The Week in Digital Wealth (5/18/21)

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By: Gerelyn Terzo 

Fintech firms are hitting on all cylinders lately, making a splash in some of the trendiest deals in the capital markets and helping to shape the financial industry of the future. In fact, one of the mega IPOs of the year so far involves a payment technology unicorn that is about to become a household name. Whether it’s real estate opportunities, SPAC deals or digital currencies, financial technology companies ranging from mobile banking startups to payments platforms are setting the pace. Let’s dive in. 

Chime In 

While Wall Street firms are reassessing their real estate needs as the work-from-home model takes hold, one fintech company is looking to make a splash in the heart of San Francisco’s Financial District. Digital banking startup Chime is reportedly eyeing a piece of property in a potential deal that would emerge as the city’s largest office lease since the pandemic reared its ugly head. 

Chime, which raised USD 485 million in a Series F round last September, is close to signing on the dotted line for roughly 20,000 square feet in real estate manager Hines’ 48-story tower located at 101 California Street.  The fintech’s current headquarters are in Union Square. If Chime makes the move, it would count financial institutions Bank of America, Morgan Stanley and Deutsche Bank among its neighbors. The fintech play has a valuation of USD 14.5 billion attached and is exploring an IPO for the current year. 

SPAC Out 

Special purpose acquisition companies (SPACs) are all the rage, but it can’t last forever and fintechs are getting in while the getting is good. Exit activity for fintechs reached a new record in Q1 2021, fueled by trendy SPAC deals. A CBInsights report has revealed that VC-backed fintechs — led by challenger banks — were involved in nearly a dozen IPOs and close to 70 M&A transactions in Q1, a number of which involved SPACs, including the following deals: 

  • Bakkt’s merger with SPAC VPC Impact Acquisition to become a publicly traded entity  
  • SoFi’s merger with Social Capital Hedosophia Holdings, a SPAC backed by venture capitalist Chamath Palihapitiya, to go public
  • MoneyLion’s foray into the public markets through SPAC company Fusion Acquisition 
  • eToro’s planned combination with SPAC FinTech Acquisition V in Q3 2021 
  • Dallas-based APEX Clearing’s SPAC merger with Northern Star Investment Corp. II that places a valuation of USD 4.7 billion on the firm and will see it trading on the NYSE.
  • Palo Alto, Calif.-based home insurance tech startup Hippo’s SPAC merger with Reinvent Technology Partners Z that will bring it public at a USD 5 billion valuation.  

Source: CBInsights

Fintech Funding 

In addition, fintech companies attracted USD 22.8 billion to their coffers across more than 600 deals in Q1, an all-time high for the sector based on the amount raised. Based on jurisdictions, Europe had an impressive showing with USD 5 billion in fintech funding, exceeding Asia’s USD 3.6 billion and surpassed only by North America with USD 12.8 billion.  

Mega IPO 

A mega IPO in the capital markets involves a payment technology unicorn. Marqeta, which is a play on digital commerce, has filed for an IPO after achieving a valuation of USD 16 billion-17 billion based on the USD 33-35 range private shares are fetching in the secondary market. Just a year ago, Marqeta, which counts Stripe and FIS among its rivals, had a valuation of USD 4.3 billion attached. The startup has been one of the beneficiaries of the trend toward online card transactions, as evidenced by a more than doubling of its revenue to USD 290.3 million in 2020. 

PayPal Twist 

PayPal is inching closer to its goal of moving all of its apps to the cloud. The payments platform is redirecting a handful of its payment processing applications to Google Cloud, a decision that was fueled by rising payment transactions as consumers continue to spend digitally even in a post-pandemic world. The apps in play include: 

  • Peer-to-peer payments 
  • Merchant checkout
  • Bill payment 

In a twist on the digital trend, PayPal is also scooping up Santa Monica, Calif.-based startup Happy Returns, which supports in-person returns for online purchases. PayPal exec Frank Keller reportedly characterized the “post-purchase experience” as a “pain point” for consumers, one the company has been looking to tackle for a while. Terms of the deal were not disclosed. 

Video Killed the Radio Star

Video killed the radio star, and fintech is apparently eating the lunch of the big banks. Wall Street banks are poised to slash 200,000 jobs, representing 10% of their workforce, in the coming decade as they grapple with a paradigm shift toward digital. Traditional financial institutions are facing greater competition from the likes of PayPal and even e-commerce giant Amazon, which has entered the financial services fray. Fintechs are stealing share from banks, which could make job cuts in an attempt to bolster profits. 

On that note, JPMorgan’s Jeremy Balkin, who spearheads the firm’s fintech and innovation division, recently said that the bank is the No. 1 choice among fintechs for partnerships, likening the firm’s role in payments to Amazon Web Services’ influence in the cloud and online. Everyone recalls that JPMorgan chief Jamie Dimon didn’t mince words recently when he said the bank should be “scared s***less” about fintechs that have encroached on banking’s turf. 

CBDC Push and Square’s Bitcoin Snub 

On the digital currency front, the Central Bank of Bahrain is the latest domino to fall. It has chosen JPMorgan and Bank ABC to test a real-time cross-border payment solution involving digital currencies. The pilot program will facilitate payments from buyers to suppliers via the transfer of digital USD. The central bank could expand the partnership to include central bank digital currencies (CBDCs).  

Meanwhile, in the private sector, bitcoin is getting a bad wrap from billionaires these days. Whether it’s Elon Musk complaining about Bitcoin’s energy consumption for mining new BTC or Square chief Jack Dorsey taking a step back, the bitcoin price has been taking it on the chin of late. For its part, Square won’t be adding more bitcoin to its Treasury anytime soon after the value of its USD 220 million allocation in Q1 was slashed by 20%. To put it in perspective, Dorsey is still a bitcoin bull. Square already owns more than 8,000 bitcoins on its Treasury, worth more than USD 400 million at last check.