The Week in Digital Wealth (6/15/21)

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By: Gerelyn Terzo 

A bevy of deal activity kept the fintech space in the spotlight once again. The pipeline of startups set to hit the public markets after Marqeta made a splash on the Nasdaq last week is building, and SPACs are still hot to trot. Payments platform Stripe has launched its own AI-fueled identity product, while the buy now, pay later trend continues to gain momentum. Meanwhile, banks are facing the potential of new regulatory standards for their bitcoin exposure now that mainstream adoption of cryptocurrencies continues to grow. Let’s dive in. 

IPO Pipeline 

On the IPO front, Mark Cuban-backed challenger bank startup Dave is combining with blank check firm VPC Impact Acquisition Holdings III Inc, which is sponsored by Victory Park Capital, to go public in a SPAC transaction. The deal is expected to close this year. The combined entity expects to have a pro-forma equity value of $ 4 billion attached. Dave is behind a banking app designed for the unbanked as well as those prone to excessive overdraft fees. The app boasts 10 million users, 1.3 million of which use the digital banking platform. 

Marqeta set the tone for fintechs coming to market and the mood is bullish. The payment startup became a listed company last week after it started trading on the Nasdaq under the symbol MQ. On its maiden day of trading, the stock shot up 30% for a market cap that now hovers at $17 billion. Shares of the IPO were priced at $27 each, surpassing the set range of $20-24. Marqeta is a popular play in the e-commerce space and is behind an API that allows for the issuance and processing of card payments in real-time. Its technology is used by the likes of Uber, Square, Instacart and DoorDash. 

The fintech IPOs don’t stop there. Mobile remittance play Remitly is also on the hunt and has confidentially filed its draft registration statement on with the U.S. SEC for its planned IPO. The filing has been in the works for weeks since Remitly enlisted investment banks to pave the way for its public listing in which it will fetch a valuation of $5 billion. Just last summer the startup was valued at $1.5 billion. Remitly is behind an efficient remittance platform that removes third-parties and other expenses on cross-border payments that can eat away at the funds sent to struggling households. 

Payments Tech 

Billionaire investor Warren Buffett may have a reputation for being tech-averse, but he is dipping his toe into the fintech space. Buffett’s Berkshire Hathaway has directed $500 million into Nubank, a Brazilian fintech bank that boasts tens of millions of users in the Latin American region. Not surprisingly, the investment marks the biggest single allocation by an investor in the online lender. With Buffett’s backing, Nubank’s valuation rises to an eye-popping $30 billion. 

Continuing with the payments theme, Stripe, a payments processor for e-commerce players, has unveiled a new tool called Stripe Identity. The product will use artificial intelligence (AI) to help merchants verify a user’s identity. The process is quick and can confirm a user’s ID in a speedy 15 seconds by comparing government-issued IDs with real-time snapshots. Stripe is launching the product in beta format on June 14, though it’s already being trialed by a lucky few including Discord, Peerspace and Shippo.  

Stripe has also set its sights on an IPO for 2021. The company reportedly recently offered equity stakes to investors from backers who were looking to cash in. Takers, whose combined investment tally is $1 billion, include Capital Group Cos, Sequoia Capital, Shopify and Silver Lake, The Wall Street Journal reported, citing people with knowledge of the situation. 

Buy Now, Pay Later

The buy now, pay later trend is picking up more steam. First, Shopify has introduced a new buy now, pay later product with Affirm designed for businesses on its platform. It’s called Shop Pay Installments and it gives US merchants, of which there are hundreds of thousands, a streamlined glimpse into important metrics, such as how popular a product page is or inventory tracking. In a pilot rollout of Shop Pay Installments, businesses experienced a 50% jump in average order value vs. other payment options while shoppers were less likely to abandon carts using this Affirm-powered method. 

Meanwhile, Sebastian Siemiatkowski, CEO of Klarna, another buy now, pay later startup, was featured in a Bloomberg interview. According to him, Klarna is not exploring an IPO at this time, even after securing funding in a round led by Japan’s SoftBank that valued the startup at $45.6 billion. Siemiatkowski wants Klarna to be the Tesla of the financial services sector as a disrupter to the credit card industry. 

The Klarna chief says consumers are more credit conscious and are increasingly using their debit cards over credit cards, a trend that accelerated during the pandemic, and they are using platforms like Klarna when they do need credit. Klarna is experiencing “massive momentum” in the U.S. with some 18 million monthly active users on the platform. Klarna counts Macy’s, Etsy, Samsung, Sonos and other major brands among its partners. 

Crypto Regulation 

Banks could be soon gaining greater clarity on the regulatory front on holding digital assets. The Basel Committee on Banking Supervision (BCBS) has shared a consultation in which it offers proposals for how to treat banks with exposure to cryptocurrencies. The group, which comprises central bankers and other policymakers including the U.S. Fed, is looking to address three worries in the digital asset space: 

  • Consumer protection 
  • Money laundering
  • Terrorist financing

The Committee is also losing sleep about the volatility that is inherent in digital asset prices like bitcoin, which could be risky for banks especially. The group wants to see a risk weighting of 1,250% on a bank’s long and short positions in crypto assets like bitcoin. The model is similar to that of stablecoins like Tether, which is pegged 1:1 to the U.S. dollar, in that banks would have to keep fiat reserves commensurate with their crypto holdings. The Committee is responsible for setting standards by which global authorities can establish more local rules and regulations.