Money2020 Europe: 12 Interesting Themes, Companies & Announcements
Chase to Launch UK Current Account, Coinbase Cancels "Lend"
Hey all, Jason here.
There was a ton of interesting news I was hoping to cover this week, but quite literally ran out of space (and, to be honest, time).
Major product announcements as consumer fintechs converge while executing on similar “super app” strategies: Revolut’s US no-fee stock trading plans, Robinhood’s crypto wallet, and PayPal’s ‘high-yield’ savings account; and developments on the regulatory front as Rohit Chopra progresses toward confirmation and Biden picks Saule Omarova, an OCC nominee who wants to “end banking as we know it.”
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Money2020 Europe Recap: 12 Interesting Themes, Companies & Announcements
This past week fintech companies from across Europe and around the world descended on Amsterdam for Money2020 Europe. It was my first time attending a Money2020 event — during a pandemic, no less — so I wasn’t quite sure what to expect!
What I found was a thought-provoking mix of interviews and panel discussions, one-on-one meetings, a sprawling exhibit hall, and serendipitous encounters that are both a reflection of where fintech and banking are now and an indicator of where they’re going.
What follows is a brief recap of some of the most interesting themes, companies, and announcements from my Money2020 experience. If you attended, and we didn’t get a chance to meet in person — til next year!
(For the COVID curious: each day before entering the event venue, you had to prove your vaccine status OR that you had tested negative within the past 24 hours)
Key Themes: Embedded Finance, BaaS, Open Banking
The most salient overarching takeaway for me was the intersection of three red-hot fintech trends: embedded finance, Banking-as-a-Service (BaaS), and open banking.
These topics dominated conversation on stage, while companies offering or leveraging these functionalities were well represented in the exhibition hall. Taken together, these three areas form the foundation that will power the next generation of innovation in fintech, banking, lending, and payments.
Embedded finance is the practice of integrating banking-like features in non-financial apps. For instance, bank account-like functionality for merchants selling on Shopify or buy now, pay later financing integrated at the point-of-sale are concrete examples of the broader trend of “embedded finance.”
The bigger story is that instead of users opening their banking app, banking tasks and transactions increasingly will be integrated contextually into day-to-day activities. This poses both threats and opportunities for today’s banks.
As “banking” disperses from a discrete app into various online and offline activities, banks will need to adapt their functional offerings and UX to stay relevant by meeting customer needs where they are, rather than trying to corral them into the bank’s preferred venues for transacting.
At times, that may mean operating behind the scenes via partnership models to deliver the right capability, in the right place, at the right time (with the right economics).
At its simplest, the related trend of “Banking-as-a-Service” (BaaS) is when banking functions are made available to external non-bank partners, typically via API. BaaS providers may hold their own banking license, like Germany-based Solarisbank, or function as an abstraction layer above bank license holders, like UK-based Railsbank. (In the US example, one could consider licensed banks like Green Dot and The Bancorp and abstraction layers like Unit and Bond to be BaaS providers.)
Non-bank fintechs and non-financial companies can partner with a BaaS provider to leverage its underlying bank license and technology infrastructure to build a customized over the top.
Meanwhile, open banking refers to end users’ ability to access and share account data and initiate payments through third parties via API.
In the EU, regulations require banks to provide open banking APIs. The sheer number of financial companies making APIs available has given rise to open banking API aggregators like TrueLayer, Tink, Yolt, and Noridgen. These services function as a one-stop-shop for products looking to integrate open banking functionality, instead of needing to individually integrate with potentially thousands of financial services providers.
This year’s Money2020 reinforces that embedded finance, banking-as-a-service, and open banking together are a potent combination powering an evolution in the creation, delivery, and, perhaps most importantly, value chain of financial services.
Crypto, Crypto, Crypto (& blockchain & CBDCs)
With the amount of crypto-related companies in the exhibit hall and the talk on stage, you’d be forgiven for thinking you were in Miami rather than Amsterdam. But as elements of the crypto ecosystem mature, there is an increasing focus on the legitimacy and stability that come from engaging with the traditional financial services ecosystem and with regulators.
The breadth of companies talking crypto and blockchain at Money2020 reiterates that the impact goes far beyond Bitcoin. The “crypto” umbrella has widened to include central bank digital currencies (CBDCs), stablecoins, smart contracts, ‘programmable’ money, among numerous other potential public and private applications of blockchain technology for creating, accounting for, and moving assets.
The result was a wide variety of Money2020 panelists speaking on crypto-related topics, including representatives from: Swedish, Dutch, and French central banks; American Express; JP Morgan; the European Banking Federation; BBVA; Deutsche Bank; Crypto.com; ADAN; Chainalysis; among others.
Digital Identity
While perhaps a distant third compared to the two themes above, the topic of creating and managing users’ and companies’ digital identities was interwoven throughout numerous panels and topics.
Although the European Commission has proposed a “trusted and secure Digital Identity for all Europeans,” that remains far from the reality today, with numerous discrete identity management schemes across the continent. But the EU’s success in rapidly rolling out the EU Digital COVID Certificate demonstrates a bloc-wide, interoperable identity document is possible.
Interesting Companies & Announcements
Chainalysis: software for blockchain analysis
What it is: Chainalysis describes itself as a “blockchain data platform.” It has created a proprietary data set that allows it to offer a number of products for monitoring and analyzing transactions on public blockchains.
Use cases include transaction monitoring, market intelligence, and forensic analysis of crypto asset movement. Various government agencies leverage Chainalysis software for crypto-related tax, compliance, and investigative work, including ransomware incidents like the Colonial Pipeline attack that disrupted US East Coast fuel supplies earlier this year.
Why it’s interesting: While critics of crypto often suggest its primary use is to facilitate crime, Chainalysis provides an interesting counter-example. In the traditional financial ecosystem, law enforcement typically needs specific legal authority to access banking records, and tracing the flow of money through multiple institutions and intermediaries can be slow and painful. Because movement of cryptocurrencies like Bitcoin is recorded and visible on public blockchains, tracing and analyzing transactions can be done more quickly and simply.
Feedzai: financial crime risk management in the cloud
What it is: Feedzai is a cloud-based platform for managing financial crime risk. According to the company, it monitors and scores trillions of dollars of transactions for fraud and money laundering risk each year across payment processors, challenger banks, acquirers, and merchants. Use cases include screening account openings, transaction fraud, and anti-money laundering.
Why it’s interesting: with many consumers’ personal information compromised by seemingly never ending data breaches, fraud continues to be a major challenger across the financial services and ecommerce ecosystems. Fraud has only accelerated during the pandemic, as more commerce migrates online and financial institutions and business adapt to remote or mixed working environments. API-based services like Feedzai benefit from operating at scale and allow their customers to create tailored workflows based on their needs and risk tolerance.
PayEm: a financial ‘operating system’ for companies’ global spend and procurement
What it is: PayEm bills itself as a “holistic, end-to-end financial operating system.” It offers a spend management platform that enables individuals and teams to manage non-payroll spend while giving finance teams visibility and streamlined management.
Why it’s interesting: centralized procurement functions are great — for large corporations looking to keep careful control over costs with tightly managed budgeting, spending, and approval processes. But such procurement functions are poorly suited to small- and mid-sized businesses and startups, where non-payroll spend decisions are often devolved to team managers or individuals. Recurring costs like SaaS products or advertising spend often end up on company credit cards, obscuring visibility into spend and creating headaches for finance teams.
Nextmarkets AG
What it is: like Robinhood for Europe. Nextmarkets offers commission-free trading of more than 8,000 shares, ETFs, and other products. There are no order nor custody fees and no hidden or third-party fees. The company’s key differentiator? “Investment coaches” users can follow on the platform and learn from.
Why it’s interesting: Nextmarkets emphasizes education, building expert curation and advice into the product. Users can follow and learn from 22 trading coaches who offer up to 300 trading ideas per month. Users don’t just clone experts’ trades, but have the chance to learn how the trades work and why an expert is recommending them. Not as exciting as firework animations, but perhaps more profitable.
Wise Launches Investing
What happened: to be fair, Wise silently released this feature in late August, but the release announcement is dated September 21, during Money2020, so I’m including it. The feature enables customers to hold their balances across multi-currencies in an index fund tracking the MSCI World Index, made up of 1,500 of the worlds largest companies, including Apple, Google, and Tesla. Users can seamlessly and instantly spend from the invested funds (up to 97% of the balance anyway), making it easy to keep extra cash in the market and spend it when needed.
Why it matters: Wise is typically thought of as a money transfer service, not a “challenger bank” or investing platform. But Wise has begun to assemble a collection of features across geographies that make it an appealing bank supplement — or replacement — for certain international/transnational consumer and especially SMB customer segments. Expect Wise to offer more bank-like and investing feature and options over time…. perhaps even crypto?
TrueLayer Raises $130 Million at $1 Billion+ Valuation
What happened: European open banking startup TrueLayer announced it has raised $130 million in additional financing, led by Tiger Global and, interestingly, with participation from payments behemoth Stripe.
Why it matters: TrueLayer is positioning open banking as creating a new set of rails that can bypass card networks — and their interchange fees. By simplifying the verification of bank account credentials and transactions, open banking can enable and simplify “A2A” (account to account) transfers — potentially cutting Visa and MasterCard out of the loop. (After its failed attempt to acquire Plaid, Visa recently acquired TrueLayer competitor Tink for €1.8 billion.)
Airwallex Raises $200 Million at $4 Billion Valuation
What happened: Airwallex announced it has raised a $200 million Series E, valuing the Australian startup at $4 billion.
Why it matters: Airwallex offers international banking and payments services focused on the SMB segment — and offers the technology and license infrastructure it built to do so as a Banking-as-a-Service offering for other companies to develop on top of.
The company has built more than 50 bank integrations, which enables it offer payments across 95 countries (43 of which are in real time). While it has historically focused on the Asia-Pacific region, Airwallex plans to use the new funds to continue developing its infrastructure and products — and to expand into Europe, the UK, and the US.
JPMorgan Chase Says ‘Elo to the UK
JPMorgan Chase, the largest US bank by assets, is planting a flag in the UK. The bank, which, in its 222-year history, has only offered retail products in the United States, is launching a UK digital-only current account (that’s a ‘checking’ account, for you Yankees).
The account, offered under the “Chase” brand, is currently invite-only and is expected to be generally available this fall.
Comparisons are already being made to Goldman’s entrance to the UK, with its Marcus consumer brand.
But there’s an important distinction; Marcus launched in the UK and remains a stand-alone savings product. Goldman uses the GBP deposits raised by Marcus’ UK savings product as a cheap and sticky source of funding for its other lines of business.
As a standalone savings product, Marcus could ‘pay’ to acquire depositors by offering a market-leading rate of 1.5% AER (at launch, it currently pays 0.50%) and still come out ahead. The strategy was so successful that Goldman actually stopped accepting new customers at one point during the pandemic to avoid a £25 billion threshold at which it would have to “ring fence” its UK operations.
Chase’s UK offering is launching as a spending, not a savings product. It’s competing in a commoditized product category with an entrenched, consolidated legacy banking sector in the form of Lloyds, NatWest, HSBC, and Barclays, on the one hand, and popular and trendy fintechs like Monzo, Revolut, and Starling on the other.
Chase is attempting to differentiate itself by offering 1% cash back for the first year (unusual in the interchange-capped UK market) and 5% AER on “rounded up” savings. Time will tell if these features are enough for Chase to carve out its own niche in the crowded and competitive UK current account market.
Coinbase Retreats from “Lend” Product
Coinbase’s public fight with the SEC over its “Lend” product turned out to be a short-lived one.
After receiving a Wells notice from the SEC regarding the product, company CEO Brian Armstrong came out with guns blazing on Twitter, accusing the SEC of “some really sketchy behavior.” Coinbase’s Chief Legal Officer also weighed in, with the provocatively titled blog post “The SEC has told us it wants to sue us over Lend. We don’t know why.” (For the uninitiated, this isn’t how companies typically engage with regulators.)
Now, less than two weeks later, Coinbase has announced it is canceling plans for the product. In an addendum to the its original blog post teasing the launch of the product, the company said (emphasis added):
“As we continue our work to seek regulatory clarity for the crypto industry as a whole, we’ve made the difficult decision not to launch the USDC APY program announced below. We have also discontinued the waitlist for this program as we turn our work to what comes next. We had hundreds of thousands of customers from across the country sign up and we want to thank you all for your interest. We will not stop looking for ways to bring innovative, trusted programs and products to our customers.”
Coinbase’s now-canceled “Lend” product is far from unique in the crypto space. Competitors like BlockFi, Celsius, and Gemini offer similar “interest account”-type products, which have already attracted scrutiny from state securities regulators.
Other Good Reads This Week
The Fintech Acquisition Boom of 2021 (Fintech Takes)
Stablecoins in Spotlight as U.S. Begins to Lay Ground for Rules on Cryptocurrencies (WSJ)
A new generation of climate fintech startups (Fortune)
Fintech Business Weekly Resources
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Good read Jason. Money2020 was intense and surely impossible to see and hear it all. I hadn't heard of PayEm. thanks
You must have written this BEFORE the @Strike.me > @Twitter announcement? HUGE! @paydayloanguy