FTX collapse could be a catalyst for crypto regulations🚨; FinTech Winter is a brilliant time for banks to increase acquisitions 💸; FinTech investing just became a lot more difficult for everyone 😳
You're missing out big time... Weekly Recap 🔁
👋 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.
If you’re not a subscriber, here’s what you missed this week:
Affirm offers a profitability strategy that other BNPL FinTechs should steal 👏 [it’s a must-read for all FinTechs!]
Price is the story, or how retail is adopting crypto 💸 [lots of remarkable charts here]
The future is purple. Nubank Purple 💜 [good lessons for other neobanks]
The worst year ever for stock trading apps 📉 [and it might become worse before it gets better]
As for today, here are the 3 FinTech stories that were making a massive difference this week. This week was wild, so certainly check out all the above stories.
FTX collapse could be a catalyst for crypto regulations🚨
Zoo out 🔍 FTX is now undoubtedly the biggest thing both in crypto and FinTech right now. Apart from what has been said and discovered, there’s another important trend emerging.
Following the crazy collapse of the once second-biggest crypto exchange in the world, there are rising fears that consumers aren’t being protected adequately, which builds up the pressure on financial services watchdogs to better regulate the cryptocurrency industry.
More on this 👉 Industry is already responding. For instance, Coinbase COIN 0.00%↑CEO Brian Armstrong has said he thinks inadequate US digital asset regulation has forced crypto exchanges to set up operations overseas, as FTX did in the Bahamas, leaving consumers more vulnerable. Furthermore, some UK banks have already started to prevent customers from buying cryptos in response to what they say is a rise in crypto scams. And the list could go on.
What this means? 🤔 In short, more oversight is coming in major markets (especially in the US). Having FTX implosion (along with other crypto meltdowns this year, such as LUNA) could bring everything sooner.
✈️ THE TAKEAWAY
The key catalyst 👉 As I’ve written earlier, the EU is planning to pass vital crypto regulations in its Markets in Crypto Assets (MiCA) legislation before 2023. The new legislation would replace a patchwork of national rules with one framework covering various countries for the first time. But a vote on the new rules has reportedly been delayed until February, as per CoinDesk. What’s important here is that MiCA would not only harmonize the crypto oversight but also could be the groundwork for crypto regulations globally. When it comes to the US, it is further behind in creating concrete rules. Various government agencies have skirted around formal regulations. And there isn’t even agreement on whether the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) should be in charge of oversight. A similar situation can be seen in other major markets such as the UK, where the Financial Conduct Authority (FCA) currently only oversees companies’ approach to anti-money laundering. Having said that, it’s clear that crypto regulation in most markets has been painfully slow to materialize, which one way or another led to the fact that customers are currently suffering. But the latest and biggest crypto meltdown of 2022 may shock policymakers into action. It has to.
Refresher: FTX is much worse than anyone imagined 🤯🤯🤯
FinTech Winter is a brilliant time for banks to increase acquisitions 💸
The news 🗞 Banks looking to expand their digital capabilities reportedly may be taking a closer look at acquisitions of FinTechs, according to Reuters. That’s becoming an attractive option as interest rates are up and valuations are down, Reuters reported.
More on this 👉 Looking at the macro level, we can easily support this hypothesis. The valuations of FinTechs have fallen 70% this year while those of banks have slipped only 33%, and the S&P 500 has dipped 23%, as per the report.
The decline in FinTech valuations has obviously been driven by the economic downturn, rising interest rates, and lower investor confidence after (drums 🥁) the collapse of cryptocurrency exchange FTX.
✈️ THE TAKEAWAY
Why this makes sense? 🤔 Despite the difficult macro situation, banks have been earning more as their lending business benefits from rising interest rates. Furthermore, it’s much easier for banks to buy FinTechs than to merge with other banks because the latter involves more regulatory scrutiny. Zooming out, it’s also important to remember that many FinTechs will definitely face a stricter climate soon, with more layoffs and lower valuations possible. Hence, well-positioned banks can definitely be on the hunt for deals as they enter a period of market consolidation. So, very soon a wild ride might begin 🎢
Bonus: Lessons from another failed neobank 🧠
Crypto Winter takes another victim - a crypto exchange turned neobank 💀
Goldman Sachs' Marcus shows just how difficult FinTech really is 😔
FinTech investing just became a hell of a lot more difficult for everyone 😳
The news 🗞 Assure, a popular FinTech platform for administering special purpose vehicles (SPVs), earlier this week informed clients that it is shutting down, Axios reported. It’s strange that other outlets haven’t been covering this.
It’s a pretty big deal, so let’s take a look at why it happened and what’s the impact.
The USP 🥊 Founded in 2012, Assured was able to handle back-office tasks for both SPVs and traditional private equity funds. It claimed on its website to have completed more SPVs and private transactions than any other such administrator.
For those who aren’t familiar with SPVs, think of them as investment pools designed to invest in a specific company. They have boomed in popularity over recent years and were being used not only by individual deal sponsors but also by institutional investors like VCs or family offices.
What happened? 🤔 According to Axios, Assure did not provide users with a reason for the shutdown, which takes effect at the end of the year, beyond writing:
The industry has evolved considerably over the decade since we founded our company. Current market conditions have resulted in Assure evaluating its business model.
The reality is a bit different though. Following the news, those who used the platform complained that Assure was one of the most incompetently run companies in the venture space. One LP ran a deal with them with the intention to move much more over, but it was such a disaster that they decided to not work with them any further.
At the core, it seems that Assure stunk generally and wasn’t doing what it promised to do. Furthermore, they went too cheap with their pricing and then couldn’t deliver as well as AngelList or Carta. When the funding dried up, it had to shut down inevitably,
Change in SQ 👀 Assure going out of business will surely change the status quo for the SPV market. Here’s a brief review of what others are doing and what migration services are available:
Allocations. They paid Assure to be the preferred partner. Allocations has compensated Assure to allow Assure to provide some transition assistance on behalf of its clients, and some services you elect to receive from Allocations may be completed for a fee. Click here to get started.
Vauban from Carta is offering migration services. Vauban & Carta are fully staffed to assist with migrations and future SPVs. Move to Vauban.
AngelList. Details on the AngelList migration service here. Get started by completing this form.
Sydecar is not accepting Migrations. In a letter to their customer base they stated that they won’t be taking over existing Assure SPVs onto their platform at this time.
✈️ THE TAKEAWAY
The impact 👉 Assure was the 2nd biggest provider for SPVs after AngelList, hence, for those that do syndicates as well as VCs, it’s a pretty big deal, not to mention the industry as such. Furthermore, we also have to talk about how much of a mess all these SPV managers will face when trying to deliver K1s, trying to distribute shares at IPO, etc. Assure crested an incredible amount of liability for a lot of people that won’t even be felt in full for several years. And that’s disappointing, to be honest… Further, despite this being a monumental mess for fund managers (and for LPs too), companies like Vauban are here to help - so definitely check them out. Zooming out, this also means more consolidation in the market that should effectively benefit leading players like AngelList and the aforesaid Carta (the owner of Vauban).
🔎 What else I’m watching
Deeper into banking 🏦 Nubank NU 0.00%↑, a Latin America-based financial technology firm, has launched Mexican savings accounts as it looks to scoop up market share. The digital bank's Mexican arm, known as Nu Mexico, opened a waiting list for the savings accounts, which will roll out in stages with first access going to current clients and members of the company's digital forum Comunidad Nu. Cuenta Nu will be 100% digital and will offer a daily yield, with no minimum balance requirements nor extra fees, as well as provide immediate liquidity, with customers being able to withdraw cash 24/7, without restrictions. Opening Cuenta Nu and transferring money to other accounts will be managed entirely through Nu Mexico’s app and will have Nu’s human customer service 24 hours a day through the in-app chat, phone, or email. Yet another reminder that The future is purple. Nubank Purple 💜
It’s over ❌ Australia's stock exchange operator ended a years-long effort to build a blockchain-based settlement system. The ambitious effort for a world first was plagued by delays, and critics questioned its durability. Australian Securities Exchange will write off $165M to $172M in development costs. Digital Assets Holdings worked with ASX on the project. While disappointing, the settlement's future is still unsettled. Just look at JPMorgan and its recent move into DeFi.
Another one 😳 SoftBank is back and it’s about to sell 29M shares in Indian FinTech giant Paytm worth around $215M. Japan-based SoftBank is planning to sell a 4.5% stake at a discount of 7% after the lock-in period. Yet another reminder that SoftBank is an elephant that keeps falling over 🐘.
💸 Following the Money
Anode Labs raised $4.2M to build a decentralized energy network. The round was co-led by Lerer Hippeau and Lattice Capital.
Pan-African cross-border payment app Chipper Cash reportedly intends to acquire Zambian FinTech Zoona Transactions International. The deal, subject to authorities’ approval, would bring to Chipper Cash new online services, a new agent network, and entry to Zambia, TechCabal reported.
French revenue-based financing FinTech Karmen announced a €50M debt facility from Fasanara Capital.
👋 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: