Fintech in 5 - Capital One to Buy Discover Financial for $35bn

Hey 👋,

Hope you had a great week. I didn’t have the time to release this week’s edition of Fintech in 5 during the week, so this edition is exceptionally coming at you on a sunday (who knows, maybe more people will read it?).

Without further ado, let’s dive in 👇

In This Edition:

💰 51,3M € Raised by 2 Companies

🇺🇸 Capital One Agrees to Buy Discover Financial for $35bn

🇬🇧 Monzo Targets £4bn Valuation in Fresh Funding Round

🇹🇷 Papara Set to Acquire Sadapay in Possible $50M Deal

🇬🇧 Revolut Launches Robo-Advisor in EEA to Simplify Investing for Everyone

🇺🇸 Toast Cuts 10% of its Workforce Amidst Restructuring

💰 Fundraising

Last week, just 2 companies raised money for a total of 51,3M€ : Finom, the neobank for SMEs based in the Netherlands and Kameo, a Swedish real estate investment platform.

To dive deeper into last week’s deals, read Tuesday’s edition of Fintech in 5.

📰 Must-Know :

🇺🇸 Capital One Agrees to Buy Discover Financial for $35bn

• Capital One has agreed to purchase Discover Financial Services for $35 billion in an all-stock transaction, aiming to create a powerful entity in the US credit card industry by combining two of the country’s leading credit card companies.

• The deal values Discover’s stock at a 27% premium over its closing price before the announcement, indicating a strategic move to consolidate market share against competitors and potentially challenge the Visa-Mastercard duopoly in the payments sector.

• This acquisition is expected to close in late 2024 and Capital One expects it deliver a ROIC (return on invested capital) of 16%, with an IRR (internal rate of return) of over 20%. The deal is subject to regulatory and shareholder approval and in my opinion it is very likely that the FTC will look into this.

→ FT

🇬🇧 Monzo Targets £4bn Valuation in Fresh Funding Round

• UK-based digital bank Monzo is set to secure an additional £350m in funding, led by Alphabet's investment fund CapitalG, potentially raising its valuation to £4bn. This funding round includes first-time stakes from investors like HongShan, Ribbit, and StepStone, alongside existing backers.

• Monzo has demonstrated significant growth since its 2015 inception, recently passing the bar of 9 million customers and anticipated to report its first annual profit shortly. The bank's focus on the UK market has differentiated it from competitors like Revolut.

• This funding round not only reflects the improving investment climate for fintech startups but also positions Monzo for potential future expansion into new products, markets, and an IPO. The bank's revenue has more than doubled in the past year, driven by increased interest rates and a tripling of its lending book. However, the bank made a pre-tax loss of £116mn in the same period, in part as the rapid increase in lending forced it to expand its provisions for potential bad loans.

→ FT

🇹🇷 Turkish Unicorn Papara Set to Acquire Sadapay in Possible $50MN Deal

• Turkish fintech giant Papara is set to acquire Pakistan's prominent fintech company SadaPay in an all-stock deal valued between $30 to $50 million, planning to inject an additional $10 million to bolster SadaPay's market presence and technological advancements.

• Despite a global funding crunch and skepticism about the profitability of Electronic Money Institutions (EMIs) in Pakistan, Papara's acquisition signals strong investor confidence. The acquisition is significantly below SadaPay’s previous valuation of nearly $100 million. However, the deal still marks a significant foreign investment in Pakistan's fintech sector.

• The deal also highlights the challenges and potential of Pakistan's EMI business model, with SadaPay leveraging Papara's financial strength and market expertise to explore new revenue streams, including remittances from Pakistanis abroad, amidst a backdrop of regulatory hurdles and reduced venture capital funding.

→ PakistanToday

🇬🇧 Revolut Launches Robo-Advisor in EEA to Automate Investing

• UK-based fintech giant Revolut has rolled out a Robo-Advisor service in the European Economic Area (EEA), designed to automate investment processes tailored to individual needs, starting with a minimum investment of just 100 euros.

• The Robo-Advisor aims to democratize investing by offering a fully diversified, automatically rebalanced portfolio based on users' risk tolerance and financial goals, charging a 0.75% annual management fee.

• Beyond automation, Revolut enhances the investment experience with features like recurring transfers from 10 €, aiming to encourage regular investment habits and minimize the impact of market volatility, while planning to expand investment options and integrate additional financial planning tools.

→ Revolut

🇺🇸 Toast Cuts 10% of its Workforce Amidst Restructuring

• Toast, a Boston-based fintech specializing in POS solutions for the hospitality sector, announced a workforce reduction of approximately 550 employees as part of a comprehensive restructuring plan following a $246 million net loss for 2023, despite a significant revenue increase to $3.9 billion (+42% YoY).

• Despite the job cuts, Toast demonstrated financial improvement with a narrowed net loss from $275M in 2022 to $246M in 2023 and projects a robust growth with subscription services and fintech solutions expected to yield a non-GAAP gross profit of $1.3 billion to $1.32 billion, alongside an adjusted EBITDA of $200 million to $220M for the full year 2024.

• The announcement of layoffs, part of Toast's efficiency drive, coincided with a 15% surge in its stock price, reflecting positive investor sentiment. Toast management also announced a $250M share buyback program.

→ Investopedia

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Have a great rest of your week,

Benjamin