Fintech Newsletter for 6/27/21

Below is news related to the fintech industry this week.

Visa buys Swedish fintech Tink for more than $2B.

Visa earlier this week announced that it has agreed to pay more than $2B for Tink.

Now is an excellent time to recap the failed Plaid acquisition attempt by Visa earlier this year. U.S. Department of Justice (DOJ) filed an antitrust complaint forcing both companies to move away from the deal.

So what exactly does Plaid offer?

Plaid is a classic "data aggregator" in the fintech ecosystem, i.e., they connect the applications with various banks. Some of the hot fintech applications such as Venmo(by Paypal), Coinbase(Nasdaq: COIN), and Robinhood use Plaid infrastructure to connect with their user's bank account. Plaid is a leading aggregation platform in the United States. As of 2019, Plaid had 11,000 banks and 200M bank accounts (based on the 2019 DOJ antitrust lawsuit).

Without Plaid, the application providers would have to do a lot of heavy lifting such as,

Managing point-to-point integrations: Every bank may have its APIs, so application providers must work with individual banks to ensure the integrations will work.
Security and Trust: Plaid provides an offering called "Link" ( small code that would reside on the client application) that brokers the handshake between the bank,end-user, and the application. So application vendors don't have to worry about storing or managing users' banking credentials.

Why was Visa interested in the Plaid acquisition?

(a) Be part of the fintech revolution : The only constant in life is a "change",is a saying that is very much applicable to technology products. Visa, just a couple of decades ago, was the technology "disruptor" in the finance world., However, the new fintech companies are now challenging the need for credit and debit networks. So Visa and other card providers want to get into the new fintech revolution. The Plaid acquisition would be one way for Visa to be current.

(b) Save debit services market share: Visa with 70% of the market share of debit card networks in the U.S. Based on a DOJ lawsuit, Visa in 2019 processed nearly 43B debit transactions, which contributed to almost $4B (approx 18%) of the companies revenue. Plaid worked with the banks on merchants to provide an alternative service for merchants to bypass visa debit networks.

(c) Access to Data:Visa already provides "audience" services for marketers, and Plaid data would help Visa build its Advertisement business. However, the primary gain would be to use Plaid data to spot the emerging fintech application in the debit business and either partner or acquire to strengthen their position further.

(d) Rich set of fintech API:Plaid provides a rich set of API that application vendors can leverage, ranging from personal financial advisory services to loan underwriting.

So why did the deal get blocked earlier this year?

In short, a DOJ antitrust lawsuit (read our blog post antitrust in general) claimed that the merger would harm the U.S. debit consumers, and Visa's exclusivity contract with banks provided barriers to entry for new challengers .

All this is great, but what has all this got to do with the Tink acquisition?

Tink is a competitor for Plaid and operates only in Europe. Therefore, one may speculate the outcome will be the same as Plaid. However, the critical difference here is that Tink works only in Europe, where the open banking market regulation is different from the U.S.

In conclusion, as part of its strategy, Visa is still pursuing data aggregators and continues to defend its debit services market share. We would have to wait and watch if Tink and Visa acquisition gets similar scrutiny from European regulators.

The House passes regulation to hone in Big tech.

Talking of regulations, the U.S. House committee approved a couple of bills related to regulating big tech.

(1) H.R.3816: "American Choice and Innovation Online Act," a bill that prevents tech platform companies from involving in practices that either provides them an undue advantage or disadvantages to their competitors ( for example: read our blog post on google antitrust suit in Europe )

(2) H.R.3849: "Augmenting Compatibility and Competition by Enabling Service Switching, or Access, Act:- a bill that mandates digital platform providers to provide the ability for end-users to export and delete their data from the platform.

U.S. House prices continue to rise, and Non-bank leads mortgage lending.

The National Association of Realtors released the housing numbers earlier this week for May. Overall, housing prices continue to rise in the U.S. with a 23.6% YoY increase in median sales price. However, the number of home sales continues to go down for the last four consecutive months.

Also, another interesting set of activity in the housing market was that non-bank lenders provided more than 68% of U.S. housing mortgages in C.Y. 2020. In C.Y. 2019, the lending was less than 60%.clearly a space ripe for fintech disruption with automated underwriting opportunities - another market segment that traditional banks must worry about.

Andreessen Horowitz launches new crypto fund

V.C firm Andreessen Horowitz is set to launch their new $2.2B Crypto Fund to foster innovation in fintech startups in venture capital. Last year they announced a Crypto fund totaling $515M. In 2018 when they initially started the fund, they raised $300M.

YoY increase of crypto funds is an indicator that V.C. 's are playing a long game. Short volatilities in cryptocurrencies are not holding them back.

Fintech New Venture and IPO

Majority,a Texas based mobile banking service for migrants,raised $19m in seed funding.
Vero,a New York city based next gen leasing platform ,raised $5m in Series A funding.
Securitize,a Florida based marketplace for digital asset securities ,raised $48m in Series B funding.
Lower,a Ohio based home finance platform , raised $100m in Series A funding.
Atom,a New York city based consumer finance research platform,raised $28m in Series B funding.
Lendbuzz,a Boston based AI-based auto finance platform ,raised $60m in Series C funding.
Logistics,a Georgia based logistics-focused financial platform,raised $30m in Series B funding.
Chainalysis,a New York city based blockchain data platform ,raised $100m in Series E funding
SmartAsset,a New York city based marketplace for financial advisors ,raised $110m in Series D funding.
Deserve,a California based credit card-as-service software platform ,raised $50m in Series D funding.
Crediverso,a California based hispanic focused financial finance platform,raised $13.1 seed funding.
Amber Group, a Hong Kong-based cryptocurrency trading startup, raises $100m in funding.
Sportrade,a Pennsylvania based sports betting platform ,raised $36m in Series B funding.

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