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Fintech in 5 - Google is launching a BNPL pilot

Google is launching a BNPL pilot, Trade Republic secured an EU banking license, British regulators may put a cap on cross-border card fees, and more.

Author

Benjamin Schroeder
December 15, 2023

Greetings from sunny San Francisco,

I hope you're having a great week.

This will be my last edition of Fintech in 5 for 2023 as I will be taking time off for the holidays 🎄☃️ but don’t worry, Fintech in 5 will be back on January 4th.

This week, Google is launching a BNPL pilot, Trade Republic secured an EU banking license, British regulators may put a cap on cross-border card fees, and more.

Here’s what’s in store this week 👇️ 

In This Edition:

💰 Fundraising

📰 Top Stories :

💰 Fundraising

🇪🇺 Top Deals in Europe Last Week

6 deals were reported in Europe in the past week, raising a total of €88.9 million. Germany and the UK had two deals each, while Spain and Estonia both saw one deal each.

👑 Scalable Capital Raises €60 million

This week, Scalable Capital, the Munich-based neobroker, takes the crown after raising €60 million in equity funding from Balderton Capital, HV Capital, and existing backers, bringing its total valuation to $1.4 billion. Currently active in Germany, Austria, Italy, France, Spain, and the Netherlands, the company plans to use the funds to expand its full-service brokerage platform into new countries and offer additional services.

The funding comes amidst increased competition in the neo-broker market, with rivals like Robinhood entering the European market and Trade Republic securing a banking license, while Scalable Capital aims to differentiate by focusing on product development and market expansion rather than pursuing a banking license.

📰 Top Stories :

🇺🇸 Google Partners With Affirm and Zip on BNPL Pilot

  • Google announced that it will be launching a pilot to introduce buy now, pay later (BNPL) options for online and mobile payments in the U.S. in early 2024, partnering with Affirm and Australia-based Zip for their pay-in-four services.

  • The pilot will be done through Google Pay, meaning that Affirm and Zip will be available as payment options for Android users on some merchant apps and websites that offer Google Pay at checkout.

  • BNPL payment options experienced a surge in popularity amid global inflation concerns, with spending via these methods projected to reach $17 billion during the holiday season, a 16.9% YoY increase, according to data from Adobe Analytics.

🇬🇧 British Payment Regulator Calls for Cross-Border Card Fee Cap

  • The Payment Systems Regulator (PSR) urges Visa and Mastercard to cap cross-border merchant fees in the U.K., citing concerns about excessively high fees. The PSR proposed an initial, time-limited fee cap of 0.2% for consumer debit transactions and 0.3% for online consumer credit transactions between the U.K. and the European Economic Area (EEA).

  • Visa and Mastercard increased interchange fees for online transactions between the EU and the U.K. to 1.15% for debit cards and 1.5% for credit cards after the U.K. departed from the EU. The PSR estimates that these fee hikes cost U.K. businesses an extra £150-200 million in the past year alone.

  • Both Mastercard and Visa dispute the PSR's conclusions, with Mastercard emphasizing the competitive payments market and Visa highlighting the value of secure digital payments for U.K. businesses.

💡 My insight

The prospect of capping cross-border interchange fees in the U.K., as proposed by the Payment Systems Regulator (PSR), poses a significant challenge to UK neobanks like Monzo and Revolut.

Why ?

Interchange fees from debit and credit cards are an important source of revenue for Neobanks, especially international interchange fees.

As reported in their latest annual report, Monzo saw a 61% increase in its transaction income (including interchange). In total, transaction income represented roughly 75% of the company’s total income.

Similarly, Revolut’s 2021 financial statements show that card and interchange revenues were up 57% YoY and accounted for nearly 25% of consolidated revenues.

Needless to say, putting a cap on the interchange fees could severely cut neobanks’ revenues. A potential squeeze on revenues could hinder their capacity to fund innovative card and rewards programs, thus influencing their competitive standing in the market and ability to attract consumers and pulling the companies further down the spiral.

🇩🇪 Trade Republic Secures EU Banking License

  • Berlin-based neobroker Trade Republic, secured a full banking license from the European Central Bank (ECB), allowing the company to independently manage customer deposits and venture into creating a lending business.

  • Previously valued at $5.3 billion in 2021, Trade Republic has notable international venture capital backers, including Sequoia, Accel, TCV, and Peter Thiel’s Founders Fund, and has expanded its offerings in 2023, introducing features such as 4% interest rates on cash, bond trading for retail investors, and a new app.

  • Trade Republic plans to leverage its banking license to generate additional revenues, offer additional services and ultimately gain market share. Christian Heckler, co-founder of Trade Republic, notably added that the license will enable them to support retail customers in the long run and not just at the beginning of their financial journey.

🇪🇺 Apple Proposes to Let Rivals Access Tap-And-Go Tech in EU Antitrust Case

  • Apple has offered to allow rivals access to its tap-and-go mobile payments system, in response to EU antitrust charges. The move aims to address concerns about limiting competitors' access and potentially avoid a fine of up to 10% of their global turnover.

  • The European Commission may conduct a market test next month to gather feedback from rivals and customers before deciding whether to accept Apple's offer, indicating a potential resolution to the antitrust investigation.

  • Apple Pay, utilized by more than 2,500 banks and 250 fintechs and challenger banks in Europe, faces additional antitrust charges related to preventing music streaming companies, including Spotify, from informing users about alternative buying options outside the App Store.

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Have a great rest of your week,

Benjamin