Sunday was a big day in fintech: Afterpay has agreed to merge with Square. This agreement sets two of the most admired financial technology companies in recent history on a path to becoming one.
Afterpay and Square have the potential to build one of the world’s most important payments networks. Square has built a very significant merchant payment network, and, via Cash App, a thriving high-growth consumer payment service. However, these two lines of business have historically not been integrated. Together, Square and Afterpay will be able to weave all of these services together into a single integrated experience.
Afterpay and Cash App each have double-digit millions of consumers, and Square’s seller ecosystem and Afterpay’s merchant network both record double-digit billions of payment volume per year. From the offline register and the online checkout flow to sending money in just a few taps, Square and Afterpay will tell a complete story of next-generation economic empowerment.
As Afterpay’s only institutional venture investor, I wanted to share some perspective on how we got here and what this merger means for the future of consumer finance and the payments industry.
Afterpay and Square have the potential to build one of the world’s most important payments networks.
Every five to 10 years, the global payments industry undergoes a critical innovation cycle that determines the winners and losers for the next several decades. The last major transition was the shift to NFC-based mobile payments, which I wrote about in 2015. The major mobile OS vendors (Apple and Google) cemented their position in the global payments stack by deftly bridging the needs of the networks (Visa, Mastercard, etc.) and consumers by way of the mobile devices in their pockets.
Afterpay sparked the latest critical innovation cycle. Conceived in a living room in Sydney by a millennial, Nick Molnar, for millennials, Afterpay had a key insight: Millennials don’t like credit.
Millennials came of age during the global mortgage crisis of 2008. As young adults, they watched their friends and family lose their homes by overextending on mortgage debt, bolstering their already lower trust for banks. They also have record levels of student debt. Therefore, it’s no surprise that millennials (and Gen Z right behind them) strongly prefer debit cards over credit cards.
But it’s one thing to recognize the paradigm shift and quite another to do something about it. Nick Molnar and Anthony Eisen did something, ultimately building one of the fastest-growing payments startups in history on their core product: Buy now, pay later … and never any interest.
Afterpay’s product is simple. If you have $100 in your cart and choose to pay with Afterpay, it will charge your bank card (typically a debit card) $25 every two weeks in four installments. No interest, no revolving debt and no fees with on-time payments. For the millennial consumer, this meant they could get the primary benefit of a credit card (the ability to pay later) with their debit card, without the need to worry about all the bad things that come with credit cards — high interest rates and revolving debt.
All upside, no downside. Who could resist? For the early merchants, virtually all of whom relied on millennials as their key growth segment, they got a fair trade: Pay a small fee above payment processing to Afterpay, get significantly higher average order values and conversions to purchase. It was a win-win proposition and, with lots of execution, a new payment network was born.
Image Credits: Matrix Partners
Afterpay went somewhat unnoticed outside Australia in 2016 and 2017, but once it came to the U.S. in 2018 and built a business there that broke $100 million net revenues in only its second year, it got attention.
Klarna, which had struggled with product-market fit in the U.S., pivoted their business to emulate Afterpay. And Affirm, which had always been about traditional credit — generating a significant portion of their revenue from consumer interest — also noticed and introduced their own BNPL offering. Then came PayPal with “Pay in 4,” and just a few weeks ago, there has been news that Apple is expected to enter the space.
Afterpay created a global phenomenon that has now become a category embraced by mainstream players across the industry — a category that is on track to take a meaningful share of global retail payments over the next 10 years.
Afterpay stands apart. It has always been the BNPL leader by virtually every measure, and it has done it by staying true to their customers’ needs. The company is great at understanding the millennial and Gen Z consumer. It’s evident in the voice, tone and lifestyle brand you experience as an Afterpay user, and in the merchant network it continues to build strategically. It’s also evident in the simple fact that it doesn’t try to cross-sell users revolving debt products.
Most importantly, it’s evident in the usage metrics relative to competition. This is a product that people love, use and have come to rely on, all with better, fairer terms than were ever available to them than with traditional consumer credit.
Image Credits: Afterpay H1 FY21 results presentation
I’ve been building payment companies for over 15 years now, initially in the early days of PayPal and more recently as a venture investor at Matrix Partners. I’ve never seen a combination that has such potential to deliver extraordinary value to consumers and merchants. Even more so than eBay + PayPal.
Beyond the clear product and network complementarity, what’s most exciting to me and my partners is the alignment of values and culture. Square and Afterpay share a vision of a future with more opportunity and fewer economic hurdles for all. As they build toward that future together, I’m confident that this combination is a winner. Square and Afterpay together will become the world’s next generation payment provider.
Environmental, social and governance (ESG) factors should be key considerations for CTOs and technology leaders scaling next generation companies from day one. Investors are increasingly prioritizing startups that focus on ESG, with the growth of sustainable investing skyrocketing.
What’s driving this shift in mentality across every industry? It’s simple: Consumers are no longer willing to support companies that don’t prioritize sustainability. According to a survey conducted by IBM, the COVID-19 pandemic has elevated consumers’ focus on sustainability and their willingness to pay out of their own pockets for a sustainable future. In tandem, federal action on climate change is increasing, with the U.S. rejoining the Paris Climate Agreement and a recent executive order on climate commitments.
Over the past few years, we have seen an uptick in organizations setting long-term sustainability goals. However, CEOs and chief sustainability officers typically forecast these goals, and they are often long term and aspirational — leaving the near and midterm implementation of ESG programs to operations and technology teams.
Until recently, choosing cloud regions meant considering factors like cost and latency to end users. But carbon is another factor worth considering.
CTOs are a crucial part of the planning process, and in fact, can be the secret weapon to help their organization supercharge their ESG targets. Below are a few immediate steps that CTOs and technology leaders can take to achieve sustainability and make an ethical impact.
As more businesses digitize and more consumers use devices and cloud services, the energy needed by data centers continues to rise. In fact, data centers account for an estimated 1% of worldwide electricity usage. However, a forecast from IDC shows that the continued adoption of cloud computing could prevent the emission of more than 1 billion metric tons of carbon dioxide from 2021 through 2024.
Make compute workloads more efficient: First, it’s important to understand the links between computing, power consumption and greenhouse gas emissions from fossil fuels. Making your app and compute workloads more efficient will reduce costs and energy requirements, thus reducing the carbon footprint of those workloads. In the cloud, tools like compute instance auto scaling and sizing recommendations make sure you’re not running too many or overprovisioned cloud VMs based on demand. You can also move to serverless computing, which does much of this scaling work automatically.
Deploy compute workloads in regions with lower carbon intensity: Until recently, choosing cloud regions meant considering factors like cost and latency to end users. But carbon is another factor worth considering. While the compute capabilities of regions are similar, their carbon intensities typically vary. Some regions have access to more carbon-free energy production than others, and consequently the carbon intensity for each region is different.
So, choosing a cloud region with lower carbon intensity is often the simplest and most impactful step you can take. Alistair Scott, co-founder and CTO of cloud infrastructure startup Infracost, underscores this sentiment: “Engineers want to do the right thing and reduce waste, and I think cloud providers can help with that. The key is to provide information in workflow, so the people who are responsible for infraprovisioning can weigh the CO2 impact versus other factors such as cost and data residency before they deploy.”
Another step is to estimate your specific workload’s carbon footprint using open-source software like Cloud Carbon Footprint, a project sponsored by ThoughtWorks. Etsy has open-sourced a similar tool called Cloud Jewels that estimates energy consumption based on cloud usage information. This is helping them track progress toward their target of reducing their energy intensity by 25% by 2025.
Beyond reducing environmental impact, CTOs and technology leaders can have significant, direct and meaningful social impact.
Include societal benefits in the design of your products: As a CTO or technology founder, you can help ensure that societal benefits are prioritized in your product roadmaps. For example, if you’re a fintech CTO, you can add product features to expand access to credit in underserved populations. Startups like LoanWell are on a mission to increase access to capital for those typically left out of the financial system and make the loan origination process more efficient and equitable.
When thinking about product design, a product needs to be as useful and effective as it is sustainable. By thinking about sustainability and societal impact as a core element of product innovation, there is an opportunity to differentiate yourself in socially beneficial ways. For example, Lush has been a pioneer of package-free solutions, and launched Lush Lens — a virtual package app leveraging cameras on mobile phones and AI to overlay product information. The company hit 2 million scans in its efforts to tackle the beauty industry’s excessive use of (plastic) packaging.
Responsible AI practices should be ingrained in the culture to avoid social harms: Machine learning and artificial intelligence have become central to the advanced, personalized digital experiences everyone is accustomed to — from product and content recommendations to spam filtering, trend forecasting and other “smart” behaviors.
It is therefore critical to incorporate responsible AI practices, so benefits from AI and ML can be realized by your entire user base and that inadvertent harm can be avoided. Start by establishing clear principles for working with AI responsibly, and translate those principles into processes and procedures. Think about AI responsibility reviews the same way you think about code reviews, automated testing and UX design. As a technical leader or founder, you get to establish what the process is.
Promoting governance does not stop with the board and CEO; CTOs play an important role, too.
Create a diverse and inclusive technology team: Compared to individual decision-makers, diverse teams make better decisions 87% of the time. Additionally, Gartner research found that in a diverse workforce, performance improves by 12% and intent to stay by 20%.
It is important to reinforce and demonstrate why diversity, equity and inclusion is important within a technology team. One way you can do this is by using data to inform your DEI efforts. You can establish a voluntary internal program to collect demographics, including gender, race and ethnicity, and this data will provide a baseline for identifying diversity gaps and measuring improvements. Consider going further by baking these improvements into your employee performance process, such as objectives and key results (OKRs). Make everyone accountable from the start, not just HR.
These are just a few of the ways CTOs and technology leaders can contribute to ESG progress in their companies. The first step, however, is to recognize the many ways you as a technology leader can make an impact from day one.
Hello Sunshine, Reese Witherspoon’s media company that has produced content for streaming services like Hulu, Apple and HBO, among others, has been sold to a yet-unnamed new media firm run by former Disney execs, Kevin Mayer and Tom Staggs, the company announced this morning.
The Wall St. Journal first reported on the sale.
Deal terms were not officially disclosed, but reportedly, the sale values Hello Sunshine’s business at around $900 million, The WSJ says. The news outlet had previously reported Hello Sunshine was exploring a sale after receiving interest from a number of suitors, including Apple.
Hello Sunshine was co-founded by Witherspoon and Strand Equity founder and managing partner Seth Rodsky in 2016, and is best known for producing series like HBO’s “Big Little Lies,” Hulu’s “Little Fires Everywhere,” and Apple’s “The Morning Show,” which feature Witherspoon in starring roles.
But the company has also invested in other film and media projects, ranging from Facebook Watch series to collaborations with Amazon’s Audible. It now has upcoming film and TV projects on the slate with Netflix, Amazon, ABC and Starz, and recently announced a Kids & Animation division as well as the acquisition of Sara Rea’s SKR Production to expand into unscripted content.
In addition, the company operates an online and mobile book club app, Reese’s Book Club, now with 2.1 million followers. The club’s more popular picks are often turned into the shows and movies Hello Sunshine later produces.
Per Hello Sunshine’s announcement, the company will be the first acquisition by the new media venture run by Mayer and Staggs, which is backed by private equity firm Blackstone. The firm is spending more than $500 million in cash to purchase shares of Hello Sunshine from its investors, including AT&T and Emerson Collective, The WSJ noted.
Following the deal’s closure, the senior management team will continue to run Hello Sunshine’s day-to-day operations. Witherspoon and Hello Sunshine Chief Executive Sarah Harden will join the board of new company and retain significant equity holders in the new business.
Hello Sunshine will become a cornerstone of the new media company’s strategy, which will involve being an “independent, creator-friendly home for cutting-edge, high-quality, category-defining brands and franchises,” it says.
“Today marks a tremendous moment for Hello Sunshine. I started this company to change the way all women are seen in media. Over the past few years, we have watched our mission thrive through books, TV, film and social platforms. Today, we’re taking a huge step forward by partnering with Blackstone, which will enable us to tell even more entertaining, impactful and illuminating stories about women’s lives globally. I couldn’t be more excited about what this means for our future,” said Witherspoon in a statement about the deal.
The deal arrives at a time when there’s an uptick in consolidation happening the media business, as companies adjust to the shift away from traditional TV and standard movie releases to the always-on world of streaming and cord cutting. For example, Amazon in May announced it would buy MGM Studios for $8.45 billion — a deal being investigated by the FTC for potential antitrust issues. Meanwhile, WarnerMedia and Discovery around the same time announced their plans to merge operations, in hopes of taking a bigger bite out of the streaming market. Now, Comcast and ViacomCBS are exploring ways to work together, too.
But as traditional media companies begin to stream, like NBCU did with Peacock, for instance, they also pull back content licensed to other streamers, like Netflix. That drives demand for new sources of independent programming, like what Hello Sunshine produces.
The company’s value in this market comes from its pipeline of quality projects, many of which are pre-vetted by its book club members, who serve as a built-in audience and fan base for the later film or televised release. Plus, the projects it backs are also those that tell women’s stories — a historically neglected segment of the market, and one that Hello Sunshine’s success proves there’s pend-up demand for among viewers.
Blackstone’s investment in the new company is being made through its private equity business, which previously acquired a majority stake in dating app Bumble. Blackstone has made other entertainment industry investments, as well, including music rights organization SESAC; a Hollywood studio space and Burbank office real estate portfolio; global theme park operator Merlin Entertainments; online genealogy platform Ancestry.com; online mobile ad platforms Vungle and Liftoff; and Epidemic Sound, which delivers music to internet content creators.
It’s no secret that the technology for easy business-to-business payments has not yet caught up to its peer-to-peer counterparts, but Yaydoo thinks it has the answer.
The Mexico City-based B2B software and payments company provides three products, VendorPlace, P-Card and PorCobrar, for managing cash flow, optimizing access to smart liquidity, and connecting small, midsize and large businesses to an ecosystem of digital tools.
Sergio Almaguer, Guillermo Treviño and Roberto Flores founded Yaydoo — the name combines “yay” and “do” to show the happiness of doing something — in 2017. Today, the company announced the close of a $20.4 million Series A round co-led by Base10 Partners and monashees.
Joining them in the round were SoftBank’s Latin America Fund and Leap Global Partners. In total, Yaydoo has raised $21.5 million, Almaguer told TechCrunch.
Prior to starting the company, Almaguer was working at another company in Mexico doing point-of-sale. His large enterprise customers wanted automation for their payments, but he noticed that the same tools were too expensive for small businesses.
The co-founders started Yaydoo to provide procurement, accounts payable and accounts receivables, but in a simpler format so that the collection and payment of B2B transactions was affordable for small businesses.
Image Credits: Yaydoo
The idea is taking off, and vendors are adding their own customers so that they are all part of the network to better link invoices to purchase orders and then connect to accounts payable, Almaguer said. Yaydoo estimates that the automation workflows reduced 80% of time wasted paying vendors, on average.
Yaydoo is joining a sector of fintech that is heating up — the global B2B payments market is valued at $120 trillion annually. Last week, B2B payments platform Nium announced a $200 million in Series D funding on a $1 billion valuation. Others attracting funding recently include Paystand, which raised $50 million in Series C funding to make B2B payments cashless, while Dwolla raised $21 million for its API that allows companies to build and facilitate fast payments.
The new funding will enable the company to attract new hires in Mexico and when the company expands into other Latin American countries. Yaydoo is also looking at future opportunities for its working capital business, like understanding how many invoices customers are setting, the access to actual payments, and how money flows out and in so that it can provide insights on working capital funding gaps. The company will also invest in product development.
The company has grown to over 800 customers, up from 200 in the first quarter of 2020. Its headcount also grew to 100 from 30 during the same time. In the last 12 months, over 70,000 companies have transacted on the Yaydoo network, and total payment volume grew to hundreds of millions of dollars.
Yaydoo is a SaaS subscription model, but the new funding will also enable the company to create a pool of potential customers with a “freemium” offering with the goal of converting those customers into the subscription model as they grow, Almaguer said.
Rexhi Dollaku, partner at Base10 Partners, said the firm saw the way B2B payments were becoming modernized and “was impressed” by the Yaydoo team and how it built a complicated infrastructure, but made it easy to use.
He believes Latin America is 10 years behind in terms of B2B payments but will catch up sooner than later because of the digital transformation going on in the region.
“We are starting to see early signs of the network being built out of the payments product, and that is a good indication,” Dollaku said. “With the funding, Yaydoo will be also able to provide more financial services options for businesses to address a working fund gap.”
In a blockbuster deal that rocks the fintech world, Square announced today that it is acquiring Australian buy now, pay later giant Afterpay in a $29 billion all-stock deal.
The purchase price is based on the closing price of Square common stock on July 30, which was $247.26. The transaction is expected to close in the first quarter of 2022, contingent upon certain closing conditions. It values Afterpay at more than 30% premium to its latest closing price of A$96.66.
Square co-founder and CEO Jack Dorsey said in a statement that the two fintech behemoths “have a shared purpose.”
“We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles,” he said in the statement. “Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.”
The combination of the two companies would create a payments giant unlike any other. Over the past 18 months, the buy now, pay later space has essentially exploded, appealing especially to younger generations drawn to the idea of not using credit cards or paying interest and instead opting for the installment loans, which have become ubiquitous online and in retail stores.
As of June 30, Afterpay served more than 16 million consumers and nearly 100,000 merchants globally, including major retailers across industries such as fashion, homewares, beauty and sporting goods, among others.
The addition of Afterpay, the companies’ statement said, will “accelerate Square’s strategic priorities” for its Seller and Cash App ecosystems. Square plans to integrate Afterpay into its existing Seller and Cash App business units, so that even “the smallest of merchants” can offer buy now, pay later at checkout. The integration will also give Afterpay consumers the ability to manage their installment payments directly in Cash App. Cash App customers will be able to find merchants and buy now, pay later (BNPL) offers directly within the app.
Afterpay’s co-founders and co-CEOs Anthony Eisen and Nick Molnar will join Square upon closure of the deal and help lead Afterpay’s respective merchant and consumer businesses. Square said it will appoint one Afterpay director to its board.
Shareholders of Afterpay will get 0.375 shares of Square Class A stock for every share they own. This implies a price of about A$126.21 per share based on Square’s Friday close, according to the companies.
Will there be more consolidation in the space? That remains to be seen, and Twitter is all certainly abuzz about what deals could be next. Here in the U.S., rival Affirm went public earlier this year. On July 30, shares closed at $56.32, significantly lower than its opening price and 52-week-high of $146.90. Meanwhile, European competitor Klarna — which is growing rapidly in the U.S. — in June raised another $639 million at a staggering post-money valuation of $45.6 billion.
No doubt the BNPL fight for the U.S. consumer is only heating up with this deal.
Chilean startup Xepelin, which has created a financial services platform for SMEs in Latin America, has secured $30 million in equity and $200 million in credit facilities.
LatAm venture fund Kaszek Ventures led the equity portion of the financing, which also included participation from partners of DST Global and a slew of other firms and founders/angel investors. LatAm- and U.S.-based asset managers and hedge funds — including Chilean pension funds — provided the credit facilities. In total over its lifetime, Xepelin has raised over $36 million in equity and $250 million in asset-backed facilities.
Also participating in the round were Picus Capital; Kayak Ventures; Cathay Innovation; MSA Capital; Amarena; FJ Labs; Gilgamesh and Kavak founder and CEO Carlos Garcia; Jackie Reses, executive chairman of Square Financial Services; Justo founder and CEO Ricardo Weder; Tiger Global Management Partner John Curtius; GGV’s Hans Tung; and Gerry Giacoman, founder and CEO of Clara, among others.
“We want all SMEs in LatAm to have access to financial services and capital in a fair and efficient way,” the pair said.
Xepelin is built on a SaaS model designed to give SMEs a way to organize their financial information in real time. Embedded in its software is a way for companies to apply for short-term working capital loans “with just three clicks, and receive the capital in a matter of hours,” the company claimed.
It has developed an AI-driven underwriting engine, which the execs said gives it the ability to make real-time loan approval decisions.
“Any company in LatAm can onboard in just a few minutes and immediately access a free software that helps them organize their information in real time, including cash flow, revenue, sales, tax, bureau info — sort of a free CFO SaaS,” de Camino said. “The circle is virtuous: SMEs use Xepelin to improve their financial habits, obtain more efficient financing, pay their obligations, and collaborate effectively with clients and suppliers, generating relevant impacts in their industries.”
The fintech currently has over 4,000 clients in Chile and Mexico, which currently has a growth rate “four times faster” than when Xepelin started in Chile. Over the past 22 months, it has loaned more than $400 million to SMBs in the two countries. It currently has a portfolio of active loans for $120 million and an asset-backed facility for more than $250 million.
Overall, the company has been seeing a growth rate of 30% per month, the founders said. It has 110 employees, up from 20 a year ago.
“When we talk about creating the largest digital bank for SMEs in LatAm, we are not saying that our goal is to create a bank; perhaps we will never ask for the license to have one, and to be honest, everything we do, we do it differently from the banks, something like a non-bank, a concept used today to exemplify focus,” the founders said.
Both de Camino and Kreis said they share a passion for making financial services more accessible to SMEs all across Latin America and have backgrounds rooted deep in different areas of finance.
“Our goal is to scale a platform that can solve the true pains of all SMEs in LatAm, all in one place that also connects them with their entire ecosystem, and above all, democratized in such a way that everyone can access it,” Kreis said, “regardless of whether you are a company that sells billions of dollars or just a thousand dollars, getting the same service and conditions.”
For now, the company is nearly exclusively focused on the B2B space, but in the future, it believes several of its services “will be very useful for all SMEs and companies in LatAm.”
“Xepelin has developed technology and data science engines to deliver financing to SMBs in Latin America in a seamless way,” Nicolas Szekasy, co-founder and managing partner at Kaszek Ventures, said in a statement. “The team has deep experience in the sector and has proven a perfect fit of their user-friendly product with the needs of the market.”
Chile was home to another large funding earlier this week. NotCo, a food technology company making plant-based milk and meat replacements, closed on a $235 million Series D round that gives it a $1.5 billion valuation.
Three months ago, Mastercard invested $100 million in Airtel Mobile Commerce BV (AMC BV) — the mobile money business of telecom Airtel Africa. This was two weeks after it also received $200 million from TPG’s Rise Fund.
Today, the African telecoms operator has announced that it has secured another investment for its mobile money arm. The investor? Qatar Holding LLC, an affiliate of the Qatar Investment Authority (QIA), the sovereign wealth fund of the State of Qatar with over $300 billion in assets. The Middle Eastern corporation is set to invest $200 million into AMC BV through a secondary purchase of shares from Airtel Africa.
AMC BV is an Airtel Africa subsidiary and the holding company for several of Airtel Africa’s mobile money operations across 14 African countries, including Kenya, Uganda and Nigeria. The mobile money arm operates one of the largest financial services on the continent. It provides users access to mobile wallets, support for international money transfers, loans and virtual credit cards.
According to a statement released by the telecoms operator, the proceeds of the investment will be used to reduce debt and invest in network and sales infrastructure in the respective operating countries. The deal will close in two tranches — $150 million invested at the first close, most likely in August. The remaining $50 million will be invested at second close.
Airtel Africa claims QIA will hold a minority stake while it continues to hold the majority stake. This transaction still values Airtel Africa at $2.65 billion on a cash and debt-free basis like other deals. However, what’s different this time is that QIA is entitled to appoint a director to AMC BV’s board and “to certain customary information and minority protection rights.”
Airtel Africa’s most recent report for Q1 2021 shows signs of growth. The telecoms operator saw a year on year revenue growth of 53.7%, pushed by a 24.6% growth in customer base to 23.1 million. Transaction value went up 64.4% to $14.7 billion ($59 billion annualised); and EBITDA stood at $60 million ($240 million annualised) at a margin of 48.8%. The company also generated $124 million in revenue ($496 million annualised), while its profits before tax year-on-year for Q1 2021 stood at $185 million.
Mansoor bin Ebrahim Al-Mahmoud, CEO of QIA, said the sovereign’s wealth fund investment in Airtel Africa would help promote financial inclusion in Sub-Saharan Africa. “Airtel Money plays a critical role in facilitating economic activity, including for customers without access to traditional financial services. We firmly believe in its mission to expand these efforts over the coming years,” he added.
In February, Airtel Africa first made it known that it wanted to sell a minority stake in AMC BV to raise cash and sell off some assets. The subsequent month, it sold off telecommunication towers in Madagascar and Malawi to Helios Towers for $119 million and raised $500 million from outside investors.
Startups and SMBs are usually the first to adopt many SaaS products. But as these customers grow in size and complexity — and as you rope in larger organizations — scaling your infrastructure for the enterprise becomes critical for success.
Below are four tips on how to advance your company’s infrastructure to support and grow with your largest customers.
If you’re building SaaS, odds are you’re holding very important customer data. Regardless of what you build, that makes you a threat vector for attacks on your customers. While security is important for all customers, the stakes certainly get higher the larger they grow.
Given the stakes, it’s paramount to build infrastructure, products and processes that address your customers’ growing security and reliability needs. That includes the ethical and moral obligation you have to make sure your systems and practices meet and exceed any claim you make about security and reliability to your customers.
Here are security and reliability requirements large customers typically ask for:
Formal SLAs around uptime: If you’re building SaaS, customers expect it to be available all the time. Large customers using your software for mission-critical applications will expect to see formal SLAs in contracts committing to 99.9% uptime or higher. As you build infrastructure and product layers, you need to be confident in your uptime and be able to measure uptime on a per customer basis so you know if you’re meeting your contractual obligations.
While it’s hard to prioritize asks from your largest customers, you’ll find that their collective feedback will pull your product roadmap in a specific direction.
Real-time status of your platform: Most larger customers will expect to see your platform’s historical uptime and have real-time visibility into events and incidents as they happen. As you mature and specialize, creating this visibility for customers also drives more collaboration between your customer operations and infrastructure teams. This collaboration is valuable to invest in, as it provides insights into how customers are experiencing a particular degradation in your service and allows for you to communicate back what you found so far and what your ETA is.
Backups: As your customers grow, be prepared for expectations around backups — not just in terms of how long it takes to recover the whole application, but also around backup periodicity, location of your backups and data retention (e.g., are you holding on to the data too long?). If you’re building your backup strategy, thinking about future flexibility around backup management will help you stay ahead of these asks.
PayPal’s plan to morph itself into a “superapp” has been given a go for launch.
According to PayPal CEO Dan Schulman, speaking to investors during this week’s second-quarter earnings call, the initial version of PayPal’s new consumer digital wallet app is now “code complete” and the company is preparing to slowly ramp up. Over the next several months, PayPal expects to be fully ramped up in the U.S., with new payment services, financial services, commerce and shopping tools arriving every quarter.
The company has spoken for some time about its “superapp” ambitions — a shift in product direction that would make PayPal a U.S.-based version of something like China’s WeChat or Alipay or India’s Paytm. Like those apps, PayPal aims to offer a host of consumer services under one roof, beyond just mobile payments.
In previous quarters, PayPal said these new features may include things like enhanced direct deposit, check cashing, budgeting tools, bill pay, crypto support, subscription management, and buy now, pay later functionality. It also said it would integrate commerce, thanks to the mobile shopping tools acquired by way of its $4 billion Honey acquisition in 2019.
So far, PayPal has continued to run Honey as a standalone application, website and browser extension, but the superapp could incorporate more of its deal-finding functions, price-tracking features and other benefits.
On Wednesday’s earnings call, Schulman revealed the superapp would have a few other features as well, including high-yield savings, early access to direct deposit funds and messaging functionality outside of peer-to-peer payments — meaning you could chat with family and friends directly through the app’s user interface.
PayPal hadn’t announced its plans to include a messaging component until now, but the feature makes sense in terms of how people often combine chat and peer-to-peer payments today. For example, someone may want to make a personal request for the funds instead of just sending an automated request through an app. Or, after receiving payment, a user may want to respond with a “thank you,” or other acknowledgment. Currently, these conversations take place outside of the payment app itself on platforms like iMessage. Now, that could change.
“We think that’s going to drive a lot of engagement on the platform,” said Schulman. “You don’t have to leave the platform to message back and forth.”
With the increased user engagement, the company expects to see a bump in average revenue per active account.
Schulman also hinted at “additional crypto capabilities,” which were not detailed. However, PayPal earlier this month increased the crypto purchase limit from $20,000 to $100,000 for eligible PayPal customers in the U.S., with no annual purchase limit. The company also this year made it possible for consumers to check out at millions of online businesses using their cryptocurrencies, by first converting the crypto to cash then settling with the merchant in U.S. dollars.
Though the app’s code is now complete, Schulman said the plan is to continue to iterate on the product experience, noting that the initial version will not be “the be-all and end-all.” Instead, the app will see steady releases and new functionality on a quarterly basis.
However, he did say that early on, the new features would include the high-yield savings, improved bill pay with a better user experience, and more billers and aggregators, as well as early access to direct deposit, budgeting tools and the new two-way messaging feature.
To integrate all the new features into the superapp, PayPal will undergo a major overhaul of its user interface.
“Obviously, the [user experience] is being redesigned,” Schulman noted. “We’ve got rewards and shopping. We’ve got a whole giving hub around crowdsourcing, giving to charities. And then, obviously, buy now, pay later will be fully integrated into it. … The last time I counted, it was like 25 new capabilities that we’re going to put into the superapp.”
The digital wallet app will also be personalized to the end user, so no two apps are the same. This will be done using both artificial intelligence and machine learning capabilities to “enhance each customer’s experiences and opportunities,” said Schulman.
PayPal delivered an earnings beat in the second quarter with $6.24 billion in revenue, versus the $6.27 billion Wall Street expected, and earnings per share of $1.15, versus the $1.12 expected. Total payment volume from merchant customers also jumped 40% to $311 billion, while analysts had projected $295.2 billion. But the company’s stock slipped due to a lowered outlook for Q3, impacted by eBay’s transition to its own managed payments service.
In addition, PayPal gained 11.4 million net new active accounts in the quarter, to reach 403 million total active accounts.
In the minutes before its quarterly earnings call this morning, Spotify played advertisements for its originals and exclusives, like the true crime show “Deathbed Confessions,” and the sex and relationships podcast “Call Her Daddy,” which Spotify recently acquired in a deal worth $60 million. Sure, it’s kind of hilarious to hear a recording of host Alex Cooper’s voice say, “Hey, daddy gang!” as investors log in to an 8 a.m. call, but the subtext rang clear: Spotify is serious about growing its podcast business.
Given how many podcasting companies Spotify has acquired over the past few years, it would be concerning if there hadn’t been significant growth in this realm. Among Spotify users who already listen to podcasts, podcast listening increased 30% year over year, with total hours consumed up 95%. Meanwhile, podcast ad revenue increased by 627%, which outperformed expectations. Spotify attributes this success to a triple-digit year-over-year gain at its in-house studios (The Ringer, Parcast, Spotify Studios and Gimlet) and exclusive deals with “The Joe Rogan Experience” and the Obamas’ Higher Ground studio. Spotify also referenced its November acquisition of Megaphone, a podcast hosting and ad company.
“The continued outperformance is currently limited only by the availability of our inventory, which is something we’re actively solving for,” said CEO Daniel Ek. “The days of our ad business accounting for less than 10% of our total revenue are behind us, and going forward, I expect ads to be a substantial part of our revenue mix.”
Image Credits: Spotify
In April, Spotify launched paid podcast subscriptions — through Anchor, the podcast host that it bought in 2019, creators can choose to put certain content behind a paywall. Apple launched a similar feature, but it’s still too early to know how these subscription services will impact listeners and creators. However, Spotify did share a bit more information about its Audience Network, an audio ad marketplace. Since its rollout in April, Spotify’s “monetizable podcast inventory” tripled. Spotify has also seen a “meaningful” increase in unique advertisers and a “double-digit lift” in CPMs (cost per thousand ad impressions), but didn’t provide specific figures.
Still, the more power a platform like Spotify has over the podcasting industry, the fewer options creators will have for monetization — already, the ubiquity of streaming platforms has taken a toll on musicians, who are working together to demand better compensation from Spotify. The Justice at Spotify movement points out that on average, artists get $0.0038 per stream of a song, which means that a song needs to be streamed 263 times to make a single dollar. Spotify has continued to grow during the pandemic, but because live shows are musicians’ best way to make money in the age of streaming, artists have struggled while it’s unsafe to go on tour.
On this morning’s earnings call, Ek pointed to live performances as a potential way for musicians to increase revenue. In the past quarter, Spotify has tested live concerts as an income stream, partnering with artists like The Black Keys. Still, smaller artists might not trust the platform given its refusal to make streaming itself a more viable way to get paid for their work.
“Live is a meaningful thing for many of our creators, and it’s something that we’re excited about,” said Ek, adding that Spotify saw positive results from its digital live events thus far. “We want to provide as many opportunities for creators … to turn a listen into a fan, and turn fans into super fans, and increase the monetization for those creators.”
Though Spotify missed its target for monthly active users (MAUs) in Q2, other key metrics trended upward, like paid subscriber growth and revenue. The platform attributes this road bump in MAU growth to the lingering impact of COVID-19, as well as an issue Spotify had with its third-party email verification system.
“In full disclosure, this was an issue on our end,” said CFO Paul Vogel. “The estimate right now was that it was about 1 to 2 million of MAU growth that was impacted by the friction created by this email verification change. It’s since been corrected and should not be an impact in Q3.”
Of Spotify’s 365 million MAUs, 165 million (about 42.5%) are paid subscribers — that’s still far beyond its next biggest competitor, Apple Music, which had 60 million subscribers in 2019 but hasn’t released updated figures since.
The payments space – amazingly – remains up for grabs for startups. Yes dear reader, despite the success of Stripe, there seems to be a new payments startup virtually every other day. It’s a mess out there! The accelerated growth of e-commerce due to the pandemic means payments are now a booming space. And here comes another one, with a twist.
WhenThen has built a no-code payment operations platform that, they claim, streamlines the payment processes “of merchants of any kind”. It says its platform can autonomously orchestrate, monitor, improve and manage all customer payments and payments ops.
The startup’s opportunity has arisen because service providers across different verticals increasingly want to get into open banking and provide their own payment solutions and financial services.
Founded 6 months ago, WhenThen has now raised $6 million, backed by European VCs Stride and Cavalry.
The founders, Kirk Donohoe, Eamon Doyle and Dave Brown are three former Mastercard Payment veterans.
Based “out of Dublin, CEO Donohoe told me: “We see traditional businesses embracing e-comm, and e-comm merchants now operating multiple business models such as trade supply, marketplace, subscription, and more. There is no platform that makes it easy for such businesses to create and operate multiple payment flows to support multiple business models in one place – that’s where we step in.”
He added: “WhenThen is helping ecommerce digital platforms build advanced payment flows and payment automation, in minutes as opposed to months. When you start to integrate different payment methods, different payment gateways, how you want the payment to move from collection through to payout gets very, very complex. I’ve been doing this for over a decade now, as an entrepreneur building different businesses that had to accept collect and pay payments.”
He said his founding team “had to build very complex payment flows for large merchants, airlines, hotels, issuers, and we just found it was ridiculous that you have to continue to do the same thing over and over again. So we decided to come up with WhenThen as a better way to be able to help you build those flows in minutes.”
Claude Ritter, managing partner at Cavalry said: “Basic payment orchestration platforms have been around for some time, focusing mostly on maximizing payment acceptance by optimizing routing. WhenThen provides the first end-to-end payment flow platform to equip businesses with the opportunity to control every stage of the payment flow from payment intent to payout.”
WhenThen supports a wide range of popular payment providers such as Stripe, Braintree, Adyen, Authorize.net, Checkout.com, etc., and a variety of alternative and locally preferred payment methods such as Klarna Affirm, PayPal, BitPay.
“For brave merchants considering global reach and operating multiple business models concurrently, I believe choosing the right payment ops platform will become as important as choosing the right e-commerce platform. Building your entire ecomm experience tightly coupled to a single payment processor is a hard correction to make down the line – you need a payment flow platform like WhenThen,” added Fred Destin, founder of Stride.VC.
Not every startup wants to raise venture capital. And then there are those that do want to raise VC money but don’t want to use it for specific things.
In recent years, a number of firms have emerged looking to meet the credit needs of such venture-backed and growth startups: i80 Group is one of those firms.
Former Goldman Sachs investment banker Marc Helwani founded i80 in 2016 after investing in early-stage New York-based fintechs in 2014-2015 via his VC fund, Avenue A Ventures.
“It became very clear to me that fintech was going to explode,” he recalls. “At that time, it was still relatively new. And every time I spoke to a company, they would tell me, ‘We know how to raise VC, but what about the credit?’ I just saw this white space.”
For example, proptechs that buy homes on behalf of buyers don’t want to use venture money. Fintechs that want to make loans to consumers don’t want to use equity to do it. Instead, in those cases, credit might be more desirable.
Enter i80. The firm offers credit exclusively, and over the years has quietly committed more than $1 billion to over 15 companies –including real estate marketplace Properly, finance app MoneyLion and SaaS financing company Capchase — that have all raised a significant amount of venture capital but are looking for credit “to help them scale very efficiently and in a non-dilutive manner so they can retain more ownership of their companies,” Helwani said.
Its $1 billion milestone follows fund commitments nearing $500 million from an unnamed “leading global asset manager” as well as other institutional and retail investors.
Image Credits: Founder and Chief Investment Officer Marc Helwani / i80 Group
I80 — which derives its name from the highway that connects New York and San Francisco — is mainly focused on the fintech and proptech sectors.
“They are the two centers for the venture ecosystem,” Helwani said. “And we’re trying to be a bridge between those two cities.” I80 has offices in both locations and will soon be opening one in Montreal.
The firm works in conjunction with VC firms such as a16z (more formally known as Andreessen Horowitz); Affirm and PayPal co-founder Max Levchin’s SciFi; Khosla Ventures; Union Square Ventures; and QED.
“In a perfect world, venture capital would be called venture equity,” Helwani said. “VCs’ capital is critical for companies to hire and get office space. But when it comes time to do what the actual business is, such as provide loans or buy homes, capital like ours is very accretive without VCs and management losing ownership in the business. In these cases, using both credit and equity makes a lot of sense.”
Helwani is reluctant to call what i80 offers venture “debt.” He says that has a very specific connotation and is what Silicon Valley Bank and others like it do in providing debt as a percentage of a previous equity round. Instead, according to Helwani, i80’s approach is to minimize fees. The vast majority of its deals are “interest-rate related.”
“With mortgages, for example, we never think about the fees upfront, and focus more on the interest rate,” Helwan said. “We believe the more transparent we are, the more companies will want to work with us.”
I80 conducts quarterly calls with VCs and for now, that’s how it typically sources most of its deal flow. It also gets referrals. Helwani believes that i80 stands out from other firms also offering credit in that it’s “not trying to be credit investors in VC clothing.”
He also thinks that the fact that the i80 team is made of operators, as well as investors, is a contributing factor.
The firm is set to close another half a dozen deals in the next 60 to 90 days, and then plans to set its sights on raising more capital.
“We want to fill this void, and help companies raise money in their subsequent rounds at higher valuations,” Helwani said.
What with the planet collapsing and democracy under constant attack from all quarters – you know, just the usual – one or two members of the global population have, idly or not, wondered if the private sector might want to step up? I mean, as well as shooting billionaires into space. At the same time, even! Luckily, many businesses want to do better. But there are one or two hurdles. Incorporating “purpose” into their digital offering, such as donating to a non-profit at the end of a moving documentary, is harder than it looks. Businesses don’t have the capacity to build in donation software; they can’t continually verify and audit good causes; and processing donations is fraught with legal complications, compliance, and regulatory risk. What is to be done?
Pennies is one organization that bills itself as the digital equivalent of the traditional charity collection box. However, perhaps what we need is… drum roll… an API?
Step forward Percent. Founded in 2017, Percent provides an API allowing firms to customers to donate to good causes, matching a donation made when making a payment, or rounding up a financial transaction, for instance.
It’s now closed a $5M venture round led by Morpheus Ventures, allowing it to expand in the US, as well as its existing presence in the UK and Australia. The UK’s Nationwide Building Society – also an early investor and customer of the product – is a co-investor in the round.
The company says its API-first platform takes care of auditing and compliance processes to prevent fraud and money-laundering whilst also parsing tax-efficient disbursements of funds into 200 countries worldwide. It says 7 million non-profit causes have been added to the platform and it’s vetted the potential recipients of donations.
Henry Ludlam, Founder, and CEO of Percent, said: “Percent was founded to become the global API-first infrastructure behind all giving. This will be the foundation for a better, fairer future of capitalism in which every financial transaction has social and environmental good built into it.”
In an interview I asked him if the pandemic had accelerated the opportunity: “Because of COVID, suddenly now we have brands that are really desperate to build purpose into their business in a way that they just weren’t doing 18 months ago. It’s really been an amazing shift. We’ve just seen a huge shift in what consumers expect from businesses. Consumers expect businesses to build purpose into what they do now.”
He said that the product could be even built into – surprise! – streaming services: “Say you’ve seen a documentary. And at the end of the documentary, you feel particularly moved, like you watched a David Attenborough or something like that. You could then actually be able to quickly and easily build donations into the end of it. So using our API, it would pull up a list of nonprofits, so right there and then the customer could make a donation. We’re also working with a crypto platform where you can round down your transactions and donate to any nonprofit as well. There’s loads of really cool stuff we are working on which is coming out soon.”
Kristian Blaszczynski, Managing Partner of Morpheus Ventures, said: “With the events of the last several years, it has become more apparent that aligning brands with purpose is driving consumer behavior and spend. However, today, the process of donating to non-profits is incredibly archaic, manual, and inefficient… Percent’s API-first platform abstracts away all of these complexities and automates the processes, allowing businesses to align closer to their stakeholders and focus on their core business.”
Percent could well be pushing at an open door. Kantar Research says that only 22% of people could name a brand they thought was doing a good job addressing issues such as climate change, plastic waste, and water pollution. On the flip side, 95% of businesses think that “purpose” is at the heart of what they do. The disparity could not be more stark.
Is Percent the stripe for donations? We’re about to find out.
The rumors of a CNN streaming service were true. The network has unveiled a CNN+ service that will offer a blend of live and on-demand shows that are “separate and distinct” from existing TV coverage. It will debut sometime in the first quarter of 2022. CNN hasn’t narrowed down the price, but lead executive Andrew Morse told Variety in an interview that there wouldn’t be an ad-supported tier at launch.
The centerpiece, as you’d expect, will be the live material. CNN+ plans to offer eight to 12 hours of in-depth topical coverage and “lifestyle” material every day, with both veterans and newcomers at the helm. You’ll also have chances to interact with anchors and experts in real-time discussions. This won’t be a digital replica of CNN’s usual news, then, but you may have reasons to tune in every day.
The on-demand catalog unsurprisingly taps into CNN’s existing collection, including shows like Anthony Bourdain: Parts Unknown and United Shades of America. There will be original shows and movies for the internet service, although CNN+ won’t reveal those until later in 2021.
Officially, Morse said CNN+ wouldn’t be bundled or otherwise tie into HBO Max despite the WarnerMedia connection. Variety sources, however, claimed there was a “strong probability” the service would be bundled with HBO Max and Discovery+ after WarnerMedia and Discovery finalize their merger.
Morse considered the CNN+ launch the largest the network has had since it started TV service in June 1980. It was also a chance to experiment with formats that blur distinctions between entertainment and news, the executive added.
The question, of course, is whether or not viewers will bite. CNN has had success with long-form content like the late Anthony Bourdain’s shows, but it’s not clear if people are ready to pay a monthly fee to see them. There’s also the matter of streaming service overload — you might not be thrilled to subscribe to yet another offering just to be sure you catch everything CNN has to offer.
Editor’s note: This post originally appeared on Engadget.
The fintech sector has been hugely successful (and hugely profitable) for much of the last decade, and even more so during the pandemic. But it might come as a surprise to learn that many in the industry believe that the story is just beginning and the sector is poised to achieve much more, with fintech’s next decade expected to be radically different from the last 10 years.
Long before the pandemic, the way in which banks were regulated was changing. Initiatives like Open Banking and the Revised Payment Services Directive (PSD2) were being proposed as a way to promote competition in the banking industry — allowing smaller challenger firms to break into a market that has long been dominated by corporate titans.
Now that these initiatives are in place, however, we’re seeing that their effect goes way beyond opening up a gap for challenger banks. Since open banking requires that banks make valuable data available via APIs, it is leading to a revolution in the way that small and mid-size enterprises (SMEs) are funded — one in which data, and not hard capital, is the most important factor driving fintech success.
In order to understand the changes that are sweeping fintech and reconfiguring the way that the industry works with small businesses, it’s important to understand open banking. This is a concept that has really taken hold among governmental and supranational banking regulators over the past decade, and we are now beginning to see its impact across the banking sector.
Allowing third parties access to the data held at banks will allow the true financial position of SMEs to be assessed, many for the first time.
At its most fundamental level, open banking refers to the process of using APIs to open up consumers’ financial data to third parties. This allows these third parties to design, build and distribute their own financial products. The utility (and, ultimately, the profitability) of these products doesn’t rely on them holding huge amounts of capital — rather, it is the data they harvest and contain that endows them with value.
Open-banking models raise a number of challenges. One is that the banking industry will need to develop much more rigorous systems to continually seek consumer consent for data to be shared in this way. Though the early years of fintech have taught us that consumers are pretty relaxed when it comes to giving up their data — with some studies indicating that almost 60% of Americans choose fintech over privacy — the type and volume shared through open-banking frameworks is much more extensive than the products we have seen up until now.
Despite these concerns, the push toward open banking is progressing around the world. In Europe, the PSD2 (the Payment Services Directive) requires large banks to share financial information with third parties, and in Asia services like Alipay and WeChat in China, and Tez and PayTM in India are already altering the financial services market. The extra capabilities available through these services are already leading to calls for the U.S. banking system to embrace open banking to the same degree.
If the U.S. banking industry can be convinced of the utility of open banking, or if it is forced to do so via legislation, several groups are likely to benefit:
By far the biggest beneficiary of open banking, however, will be SMEs. This is not necessarily because open-banking frameworks offer specific new functionality that will be useful to small and medium-sized businesses. Instead, it is a reflection of the fact that SMEs have historically been so poorly served by traditional banks.
SMEs are underserved in a number of ways. Traditional banks have an extremely limited ability to view the aggregate financial position of an SME that holds capital across multiple institutions and in multiple instruments, which makes securing finance very difficult.
In addition, SMEs often have to deal with dated and time-consuming manual interfaces to upload data to their bank. And (perhaps worst of all) the B2B payment systems in use at most banks provide very limited feedback to the businesses that use them — a lack of information that can cost businesses dearly.
Given these deficiencies, it’s not surprising that fintech startups are keen to lend to small businesses, and that SMEs are actively looking for novel banking products and services. There have, of course, already been some success stories in this space, and the kinds of banking systems available to SMEs today (especially in Europe) are leagues ahead of the services available even 10 years ago.
However, open banking promises to accelerate this transformation and dramatically improve the financial services available to the average SME. It will do this in several ways. Allowing third parties access to the data held at banks will allow the true financial position of SMEs to be assessed, many for the first time.
Via APIs, fintech companies will be able to access information on different types of accounts, insurance, card accounts and leases, and consolidate data from multiple countries into one overall picture.
This, in turn, will have major effects on the way that credit-worthiness is assessed for SMEs. At the moment, there is a funding gap facing many SMEs, largely because banks have been hesitant to move away from the “balance sheet” model of assessing credit risk. By using real-time analytics on an SME’s current business activities, banks will be able to more accurately assess this risk and lend to more businesses.
In fact, this is already happening in countries where open banking is well advanced – in the U.K., Lloyds’ Business ToolBox offers unlimited credit checks on companies and directors in addition to account transaction data.
Open banking will also allow peer comparison analytics far ahead of what we have seen until now. APIs can be used to provide SMEs real-time feedback on how they are performing within their market sector. Again, this ability is already available in the U.K., with Barclays’ SmartBusiness Dashboard offering marketing effectiveness tools as part of a customizable business dashboard.
These capabilities will be so useful to SMEs that they are likely to drive the popularity of any fintech product that offers them. For SMEs, this value will lie mainly in intelligent data-analytics-based insights, recommendations and automatic prompts that can be built on top of account aggregation.
Then, additional insights generated from these same monitoring tools could enable banks and alternative lenders to be more proactive with their lending — offering preapproved lines of credit, in a timely manner, to SMEs that would have previously found it difficult to access funding.
Crucially for the fintech sector, it’s almost a certainty that SMEs will be willing to pay fees for data-analytics-based value-added services that help them grow. This is why some startups in this space are already attracting huge levels of funding, and why open banking is at the heart of the relationship between tech and the economy.
So if fintech has had a good year, this is likely to be just the start of the story. Backed by open-banking initiatives, the sector is now at the forefront of a banking revolution that will finally give SMEs the level of service they deserve and unleash their true potential across the economy at large.
Mortgages may not be considered sexy, but they are a big business.
If you’ve refinanced or purchased a home digitally lately, you may not have noticed the company powering the software behind it — but there’s a good chance that company is Blend.
Founded in 2012, the startup has steadily grown to be a leader in the mortgage tech industry. Blend’s white label technology powers mortgage applications on the site of banks including Wells Fargo and U.S. Bank, for example, with the goal of making the process faster, simpler and more transparent.
The San Francisco-based startup’s SaaS (software-as-a-service) platform currently processes over $5 billion in mortgages and consumer loans per day, up from nearly $3 billion last July.
Today, Blend made its debut as a publicly traded company on the New York Stock Exchange, trading under the symbol “BLND.” As of early afternoon, Eastern Time, the stock was trading up over 13% at $20.36.
On Thursday night, the company had said it would offer 20 million shares at a price of $18 per share, indicating the company was targeting a valuation of $3.6 billion.
That compares to a $3.3 billion valuation at the time of its last raise in January — a $300 million Series G funding round that included participation from Coatue and Tiger Global Management. Also, let’s not forget that Blend only became a unicorn last August when it raised a $75 million Series F. Over its lifetime, Blend had raised $665 million before Friday’s public market debut.
In filing its S-1 on June 21, Blend revealed that its revenue had climbed to $96 million in 2020 from $50.7 million in 2019. Meanwhile, its net loss narrowed from $81.5 million in 2019 to $74.6 million in 2020.
In 2020, the San Francisco-based startup significantly expanded its digital consumer lending platform. With that expansion, Blend began offering its lender customers new configuration capabilities so that they could launch any consumer banking product “in days rather than months.”
Looking ahead, the company had said it expects its revenue growth rate “to decline in future periods.” It also doesn’t envision achieving profitability anytime soon as it continues to focus on growth. Blend also revealed that in 2020, its top five customers accounted for 34% of its revenue.
Today, TechCrunch spoke with co-founder and CEO Nima Ghamsari about the company’s decision to go with a traditional IPO versus the ubiquitous SPAC or even a direct listing.
For one, Blend said he wanted to show its customers that it is an “around for a long time company” by making sure there’s enough on its balance sheet to continue to grow.
“We had to talk and convince some of the biggest investors in the world to invest in us, and that speaks to how long we’ll be around to serve these customers,” he said. “So it was a combination of our capital need and wanting to cement ourselves as a really credible software provider to one of the most regulated industries.”
Ghamsari emphasized that Blend is a software company that powers the mortgage process and is not the one offering the mortgages. As such, it works with the flock of fintechs that are working to provide mortgages.
“A lot of them are using Blend under the hood, as the infrastructure layer,” he said.
Overall, Ghamsari believes this is just the beginning for Blend.
“One of the things about financial services is that it’s still mostly powered by paper. So a lot of Blend’s growth is just going deeper into this process that we got started in years ago,” he said. As mentioned above, the company started out with its mortgage product but just keeps adding to it. Today, it also powers other loans such as auto, personal and home equity.
“A lot of our growth is actually powered by our other lines of business,” Ghamsari told TechCrunch. “There’s a lot to build because the larger digitization trends are just getting started in financial services. It’s a relatively large industry that has lots of change.”
In May, digital mortgage lender Better.com announced it would combine with a SPAC, taking itself public in the second half of 2021.
We’re entering a phase in the COVID-19 pandemic where transmission is going to go through the roof because of the Delta variant. But as vaccinations ramp up around the world, the main cost to society now will not be the health services being overwhelmed, but mass disruption to businesses as staff are forced to self isolate by track and trace systems. Thus, biosecurity in the workplace (or any other setting for that matter) is going to matter a lot.
The paragraph you just read above is in fact a paraphrase of the recent open letter sent by a number of eminent UK scientists to the government about the next phase of the pandemic.
So if it’s the case that workplace biosecurity is going to have to be much more efficient, then faster, better forms of testing are going to be needed. Now, a UK startup thinks it may have cracked the problem.
Bio-security company Vatic has come up with its ‘KnowNow’ test for CoVID-19 which it claims is more accurate than lateral flow tests, is faster, easier (only a swab from your mouth is needed), allows test data sharing, and even produces a ‘Passport’ QR code to enable someone to access services or workplaces.
Vatic has now raised $6.37 million to deliver its at-home tests, starting with the one tailored to COVID-19.
The seed funding round was led by London-based VCs LocalGlobe and Hoxton Ventures.
Founded in 2019, Vatic has built a saliva-based test that is about generating data in the home. The company says the test takes fewer than 15 minutes and can identify people who are actually infectious at that moment, rather than get a false positive because the body has fought off the infection. Existing antigen tests can have a false positive rate of 1 in 200.
The company says its test identifies infectious viruses by mimicking the surface of a human cell, effectively redesigning how lateral flow tests are built and “enhancing their accuracy”.
Its KnowNow saliva-only rapid antigen test for COVID-19 is in fact now being used in the UK after receiving CE mark approval. It pairs its saliva test with an app that makes it possible to share at-home test results with health or other platforms instantly. The saliva self-swabbing technique is obviously much easier to do and less uncomfortable than current Lateral Flow Tests that require swabbing the back of the throat and nasal passages. Vatic is also now doing clinical trials in the US to secure Emergency Use Authorisation from the FDA.
Alex Sheppard, co-founder and CEO of Vatic, explained: “One reason for the recent decline in the uptake of rapid Covid-19 tests is the sampling technique – it’s currently very uncomfortable and difficult for people to use. We need to take the pain out of mass testing if we’re to return to normal to minimize the disruption caused by future COVID-19 outbreaks, whether in offices, schools, or hospitality venues. That’s why we’ve built supportive biosecurity technology that sits alongside the test, allowing users to generate their own unique QR codes to facilitate safe venue entry.”
How does it work? Vatic says its technology searches for the ‘spike’ on the virus as a measure of infectivity, but also says it is immune to potential mutations of the virus, making it able to test for COVID-19 no matter the variant.
Sheppard said the Vatic test is only the first iteration. It can also detect other infectious viruses by mimicking the surface of a human cell.
“We selected the part of the Coronavirus that uses its spike to enter human cells, almost like a hypodermic needle,” Sheppard told me. “That’s the bit that essentially interacts on our test, and so, effectively, we’re mimicking a human cell on our test, which is completely unique. It’s got a completely different engine to a normal Lateral Flow Test, because the chemistry that’s powering it is totally different.”
The other aspect of the Vatic test is that it employs an app linked to the saliva swap test. Once the test is done it produces an encrypted QR code.
“It’s not altogether dissimilar to what we see on the NHS tests,” Sheppard said, “but it’s a completely trust-based system, so you don’t have to compromise your health data. You’re not writing your home address into a government website. Of course, it does synchronize with the government requirements of reporting a notifiable disease, but it’s designed to ensure that you know you’re not giving away too much health data. It’s secure.”
Sheppard and his co-founder Mona Omir met at Oxford University, at the accelerator program Entrepreneur First in September 2019 and have gone on to raised money from both London investors and grant support from the Oxford Foundry / University of Oxford and Innovate UK.
Julia Hawkins, partner at LocalGlobe, commented: “Vatic’s technology is the future of testing. It’s fantastic to hear how many top UK organizations are taking the initiative and putting employee testing at the forefront of their business recovery plan. This new round of investment will be key in ensuring the successful roll-out of KnowNow tests across the UK and internationally and getting economies moving again with minimal interruptions.”
Rob Kniaz, partner at Hoxton Ventures, added: “A saliva-only swab is a true breakthrough in the world of uncomfortable and tricky rapid testing and the speed that the Vatic team have got it to market is very impressive. Excitingly for the business, this test is just the start of their journey – the opportunities to innovate in the at-home testing market are endless.”
Z1, a Sao Paulo-based digital bank aimed at Latin American GenZers, has raised $2.5 million in a round led by U.S.-based Homebrew.
A number of other investors also participated in the financing including Clocktower Ventures, Mantis – the VC firm owned by The Chainsmokers, Goodwater, Gaingels, Soma Capital and Rebel Fund. Notably, Mantis has also backed Step, a teen-focused fintech based in the U.S., and Goodwater has also invested in Greenlight, which too has a similar offering as Z1.
Z1 participated in Y Combinator’s Winter ‘21 batch earlier this year, and at the time got $125,000 in funding from the accelerator. Maya Capital led its $700,000 seed round in March of 2020.
Put simply, Z1 is a digital bank app built for teenagers and young adults. The company was founded on the notion that by using its app and linked prepaid card, Brazilian and Latin American teenagers can become more financially independent.
João Pedro Thompson and Thiago Achatz started the company in late 2019 and soon after, Mateus Craveiro and Sophie Secaf joined as co-founders. In its early days, Z1 is focused on Brazil but the startup has plans to expand into other countries in Latin America over time.
“Z1 is what we’re building to be the go to bank of the next generation, and not just be a digital bank for teens,” Achatz told TechCrunch. “We want to grow with him and one day, be the biggest bank in Brazil and LatAm.”
“We’re acquiring users really early and creating brand loyalty with the intention of being their bank for life,” he said. “We will still meet their needs as they grow into adulthood.”
Image Credits: Z1
While Z1’s offering is not completely unlike that of Greenlight here in the U.S. the founders agree that its products have been adapted more to the Brazil-specific cultural and market situation.
For example, points out Thompson, most teenagers in Brazil use cash because they don’t have access to other financial services, whether they be traditional or digital.
“We offer an account where they can deposit money, cash out money via an instant payment system in Brazil or spend through a prepaid credit card,” he said. “Most sites don’t accept debit cards so this is a big step compared to what teens already have.”
Part of the company’s use for the capital is to make its product more robust so they can do things like save money for big purchases such as an iPhone and earn interest on their accounts.
Another big difference between Brazil and the U.S., the company believes, is that many parents in general in Latin America haven’t had a true financial education that they can pass down to their kids.
“We’re not top down like Greenlight,” Achatz said. “That approach doesn’t make sense in Latin America. Here, many are independent from an early age and already work whether it’s through a microbusiness, a side job or selling things on Instagram. They’re much more self-taught and the income they earn is often outside of their parents.”
Z1 has grown 30% per week and 200% per month since launch, spending “very little” on marketing and relying mostly on word-of-mouth. For example, the company is following the lead of its U.S. counterparts and turning to TikTok to spread the word about its offering.
“Step has around 200,000 followers on TikTok, and we have a little under half of that,” the company says. “We’re well-positioned in terms of branding.”
For lead investor Homebrew, the opportunity to educate and provide financial services to Gen Z in Latin America is even more exciting than the opportunity in the US., notes partner Satya Patel.
Over one third of LatAm Gen Z’ers have a “side hustle,” generating their own income independent from their parents, he said.
“While millennials grew up during an economic boom, Gen Z grew up during recessions – 3 in Brazil over the last decade – and wants to become financially independent as soon as possible. They’re becoming economically educated and active much earlier than previous generations,” Patel added.
He also believes the desire to transact online, for gaming and entertainment in particular, creates a groundswell of GenZ demand in Brazil for credit card and digital payments products.
Swiss Post, the former state-owned mail delivery firm which became a private limited company in 2013, diversifying into logistics, finance, transport and more (including dabbling in drone delivery) while retaining its role as Switzerland’s national postal service, has acquired a majority stake in Swiss-Hungarian startup Tresorit, an early European pioneer in end-to-end-encrypted cloud services.
Terms of the acquisition are not being disclosed. But Swiss Post’s income has been falling in recent years, as (snailmail) letter volumes continue to decline. And a 2019 missive warned its business needed to find new sources of income.
Tresorit, meanwhile, last raised back in 2018 — when it announced an €11.5M Series B round, with investors including 3TS Capital Partners and PortfoLion. Other backers of the startup include business angels and serial entrepreneurs like Márton Szőke, Balázs Fejes and Andreas Kemi. According to Crunchbase Tresorit had raised less than $18M over its decade+ run.
It looks like a measure of the rising store being put on data security that a veteran ‘household’ brand like Swiss Post sees strategic value in extending its suite of digital services with the help of a trusted startup in the e2e encryption space.
‘Zero access’ encryption was still pretty niche back when Tresorit got going over a decade ago but it’s essentially become the gold standard for trusted information security, with a variety of players now offering e2e encrypted services — to businesses and consumers.
Announcing the acquisition in a press release today, the pair said they will “collaborate to further develop privacy-friendly and secure digital services that enable people and businesses to easily exchange information while keeping their data secure and private”.
Tresorit will remain an independent company within Swiss Post Group, continuing to serve its global target regions of EU countries, the UK and the US, with the current management (founders), brand and service also slated to remain unchanged, per the announcement.
The 2011-founded startup sells what it brands as “ultra secure” cloud services — such as storage, file syncing and collaboration — targeted at business users (it has 10,000+ customers globally); all zipped up with a ‘zero access’ promise courtesy of a technical architecture that means Tresorit literally can’t decrypt customer data because it does not hold the encryption keys.
It said today that the acquisition will strengthen its business by supporting further expansion in core markets — including Germany, Austria and Switzerland. (The Swiss Post brand should obviously be a help there.)
The pair also said they see potential for Tresorit’s tech to expand Swiss Post’s existing digital product portfolio — which includes services like a “digital letter box” app (ePost) and an encrypted email offering. So it’s not starting from scratch here.
Commenting on the acquisition in a statement, Istvan Lam, co-founder and CEO of Tresorit, said: “From the very beginning, our mission has been to empower everyone to stay in control of their digital valuables. We are proud to have found a partner in Swiss Post who shares our values on security and privacy and makes us even stronger. We are convinced that this collaboration strengthens both companies and opens up new opportunities for us and our customers.”
Asked why the startup decided to sell at this point in its business development — rather than taking another path, such as an IPO and going public — Lam flagged Swiss Post’s ‘trusted’ brand and what he dubbed a “100% fit” on values and mission.
“Tresorit’s latest investment, our biggest funding round, happened in 2018. As usual with venture capital-backed companies, the lifecycle of this investment round is now beginning to come to an end,” he told TechCrunch.
“Going public via an IPO has also been on our roadmap and could have been a realistic scenario within the next 3-4 years. The reason we have decided to partner now with a strategic investor and collaborate with Swiss Post is that their core values and vision on data privacy is a 100% fit with our values and mission of protecting privacy. With the acquisition, we entered a long-term strategic partnership and are convinced that with Tresorit’s end-to-end encryption technology and the trusted brand of Swiss Post we will further develop services that help individuals and businesses exchange information securely and privately.”
“Tresorit has paved the way for true end-to-end encryption across the software industry over the past decade. With the acquisition of Tresorit, we are strategically expanding our competencies in digital data security and digital privacy, allowing us to further develop existing offers,” added Nicole Burth, a member of the Swiss Post Group executive board and head of communication services, in a supporting statement.
Switzerland remains a bit of a hub for pro-privacy startups and services, owing to a historical reputation for strong privacy laws.
However, as Republik reported earlier this year, state surveillance activity in the country has been stepping up — following a 2018 amendment to legislative powers that expanded intercept capabilities to cover digital comms.
Such encroachments are worrying but may arguably make e2e encryption even more important — as it can offer a technical barrier against state-sanctioned privacy intrusions.
At the same time, there is a risk that legislators perceive rising use of robust encryption as a threat to national security interests and their associated surveillance powers — meaning they could seek to counter the trend by passing even more expansive legislation that directly targets and or even outlaws the use of e2e encryption. (Australia has passed an anti-encryption law, for instance, while the UK cemented its mass surveillance capabilities back in 2016 — passing legislation which includes powers to compel companies to limit the use of encryption.)
At the European Union level, lawmakers have also recently been pushing an agenda of ‘lawful access’ to encrypted data — while simultaneously claiming to support the use of encryption on data security and privacy grounds. Quite how the EU will circle that square in legislative terms remains to be seen.
But there are also some more positive legal headwinds for European encryption startups like Tresorit: A ruling last summer by Europe’s top court dialled up the complexity of taking users’ personal data out of the region — certainly when people’s information is flowing to third countries like the US where it’s at risk from state agencies’ mass surveillance.
Asked if Tresorit has seen a rise in interest in the wake of the ‘Schrems II’ ruling, Lam told us: “We see the demand for European-based SaaS cloud services growing in the future. Being a European-based company has already been an important competitive advantage for us, especially among our business and enterprise customers.”
EU law in this area contains a quirk whereby the national security powers of Member States are not so clearly factored in vs third countries. And while Switzerland is not an EU Member it remains a closely associated country, being part of the bloc’s single market.
Nevertheless, questions over the sustainability of Switzerland’s EU data adequacy decision persist, given concerns that its growing domestic surveillance regime does not provide individuals with adequate redress remedies — and may therefore be violating their fundamental rights.
If Switzerland loses EU data adequacy it could impact the compliance requirements of digital services based in the country — albeit, again, e2e encryption could offer Swiss companies a technical solution to circumvent such legal uncertainty. So that still looks like good news for companies like Tresorit.
Microsoft-owned LinkedIn has committed to doing more to quickly purge illegal hate speech from its platform in the European Union by formally signing up to a self-regulatory initiative that seeks to tackle the issue through a voluntary Code of Conduct.
In statement today, the European Commission announced that the professional social network has joined the EU’s Code of Conduct on Countering Illegal Hate Speech Online, with justice commissioner, Didier Reynders, welcoming LinkedIn’s (albeit tardy) participation, and adding in a statement that the code “is and will remain an important tool in the fight against hate speech, including within the framework established by digital services legislation”.
“I invite more businesses to join, so that the online world is free from hate,” Reynders added.
While LinkedIn’s name wasn’t formally associated with the voluntary Code before now it said it has “supported” the effort via parent company Microsoft, which was already signed up.
In a statement on its decision to formally join now, it also said:
“LinkedIn is a place for professional conversations where people come to connect, learn and find new opportunities. Given the current economic climate and the increased reliance jobseekers and professionals everywhere are placing on LinkedIn, our responsibility is to help create safe experiences for our members. We couldn’t be clearer that hate speech is not tolerated on our platform. LinkedIn is a strong part of our members’ professional identities for the entirety of their career — it can be seen by their employer, colleagues and potential business partners.”
In the EU ‘illegal hate speech’ can mean content that espouses racist or xenophobic views, or which seeks to incite violence or hatred against groups of people because of their race, skin color, religion or ethnic origin etc.
A number of Member States have national laws on the issue — and some have passed their own legislation specifically targeted at the digital sphere. So the EU Code is supplementary to any actual hate speech legislation. It is also non-legally binding.
The initiative kicked off back in 2016 — when a handful of tech giants (Facebook, Twitter, YouTube and Microsoft) agreed to accelerate takedowns of illegal speech (or well, attach their brand names to the PR opportunity associated with saying they would).
Since the Code became operational, a handful of other tech platforms have joined — with video sharing platform TikTok signing up last October, for example.
But plenty of digital services (notably messaging platforms) still aren’t participating. Hence the Commission’s call for more digital services companies to get on board.
At the same time, the EU is in the process of firming up hard rules in the area of illegal content.
Last year the Commission proposed broad updates (aka the Digital Services Act) to existing ecommerce rules to set operational ground rules that they said are intended to bring online laws in line with offline legal requirements — in areas such as illegal content, and indeed illegal goods. So, in the coming years, the bloc will get a legal framework that tackles — at least at a high level — the hate speech issue, not merely a voluntary Code.
The EU also recently adopted legislation on terrorist content takedowns (this April) — which is set to start applying to online platforms from next year.
But it’s interesting to note that, on the perhaps more controversial issue of hate speech (which can deeply intersect with freedom of expression), the Commission wants to maintain a self-regulatory channel alongside incoming legislation — as Reynders’ remarks underline.
Brussels evidently sees value in having a mixture of ‘carrots and sticks’ where hot button digital regulation issues are concerned. Especially in the controversial ‘danger zone’ of speech regulation.
So, while the DSA is set to bake in standardized ‘notice and response’ procedures to help digital players swiftly respond to illegal content, by keeping the hate speech Code around it means there’s a parallel conduit where key platforms could be encouraged by the Commission to commit to going further than the letter of the law (and thereby enable lawmakers to sidestep any controversy if they were to try to push more expansive speech moderation measures into legislation).
The EU has — for several years — had a voluntary a Code of Practice on Online Disinformation too. (And a spokeswoman for LinkedIn confirmed it has been signed up to that since its inception, also through its parent company Microsoft.)
And while lawmakers recently announced a plan to beef that Code up — to make it “more binding”, as they oxymoronically put it — it certainly isn’t planning to legislate on that (even fuzzier) speech issue.
In further public remarks today on the hate speech Code, the Commission said that a fifth monitoring exercise in June 2020 showed that on average companies reviewed 90% of reported content within 24 hours and removed 71% of content that was considered to be illegal hate speech.
It added that it welcomed the results — but also called for signatories to redouble their efforts, especially around providing feedback to users and in how they approach transparency around reporting and removals.
The Commission has also repeatedly calls for platforms signed up to the disinformation Code to do more to tackle the tsunami of ‘fake news’ being fenced on their platforms, including — on the public health front — what they last year dubbed a coronavirus infodemic.
The COVID-19 crisis has undoubtedly contributed to concentrating lawmakers’ minds on the complex issue of how to effectively regulate the digital sphere and likely accelerated a number of EU efforts.