The Finix round is the latest sign of fintech optimism
Best wishes to you, and welcome to Protocol Fintech. This Friday: signs of optimism among fintech investors, Jack Dorsey vs. CCP and CFPB’s upcoming crackdown on financial data.
Off the chain
International expansion is tough for fintech companies, given the variations in local regulations and customer habits. Block’s Square has only recently begun to expand internationally. I don’t think Jack Dorsey envisions China as a market anytime soon. “Quit the CCP,” he tweeted last week. It is not clear how he plans to achieve that, as he also believes that bitcoin will bring world peace, and the Communist Party does not appear to be relinquishing its grip on power.
– Owen Thomas (e-mail | twitter)
A fintech ray of sunshine
If you work in fintech, you don’t need anyone to tell you that the news has been full of doom and gloom in recent months. We have done our part, noting that venture capital funding has been down after a record year and layoffs are rampant. Regulation drops the hammer on lending, exchange and crypto trading. Rising interest rates, inflation and international conflict make the future look more uncertain.
All that headwind can make it seem like a bad time to be in fintech. But many investors and entrepreneurs say the opposite – that this is a great time to build in the field. We spoke to several people about what gives them hope.
Fintech financing is far from dead. Sure, valuations have taken a hit, but deals are still being made — especially for fintechs that have found a way to separate themselves from the pack.
- There is also a shocking amount of money ready to work in venture capital right now. As of June 30, US VC funds had already raised over $120 billion. There are so many new venture funds that one news outlet started compiling a list. It is long.
- Sure, it takes years to use VC funds, but even investors admit they can’t just twiddle their thumbs and wait to invest forever. “VCs are sitting on record amounts of dry powder, which means they can only sit on the sidelines for so long before being deployed back into the ecosystem,” Cambrian founder and solo general partner Rex Salisbury told Protocol.
- Finix said it just finished a roundup. (It’s telling that the startup felt they needed to clarify that point.) Furthermore, Forage and SecureSave are just a small selection of other fintech companies that have had recent fundraising success.
A decline can provide more opportunities for innovation. “Entrepreneurs are identifying market needs that connect to broader, more significant cultural gaps,” Mirza CEO Siran Cao told Protocol. Harder times can mean work that matters more.
- One of the biggest hotbeds of innovation is in less flashy areas of fintech, such as financial infrastructure and embedded finance. Fin Capital founder Logan Allin said his firm remained “bullish” on “boring fintech.”
- Venture-backed fintech startups has not even taken 10% of the industry’s revenue, according to PitchBook. There is much of the financial services market that remains to be conquered.
There is more talent than ever before. The top 225 global fintech unicorns employ over 300,000 people, and 160,000 of them are in the US, according to the CFTE.
- After years of scrambling to find, say, a payments engineer who understood the complexities of exchanges, recruiters can now tap into a broad set of candidates with the specialized skills needed to build a successful fintech: a solid understanding of finance and economics, technical smart and experienced in navigating complex regulations.
- Layoffs always feel awful. But it’s a good move: Many skilled technologists and business types now have more free time. From idle talent often come exciting new projects – think of all the new companies created by laid-off employees in 2020 and 2021, or the more sustainable technology growth that followed the dot-com crash.
- This new group of inactive entrepreneurs is better prepared than those in previous busts. “Unlike founders a decade ago, they have deep networks to recruit from to build out founding teams,” Salisbury said. The infrastructure is also richer, with APIs not only for taking credit card payments, but also issuing cards, onboarding customers, accessing transaction data and complying with KYC regulations.
Another reason for optimism: This too shall pass. Recessions in American history are rarely prolonged — and it’s up for debate whether we’re in one. Fintech investments are down on a relative basis, but perhaps the inflated valuations at the end of 2021 are best left anyway. If entrepreneurs and investors learned to cope with these, they could also learn to make the most of the downturn.
— Veronica Irwin (e-mail | twitter)
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On the money
About protocol: Marqeta shares fell by a quarter after CEO Jason Gardner revealed plans to step down.
Robinhood must respond to a case of market manipulation. A judge ruled that investors in GameStop, AMC and seven other stocks can proceed with a proposed class action alleging that Robinhood’s trading restrictions during last year’s meme stock rally artificially inflated the stock’s supply.
In other meme stock news, The SEC is reportedly looking into Melvin Capital Management’s risk controls and investor disclosures after the hedge fund suffered heavy losses in the meme stock rally last year.
The CFPB is placing greater scrutiny on the data security practices of financial firms. An industry circular is warning financial firms that they risk breaching the Consumer Financial Protection Act by failing to have the right security measures in place against hacking.
People become more confident that the merger will happen, which increases the ether. Ether’s price hit a more than two-month high after a major test of the Ethereum blockchain’s upgrade to proof-of-stake.
BlackRock dives further into crypto markets. The asset manager will offer institutional clients a private trust with exposure to the spot bitcoin market. BlackRock last week announced plans for a partnership with Coinbase.
India froze $46 million in assets held by the local arm of Vauld. Struggling Singaporean crypto firm Flipvolt Technologies maintained “very lax KYC norms,” regulators said.
Flutterwave faces a tough run-up to the IPO. Bloomberg reported that they face charges of financial impropriety and harassment at offices across Africa.
Overheard
Who is to blame for the 2021 boom in fintech valuations? Confirm chief engineer Francisco Javier Arceo think he knows. “[I]If you think about it, all the fintech chaos was started by visa putting a price on blankets,” he tweeted.
The United Nations Conference on Trade and Development is the latest government body to turn cryptosceptic. “The benefits that cryptocurrencies can bring to some individuals and financial institutions are overshadowed by the risks and costs they entail, especially in developing countries.” the agency warned in one of several reports it released Wednesday.
The diagram
Bitcoin’s bounce-back is far from complete. But crypto’s most popular token has moved higher after a dramatic drop. It reached an all-time high of around $68,000 in November 2021 before leading the pullback in the crypto market, which saw the crypto token fall to around $19,000 in June. The token has started to rise again, trading just above $24,000 this week.
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Thanks for reading – see you on Monday!
