A progress report on fintech’s record-breaking year
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Back in January, we asked FT reporters to highlight what they thought would be some of the most important fintech stories to watch in 2021. It has already proven to be a record-breaking year, so before this newsletter goes away for a short summer break, we thought it was time to take stock of how those early forecasts have played out, what we missed, and what to keep an eye on for the rest of the year.
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Thankfully for the fragile egos of our journalists, most of the forecasts from the start of the year have held up. If anything, we may have underestimated the strength of some of these trends.
Asia’s regulatory crackdown
All eyes were on Jack Ma’s Ant Group, which had been under fire since Ma’s ill-judged speech about Chinese regulators the previous autumn. Ant finally got a new consumer finance licence in June, but it still faces challenges including restrictive capital rules and pressure to encourage a central bank digital currency that threatens its own payments network.
More importantly, however, blocking Ant’s IPO proved to be just the start of a broader crackdown on private business that has extended far beyond the fintech sector. Just last week, China published a five-year plan to strengthen regulatory control over key sectors of the economy such as tech, education and healthcare.
“We’re going to see a lot more fundamental reshaping of how tech contributes to China’s future — about where wealth creation takes place and in whose hands it ends up, and who can use personal data besides the communist party,” predicted Aman Behzad, managing partner at fintech advisory firm Royal Park Partners.
A surge in public listings and M&A activity
Elsewhere, however, many fintechs are feeling ebullient. Caution about the lingering impact of the coronavirus pandemic has given way to confidence as economies rebound and capital pours into the sector at record rates, driving up valuations. In the first half of this year, fintechs raised 24 per cent more venture capital funding than they did through the whole of 2020, according to CBInsights data.
As expected, there has been a boom in public listings, but this has also been accompanied by a broader surge in all types of M&A activity, including several instances of the finance industry’s largest players picking off start-ups. JPMorgan Chase agreed to buy British robo-adviser Nutmeg, while Visa is buying open banking tech provider Tink and Square dropped $29bn on Australian buy now, pay later provider Afterpay.
Visa scooped up Tink after an earlier attempt to buy US-based Plaid was thwarted by competition concerns, while Plaid responded with a $425m funding round at almost three times the valuation Visa had agreed to pay for it the previous year.
This outcome seemed unlikely at the start of the year, when many countries were re-entering lockdowns amid second Covid waves.
“I don’t think anyone predicted quite how intense the funding and M&A activity was going to be,” said Keith Grose, Plaid head of international.
Ironically, however, the impact of Covid also helped drive the eventual boom: “More investors and companies have more dry powder saved up than anticipated, and the industry has gone through a step change in terms of adoption [of digital services],” Grose said. “So it seems more obvious in retrospect why fintech has grown into such a huge sector in terms of activity in the past few months.”
A ‘buy now, pay later’ boom
With giants like Visa and Mastercard still flush with cash and 49 blank cheque companies currently hunting for finance firms to take public, according to Dealogic, BNPL is unlikely to be the only sector that sees more M&A throughout the rest of the year.
BNPL was already one of the fastest-growing parts of the fintech industry and attention on the sector has only grown since the start of the year, as the Square-Afterpay deal illustrated. Other big groups looking to muscle into the business include Apple and Goldman Sachs. The only potential fly in the ointment we flagged back in January was the potential for regulatory crackdowns. That is still a risk, but intervention is likely to take some time — the UK’s FCA, for example, has declared its intention to clamp down on the sector, but it doesn’t expect to even begin consulting on new rules until next year.
In the meantime, RPP’s Behzad predicts further consolidation as the big players look for scale and quick ways to enter new markets.
“Ultimately BNPL is a scale game — you need access to very cheap wholesale credit, a large merchant base to drive transactions and access to consumer wallet capabilities to drive retention,” he said.
The hero crypto deserves, but not the one it needs A $600m heist, a high-stakes public negotiation, and a thief with a penchant for existentialist philosophy. The crypto world was gripped last week by an unusual crime caper that started when a mystery hacker raided Poly Network, a decentralised finance project. The hacker, who claimed to be helping to find weaknesses in Poly’s systems, was christened “Mr White Hat” by admirers. While the vigilante-style approach appealed to some crypto fans’ libertarian impulses, it is unlikely to reassure regulators. Read the whole story here, then check out this opinion piece from markets news editor Adam Samson on what the affair could mean for the broader crypto space.
SoftBank-backed Ualá becomes latest LatAm unicorn The boom in fundraising mentioned in this week’s main feature has not been limited to traditional fintech strongholds in Europe and North America. Argentine fintech Ualá last week became the latest Latin American start-up to complete a major investment round, raising $350m in a deal that valued it at almost $2.5bn. It follows big recent fundraising hauls from South American peers such as Uruguay’s dLocal, which was valued at nearly $9bn when it went public in June, and Brazil’s $30bn giant Nubank.
Quick Fire Q&A
Stay up to date with up-and-coming disrupters. Each week we ask a fast-growing fintech to introduce themselves and explain what makes them stand out in a crowded industry. Retail investors have been a disrupting force in the market this year. Investing platform Republic hopes to bring the enthusiasm retail DIY investors have shown for stocks and cryptocurrencies to alternative assets like art, debt and start-ups. This week we spoke to the chief executive and co-founder Kendrick Nguyen, who says the company has already helped 500 companies raise over half a billion dollars from its roughly 2m users.
Company name? Republic
When were you founded? 2016
Where are you based? New York City
Who are the founders? Peter Green and Kendrick Nguyen
What do you sell, and who do you sell it to? We provide a wide range of investment opportunities ranging from early-stage start-ups to pre-IPO companies, from residential real estate, to real estate funds, from crypto assets to small business financing and more to a wide range of retail investors from college students with $20 to invest or a retired surgeon in London with $20m to deploy.
How did you get started? There’s no one path to becoming a founder. In my case had a few prior professional careers that had been instrumental to build a fintech company in a highly regulated space. My career started out working in a large law firm before transitioning into finance, and I even worked for the founder of Sky Vodka. I met Peter, at a hole in a wall Vietnamese restaurant in San Francisco. I just happened to be sitting right next to him — he was visiting from San Diego and is a phenomenal product mind in UX design.
How much money have you raised so far? $50m in equity and $20m via Initial Coin Offering.
What’s your most recent valuation? Undisclosed
Who are the major shareholders? AngelList, Mike Novogratz’s firm Galaxy Digital, Reddit co-founder Alexis Ohanian, Motley Fool ventures, Broadhaven, Hashed and Passport Capital.
There are lots of fintechs out there — what makes you so special? To do what we do is not so easy that anyone who has a few billion dollars can launch a platform like Republic. It’s about relationships within the venture capital industry and with the founders themselves in order to secure that allocation and bring it on to your customer. It takes industry relationships and just hustle to get that through.
Back in the second quarter of 2020, Republic got its customers into one of the buzziest IPOs this year — Robinhood. Once the lock-up period expires, investors who put in capital at that time should have returns 50 per cent to 80 per cent better than the Robinhood users who were allocated shares in the IPO last month.