds by companies in Africa, Europe, APAC, and LATAM have shown that major US investment firms have a market opportunity globally.
I think of companies like Jeeves as the ultimate exemplar of this. The "corporate card for global companies." Think of it like Ramp for import/export companies. You can use them no matter where you're based, but they're incorporated where? You guessed; it in the US. But what you know applies to non-US companies too.
Each market has its nuances, but the most abstract patterns still apply.
Consumer Fintech appears with substantially better unit economics to traditional financial services.
Enabled by a new wave of Fintech infrastructure providers who profit from these new providers and grow the market opportunity.
Some never escape their massive home markets, but others become regional powerhouses.
Regulation is different everywhere, too, but it rhymes. As a UK Fintech nerd, it took me a short while to stop calling things local clearing and start calling them wires, ACH, or RTP (there's a nuance between all of those). But what I found was, when you translate to American English, you unlock America. I think therein lies a lesson in two directions.
For non-US entrepreneurs, translating to terms US VCs are likely to understand improves your chances. My advice to any European or UK-based founder is move to New York. Or at least spend lots and lots of time there. My case study is Codat. Codat was a great Fintech company before their founder and CEO moved to the US, but their growth exploded once that happened.
For US-based VCs and operators, your regulatory knowledge is valid at the abstract level; it's just there will be some other rule or word that applies to the same risk or process.
Many growth stage VCs or first and second fund VCs making their name in Fintech typically only have the mandate to operate with US-based C-Corps or LLCs. But what if that changes?
Europe still has hidden value.
You know what I loved about coming home (aside from being with family, obviously)? The people. The talent here is exceptional. I've had breakfasts and lunch with countless founders this week, where I implored them to meet more US-based folks and found myself making intros like it was a handshake. I want the world to see the talent we have here. It’s magic.
If you want to see the future of Fintech products, I'm convinced you can draw endless inspiration from Europe. If you're going to see the next Fintech unicorn, you need to be connected to the angel networks in the US.
The US Investor ecosystem is now the global investor ecosystem. And that's exciting.
But the founder ecosystem is and has always been mobile. Make the leap. Network, and look outside your existing circles. There you'll find exciting things.
4 Fintech Companies 💸
Bit of a European flavor this week, but the continent consistently has some of the most imaginative fintech product offerings, even if our funding environment post-seed is awful. I know most VC mandates are US only but pay attention to these as a pointer to things missing. I will die on this hill.
1. Butter - Embedded BNPL (UK)
Butter is on its face a consumer-focussed BNPL provider that works with any merchant as a shopping app. Butter has quietly built a lending business in the travel niche in the UK but is now working to make this capability available as a white-label service.
🤔 My immediate thought is, why wouldn't merchants just use Klarna or Affirm? But it struck me that some marketplaces might want more direct control over their BNPL offers (especially for higher-value goods). It's also interesting since everything is embedded lending right now, but most of the "embedded BNPL" is aimed at lenders offering "pay later" in their consumer apps. Allowing a lender (e.g., bank) to provide their merchants BNPL is a not insignificant market opportunity.
2. Flow - The Self Driving Money App (UK and NED)
Flow adds smart capabilities on top of your bank accounts. By connecting with open banking, users can divide their money when their paycheck lands and choose how much goes with flows (rules). Flow can be used by consumers, freelancers, or even SMBs, and they have pre-built flows like setting aside tax (VAT), charity donations, and my personal favorite, the "Marie Kondo method."
🤔 This app is so well executed it gives me goosebumps. Why has nobody built this before? I'm also baffled why Neobanks haven't really focussed on this capability. But on reflection, salary sorting works better as a product than a feature. I'm reminded of a great piece by Alex Johnson on self-driving money. We're heading towards more automation, and the home of that isn't one place where my money lives (i.e., a bank); it's an abstraction above all of those types of accounts. I'm curious to see if the "Super Apps" move this way with rules or if this is just a niche that nerds like me get excited by.
3. Relic - Alternative Investing with Gen Z chic (UK)
Relic lets consumers invest in film, antiques, comics, and other collectibles through a beautifully simple app. Users can discover items in the app, invest and later sell their collectibles. Alternative assets under management are projected to hit $14tn by 2023.
🤔 Collectibles have absolutely boomed; everything from cars to baseball cards has seen an explosion in the past decade. A few platforms and apps are playing in the alternative space, but the aesthetic of Relic is interesting because even on its homepage, it leads with "rare Pokemon cards." Time will tell if this gets any adoption, but it has a good feel with the right community around it (and possibly NFT support); who knows.
4. Reimagine - Climate Responsible Account for SMBs (Germany)
Reimagine is a Neobank built on Solaris in Germany aimed at the climate-conscious SMB. Like if Brex and Aspiration bank had a baby. The service offers a full German IBAN (account), virtual and real debit cards, and services like automating contributions to carbon removal.
🤔 After COP26, businesses around the world will be expected to report and manage their climate impact. Baking this into the everyday operational account is a neat hack. The base offering (Bloom) is also free for purpose-driven companies.
Things to know 👀
Nubank has filled with listing on both the Brazilian and US stock exchanges. The F1 filing includes detail of its business, and the numbers are, frankly, massive. 48.1m users, adding 2.1m users per month with 75.3% MAU (Monthly Active Users). Nubank is the primary account for 50% of customers who have been with them for more than 12 months.
Customers are profitable 11 months after acquisition, with a monthly active revenue per customer of at least $4.90 and a monthly active revenue for customers they have fully cross-sold to closer to $23. Impressively, they've achieved all of this with a net promoter score (NPS) of 90+. Nubank generated over $1bn in the first 9 months of 2021, with a $506m gross profit.
🤔 They're profitable, growing, and entering new markets, all at the same time. If Nubank can continue to grow users at this pace throughout markets like Mexico, it will be a regional monster. Two things are happening at the same time, however. Nubank is executing incredibly well, but it's doing so in LATAM markets where the incumbents are lazy. The banking business model is wildly profitable compared to the US and Europe.
🤔 These unit economics should make the big banks (and some Neobanks) weep. The big banks could only dream of that CAC, and it's a real proof point that digital-only has to be the future (or branches need to become much more productive). Neobanks in the US are yet to prove themselves as lenders or at cross-selling. There's a lot to learn from Nubank.
Chipper cash offers no-fee cross-border payments in seven African countries, including Ghana, Uganda, Nigeria, Tanzania, Rwanda, South Africa, and Kenya. Chipper has 4m users and now has both the US to Africa and UK to Africa remittance corridors open. Notably, Chipper was also the only African app to secure a partnership with Twitter as part of its "tips jar" feature for creators. Chipper has also offered the ability for its customers to convert their local currency to Bitcoin 24/7 across its markets. Chipper also offers common Fintech features like stock investment and payment acceptance.
For views on this, I asked 11:FS' Gwera Kiwana to give her thoughts below 👇
🤔 Gwera's analysis: Chipper Cash is following in FTX's footsteps of presenting CryptoCrypto to the mainstream. FTX did this by purchasing Superbowl airtime and branding stadiums. Chipper Cash has partnered with pan-African celebrities like Burna Boy (Nigerian worldwide Afrobeat star) and Kansiime Anne (Ugandan comedian).
🤔 Gwera's analysis: also has been unable to open new accounts in some of its key markets due to (rumored) compliance concerns. Not being open to new accounts while receiving funding is an interesting flag. Will further investment help with that?
🤔 (Me again): FTX has been on an investing and acquisition spree, and its Chipper investment looks like a bet on non-US markets. It reminds me of the Blockfolio acquisition, which was much more consumer-focussed. The feature and growth velocity of FTX is staggering, and they're fully in land-grab mode.
Quick Hit 🥊
Robinhood tanks on poor Q3 earnings. 3Q earnings at $365m were well down on Q2s $565m. The gap is from Crypto trading, which in Q2 was $267m, vs. $51m in Q3 (of which much was driven by meme coin Dogecoin). 🤔 Live by the Doge die by the Doge. The downside of trying to ride memes; if you miss one as a public company, you're screwed. I sense history won't be kind to this kind of consumer frenzy chasing product design. Don't forget in the interim, Bitcoin, Eth, and Crypto generally have quietly marched to new all-time highs. If anything, that seems "boring" now?
Good Reads 📚
Samora notes that most Africans' most common experience of cross-border payments and trade relies on mobile money and agents. The local agent is both where you buy airtime and where you can collect import/export goods. Because most of this trade is informal, it's often not captured in "official" statistics.
Covid 19 has been a boon to skilled Africans who, in the age of remote work, can now take high-paid, global positions to companies looking outside their Geo. The customer front end is increasingly taken by three leading players Chipper Cash, Eversend, and Nala. Infrastructure plays like Flutterwave are opening up e-commerce, while central banks, commercial banks, and Crypto all battle it out to be the underlying rails of payment.
But so many intra-African payments still rely on SWIFT when you strip them back far enough. As a result, they're settled in dollars, and local currencies are illiquid. Samora posits that the infrastructure players like Flutterwave and Paystack will open up the market and see a power law of wallet adoption at the front end. (Much like Square and PayPal in the US).
🤔 The interplay of front ends and new infrastructure bridges is powerful, as both reinforce each other. The opportunity to move the informal economy into the formal economy requires creating much better solutions. The reliance on agents makes cash flow issues and is fraught with delivery risk (i.e., Will the thing I bought show up). The front ends are already more than just cross-border payments apps in most cases, but they could go much wider.
🤔 With illiquid currency pairs, you can see why a US Dollar stablecoin is attractive for intra-Africa trade. Using agents + traditional players like Western Union or Moneygram = high fees, high currency risk, and delays. USDC or USDP would be instantly transferable across borders, even if the end customer saw a balance in their local currency.
Tweets of the week 🕊
That's all, folks. 👋
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