Goodbye Merchant Swipe Fees

Plus: Digital wallets are at the heart of the U.S. Gov vs. Apple lawsuit, Chime wants to IPO in 2025 and Railsr is looking to merge with Equals Group.

Author

Benjamin Schroeder
March 27, 2024

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Welcome back,

Last week I was in London attending Pay360 and had the pleasure to meet some of you. I’m back in Paris now and some big news has come in, so let’s dive right in.

11 Fintechs raised a total of $175.4M in Europe last week, Visa and Mastercard agreed on a $30Bn settlement that could enable merchants to pass interchange fees to the consumer, digital wallets are at the heart of the U.S. Government vs. Apple lawsuit, Chime is looking at a 2025 IPO and Railsr is looking to merge with Equals Group.

 EUROPEAN FUNDRAISING
💰️ $175.4M Raised by 11 Companies

11 Fintech deals were made across Europe last week for a total of $175.4M. The German BaaS Solaris dominated last week’s funding rounds, raising a $104M series F.

Here’s the rundown :

🥇🇩🇪 German Banking-as-a-Service company Solaris raised $104 million in a Series F funding round and secured a financial guarentee of up to €100 million capital (Finextra).

🥈🇩🇪 NX Technologies raised $23.8 million in series B funding led by PayPal Ventures to expand its automotive payments platform bezahl.de across Europe (FinancialIt).

🥉🇬🇧 AccessPay, a bank integration provider, closed a $24 million strategic funding round led by True Ventures aimed at enhancing R&D, expanding into the US market, and exploring potential acquisitions (Fintech Futures).

🇬🇧 London-based Keyring raised $6 million led by Gumi Cryptos Capital and Greenfield Capital to expand its on-chain compliance platform for institutional investors, facilitating compliant interactions with DeFi platforms amid evolving global financial regulations (Coindesk).

🇩🇪 Germany's Xaver, a fintech startup, launches its B2B AI platform for life insurance and pensions, securing $5.4M in pre-seed funding from Motive Ventures, Cavalry Ventures, and industry executives to drive innovation and efficiency in the sector (Silicon Canals).

🇨🇭 Swiss fintech nsave raises $4 million seed funding to democratize offshore banking for people in economically distressed countries, offering trusted accounts in stable currencies through a simple app-based solution (TechCrunch).

🇳🇱 CoinMart secures $3M funding from IDG Capital to expand compliant crypto services, develop AI platforms, and navigate regulatory changes, aiming to democratize crypto investment.

🇮🇪 Quantmatix raises almost $3 million from Irish angel investors to launch its predictive analytics software, enabling informed investment decisions across various asset classes, expanding globally, and adding new advisers to its board.

🇨🇿 Czech fintech Flowpay raises $2.3 million in seed funding to expand globally, enhance technology, and offer operational financing solutions for SMEs, utilizing predictive AI and automation to streamline loan processes (eu-startups.com).

THINGS TO KNOW
🇺🇸 Visa and Mastercard agree on $30bn settlement over US transaction fees

Visa and Mastercard have struck a historic deal to cut transaction fees in the US, a move that could save businesses $30 billion over five years. This landmark settlement also gives merchants the green light to charge different prices depending on the credit card used.

The antitrust settlement announced on Tuesday is one of the largest in U.S. history, and if it receives court approval would resolve most claims in nationwide litigation that began in 2005.

Under the settlement, Visa and Mastercard would reduce swipe rates by at least four basis points - 0.04 percentage points - for 3 years, and ensure an average rate that is seven basis points below the current average for five years. Both card networks have also agreed to cap fees for 5 years and give more flexibility to merchants to offer discounts or impose surcharges on cards.

💡 Who's foots the Bill ? A $30Bn drop in 5 years is a significant drop, and I don’t believe that issuers (and their shareholders) will simply accept a $30Bn drop in revenue over 5 years. Will merchants pass down the cost to the consumer ? Will it be split among consumers and acquirers ? For reference, interchange fees are typically betwen 2 - 3%.

💡 A big win for alternative payment methods (hello open banking). If merchants pass swipe fees to the consumer, I expect that cost-conscious buyers will look at alternative payment methods to avoid fees. This may a useful push to popularize alternative payments methods.

💡 Goodbye Durbin exempt cards. The Durbin amendment has been the lifeblood of countless Fintech players, allowing smaller banks—those with assets under $10 billion—to flex their muscle by charging higher interchange fees than their larger competitors. And guess who's profiting alongside? The major Fintech companies who split the higher transaction fees with the smaller banks. The symbiotic partnernship has been a cornerstone of Fintechs' revenue streams and they will need to adapt to overcome the loss in revenue.

💡 What about rewards cards ? Consumers might snub certain rewards cards if it means they are more likely to face additional fees when paying. On the contrary, it's also an opportunity for reward cards to offer a new benefit to cover the higher interchanges (up to a certain threshold) - pushing the rewards card top of wallet as the go-to "everyday" card.

→ Visa

THINGS TO KNOW
🇺🇸 Digital wallets play key role in US lawsuit against Apple

The US government has filed a lawsuit against Apple, accusing the tech giant of monopolizing the smartphone market by imposing restrictions on third-party apps, particularly those offering contactless payments. The lawsuit alleges that Apple unlawfully maintains its monopoly by limiting access to critical features for developers and controlling access to NFC technology for mobile payments.

Additionally, Apple is accused of extracting payments from banks and degrading user experience by blocking access to alternative digital wallets. Attorney General Merrick Garland emphasized that Apple's actions violate antitrust laws and could further strengthen its smartphone monopoly if left unchecked. Apple has vowed to vigorously contest the lawsuit.

💡 After the EU, the US: After falling to pressure from EU regulators, Apple agreed to offer third-party providers access to the NFC chip technology that enables iPhone users to make contactless payments. With a colossal lawsuit hanging above their heads, Apple may pre-emptively open up its chip technology to third parties in US to avoid a fine.

💡  Issuer Pay: What’s the big deal ? I hear you ask. Every time you pay with with Apple Pay, Apple takes a cut (rumored to be around 0.15%). More specifically, your issuing bank has to pay Apple. For big issuers such as Bank of America, American Express, these payments to Apple represent significant amounts of money. By opening up their chip, Apple is effectively allowing your bank to create its own digital wallet and payment system. Of course, this is no easy feat (though if you’re interested, reply to this e-mail). However, the economics simply make sense and I expect issuers will be assessing their options.

THINGS TO KNOW
🇺🇸 Chime targets 2025 IPO

Bloomberg reported that Chime is planning a 2025 IPO. Chime is currently the largest consumer-facing fintech in the US and has long been anticipated to IPO following their massive 2021 funding round at a $25 billion valuation.

Chime was expected to list its shares in 2021, when a record-breaking 397 companies went public via IPOs. It didn’t, and every year since it has been mentionned that Chime is a prime candidate for an IPO.

💡 To IPO or not to IPO : Since 2021 Chime has been a prime target for an IPO. However, it has yet to file an S1 and some bankers and entrepreneurs believe that the company has enough money and doesn’t need to go public. For reference, firm last year generated $1 billion in revenue and as of last March had $900 million in cash (Fortune). Reddit’s recent successful IPO of Reddit has been seen as a positive indicator that IPOs are back and could help convince Chime that it could be in line for a good pop on opening day. Personally, I would assume that Chime is starting to feel pressure from its 2021 investors to cash out, especially if IPOs come roaring back.

THINGS TO KNOW
🇬🇧 Railsr approaches Equals Group over potential merger

Railsr, the UK-based embedded finance has approached Equals Group to propose a potential merger of the two firms, as first reported by Sky News.

Railsr has had a turbulent year, having been sold in a rescue sale to a consortium of venture capital firms in March of last year. Since then however, the company has raised $24 million in new funding.

Equals states that there “no certainty that any firm offer for the company will be made, nor as to the terms on which any firm offer, if made, might be made”.

THE MEME MARKET

 

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