Fintech 🧠 Food - Silicon Valley Bank
Plus: Rest in Peace Catch & Silvergate. And The Future of Fintech in Africa
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Hey Fintech Nerds 👋
Does the fall of Silicon Valley Bank (SVB) mean we are at risk of another financial crisis?
It's too early to say, but at a minimum, it’s causing chaos in the Tech and Fintech sector.
But what happened?
A good friend of mine, Lawrence, has a saying, "we're risk-adjusted." As a veteran of financial markets, he's used to constantly rebalancing what he does as new information comes to light. This risk adjustment (or risk management) is the core function of a bank.
During the pandemic, SVB saw an influx of deposits as the tech sector boomed and needed somewhere to generate a return. So it bought 5-year bonds and 10-year mortgage-backed securities with a fixed return (~1.5%). At the time, this was a good decision. But it slowly became a bad decision.
SVB didn't adjust its risk when interest rates started to rise.
Imagine SVB as an individual who got a stimulus check and bought a house (the bonds) at the top of the market to generate rental income. This “house” generates a rental yield of 1.5%
When buying this house, the Fed was saying that it would not raise interest rates with “transitory” inflation, so at the time, it might even be a good decision. But then the Fed did raise rates, and house (bond) prices decreased as interest rates rose.
Now, clearly, you don't want to sell a house (bonds) that decreased in value if you can avoid it.
But what happens if your costs increase?
Imagine that person who bought a house during the pandemic now has to pay more to get to work (pay more to depositors) daily.
They'd have higher costs (of capital) but the same income.
They'd want to keep their costs (of capital) low (by not offering good interest rates).
Now imagine the money they earn decreased because they kept their costs low.
The savings rate SVB offered (1.1%) was less than competitors. So by keeping “costs low” SVB encouraged customers to go elsewhere for a better yield.
Over the last 12 months, SVB lost 11% of its deposits as its clients (Tech and Fintech companies) flew to new competitors offering better rates. Without deposits, SVB could do less lending to generate income.
And its bonds were sitting there generating 1.5%. It’s assets had decreased in value, but its daily costs (of capital) had increased. It could do less revenue-generating activity because it had fewer deposits to lend from.
Costs higher, income from bonds the same, income from lending limited.
That's a cost-of-living crisis for a bank.
The only way out is to sell something.
That's what SVB did.
They could have sold less and sold earlier. They could have risk-adjusted, but they didn’t. When the time finally did come to sell, they sold their bonds at a big loss and diluted their stock to raise money.
And then clients started pulling their money out in fear that SVB might be in trouble. Which became a run on the bank, which meant SVB was now in trouble forcing the FDIC to step in—a self-fulfilling prophecy.
Bank failures are serious and rare.
I should say here SVB isn't just a bank. It's an employer of 1000s of smart and amazing people. It's the house that helped build the Tech and Fintech industry, and we collectively stand on its shoulders. Let's help everyone land well from this when the dust settles. Events like this have a massive human cost.
Think too of the companies with capital locked in SVB, the VCs, and the employees of those companies that rely on the bank.
20th-century FDIC processes need to move at the speed of 21st-century AI to stop this from becoming a contagion. Two weeks ago, senior leaders sold a significant portion of their stock, and the regulators didn’t bat an eyelid. I hope there are consequences for this.
Today we risk contagion, and companies are scrambling to ensure they can make the next payroll. This didn’t have to happen, but let’s hope we get a good process that moves quickly.
The silver lining is watching the tech community rally around each other and help. Stay risk-adjusted, folks x.
(In things to know, I go into the technical jargon, the competitive dynamic and how this is similar but different to Silvergate 👇👇)
This week I also Rant a little about Africa and Fintech. It's the world's single highest-risk, highest-reward investment opportunity.
If there's a lesson from SVB, it's to stay risk-adjusted, and the best way to do that is to understand the market.
PS, I'll be at the Fintech Meetup in Las Vegas from the 18th to the 21st of March. If you're there, come to say hi, especially if you want to talk about preventing scams and fraud :)
Here's this week's Brainfood in summary
📣 Rant: Fintech in Africa - Africa has the world's highest risk and reward for Fintech investors and companies. The opportunity is as enormous and diverse as the continent itself. If we look at what has and has not succeeded, we see a path to an alternative infrastructure and playbook.
💸 4 Fintech Companies:
Ondorse - KYB automation for marketplaces
Gygner - SaaS Financing
Getmomo - The Vertical Fintech for rentals (Germany)
Sikoia - KYB workflow automation (EU)
👀 Things to Know:
Catch is shutting down ❤ - This is a case study on how to handle bad news gracefully. I still absolutely believe someone can build the killer freelancer benefits platform.
Silicon Valley Bank falls, and Crypto bank Silvergate will shut down. Is banking Fintech and Crypto a recipe for disaster? Doing it as the only or dominant business model is high reward in good times and high-risk in bad.
📚 Good Read:
Interchange is a burning platform - More companies are fighting over less revenue. But there are alternative strategies (like cross-sell or closed-loop).
Weekly Rant 📣
The Future of Fintech in Africa
The promise of Africa is ridiculous. But western capital and Fintech companies will make mistakes trying to enter the market. It is the most diverse ecosystem on the planet, with the hardest challenges to solve.
But what an opportunity.
This week I had the help of Gwera Kiwana and Wiza Jalakasi to help take a quick tour of this space and make some predictions on the future of Fintech in the region.
Gwera said it in two words. "Hyper fragmentation. "
The countries that make Africa: Whereas "The west" has a largely Christian or Anglo-Saxon culture, Latin America has significant similarities. Africa has much more variety, from fragmented tribal cultures to Christianity, Islam, and everything in between. This complexity appears in law, languages, and, yes, finance.
Demographics & Growth: Much has been made of the declining birth rate in China and Japan, harming their long-term economic potential. Africa is growing faster than anywhere on the planet and will double by 2050.
History of banking: The formal banking system evolved from European powers building colonies for trade and extraction. The banking system as we know it was never built for Africa but merely a copy and paste of what was working elsewhere. Its high costs and branch networks exclude consumers and micro businesses that comprise most of the economy.
Mobile Money Landscape: The default payment mechanism is still cash, but Mobile Money runs the digital economy. Mobile Network Operator (MNO) based payment mechanisms are not always interoperable, but the past decade has seen them dominate.
The Fintech story today
Payments (merchant acquiring): Cards are the alternative payment type. MNOs have regional monopolies but are often fragmented. MNO agents that accept cash are the lifeblood of the cash-to-digital economy.
Aggregators & Agent networks are critical: The fragmentation created a role for payment aggregators who look closest to merchant acquirer businesses like Adyen or Stripe in the West but with crucial differences.
Cross Border is still broken: Currency controls, regulation, and, unfortunately, corruption (in some markets) make Africa "high-risk and high cost to the West. The traditional banking model used to get USD into Africa doesn't account for these complexities.
The challenges and opportunities. The hyper-fragmentation, high fraud rates, and variable regulation make intra-African and global trade challenging. But this creates opportunities for builders who can walk through the fire of limited infrastructure.
Let’s do this.
1. The Countries that make Africa
Africa is one continent with 54 wildly different countries.
Unlocking the Fintech opportunities in Africa requires understanding the local nuances. To say "Africa" is a diverse place is a dramatic understatement. Just take the following examples
Over 2,000 languages spoken vs. 24 in Europe or 14 in APAC (Nigeria has over 500 languages alone)
Cultural and religious norms aligned to local regions and tribes vs. Europe, which is 72% Christian and the US ~65%
It's also a place of contradictions. Despite the statistics above, Christianity and Islam are also the dominant religions.
The critical mistake many make is assuming what they know from their home market could work in Africa. Local context is everything.
2. Africa has a demographic advantage.
Economic growth follows demographic growth.
The population of the United Kingdom doubled from 1800 to 1840 during the Industrial Revolution, which saw it become the world's dominant superpower.
The population of the USA more than doubled from 1900 to 1950 as it became the world superpower.
Between 1950 and 2000, the population of China doubled, as it stakes a claim today to challenge the USA as a superpower.
As superpowers, the UK and then the USA's currency dominated international trade, enabling massive growth in the middle class and conditions for their population.
Population growth correlates with an increase in the middle class, economic growth, and investment opportunity.
Not everyone has great demographics.
Japan, which had also doubled between 1950 and 2000, has had a declining population since 2015. It is shrinking at 0.5% a year. It has fewer young people at work and more older adults requiring healthcare. Japan is now regarded as a "low or no growth" economy, forcing them to solve big problems (like healthcare, public safety, etc.). Japan is not the ideal place for founding a startup or the next big growth opportunity.
And this is a problem facing most developed economies.
Where doesn't have a demographics problem?
By 2050, Nigeria's population will double to 400m
Africa will double to 2.5bn people, a quarter of the total population, by 2050.
Sub-sahara is growing at 2.7% yearly, much more than South Asia (1.2%) and LatAm (0.9%).
The UN forecasts the population to double again between 2050 and 2100 (although that assumes little increase in education, which reduces fertility rates).
Today, Africa is adding the population of France every two years.
This data points to the most enormous economic opportunity on earth.
But finance is broken and doesn't fit.
How can you have an economic opportunity without; financial infrastructure?
3. The formal banking system doesn't work for most in Africa.
The history of banking for a complex continent is hard to describe, but if you generalize, several patterns emerge.
The formal banking system is a copy + paste of the western model. European countries introduced banking during colonization and used their banking model to exchange with the European world.
After independence, most countries established central banks. But they kept the model of banks that open branches and KYC customers to open accounts.
Africa has poor links to the plumbing of financial services. Global banks view many markets as "high risk."
Africa evolved an alternative and less formal financial system. Cash based community savings, lending
The formal banking system is predicated on branches. Sub-saharan Africa has the lowest bank branch penetration in the world. The USA has 138 branches per 100,000 people; Japan has 33, and sub-Saharan Africa averages 5. With 650m (more than half) living in rural areas and with poor transport links, it can take days or weeks to get to a branch.
Those branches would historically "KYC" a customer or business using government identity documents. Yet roughly 500m people in sub-Saharan Africa don't have an identity document.
Until recent decades, most of the economy existed in cash (and it still dominates). With high poverty rates, crime risk, and political instability getting money into or out of Africa was challenging. The US-dollar-based global systems like SWIFT, Visa, or Mastercard couldn't penetrate this world.
Cross-border services like Western Union had agents that could manage cash. Still, global corporates (like Coca-Cola or Pfizer) and Aid agencies had to tolerate high fraud, corruption, and complex local regulations. This additional cost and complexity often meant that western banks would "de-risk" entire countries, currencies, and local financial infrastructure as "high-risk jurisdictions."
Yet this cash-based economy functioned well for many.
The informal (cash-based, non-taxed) sector accounts for 80% of all jobs in urban Africa and is the economic backbone of employment.
Savings clubs like Stokvel's in South Africa allow communities to save for anything from funerals to school fees. The stokvels rely on community trust, and this pattern repeats in nearly every poor economy in the world and across Africa. The savings have always been in cash but are increasingly turning digital.
4. The rise of Mobile Money
In 2002, the UK's Department for International Development (DfID) discovered that people in the informal economy used airtime as a money proxy.
Cash had to be physically transported (taking time) and could be stolen during transit. Airtime could be sent immediately for no cost and with high confidence, the recipient would receive it. Airtime could be bought and sold by local MNO agents and worked with any SMS-Capable Phone.
In 2005 98% of the Kenyan population worked in the informal sector, but the country had a massive penetration had SMS-capable phones. That year MNO Safaricom and Commercial Bank of Africa launched a pilot service to turn airtime into money using SMS and pin codes.
They called this service M-PESA, M for Mobile, and Pesa is the Swahili word for money. Users would initially pay for micro-loans, but the service soon expanded to send and receive money and bill payments.
M-PESA quickly dominated Kenya and spread to Tanzania and other markets like Uganda. Today M-PESA has an 80% market share in Kenya, but it is far from the "Visa for Africa." (If such a thing is possible).
The 2010s saw every MNO launch a rival to M-PESA, notably MTN, with a significant presence in South Africa and Cameroon. Today, Africa accounts for 70% of the $1trn mobile money market, with 621m registered wallets. The growth has been pulled forward by the pandemic and the increasing use for B2B payments and cross border.
It would be impossible to design a Fintech app or platform that could solve "Africa." But some are trying.
5. Fintech in Africa today
Fintech in Nigeria is different from Fintech in South Africa and doesn't resemble Kenya. But setting market dynamics aside, we can identify some "categories."
The main categories today are
Agent Networks: Like Paga in Nigeria, help connect the cash world to digital bill payment and the digital economy.
Aggregators: The fragmentation led to the rise of aggregators (like Cellulant, MFS Africa) that connect 100s of MNOs to 100s of millions of different types of wallets, apps, and services.
Payment acquirers: or payment service providers like Flutterwave and Paystack are the local equivalents of Adyen or PayPal, allowing merchants to get paid.
Wallets and Neobanks: Like Kuda, bring a full suite of banking (and investing) to the mass market at a lower cost to serve. They also offer cards making users compatible with the global world of e-commerce.
Crossborder specialists: NALA* and Chipper Cash create affordable and reliable remittance services that are fully digital for both the sender and receiver.
Remember the theme here - hyper fragmentation? As strong as each individual player in each market is, there isn't a clear winner and interoperability is patchy at best.
6. Challenges and Opportunities
But it's not all a success story.
Since the pandemic, Sub-saharan Africa has faced all of the inflation challenges faced by countries like Argentina but with a less developed financial and economic infrastructure.
In many cases, the infrastructure doesn't exist. Entrepreneurs find themselves
Fraud is incredibly hard to manage: The fraud models trained on risks seen in card-based payments don't work for cash and mobile money, especially when users don't have KYC documents. Unfortunately, Nigeria is often implicated in fraud rings and scams seen by the West. Local companies are at the front line of building new defense mechanisms, but because of this, their western bank partners lack the controls and insight to help in the fight against fraud. We can't rely on KYC in the 21st century as a fraud control.
Fragmentation is an issue: Despite many attempts, there's no single widely adopted interoperable standard for pan-African or international mobile money.
International compatibility is an issue: With 100s of telcos and countless Fintech apps and local regulations to manage, the US dollar banking system still finds it hard to interoperate.
Taxation is slowing progress: Ghana has a 1.75% tax, called 'e-levy,' for transactions above 100 cedis (about $13). Cameroon introduced a 0.2% tax on money transfers and withdrawals from mobile money solutions earlier this year
Where some see challenges, others see opportunities.
For Africa (and sub-Saharan Africa especially) to participate in the global economy and reach its growth ambitions, it has to solve these challenges.
If fraud is an issue, fraud infrastructure is an opportunity.
If fragmentation is an issue, aggregation is an opportunity.
Fraud & Compliance: My CEO Soups always says most fraud problems are data science problems. As money becomes digital and devices are the default, we can massively improve fraud, compliance, and risk even if we don't rely on KYC. Fintech companies, aggregators, and MNOs will need to collaborate, share data, and focus on the device and how people behave with it.
Virtual cards: Virtual cards are cheaper to issue than plastic, making commerce compatible with international platforms like Starlink or Amazon Web Services. They're becoming a critical tool for SME businesses compatible with global infrastructure.
Cross-border: Services that solve for Africa have the most complicated but highest reward opportunity. "Wise for Africa" won't be built purely on the correspondent banking system but with tight integrations to mobile money providers and local agent partners.
Payments and APIs: Aggregators and PSPs are expanding to help to handle the local complexity and nuances of the markets over time. They fill the infrastructure gap by keeping international bank partners and PSPs onside (keeping fraud rates down).
Neobanking: Kuda was perhaps the first "Neobank," as the West would recognize it, fully digital and free to use. Kuda and its class of competitors and equivalents in other markets make consumer banking via digital the default. As consumers become banked, they enter the formal economy and begin to benefit from its resilience.
Lending: For solar, rent-to-own, and local contexts is growing out of payment apps. If you have mobile money and use it for bill payments regularly, that data can form the beginnings of a creditworthiness assessment. As your payments become digital so can your financial life becomes
Crypto: USD-based stablecoins and crypto have some of their highest penetration rates in sub-Saharan Africa due to hyperinflation and their international nature. $10 and $20 bills have always been popular in less stable economies. The digital version will be, too, but it could be lower risk and lower fraud. Stablecoins represent an alternative to the correspondent banking system and a lower-cost way to transfer funds instantly. If cross-border is hard and expensive, the alternative is worth considering.
Humans are never better than when they face adversity and challenge. We seek comfort but need the challenge.
When the Fintech and banking world feels like it's falling apart in the West, it is being built at the African frontier.
We're headed south.
To the global south.
The new land of opportunity.
4 Fintech Companies 💸
1. Ondorse - KYB automation for marketplaces
Ondorse allows marketplaces or Fintech companies to quickly onboard business customers using 25+ pre-integrated solutions. Users can build workflows for ID+V, fraud, and AML to expand into global markets while reducing the integration overhead and friction at onboarding—Ondorse claims to reduce manual review by 60% and 2x customer conversion rate.
🤔 The biggest challenge all financial products face is conversion at onboarding, especially with business customers. If Ondorse can 2x that and help a Fintech or marketplace expand internationally, it becomes a no-brainer. I've seen a steady stream of onboarding workflow for consumers, but it is more interesting for business customers because it's more complex.
2. Gygner - SaaS Financing
Gynger helps companies pay upfront for SaaS software (like Salesforce or Secureframe) to take advantage of discounts. This can unlock savings of between 10 and 20% and allows businesses to cover all their bills with a single monthly payment.
🤔 Given how important runway preservation is for startups, this solution has great timing. Companies that can extend runway by one or two months have a little bit longer before they need to worry about funding. That's a bit more time to grow into a 2021 valuation. Longer term, this feels like another feature Mercury or Airbase would offer, but perhaps Gynger can use this lending as a wedge to eventually offer more.
3. Getmomo - The Vertical Fintech for rentals (Germany)
Getmomo provides landlords with a single account to manage their portfolio and partners with a local bank to help renters fund their cash deposits. For renters this means they can simply "swap" their previous cash deposit and move into their new home without being out of pocket. Landlords also get automated payments, accounting, and reporting in a single dashboard.
🤔 Landlords get more new tenants and less admin; that's a price worth paying. There's a lot to like here. Germany is a rental market, with less than 40% of the population owning their property as we head to a market with rising interest rates, a generation of people at risk of being stuck in a high-cost rental or mortgage. To make this work, Getmomo has to solve for the landlord, the renter, and potentially, property management companies. It's where vertical-saas meets prosumer landlording and credit, and I like it a lot.
4. Sikoia - KYB workflow automation (EU)
Sikoia allows users to orchestrate multiple integrations and providers for B2B and B2C customer onboarding, risk management, and case management workflows. Sikoia reduces the use of spreadsheets and manual review for compliance teams.
🤔 Every company is compliance workflow automation. The reason orchestration is becoming so popular as a category is that despite the explosion in Fintech providers, it's rare that one size fits all. Like payments workflow categories, I wonder if this is ultimately middleware. But even if that's true, it's valuable.
Things to know 👀
Catch, a service that provided health and benefits to independent workers has announced it has shut down. The company has raised $18.1m since its founding in 2018 and became one of only three companies licensed to sell ACA insurance and get tax credits (Obamacare) for consumers.
🤔 This is how to do bad news with grace. This announcement's grace and humility are inspiring in a world with truly horrible things happening and stories of shocking behavior. True strength is owning the bad news. I'm rooting for the catch team and founders. The only thing better than a success story is a comeback story, and it's when, not if, with this team.
🤔 I buy the market problem Catch aims to solve, but the challenge is product fit. 36% of the working population in the US participates in freelance work (projections say that number will increase), and most don't get benefits. Some gig economy platforms now offer benefits, which tells me that distribution is the key. Some freelancers work across multiple platforms, so the answer can't just be to embed the Catch product in a marketplace. But perhaps embedding them in other B2B Fintech providers targetting freelancers as an API could be interesting.
🤔 This market is brutal. Capitalism is brutal. We've swung from the best employment environment for Fintech ever to almost frozen, creating layoffs. But we don't have to be brutal as that happens. I'm sure this team will land well, and others may find an opportunity in Catch's market exit. There's space to address the freelancer market. As Brex and others focus on growth companies, the much harder freelancer sector is more open. I buy the size of the market, and I think there's one heck of an infrastructure opportunity here.
🤔 Under the hood there are rumors of sponsor bank challenges. The rumor goes that their sponsor bank (Blue Ridge) is also exiting many Fintech businesses. For those of you not following along at home, Blueridge is coming off the back of an investigation by the OCC and starting to "de-risk" (read: close) partnerships. But Fintech companies change sponsor banks often; this rumor likely has no substance.
2. Silicon Valley Bank is in falls, and Crypto bank Silvergate will shut down
Silicon Valley Bank (SVB) stock dropped 60% on Thursday after announcing it would sell 10s of billions of securities at a loss. The bank failed on Friday, and the FDIC had to step in. Troubled Crypto-focussed bank Silvergate will close and liquidate its assets, and depositors will be fully repaid.
🤔 SVB has a cost of living crisis. Imagine losing 11% of your ability to generate income, your house decreasing in value by 9%, and your costs rising by 2%. SVB lost 11% of deposits in a single year. That is massive because deposits fund all lending activity. As interest rates rise, those deposits' costs increase because they have to pay interest (~2%). As interest rates rise, their income from bonds stays flat (because they're "fixed income bonds").
🤔 Meet duration risk and ALM miss match. ALM (Asset and Liability) mismatch is when the variable outgoings (like interest paid to depositors) start to increase, but the fixed income (yield from bonds) does not. The bank's price to depositors had to increase steadily, but its bond income was fixed. This is a mismatch that occurred over the duration of the bond. This is important, but we also need to consider the external shocks to the system SVB faces.
🤔 SVB faces increasing competition. SVB was the house that built Fintech, but it hasn't kept up with the times. Every VC and Fintech company defaulted to SVB, who worked hard to help Fintech companies comply and transform our industry. But today, Mercury, CrossRiver, Arc, and many others are filling that gap with higher deposit yields and better tech and UX. The big banks (like JPM) are hunting big Fintech companies too. Why leave your deposits at SVB with low yield when better choices exist? SVB is too big to be small, too small to be big.
🤔 What made SVB unique is its concentration of deposits (cash) from mature venture-backed businesses. Known as concentration risk (too much exposure to one sector). Late-stage private companies are trying to avoid a large down-round or IPO that would damage their stock price. These companies are burning through cash. That cash is what had allowed SVB to fund their lending. Fewer cash deposits mean their cost of funding (their cost of sales) has gone up.
🤔 The tech and Fintech reset has left SVB underwater and bleeding deposits. The only way out SVB had was to sell equity (more shares) to cover its losses. This move has spooked the market because SVB is historically a very well-run bank and has the market worrying about exposures other smaller banks might have to the tech sector with Bancorp shares falling 20% in the same period.
🤔 Tiny banks with massive clients are a recipe for risk. Silvergate had $11bn in assets. The power balance between a small bank and a massive Crypto or Fintech client is broken. No matter how much banks "own" regulatory and compliance risk and say no, their incentive is ultimately to try and make things work. Small banks are not set up to absorb losses when the market turns in a heavily exposed sector.
🤔 Large banks (and, to some extent, regulators) create this problem by "de-risking" Crypto and Fintech. The mood music from regulators too big banks is "stay away," and the big banks have received that message. They'll make exceptions for massive, public, or well-run Crypto businesses, but those are few and far between. This is a solvable problem; Crypto businesses can comply; it's just hard work. I think this makes it a huge opportunity.
🤔 We need great ACH and TradFi linking. Crypto isn't going away, so we need to make this infrastructure robust, secure, and protected. I suspect other ACH-focussed banks like CrossRiver could do well here (as well as on-ramps like Sardine*, Moonpay, and Transak; now Circle is exiting ACH too).
PSA: Can we stop announcing debt and equity as the same thing headline writers? Otherwise, every lending business with a credit line could announce their billions. Open Banking Lender Abound raises $500m+ debt and equity. Abound is an interesting business that made 150k loans and will lend $1.2bn by 2025. They also use cashflow-based underwriting in Europe (which is rarer than it should be). This is a good story, but come on, folks.
Good Reads 📚
1. Interchange is a burning platform
Countless Fintech business models rely on the interchange fee; the money made when users make or accept payment. Startups have crowded into this space since it was a great source of early revenue but must now diversify for two reasons. 1) More companies are fighting for the same dollars, and, 2) The fee revenue % isn't growing and is more likely to shrink.
This is a beautiful, simple explanation of the primary business model for most consumer and B2B Fintech companies of the past decade.
🤔 Diversification of revenue pools is key for payments companies. Matt mentions two types of companies diversifying payment acceptance (Stripe, Adyen) and ecosystems (Block/CashApp).
🤔 But where does this leave your average consumer or B2B Fintech company? Companies that built their entire revenue model around Interchange are now pushing into credit. That's why "everything is credit" was the big theme of late last year. But credit is a much more complex product to manage. I think that's why everything is a credit workflow API this year (or KYC orchestration for vertical SaaS).
🤔 Interchange is a good way to bootstrap embedded finance. Vertical-SaaS businesses can offer various financial products, but the card and capturing spending remains a fantastic wedge. The insight from this blog is that issuing or accepting cards
Want to go deeper? Check out The future of payments.
Tweets of the week 🕊
That's all, folks. 👋
Remember, if you're enjoying this content, please do tell all your fintech friends to check it out and hit the subscribe button :)
Disclosures: (1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees. (2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a * (3) Any companies mentioned in Rants are top of mind and used for illustrative purposes only.
It’s actually far simpler Than the housing analogy. Banks are in the business of risk transformation. They take short term deposits and invest in long term loans. This is maturity transformation. They pay interest on short term deposits at short term (variable) interest rates and lend or invest either short or long term (fixed) interest rate assets. This latter risk mismatch is easy to hedge with interest rate swaps. Silicon Valley Bank and Silvergate made basic errors in judgement when assuming rates couldn’t rise, leaving their shareholders and depositors vulnerable to open interest rate and liquidity risk positions. The question for me is: why is the market so easily convinced that start ups have come up with something new when all they are doing is ignoring hard learnt lessons of the past?
"M-PESA quickly dominated Kenya"
Indeed it did. I think an important point to make here is that this was regulatory issue as much as a technical issue. In other countries (eg, Nigeria) the telcos were forced to JV with banks (hence nothing much happened for years) whereas M-PESA was allow to proceed as a telco initiative.