Neobanking consolidation begins: Qonto🇫🇷 buys German competitor Penta🇩🇪; More crypto layoffs & yet another reminder of the golden startup rule 💼; A unicorn 🦄 after just Series A? Only in Web3 🙌

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Jul 31, 2022

👋 Hey, Linas here! Welcome back to a 🔓 weekly free edition 🔓 of my daily newsletter. Each day I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech.

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As for today, here are the 3 FinTech stories that were making a difference this week. It was a super exciting week!

Neobanking consolidation begins: French🇫🇷 Qonto buys German competitor Penta🇩🇪

The (breaking) deal 🤝 French neobank Qonto is set to acquire a German rival Penta. The deal is expected to close within the next few weeks.

The companies did not disclose how much the acquisition was worth, but German media reported that the price was in the “mid-three-digit million range.”

The match 👉 Let’s take a brief look at both companies’ USPs and how they match:

Qonto 🇫🇷:

Founded in 2016 and launched in 2017, Paris-based Qonto has 250,000+ clients across 4 markets (France, Germany, Italy, and Spain).
It focuses on helping SMEs and freelancers with banking, invoicing, book-keeping, and spend management.
Qonto has raised €622M from investors including Tencent, DST Global, and Tiger Global, among others. The FinTech was valued at €4.4B at its last funding round — a €486M raise in January this year, which was at the time France’s biggest ever FinTech fundraise.
In 2021, Germany was Qonto’s fastest-growing market, seeing 170% year-on-year growth.

Penta🇩🇪:

Founded in 2017, Berlin-based Penta serves mainly SMEs.
Penta has raised at least €80M from investors including Finleap, HV Capital, and RTP Global, among others. Their valuation wasn’t disclosed but in February the FinTech was speaking with potential investors seeking a valuation of between $453M and $567M (that clearly didn’t materialize).
It has 50,000+ customers in Germany and 200 employees.

From Differentiation to Consolidation👇🏼

This move is a logical next step for Qonto and marks the beginning of the neobanking consolidation in Europe. Also, it’s part of the three key things we’re going to see in the challenger banking space this and next year.

Here’s the takeaway:

✈️ THE TAKEAWAY

Consolidation & the future of Neobanking across the globe 🌍 First and foremost, this is a great deal for Qonto as the acquisition of Penta will enable them to become the market leader in Germany (which is the largest European SME banking market) and will create a European digital business finance company with more than 300,000 customers (this should put them among the leading players in the whole EEA). Also, it’s probably a very good deal for Penta too as it was clearly struggling - the fact that they weren’t able to raise new funding and were only present in Germany clearly indicates something wasn’t right (if it wasn’t the M&A, their days could’ve been numbered). Zooming out, this falls very well in line with the three key things we should expect to happen in the neobanking world in 2022 & onwards. These are the following: (1) Some challengers will have to close shops for lack of funding or overwhelming competition (remember what happened to Volt Bank in Australia and what’s happening with Varo Bank in the US); (2) Consolidation in this space is inevitable as there are reportedly over 250+ neobanks globally doing pretty much the same things in similar markets (this is where Penta and Qonto fits); (3) Incumbent banks might soon start taking over neobanks to jumpstart their digital bank strategy (remember that Qonto’s main competitor Shine, which also launched in 2017, was acquired by Société Générale for €100M in 2020). Despite no major deal being announced lately, given that valuations are falling so quickly it can only be a matter of time for that first brave incumbent to go down that route this year or next.

More crypto layoffs and yet another reminder of the golden startup rule 💼

The (sad) news 📰 One of the oldest crypto exchanges Blockchain.com is cutting 25% of its workforce - or about 150 people, CoinDesk reported. The report cited the bear market and the need to absorb financial losses after the company revealed earlier that it stood to lose the $270M it loaned Three Arrows Capital (3AC).

The impact 👉 The crypto firm will close its Argentina-based offices, cancel team expansion plans in several countries and reduce the salaries of its executives. The reduction brings the firm’s staffing back to January levels (still not bad!).

Things really didn’t add up… 🤷‍♂️ In late April, there were rumors that Blockchain.com was speaking with banks and considering going public. That was a big deal since the crypto exchange would have been only the 2nd crypto firm to debut in public markets in the US. But something didn’t add up. Here’s what I wrote back then:

Now, we see that fundamentals have finally spoken. That said, I wouldn’t be surprised to see a down-round here if Blockchain.com needs to raise…

But more importantly, this is yet another reminder of the golden startup rule. Here’s the takeaway:

✈️ THE TAKEAWAY

The simple yet golden rule 🔑 I hate doing this but it’s very important so I must repeat it again - it’s strange that very few people still don’t realize that hiring too fast is one of the biggest killers of startups that raise money. It killed Stripe-backed Fast recently too. The same now goes for Coinbase, Crypto.com, and BlockFi, among others, that have announced layoffs in the last couple of months. Blockchain.com now joins the gang too. For the perspective, in the past 16 months, Blockchain.com grew from 150 employees to more than 600, which is nuts and clearly unsustainable! 🥜 The thing is that increasing hiring isn’t equal to increased output. It’s often the other way around. Very few people get this though.

A unicorn 🦄 after just Series A? Only in Web3 🙌

Well, that was fast… 👀 Web3 startup Unstoppable Domains (UD) became the latest unicorn (it’s mostly vanity metrics, but still cool) after a $65M Series A led by Pantera Capital. The company has raised $72M to date.

The USP 🥊 Launched in 2019, the company offers NFT domains that give people control of their digital identity. Unstoppable Domains has registered 2.5M domains, and the usernames can be used to log into more than 150 Web3 applications, shorten crypto wallet addresses, and build a decentralized Web3 identity.

The numbers 📊 Unstoppable Domains have generated more than $80M in sales since launch. That’s… not much when you think about it… Still better than Fast haha!

The UD fundraise illustrates two key trends happening in the space right now. Also, it might be Web3’s killer app… Here’s the takeaway:

✈️ THE TAKEAWAY

Only in Web3 🙌 It seems that only in Web3 these days you can become a unicorn 🦄 after just Series A… But let’s look at the trends. First, what is clear is that despite a pullback in venture capital this year, many companies are still becoming unicorns after the early rounds. For the perspective, last year saw a record 109 companies reach unicorn status after an early-stage funding round (Seed, Series A or Series B) as per Crunchbase data. In the first half of this year, 50 such early-stage unicorns have been created, which puts them at nearly the same pace as 2021. Second, it’s also clear that investors are still very much interested in Web3 (remember my yesterday’s story about Aptos), and data proves that. VC-backed blockchain startups have raised nearly $11.5B thus far this year, which puts them on a similar pace to last year when more than $20.4B poured into the space. Hence, builders continue to build and investors are backing them. Now, how big can Unstoppable Domains become? In short, we could argue that UD could be to Web3 what Coinbase was to crypto. The company is making it possible to create a world of decentralized digital identities, in the form of NFTs owned by internet users. If it scales, it alone could become Web3’s killer app.

🔎 What else I’m watching

No more crypto hype 🤷‍♂️ Buy now, pay later (BNPL) firm Zip says it is “deprioritizing” a planned cryptocurrency financial services product, and is considering an impairment charge against some of its assets in Europe and the US According to a quarterly report to investors, the Australian company said it would also cease business pending and shutter its operations in Singapore, which CEO Larry Diamond chalked up to “significant and swift changes to the broader macro and capital environment.” What a surprise…
Diverging paths… 🛣 The exodus of senior compliance staffers from Revolut continues, with a string of resignations, including UK chief risk officer Victoria Stubbs, over the last few weeks. As first reported by City A.M., Stubbs, UK head of regulatory compliance Justine Wootton and the UK money laundering reporting officer Mathew Seneviratne have all quit the financial super app, as have its UK data protection officer and UK deputy money laundering reporting officer. The Bank departures come as Revolut bids to secure a UK banking license and approval for its crypto offering from the Financial Conduct Authority. As noted earlier, one or two resignations might be an outlier, but what we’re seeing at Revolut is already a trend… [Read more about Major roadblock for Revolut’s "Global Super App" ambitions 👀]
Apple in trouble? 🤔 Apple’s move into the Buy Now Pay Later (BNPL) space has the attention of Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), who is now examining the larger implications of big tech companies becoming lenders. The CFPB is taking a close look at the “implications of Big Tech entering this space” and is considering a number of issues, including whether Apple Pay Later could “reduce competition and innovation in the market,” Chopra said, Financial Times (FT) reported.

💸 Following the Money

Neon, a Brazil-based FinTech and digital bank, has raised $80M in its first Credit Rights Investment Fund (FIDC) focused on credit cards.
Egypt-based B2B platform digitalizing the country’s traditional trade marked, Cartona, has completed its $12M Series A funding round.
Bank of America, BNY Mellon, and Citi have invested $20M into the low-code platform, Genesis Global. Built especially for financial institutions, the platform speeds up the application development and in turn, the innovation process while also operating and upgrading complex legacy systems.

👋 That’s it for today! Thank you for reading and have a relaxing Sunday! And if you enjoyed this newsletter, invite your friends and colleagues to sign up:

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