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BFD Expert Voices - Fintech Deals

BFD Expert Voices

Fintech investors slowed their pace of funding for the seventh month in a row in August, according to data from investment bank FT Partners.

Why it matters: The slowdown affects all aspects of growth across the space, including startups and public players, and raises the question of when, and at what level, will the bottom of the investing drop arrive.  

Details: Fintech funding is down 49%, to $74.2 billion, so far this year through August, compared to the year-ago period, FT Partners says. 

Funding in August hit its lowest monthly level since November 2020, with $3.6 billion announced across 258 financing deals.

Bottom line: As equity funding dries up, expect to see more venture debt rounds, creative term sheets, and cheap(er) M&A.

Fintech funding is down 49% in 2022

1 big thing: Trending down for 7 months

After raising $65 million in Series B funding, Fidel API has named former Marqeta executive Salman Syed as COO and is opening a San Francisco office, the company tells Lucinda exclusively.

Why it matters: The job change comes amid a rising demand for experienced COO candidates as a new crop of fintechs emerge.

Background: San Francisco-based Syed spent nearly six years at card issuing platform Marqeta, where he was senior vice president of North America as the company grew from around 60 employees to over 800.

At Fidel API, he is expected to help take the startup to its next stage of growth, and build out its U.S. presence. With about 160 employees, the company plans to have about 200 by end of year.

Much of his job will be "aligning people inside the organization around the right vision, the right goals, and making sure that we're all moving in a concerted effort," he said, noting the company's rapid growth. 

Though largely Europe-based, some of Fidel API's largest customers are in the U.S., CEO Dev Subrata wrote in an email. The company already has an office in New York.

How it works: Fidel API's technology gives developers at companies like Google, Royal Bank of Canada and British Airways the ability to tap into real-time credit card transaction data from the likes of Visa and Mastercard.

That in turn can power features such as instant rewards and loyalty points, personal finance management, and expense management. 

Zooming out: The surge in demand for fintech COOs also comes as last year's vogue for so-called blitzscaling, or rapid-spend strategies, have given way to a tighter focus on profits in 2022.

There's been a "growing need for help around vision and scaled growth versus growth at all cost," says Jonathan Pomeranz, head of fintech at executive search firm True Search. "Many of these leaders are coming from scaled public companies."

For example, Harsh Gupta was recently hired away from SoFi to be head of operations at student-focused fintech Mos, while Brett Chereskin was hired away from Affirm to be COO at investing app Dub.

2. The BFD: Fidel API gets a COO

Zelle has been a useful tool for banks to enable peer-to-peer money transfers, but it has shied away from working with fintechs. To learn why, today Ryan catches up with Al Ko, CEO of Early Warning Services, the company behind Zelle. 

Why he matters: Early Warning Services has been around for about 30 years, but it launched Zelle in partnerships with some of the biggest banks in the U.S. just five years ago. As CEO of Early Warning, Ko has overseen the P2P app's growth over the last three years. 

Five years in, what’s the current state of Zelle and who uses it?

Zelle has 110 million users and is available to customers at over 1,700 financial institutions. 

About 97% of all people with a bank account can access Zelle, and 80% with a bank account can access it directly through their bank app. 

More than half of all users have less than $35,000 in income and $1,200 or less in their checking accounts.

So this has been a vehicle by which older people, less affluent people, and people in underrepresented minority communities have gotten access to digital payments.

The service is available to a lot of banks, but why not fintechs or some other new financial apps?

We exist to help banks and credit unions by protecting their accounts. We principally work with entities with a bank charter, so you can get Zelle directly integrated into your app if you have a bank charter.

We have that rule because a bank charter comes with a set of obligations, regulatory oversight, and a set of standards that you don't always get if you are like a bank, but not a bank.

But if any entity, whether it's a direct integration or some of these rent-a-charter institutions, have fraud or scam rates that are out of the norm, we will remove you from the network — because protecting the network is so paramount.

You've come under scrutiny for fraud on the network from some legislators the CFPB. What’s happening on that front?

We welcome the questions and engagement with regulators and legislators alike. Our interests are aligned — we want to keep the bad guys out. 

I caution against the unintended consequences of some of their actions. Will they reduce the number of scams out there? Or will they just shift the type of scam? And will they harm the overwhelming number of transactions by making them more expensive, slower or more difficult?

But overwhelmingly, more than 99.9% of these transactions go through with no issues at all, and those numbers are getting better.

3. Expert Voices: Zelle boss Al Ko

Photo illustration of Al Ko, arrows, and abstract shapes.

Photo illustration: Victoria Ellis/Axios. Photo: Courtesy of Early Warning Services, LLC

Celsius resembled a ponzi scheme at times, Vermont regulator says (CoinDesk)

In a new filing, the Vermont Department of Financial Regulation alleges the crypto lender misled investors about its financial health, used its CEL token to bolster its balance sheet and at times used new investor funds to repay old investors.

S&P 500 could go lower, bank analysts say (Axios)

The S&P 500 is already on track for its worst year since 2008, but analysts at Morgan Stanley and Goldman Sachs believe it could get much worse. 

U.S. bank regulator warns of crisis risk from fintechs (Reuters)

Acting comptroller of currency Michael Hsu says the rise of fintechs and digital banking services could spur a crisis.

4. Credit score

Illustration of a credit card headed towards a goal post to score a touchdown.

• Mysten Labs, a startup founded by executives from Meta's crypto unit, raised $300m at a $2b valuation. FTX Ventures led, with other investors including a16z crypto, Jump Crypto, Apollo, Binance Labs, Franklin Templeton, Coinbase Ventures, Circle Ventures and Lightspeed Venture Partners. https://axios.link/3eBWICU

• Mesh Payments, an Israel-based spend management startup, raised $60m in new funding led by Alpha Wave with participation from Tiger Global, TLV Partners, Entrée Capital and Meron Capital. https://axios.link/3KRLFSr

• SteelEye, a London-based regtech startup, raised $21m in Series B funding led by Ten Coves Capital, with participation from Fidelity International Strategic Ventures, Illuminate Financial and Beacon Equity Partners, among others. https://axios.link/3d2QUC5

• Spice AI, a blockchain data platform, raised a $13.5m seed round led by Madrona Venture Capital, with participation from Blackbird Ventures, Basis Set Ventures and Alumni Ventures Blockchain Fund. https://axios.link/3x3RAOi

• Omni, a noncustodial crypto wallet, raised an $11m round at a $50m valuation from Spartan Group, GSR Ventures, Eden Block, OP Crypto, Shima Capital, Kosmos Ventures, Daedalus Angels, PrimeBlock Ventures, Figment Capital, Lattice Capital and Chorus One. https://axios.link/3cUkgmc

• HotStreak, a blockchain-based sports betting startup, raised $9m in Series A funding led by Polychain Capital. The company also named  Fanduel founder and former CEO Nigel Eccles as chairman of its board. https://axios.link/3ASOu0Z

• Hubble Protocol, maker of the Solana-based USDH stablecoin, raised a $5m strategic round led by Multicoin Capital. hubbleprotocol.io

• VerifyVASP, a Singapore-based crypto compliance startup, raised $5m  in Series A funding at a $100m valuation. FTX Ventures led, with participation from Peak Capital and Bcharu. https://axios.link/3Ru5wcD

• Xepelin, a Latin American SME financing startup, received a $140m credit line from Goldman Sachs. https://axios.link/3D6wu63

• Blue Safari Group Acquisition Corp, the SPAC firm taking crypto miner Bitdeer public, has filed for a three-month extension, to Sept. 14. The combination was originally announced in November 2021. https://axios.link/3RzhmC6

5. Deals of the day

• Pantera Capital CTO Terence Schofield and John Jonson, head of the capital formation team, are both leaving the company, CoinDesk reports. https://axios.link/3AQh6b4

• ClearBank, a banking-as-a-service startup, hired Andrew Barker as its new chief revenue officer. https://axios.link/3QrKWIK

• Shopify promoted Kaz Nejatian to COO and Jeff Hoffmeister to CFO. Toby Shannan will step down as COO and become a special advisor and board member. CFO Amy Shapero will step down following the company's third quarter earnings report. https://axios.link/3Rr6aaU

It's personnel

Good morning, fintech readers. Welcome to Thursday.

Situational awareness: Coinbase is bankrolling a lawsuit against the Treasury Department after the government agency sanctioned Tornado Cash.

👀 Catch up quick: Check out our new events page, where you can watch past Axios Pro interviews, including our July 21 chat with SBF. 

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September 08, 2022

1 big thing: Trending down for 7 months