In This Newsletter:
CB Insights publishes Global Fintech Report Q2 2019
Digital challenger banks stockpile cash at record rate
Fintech debt investors follow equity dollars into Latin America
Monzo starts offering loans to current account customers
Working capital partners go into administration
Low FICO score individuals being approved for Apple Card
UBS to start charging super-rich clients for cash deposits.
CB Insights Publishes Global Fintech Report Q2 2019
On Tuesday, CB Insights published its latest Global Fintech Report - a data-driven look at global financial technology investment trends, top deals, active investors, and corporate activity in Q2 2019.
Highlights from the report include findings that Q2’19 fintech funding topped $8.3B, boosted by a record quarter of 25 $100M+ mega-rounds: Funding to VC-backed fintech companies grew 24% QoQ in Q2’19 and neared previously quarterly funding highs.
The report also reveals that Latin America is also one of the fastest-growing regions for fintech funding: LatAm topped both China and India for fintech funding in Q2’19. Q3’19 has already seen a $400M mega-round to Brazil-based digital challenger bank NuBank.
Digital Challenger Banks Stockpile Cash at Record Rate
Digital challenger banks are stockpiling cash at record rates in their efforts to unseat traditional banks, turning to a group of deep-pocketed venture capital investors placing multiple bets on the sector’s growth.
Some of the companies have attracted overlapping investors. DST has backed both UK challenger bank Revolut and rival Chime, leading a $200m round of fundraising in March that valued the US start-up at $1.5bn. Thrive led a 2017 investment in the UK start-up Monzo, while Ribbit has backed both Revolut and Argentina’s Uala.
Some analysts have criticised challenger banks for courting new customers with aggressive marketing campaigns, which could be exacerbated by this year’s infusion of capital. Chris Britt, Chime‘s chief executive, said the company would be profitable if it stopped spending on advertising, and that almost half of its customers come from referrals and other word-of-mouth channels.
Fintech Debt Investors Follow Equity Dollars Into Latin America
Fintech firms in Latin America are having a moment with the equity investing titans of the world, and debt investors are taking note.
Venture capital heavyweights including Softbank, Andreessen Horowitz and Sequoia Capital have boosted their equity investments in the region over the past six to 12 months. Strong equity backing, in turn, is attracting debt capital. Goldman Sachs, for instance, has reportedly directed its special situations group to keep a close eye on the region after its successful debt investment in Brazil’s digital bank Nubank. Other investment banks are following suit.
With less investing competition in Latin America than in the US, debt providers are still able to snag double digit returns investing in online consumer and SME (small-to-medium enterprise) lenders. That’s compared to 6%-7% returns from similar investments in US lenders.
With a fresh supply of capital, LatAm startups, in turn, are rushing to launch new products, expand their geographic reach and raise additional debt and equity rounds. Brazil’s online lender Creditas, for instance, plans to expand into Mexico by year-end. Creditas, like many other fintechs in the region, targets the underbanked population that has limited or no access to credit.
Monzo Starts Offering Loans to Current Account Customers
UK online bank Monzo has started offering loans to its current account customers. The company began testing the loans with a small number of customers in 2018, but launched the service more widely on Thursday, offering loans of between £200 and £15,000.
The move into customer loans marks a major step in the company’s attempts to increase revenues and move toward sustainability. It has attracted more than 2m users to its app-based current account with perks such as spending analysis and cheap foreign exchange transactions, but has racked up more than £85m in losses since it was founded in 2015.
It is the second of the UK’s digital banks to start offering personal loans, following smaller rival Starling Bank’s launch last year. Another UK rival, Revolut, signalled its intention to start lending in the EU after securing a full banking licence in Lithuania in December, but has yet to introduce the service. German group N26, which opened in the UK in October, offers loans in a few European markets, but has not started lending in the UK.
Working Capital Partners Go Into Administration
Invoice finance and trade finance company, Working Capital Partners (WCP), has gone into Administration, allegedly as a result of a recent client fraud.
Client fraud is one of the biggest challenges facing funders, whereby a customer perpetrates a wrongful, or criminal, deception intended to result in financial gain. Whilst financiers take extensive measures to try and prevent such occurrences, there are occasionally situations where fraudulent customers manage to evade the detection measures put in place by funders.
WCP occupied a small, but important niche. Firstly, they offered a selective invoice finance service, whereby clients can pick and choose invoices to raise finance against. Thankfully, there are a number of alternative funders operating within that space. Secondly, WCP were also one of a small number of funders that could also provide trade finance, or purchase order finance facilities. The number of alternative providers in that sector is much smaller, although there are options still available.
Low FICO Score Individuals Being Approved for Apple Card
The Apple Card expects to launch this month with interest rates (APRs) ranging from 12.99% to 23.99% when you open your account, based on the users “creditworthiness.” After that, the APR will vary with the market based on the Prime Rate (currently 5.5%) plus a margin. Of note, is the fact that low FICO score individuals seem to be receiving approval by Apple/Goldman for credit. These subprime individuals typically struggle to receive access to credit, and when they do they pay a premium.
Apple/Goldman will have a deep insight into user behaviour. If you want an Apple Card you must have an Apple iPhone. The integration between the virtual card and the hardware seeks to create a symbiotic credit management platform. Users see how much, where, and when they spend providing opportunities to receive some virtual coaching. Plus, they receive texts with reminders like telling them it is time to pay their bill. The data-rich credit card may make it easier to manage higher-risk consumers.
UBS to Start Charging Super-Rich Clients for Cash Deposits
Following similar moves by a number of other Swiss banks, UBS - the world’s largest wealth manager - told its ultra-wealthy Swiss clients on Tuesday that it would introduce an annual 0.6% charge on cash savings of more than €500,000 (£461,000). The fee, to be introduced in November, rises to 0.75% on savings of more than 2m Swiss francs (£1.7m).
The 157-year-old bank, which holds $2.3tn (£1.9tn) on behalf of many of the world’s richest people, said it was introducing the fee to pass on the cost of negative interest rates set by the Swiss National Bank and the European Central Bank (ECB). The SNB interest rate is -0.75% and economists polled by Reuters said they expected it to stay in negative territory until at least 2021. The ECB deposit rate is -0.4%.
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