Fintech in 5 - Another Crypto Guru Falls

Over €265 million was raised in Europe, Binance CEO CZ pleaded guilty to money laundering charges, Revolut is launching bond trading for European clients, and more.

Author

Benjamin Schroeder
November 23, 2023

Hey 👋,

I hope you're having a great week.

We're in week 47 of 2023, and the news cycle is dominated by the situation at OpenAI.

Within fintech, a lot happened this week: over €265 million was raised in Europe, Binance CEO CZ pleaded guilty to money laundering charges, Revolut is launching bond trading for European clients, EU Fintech lenders are unlikely to ever be profitable, and more.

Let's dive in 👇

In this edition:

💰 Fundraising

📰 Must Knows

⭐ Bonus Story

This Week’s Highlights

💰 Fundraising

11 deals were reported in Europe over the past week, totaling €265.1m. There were four deals in the UK, three in the Netherlands, three in France, and one in Spain.

👑 Blockchain.com, the UK cryptocurrency exchange and wallet platform, takes the crown this week. The company raised approximately €101m in Series E funding, led by Kingsway Capital. The financing includes significant participation from Baillie Gifford, Lakestar, LSVP, GV, Access Industries, Moore Capital, Prudence, Freeman Capital, Coinbase Ventures, Pledge Ventures, and many more.

As a result of their latest round, Manny Stotz (Founder of Kingsway Capital) and Nicolas Brand (Partner at Lakestar) join the board.

📰 Must-Know:

🇺🇸 Binance Chief CZ Resigns Amid $4.3bn Fines

  • Binance's CEO resigned amidst a $4.3bn fine settlement with US authorities for criminal charges related to money laundering, sanctions violations, and failure to report over 100,000 suspicious transactions, as the exchange faces increased scrutiny for its secretive operations and regulatory clashes worldwide.

  • Changpeng Zhao (CZ), Binance's CEO, pleaded guilty, resigned, and agreed to pay a $50mn fine, barred from management involvement and potentially facing up to 18 months in prison, with Richard Teng replacing him.

  • The exchange's rapid growth into becoming the largest crypto exchange globally within five years is overshadowed by allegations of facilitating criminal activities, including terror financing, leading to extensive penalties and legal battles with US regulators like the CFTC and SEC.

🇬🇧 Revolut to Offer Bond Trading to European Clients

  • Revolut, with over 35 million customers, is set to introduce bond trading in Europe, reducing minimum capital requirements from an average of $100,000 to €100 and providing retail traders access to the $133tn global bond market.

  • The move is driven by the attractiveness of the bond market amid rising interest rates, with Revolut offering access to European and US Treasury bonds, as well as corporate bonds from companies like Apple and Wells Fargo.

  • While global fintechs enter the retail bond trading space, Revolut becomes the first major UK-based neobank to offer such services, aligning with its broader expansion plan for trading products and introducing a robo-adviser for European clients.

💡 My Insight

Lots of activity is happening at Revolut. Earlier this year, Revolut started offering loans in France, and it is likely that they will expand to more countries and offer more loan options in the future. Similarly, they recently increased their fees and started offering complimentary subscriptions from ClassPass to Tinder. With the news that they will be providing bond trading to EU clients, I believe Revolut is working towards becoming a financial super app. The brand is strong, and its financial services are increasingly competitive against those of institutional banks. However, their main challenge is gaining consumer trust and changing the perception that Revolut is not a bank (when it actually is).

On the B2B side, I believe their strategy is the same, but they may be slightly behind. I predict that they will continue to expand their B2B financial services and introduce small B2B loans in 2024. Additionally, they could establish partnerships and offer premium services that are important to their client base, such as accounting and legal advice. Furthermore, I can envision them acquiring or developing an invoicing system. This would provide additional benefits to their clients and, as an intermediary, they may be able to offer factoring services for the invoices generated by their system.

🇨🇳 MasterCard Granted Bank Card Clearing License in China

  • The People's Bank of China and the National Administration of Financial Regulation authorized MasterCard to operate a yuan-oriented bank card business in mainland China through a joint venture with NetsUnion Clearing Corporation.

  • This move follows the permission granted to American Express, marking a practical step in China's policy of high-quality opening-up and showcasing a commitment to further economic cooperation.

  • The authorization is expected to enhance the domestic bank card clearing market, contribute to the supply-side reform of the payment industry, and align with the PBC's goal of promoting high-quality development in the payment sector.

🇪🇺 50% of EU Fintech Lenders Unlikely to Ever be Profitable, Report Estimates

  • European fintech lending startups secured over €11 billion in debt facilities in 2023. However, a report by WinYield raises concerns about the viability of their models. The concerns stem from limited credit experience among staff and flawed underwriting methods.

  • The report, based on interviews with over 95 fintech lenders, highlights several issues. One issue is delayed payments, which account for 10% of fintech lenders' portfolios. This is four times higher than in bank SME portfolios. Additionally, the report identifies €514 million in venture capital at risk due to market overhype and underestimated operational costs.

  • WinYield predicts that many firms will not achieve profitability. This prediction suggests a need for significant pivots in strategy and business model. To become profitable, the report recommends that companies pivot multiple times and partner with a bank.

🇺🇸 Plaid Launches CRA-Regulated Subsidiary to Offer Cash Flow-Underwriting-as-a-Service

  • Plaid announced the formation of a new entity, operating as a consumer reporting agency (CRA), to provide ready-made credit risk insights from consumer-permissioned cash flow data, addressing the limitations of traditional credit scores.

  • In doing so, Plaid is moving from the “data-transferring” business to the value-added business of credit underwriting. While many lenders already use bank transaction data for underwriting, they’ve to build it internally - a time-consuming and costly endeavor.

  • Plaid aims to enhance the availability and usability of cash flow data, making it accessible digitally and integrating it seamlessly into decision models, providing actionable insights for lenders and expanding credit access for individuals traditionally considered unscorable or credit-invisible.

⭐ Bonus Story

🇺🇸 The OpenAI Chaos

I couldn’t write this newsletter without at least mentioning this week’s leading story in business, the OpenAI chaos.

Here’s an extremely short rundown of what happened :

  • Last Friday, the OpenAI board fired CEO Sam Altman. The board remained vague about the specific reasons why, stating that “he was not consistently candid in his communications with the board” (OpenAI). Greg Brockman, OpenAI’s co-founder and president, quit following the news. CTO Mira Murati is appointed as interim CEO.

  • Microsoft, an important partner to OpenAI (they invested $10B in the company…) was taken by surprise by the board’s decision. The day following Sam Altman’s firing, Microsoft announced that they had hired Sam Altman and that would create a special team for him.

  • Last Sunday evening, OpenAI’s board announced that they had hired the ex-CEO of the video-streaming company Twitch, Emmett Shear, as OpenAI’s new CEO.

  • By Monday, 500 of the roughly 700 OpenAI employees signed an open letter threatening to quit and join Sam at Microsoft if he was not re-instated.

  • Yesterday, it was announced that OpenAI’s board would be replaced and that Sam Altman and Greg Brockman would be re-instated, putting a temporary end to the ongoing fiasco at OpenAI.

Some are calling it a coup, others blame it on the board’s incompetence. Whatever the case, the real winner here is Microsoft.

In an interview with Kara Swisher, Microsoft CEO Satya Nadella mentioned that they will do everything they can to never have such a situation repeat itself.

Unsuprisingly, they were not angry at the face that they had not consulted in this process nor been made aware in Sam Altman’s firing. As a result, they most likely impose a board seat or at the minimum a board observer to gain visibility.

Well done Microsoft.

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Have a great rest of your week,

Benjamin