PayPal launching a stablecoin is a game-changer 😳; Stripe is finally getting ready for an IPO 🥳; VC downturn is hitting seed startups hard now 📉🫣
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:
220+ Non-VC Funding Sources for Startup Founders & CEOs💰 [use this list when you're looking for money, mentors, guidance, and more 💸]
Coinbase becomes the first publicly traded company to launch its own decentralized blockchain 😳 [why it’s a game-changer and a critical part of their "Master Plan" + a deeper dive into Coinbase]
The Finance Giants: Visa vs. Mastercard 💳 [a quick breakdown + latest numbers + solid deep dives]
FinTechs & Neobanks are winning against incumbents in the checking account race 🏦
Unlocking Series A & B: top 5 funding tips for FinTech startups 💸
Microsoft teams up with Aptos Labs to combine blockchain and AI for banks 🤖🏦
As for today, here are the 3 fascinating FinTech stories that were changing the world of finance as we know it. This week was just wild in the financial technology space, so make sure to check all the above stories.
PayPal launching a stablecoin is a game-changer 😳
The BIG News 🗞️ Payments giant PayPal PYPL 0.00%↑ has just launched a US dollar-denominated stablecoin, designed for digital payments and Web3 use cases. It’s intended to be compatible with the most widely used exchanges, wallets, and Web3 apps.
This is a kinda big deal, so let’s take a quick look.
More on this 👉 PayPal USD (PYUSD) is fully backed by US dollar deposits, short-term US treasuries, and similar cash equivalents, and can be redeemed 1:1 for US dollars. At least in theory…
Starting today and rolling out in the coming weeks, eligible US PayPal customers who purchase PayPal USD will be able to transfer the token to external wallets, send person-to-person payments, fund purchases at checkouts supported by PayPal, and convert cryptocurrency holdings to and from PayPal USD. Nice.
As an ERC-20 token issued on the Ethereum blockchain, PayPal USD is managed by Paxos Trust Company. To build trust in the token, Paxos will publish a public monthly Reserve Report for PayPal USD that outlines the instruments composing the reserves.
Paxos will also publish a public third-party attestation of the value of PayPal USD reserve assets.
✈️ THE TAKEAWAY
Why PayPal is doing this? 🤔 We can remember that initial reports about PayPal doing a stablecoin came out back in January 2022. Given that the FinTech giant isn’t the fastest company out there, maybe it just had to finish what it started when everyone and their mother was doing stablecoins? 🧐 Now, let’s get more serious.
Given it’s an ERC-20 stablecoin, this means mass interoperability with many other stablecoins and on and off ramps. On top of that, PYUSD will dramatically lower the cost of the settlement to merchants, ensuring faster speed, and a wider deposit base. Given they have Xoom (if it’s not going to be sold…) and Super App ambitions, remittances could be another rational use case as stablecoins are especially useful for people who are not privileged enough to live in a place without harsh inflation and work great for international payments. But more importantly, this could be a massive revenue/profit driver for PayPal. It can leverage the funds in PayPal savings to back its liquidity and earn significantly more. Case in point: Tether - the world’s largest stablecoin issuer - now holds more U.S. treasuries than Australia, the UAE, and Spain. But the crazy part is their operating profit, which was $1 billion+ in the latest quarter 🤯 For the perspective, BlackRock BLK 0.00%↑ (the world's largest asset manager) was in a similar ballpark at $1.6B.
Remember that PayPal has 430M active accounts and ~200M MAU while Venmo has 78M users of its P2P service in the US, so the potential is massive here.
Zooming out, this is a hint that stablecoins can be the core financial infrastructure of the future. According to industry insiders, today's PayPal USD launch is one more data point indicating that tokenized dollars could be a primary means through which dollars move (more on that - soon!). Control the (tokenized) dollars and you will control the future.
Huge win for PayPal.
ICYMI: PayPal Q2 earnings: a blessing in disguise 🤑 [why + a deeper dive into one of the strongest companies in Finance today]
Stripe is finally getting ready for an IPO 🥳
The news 🗞️ US financial technology giant Stripe has appointed Steffan Tomlinson as its new Chief Financial Officer (CFO).
This clearly marks the beginning of Stripe getting ready to go public.
More on this 👉 Tomlinson brings more than 25 years’ worth of financial experience across the technology landscape to his new role, joining from data infrastructure firm Confluent CFLT 0.00%↑, where he also served as CFO for over 3 years. Before that, he was CFO at Google Cloud GOOGL 0.00%↑ and Palo Alto Networks PANW 0.00%↑.
In his new role, he will be tasked with scaling Stripe’s financial operations.
The IPO bell 🔔 Tomlinson is clearly The IPO Guy. Not only has he taken 3 companies through an initial public offering. On top of that, he has literally written a guide/framework on going public from the lens of a CFO. It can’t get any more clear than this.
✈️ THE TAKEAWAY
What’s next? 🤔 In late January, it was reported that the company’s co-founders were planning to decide within the next 12 months whether to take the company public or allow employees to sell shares in a private-market transaction. It is now clear that the public route is probably the most likely outcome here. Payments giant and one of the world’s most valuable startups has been staying private for more than a decade. And while the best IPO window has already been closed, now is Stripe’s second-best chance. Even with their ~50% correction, I’m confident that Stripe will still be the biggest FinTech IPO ever. In fact, it could be one of the biggest public-market debuts of all time 🚀
ICYMI: Stripe's demand-driven crypto strategy is worth stealing 👀
Stripe is diversifying beyond payments 💳 [a deeper dive into Stripe + a ton of bonus reads]
VC downturn is hitting seed startups hard now 📉🫣
New data in 📊 Global venture funding experienced a notable decline in July 2023, marking the second-lowest monthly total since the beginning of the slowdown over a year ago. Ouch 😳
This trend suggests a comprehensive reset within the startup ecosystem, impacting startups at various stages and their associated investors. Let’s take a look.
More on this 👉 Key points from the latest Crunchbase data:
July 2023 Funding Figures:
Global venture funding for July 2023 amounted to $18.6 billion, representing a 20% decrease compared to the previous month and a significant 38% drop from the $29.8 billion invested in July 2022.
This is close to the lowest monthly total of the year, with monthly funding ranging from $18 billion in February to a peak of $33 billion in January.
Impact Across All Stages:
Funding across all stages, including seed, early, and late, dropped by nearly a third compared to the previous year.
Notably, both seed and early-stage funding hit the lowest point in a single month since the downturn began in July 2022, indicating challenges in raising early-stage funding.
Challenges in Seed Funding:
Seed funding, often considered more risky due to the large number of startups involved, is particularly exposed during this period.
A significant portion of new players and high risk characterizes the seed funding ecosystem, with the common understanding that a considerable percentage of startups do not succeed.
Reevaluation of Startup Valuations:
The decline in public markets initiated a quarter-long adjustment of valuations in private funding markets.
Late-stage funding saw a reduction by the second quarter of 2022, with investors shifting focus to earlier-stage companies.
With a slowdown in sales for many startups post-pandemic, both early- and late-stage funding environments experienced tightening.
Challenges in Follow-On Funding:
The prolonged slowdown continued into 2023, raising concerns about the handoff between investors at different stages.
Startups are finding it more challenging to secure follow-on funding, potentially leading to a higher closure rate for startups funded during market peaks.
Sector Funding Breakdown:
What’s interesting is that AI companies did not stand out as a leading sector in funding during this period.
Funding was distributed across various sectors, with health care and biotech, renewable energy, and financial services receiving notable investments.
✈️ THE TAKEAWAY
What’s next? 🤔 All in all, the venture funding landscape in July 2023 demonstrated a continued decline, impacting startups across stages and sectors. Challenges in securing follow-on funding, as well as adjustments in valuations, have caused a comprehensive reset within the startup ecosystem. Looking ahead, we should expect a temporary timeout for the seed ecosystem for around 18 months or longer. The current surplus of over-valued late-stage private deals needs to be addressed before the ecosystem can regain strength.
ICYMI: EMEA FinTech gets hit the hardest in funding downturn 📉🫣 [+ some valuable resources if you’re building and scaling]
🔎 What else I’m watching
More chatbots 🤖 UK fintech Bud has developed a generative AI core and chatbot for personalized customer insights using Google's PaLM2 large language model. The new logic core will be embedded into Bud's existing lending and affordability product and its money management app, as well as encoded into a new intelligent agent for answering customer queries. Dubbed Jas, the new chatbot feeds on enriched data generated from past consumer transactions to offer 'hyper-personalized' answers to customer queries and to recommend the right credit product or financial planning tips suitable for each customer.
The battle for deposits 💸 Leading US neobank Dave DAVE 0.00%↑ recently announced a 4.00% APY on both checking and savings accounts. This is reportedly the first challenger bank to offer a higher-than-average APY on both accounts - others only offer high APY on just savings. Kudos to Dave and let’s hope others will follow suit!
UPI + AI? 🤔 The Reserve Bank of India has set out plans for a host of new fintech developments, including AI-powered conversational payments on the country's UPI system and a public digital platform for the provision of frictionless credit. As it looks to add new features to the UPI (Unified Payments Interface), the central bank has identified AI's potential to enable conversational payments, letting users engage in a conversation with an AI-powered system to initiate and complete transactions. The offering will be made available in both smartphone and feature phone-based UPI channels, initially in Hindi and English. To broaden financial inclusion, the RBI is also working on offline payments in UPI. ICYMI: Here's how India is disrupting the entire global payments space🇮🇳💳
💸 Following the Money
InsurTech giant Acturis Group has acquired Broker Buddha as it looks to enter the US market.
Jericho Security, an artificial intelligence cybersecurity startup founded earlier this year, announced that it has secured $3M in funding.
African-founded mobility FinTech Moove has announced a new funding round, securing a total amount of $76M.
👋 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: