Canada’s Neo is following neobanks’ typical path to profitability🇨🇦; Current taps DeFi in a bid that hybrid is the future of finance 💸; Circle to become a Digital Bank? 🤔
You're missing out... Weekly Recap 🔁
Good day Everyone,
And happy Saturday! Another week in FinTech has passed, and it was again super hot in the financial technology space! Therefore, without further ado, let’s dive into the three stories that were moving headlines this week. You can uncover other stories, keep the FinTech pulse daily and get at least x5 more by becoming a subscriber. Join the community here:
Have a wonderful Easter celebration and I will see you all on Tuesday, 19 April 🐣 And here’s a mix of 3 super interesting FinTech stories from this week:
Canada’s Neo is following neobanks’ typical path to profitability🇨🇦
The news 🗞 Neo Financial, a Canada-based challenger bank, is entering the wealth management space with an offering that will let ordinary investors access alternative assets.
The USP 🥊 Founded in 2018 in Calgary, AB, Neo is a FinTech company that provides spending, savings, and rewards programs. Through partnerships with leading financial institutions, Neo provides members with a safe and secure way to spend and save.
The product 👉 The newest product from Neo, Neo Invest, includes 4 alternative asset classes: cryptos, hedge fund-style strategies, infrastructure, and real estate. Here’s what we know thus far:
It’s underpinned by OneVest, a registered portfolio manager in all Canadian provinces and territories. However, the offering isn’t available in Quebec and doesn’t have a French-language version.
It offers the human touch of professional money managers actively managing portfolios. Neo said its product is “the first fully digital, actively managed investment experience” for Canadians.
Neo Invest has assets under management (AUM) fee of 0.75%, and some portfolio assets may have fees, called management expense ratios (MERs). It says that the weighted average MER across a portfolio is 0.40% to 0.50%
It offers automatic investing through direct deposit and scheduling.
It also lets customers customize their portfolios.
This move by Neo follows the typical neobank’s path to profitability and comes in perfect timing. Here’s the takeaway:
✈️ THE TAKEAWAY
Good timing & path to profitability. First and foremost, one must note that this move from Neo comes at a very good time. According to a recent study from EY, 1 in 5 Canadians intend to change their wealth management firms over the coming 3 years. Hence, the inclusion of alternative assets, coupled with human portfolio management, could help Neo gain traction with investors eager for change. Furthermore, low barriers to entry should give a boost for the neobank too. The alternative assets are not accessible to ordinary Canadians, as wealth management companies and banks often have net worth requirements of over CAD$1M ($797,606.54). In contrast, Neo has a minimum of just CAD$1 ($0.80) to start. Obviously, in order to really succeed, Neo Invest will also need to expand to Quebec - Canada’s second-biggest province by population - and include a French-language version, but the current foundations are pretty strong regardless. Zooming out, we can say that Neo is following the typical neobank’s path to profitability. You first start with a better UX only (working primarily with partners), then you go into (business) banking, then expand into more profitable services like lending or wealth management, and finally - focus on boosting premium users and their engagement. Let’s see how Neo executes its current path.
Current taps DeFi in a bid that hybrid is the future of finance 💸
The news 🗞 US neobank Current plans to incorporate elements of decentralized finance aka DeFi into its consumer-focused lineup by rolling them out on a “hybrid finance” basis, according to American Banker reports.
The USP 🥊 Founded in 2015, Current began its life as a teen debit card controlled by parents, but later expanded to offer personal checking accounts powered by the same underlying banking technology. Like a range of modern-day “neobanks,” or digital banks, the Current app offers a baseline of standard features like free overdrafts, no minimum balance requirements, faster direct deposits, instant spending notifications, banking insights, free ATMs, check deposits using your phone’s camera and more.
In April 2021, Current raised $220M in a Series D funding round, valuing the challenger bank at $2.2 billion.
HyFi? 🤔 HyFi, or hybrid finance is a combination of decentralized finance & centralized finance. DeFi enables consumers and companies to engage in peer-to-peer (P2P) transactions without going through financial institution (FI) intermediaries. Instead, the technology relies on blockchain recordings and stablecoins to support activities.
Traditional banking activities fall under what is called centralized finance (CeFi).
Current is hence pursuing a blend of both worlds, trying to expose their customers to aspects of both DeFi and traditional banking.
Current has been experimenting with DeFi since 2018. Yet, today might be the perfect time to unlock value & differentiate itself from the competition. Here’s the takeaway:
✈️ THE TAKEAWAY
Trying to bring the best of both worlds. In a nutshell, by partnering up with companies like Acala (a decentralized finance platform built on the Polkadot blockchain network) & Compound Labs (which develops the Compound protocol, an autonomous interest rate protocol), Current wants to bring DeFi to everyday’s neobank user (they reportedly count >3M users as of today). The offering should start with high yield saving accounts, but opportunities are nearly endless - Acala’s suite of cross-chain financial applications alone include trading, issuing self-serviced loans, becoming liquidity providers, accessing staking derivatives, and earning high-interest yield on their digital assets. Zooming out, the hybrid finance approach could help shore up Current’s competitive standing with younger consumers (its average customer age is 27). The neobank can therefore market hybrid offerings to its target demographic and push for retention of its existing customers. Current can also position hybrid finance as a more accessible way to provide attractive investment returns. If hybrid is the future of finance, Current definitely wants to be the key that unlocks it.
Circle to become a Digital Bank? 🤔
The news 🗞 Circle Internet Finance says it’s getting close to applying to become a digital bank in the U.S., Bloomberg reported. Circle CEO Jeremy Allaire says the company has held continual discussions with regulators since August 2021, when it first announced plans to become a bank.
More about this 👉 The news comes one day after Circle announced it had raised $400M from BlackRock, Fidelity Management and Research, and other investors. The startup has revealed plans to go public in a $9B special purpose acquisition deal.
USDC, the second most popular cryptocurrency, is a digital stablecoin linked to the U.S. dollar. In announcing its plans for a banking license last year, Circle said that “a new global economic system could be built on an internet-native foundation — open, global and interoperable public internet infrastructure for the storage and transmission of value, and ultimately for the intermediation of capital more broadly.”
✈️ THE TAKEAWAY
Can it? 🤔 The move from crypto to banking is part of a bigger trend, about which I’ve shared lately quite a bit. The only difference here is that Circle isn’t a crypto exchange - it’s a stablecoin issuer. In that regard, it would join Paxos, a similar company that gained the banking charter in April last year. But can Circle really get it? It’s important to note that Circle’s attempt comes at a time when watchdogs in the U.S. have begun arguing for more regulation for stablecoins, saying they should be issued by banks, a position that could essentially decide Circle’s longevity. This is something worth keeping a closer eye on from now on.
🔎 What else I’m watching
Blockstream + Block + Tesla = BTC mining 🤯 Bitcoin company Blockstream and digital payments firm Block (formerly known as Square) will utilize Tesla's Megapack tech for a new solar and battery-powered mining facility. The $12M pilot project will be located in Texas and should be concluded in the next few months, Blockstream CEO Adam Back announced Friday morning at the Bitcoin 2022 conference in Miami. The two companies each put in $6M to fund the Texas pilot project. Is the US on a path to becoming the global Bitcoin mining giant? 🤔
Crypto pays better 💵 After more than 13 years at the Bank of England, the head of the bank’s fintech hub Varun Paul is leaving to take on a role at Fireblocks. Having worked in a number of roles at the company since joining in 2008, and just over a year in his latest, Paul is joining the crypto platform in an unspecified position. Used by institutions to quickly and securely move funds, Fireblocks streamlines operations by bringing together exchanges, OTCs, counterparties, hot wallets, and custodians in one platform.
Another DeFi hack 😔 Elephant Money, the DeFi protocol behind the ELEPHANT token, has said hackers have stolen $11.2M worth of Binance Coin, a report said. The company was reportedly facing an “automated attack” on its treasury. In a Medium post, the company founder said they’re addressing the issue in partnership with CertiK, a blockchain security company, and DeFi insurance protocol InsurAce.
💸 Following the Money
Nigerian gig economy fintech startup ImaliPay has raised a $3M seed round to deepen its financial services infrastructure across Kenya, Nigeria, and South Africa.
Uniswap Labs, the main developer of the Uniswap decentralized exchange protocol, has launched a new venture unit. Uniswap Labs Ventures will invest in web3 projects across categories, focusing on startups building blockchain infrastructure, developer tools, and consumer-facing applications.
Leatherback, a UK startup for international remittance payments for migrant workers and multi-currency businesses, has raised $10M in a pre-seed round led by pan-African funding agency ZedCrest capital. The Leatherback business account offers trading in 24 currencies, virtual cards for cross-border transactions, a collections API, and support for bulk payments. Individual accounts feature a multi-currency wallet, virtual debit cards, and savings features.
👋 That’s it for today! Thank you for reading and have a productive & restful weekend! And if you enjoyed this newsletter, invite your friends and colleagues to sign up:
P.S. This is a free and short issue that might not be published every week. Subscribe now and keep the FinTech pulse daily, make sense of what’s happening in the financial technology space every day and stay ahead. You will save at least 180 minutes. Every week!