Klarna Credit Losses Soar; DriveWealth Raises $450Mn; CBDC ‘long way’ Off
GDP and employment continue to grow, despite Delta fears. Fed is ‘long way’ from a digital dollar. Ramp raises $300Mn, while Brex launches a venture debt product. DriveWealth raises $450Mn to power “Robinhood competitors.” Fiserv announces partnerships. Klarna hits US milestone as credit losses increase. Sezzle readies IPO. Afterpay launches ads, merchant analytics.
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As Stimulus Fades and Unemployment Programs Wind Down, Are Americans Ready to Get Back to Work?
GDP growth for Q2 was revised upward, to 6.6%, but data this month suggests the Delta surge is driving a slowdown in economic activity. IHS Markit’s index of service sector activity dropped from 59.9 in July to 55.2 in August, as Delta picked up steam and some regions re-introduced mitigation measures.
Initial unemployment claims for last week totaled 353,000, up slightly from the prior week but in line with expectations.
A new study shows that states that ended expanded unemployment benefits early did see slightly higher job growth, but noted that 7 out of 8 people who saw benefits reduced or eliminated remain unemployed. The reduction in benefits drove households in those states to reduce spending by nearly $2Bn.
A host of federal pandemic-related support programs are slated to expire on September 6th, ending benefits for about 7.5Mn additional unemployed workers. The programs have been a key element in supporting workers in the hardest hit industries amidst the “K-shaped” recovery.
As stimulus measures begin to fade, women and minorities have seen any cash buffer accumulated during the pandemic dissipate most quickly, and consumers with lower credit scores are finding it increasingly difficult to qualify for a mortgage amidst rising housing prices.
Despite headwinds from the resurgent Delta variant, the economy appears to be on good footing, with employment and GDP growth continuing.
Fed “long way” From Decision on ‘digital dollar’
Dallas Fed President Robert Kaplan said he could imagine the central bank issuing its own digital currency, but that such a decision is a long ways off. The Fed continues to study the issue, he said, including the potential impact on banks. A major report on central bank digital currencies (CBDCs) is expected from the Fed in early September.
Any movement from the Fed on a CBDC is likely to be measured and incorporate feedback from stakeholders across the banking, fintech, and crypto ecosystems.
Ramp Raises $300Mn, Rival Brex Launches Venture Debt Product
Corporate card and spend management platform Ramp announced it has raised $300Mn at a valuation of $3.9Bn. The company raised $115Mn just five months ago.
According to the company, since the start of 2021, it has seen its number of cardholders increase by 5x, with more than 2,000 businesses using Ramp as their main “spend management solution.”
Ramp also announced its acquisition of startup Buyer, a “negotiation-as-a-service” platform. Buyer focuses on helping companies negotiate savings on big ticket purchases. It says it has saved customers about 27% on their SaaS contracts.
Meanwhile, Ramp competitor Brex announced the launch of its venture debt product. Brex’s offering targets high growth startups. It positions the offering as a way to accelerate growth and extend a company’s runway while minimizing dilution.
B2B payments remain anchored in the past, with invoices, net 30 (or longer) terms, and paper checks still exceedingly common. This spells opportunity for startups like Ramp and Brex to build streamlined spending, payments, and accounting solutions.
Stocks-as-a-Service Startup DriveWealth Raises $450Mn
DriveWealth, which enables financial apps to embed stock trading features, announced it has raised $450Mn in fresh funding. The round was led by Insight Partners and Accel with participation from Softbank, Citigroup’s Venture arm, Greyhound Capital, and crypto exchange FTX. DriveWealth describes itself as enabling “Robinhood competitors.” Current customers include Revolut and Square’s Cash App.
As more consumer fintech apps describe themselves as “super apps” and seek to expand functionality, a key product many are choosing to add is stock trading. DriveWealth stands to benefit from this trend by dramatically simplifying adding brokerage to existing financial apps.
Fiserv Announces Partnerships, Enables Digital Wallet Payouts
Fiserv has been busy building partnerships, and the hard work is paying off. The banking and payments company recently announced deals with MovoCash, Selecta Group, and PayPal / Venmo.
The PayPal partnership will expand the options for businesses to disburse money directly to digital wallets, like PayPal’s Venmo. Examples of payments the relationship could facilitate include independent contractors’ payment from gig economy platforms, a claims payment from an insurance company, and government tax refunds. Fiserv already has such partnerships with Lyft, State Farm, and FanDuel.
Fiserv’s partnerships exemplify the risks of establishment banks looking to hold on to “share of wallet” and deposits. If users can have gig work pay or a tax refund routed directly to a digital wallet like Venmo or Cash App (with attached debit cards), those funds are less likely to land in and be spent from a traditional bank account.
Klarna Hits 20Mn US Customers as Credit Losses Soar
Klarna’s growth push is paying off, with the European buy now, pay later juggernaut doubling its US customer base since June 2020 to 20Mn. According to the company, its app has 4Mn monthly active users in the US.
A key to achieving that growth? Growing merchant partnerships. Klarna is now available at 10,000 retailers in the US, including major names like Macy’s, Petco, Bed Bath & Beyond, The Honest Company, and Yoox Net-a-Porter.
But Klarna’s rapid global growth has come at a cost. Its operating losses have increased 11x, from about ($10Mn) to ($111Mn) as its credit losses doubled in the second quarter. The increasing losses are made more notable as Klarna was consistently profitable in its first 14 years.
For the first half of 2021, credit losses are increasing less quickly than gross merchandise volume (GMV) on the platform. GMV has increased by 77% while credit losses increased by 55%.
Klarna is said to be weighing London vs. New York for a potential IPO, but a potential offering isn’t imminent.
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Sezzle Prepares to IPO
BNPL provider Sezzle has confidentially filed a draft registration for an IPO, according to the company. The number of shares and pricing have not yet been determined. Sezzle has announced plans to expand its offering into a financial “super app” to serve as a hub for all of its customers payments, including traditional credit products.
Sezzle faces an increasingly competitive BNPL environment. Square’s acquisition of Afterpay, PayPal’s strong entrance to the sector, and Apple and Goldman Sachs’ planned product are no doubt motivating Sezzle to expand and diversify its offering — and to IPO while the window is open.
Afterpay Launches In-App Ads, Merchant Data Platform
Afterpay, the BNPL company being acquired by Square, announced this week the ability for retailers to advertise within its app. The feature allows sellers to place ads across Afterpay’s app to enhance retailer promotions. The adverts will be priced on a cost-per-click basis.
Afterpay also announced the launch of its merchant analytics platform this week. The offering is intended to give Afterpay’s merchants better insight into their operations and sales, including sales quantities and detailed demographics on store-by-store, real-time basis.
With increasing competition to attract merchants to BNPL platforms, Afterpay’s addition of ads and merchant analytics are a logical attempt to differentiate vs. the multitude of other BNPL providers.
In The News:
Fed Chairman Powell Navigates the Inflation Debate (Wall Street Journal, 08/25/2021) Powell must balance the spike in inflation without disrupting markets with any sudden pullbacks in easy-money policy.
Energy Lenders Optimistic About Demand but Braced for Setbacks (American Banker, 08/20/2021) With oil prices up 25% on the year and natural gas up 60%, energy lenders are hopeful this will translate into loan growth in the back half of the year, but are holding elevated reserves due to the Delta variant.
Does Decentralized Finance Really Help the Underbanked? (American Banker, 08/24/2021) Chainalysis found that over 60% defi crypto activity in Q2 was made of large institutional transactions of over $10Mn.
U.S. Bank Partners With Mastercard on Dual-Network Fleet Card (American Banker, 08/24/2021) The card will be accepted by both networks, targeting fleet operators whose fleets may travel beyond US borders to Mexico and Canada.
Will New Credit Building Products Work as Promised? (American Banker, 08/22/2021) While fintechs promise consumers can boost their credit score by using their products, they may not provide the best repayment data for credit bureaus.
PayPal Launches Crypto in the UK (altfi, 08/23/2021) The move to allow UK customers to buy, sell and hold crypto (BTC, ETH, LTC, BCH) with PayPal represents the company’s first international expansion of crypto services beyond the US.
Crypto Watchers Eager for Signals on Fed’s Digital Dollar Plans (American Banker, 08/23/2021) Many watch in anticipation for Fed’s report to be released next month that will include its thoughts on a digital dollar.
For Buy Now, Pay Later, Investors Need to Shop for Best Deals (Wall Street Journal, 08/22/2021) With Square’s acquisition of Afterpay, BNPL competitor shares have jumped on the thinking that fears about installment payments becoming commoditized are overblown.
More Banks Eye Rent-a-Charter Business Model for Fintechs & Neobanks (The Financial Brand, 08/24/2021) Financial institutions continue to expand partnerships with nonbanks, blurring the lines between what is and isn’t a bank.
China Is Developing an ‘Ultra-Large’ $2.3 Million Megaship That Is Miles Long (Interesting Engineering, 08/24/2021) China to research massive spacecraft for long-term missions.