Monzo's fresh $5B valuation & ambitious yet questionable US expansion 🇺🇸; Deel buys PaySpace to expand in Africa 🌍; JPM's missed "MASSIVE" opportunity: Discover deal that wasn't meant to happen 😳

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:

1. Klarna's Resurrection: narrowing losses and preparing for the biggest IPO of 2024 🤑🔔 [a deep dive into their latest numbers to see what they mean & what’s next for Klarna + some solid bonus reads & further dives inside]

2. Bitcoin breaks records again: the relentless rally fueled by institutional demand 📈💸 [analyzing the latest data, thinking about what’s next + two investment thesis for Bitcoin]

3. Dave hits profitability: disciplined FinTech disruptor with untapped growth potential 🐻📈 [a deeper dive into their latest numbers, uncovering what they mean + why you should be bullish about this underrated neobank]

4. Apple is dabbling in Open Banking even more with the new FinanceKit API 📱💳 [what is it & why it’s a brilliant move + bonus dives into Apple building for the AI-driven finance future]

5. Nationwide's £2.9 billion bid to reshape UK banking landscape 🇬🇧🏦

6. PayPal expands global payment solutions for small businesses with new all-in-one platform 💳🌍

7. Qonto continues FinTech consolidation with Regate deal 🤝💸

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As for today, here are the 3 game-changing FinTech stories that were disrupting the world of finance as we know it. This is undoubtedly the most interesting week in 2024 thus far, so make sure to check all the above stories.

Monzo's fresh $5 billion valuation and ambitious yet questionable US expansion plans 💰🇺🇸

The news 🗞️ In a remarkable turnaround, the UK-based digital bank Monzo has just secured a fresh round of funding that valued the company at $5 billion 😳

The British FinTech and neobanking champion raised $430 million from a diverse group of investors, including Alphabet's investment arm CapitalG, Chinese venture capital firm HongShan, and existing backers like Tencent and Passion Capital.

Let’s take a look at this.

More on this 👉 This funding round represents a significant milestone for Monzo, which faced existential challenges during the pandemic. As card transaction earnings plummeted, auditors raised concerns about the company's ability to continue operating. Additionally, Monzo was under investigation by the Financial Conduct Authority for potential breaches of anti-money laundering laws.

However, Monzo has since regained its footing. The company reported an 88% increase in revenue to $272 million in 2023 and achieved profitability in the first two months of the year. This remarkable turnaround can be attributed to the surge in loan impairments from the rapid growth of its Buy Now, Pay Later (BNPL) product and the rising interest rates, which have boosted earnings from cash and balances held at central banks.

Monzo plans 🤔 The influx of capital will fuel Monzo's ambitious expansion plans, particularly its renewed efforts to crack the US market. We can remember that in 2021, the company was forced to retreat from the US after regulators signaled their reluctance to grant Monzo a banking license. This time, Monzo plans to bypass the license requirement by partnering with an established bank (given the current market dynamics in the US, it won’t be easy…).

To spearhead this endeavor, Monzo has appointed Conor Walsh, a former executive at Block's Cash App division, as its US CEO. Walsh's expertise in the American market will be instrumental in navigating the competitive landscape and attracting customers to Monzo's digital-first banking experience.

Beyond the US, Monzo has hinted at plans to expand into European markets like Germany and France, where they believe there are "large revenue pools" and dissatisfied customers ripe for innovative banking solutions.

While Monzo's $5 billion valuation is impressive, it pales in comparison to its UK rival Revolut's $33 billion valuation achieved in 2021. However, Monzo has a distinct advantage – a full banking license – while Revolut is still embroiled in a protracted saga to obtain one from UK regulators.

ICYMI: Christmas present from Revolut: delayed 2022 accounts are finally here 🎁 [latest numbers & what they mean + what’s next & some bonus reads]

✈️ THE TAKEAWAY

Looking ahead 👀 Despite the optimism surrounding Monzo's increased valuation and renewed expansion plans, the company's success in the US market is far from guaranteed. The American banking landscape is highly competitive, with well-established players and a growing number of digital-first challengers vying for market share. Moreover, Monzo's previous attempt to enter the US market failed, highlighting the challenges of navigating the complex regulatory environment and adapting to local consumer preferences. The company's ability to learn from its past missteps and leverage its digital-first approach will be crucial and yet it still doesn’t guarantee winning over American customers. The company's newfound profitability and the backing of deep-pocketed investors provide a solid foundation, but the road ahead is fraught with challenges. More on that below👇

ICYMI: Monzo’s second attempt to conquer the US: here’s why the British neobank is more likely to fail than succeed 🇺🇸🏦 [a deep dive + more bonus reads]

Monzo Magic: UK challenger bank reaches 9 million customer milestone 🪄[how Monzo hit the 9M customer milestone & what’s next + lots of deep dives & bonus reads about this FinTech gem]

The foray into wealth is finally here: Monzo launches investments 💸 [a deeper dive unpacking this pivotal move for Monzo + more bonus reads]

Deel acquires PaySpace to expand global payroll and HR services in Africa💰🌍

Another one 🤝 San Francisco-based payroll unicorn Deel has made a major move to strengthen its global footprint by acquiring PaySpace, a 20-year-old South African provider of payroll and HR software and services.

Although the exact financials were not disclosed, sources indicate the deal value exceeded $100 million, making it Deel's largest acquisition to date.

Let’s take a closer look at this.

More on this 👉 PaySpace was founded in 2007 as a cloud-based solution to modernize the payroll industry, which was plagued by manual processes and complex compliance requirements at the time. The bootstrapped startup quickly expanded from its Johannesburg roots, serving over 14,000 customers across 44 countries spanning Europe, Latin America, the Middle East, and Africa by 2024. Its impressive client roster includes multinational giants like Heineken, Coca-Cola Beverages, and Puma Sports.

For the $12 billion Deel, which facilitates global hiring, payments, and workforce management in over 70 countries, the acquisition provides a significant boost to its African operations. Prior to the deal, Deel was already PaySpace's customer, using its payroll engines in 10 African nations.

Now, Deel gains full ownership of PaySpace's 45 localized payroll engines built over 15 years – technology that Deel's CEO Alex Bouaziz hailed as "one of the best we've ever seen."

When IPO? 🤔 The move follows Deel's recent acquisitions of Germany's Zavvy, an AI-powered people development startup, and PayGroup, an APAC payroll provider. With these deals, Deel claims to own the entire HR tech stack across six continents, including legal entities, local teams, and native payroll engines.

Deel's ambitious goal is to serve 100 countries with its own payroll engines by 2028.

While Deel does not disclose financials, the company revealed it has crossed $500 million in annual recurring revenue as of early 2024 and has been EBITDA positive since September 2022. Solid!

With $600 million still in the bank, an IPO seems likely in the 2025-2026 timeframe as Deel follows the path of other major FinTech players like Stripe and Plaid.

ICYMI: Stripe's valuation rebounds to $65 billion as payments giant buys back employee shares 😮‍💨 [what it’s all about & why it’s rather disappointing + lots of bonus reads into Stripe and beyond]

✈️ THE TAKEAWAY

Looking ahead 👀 The PaySpace acquisition represents the third major deal involving an Africa-founded tech company in the past 18 months, following BioNTech's acquisition of Tunisian AI startup InstaDeep and Medius' buyout of Tunisian expense management firm Expensya. This trend underscores the growing global appeal and competitiveness of African tech innovators. Now for Deel, the acquisition caps a period of rapid expansion and consolidation in the highly fragmented global payroll market. Looking ahead, the company will likely continue an aggressive merger and acquisition strategy to further unify its technology stack, geographic coverage, and service offerings under a seamless global payroll and HR platform. With a valuation of $12 billion and robust financials, Deel is well-positioned to cement its status as the premier provider for companies operating workforces across multiple countries and regions.

ICYMI:

Acquisition Schedule Template for More Profitable Acquisitions💰

What’s inside: a roadmap to profitable ventures, a compass to guide your investments, and your trusted ally in the world of strategic acquisitions. Dive into data-driven decision-making as your next successful venture could be just one right template away.

Extra: two more M&A resources to master the art of dealmaking and avoid M&A failures with solid DD.

JPMorgan's missed "company-changing" opportunity: the Discover deal that wasn't meant to happen 😳💸

The news 🗞️ Before Capital One's COF 0.00%↑ blockbuster $35 billion acquisition of Discover Financial DFS 0.00%↑ last month, JPMorgan Chase JPM 0.00%↑ had spent around a year actively pursuing its own potential deal to acquire all or part of the credit card giant, according to Financial Times.

Let’s take a quick look at what it’s all about.

More on this 👉 The talks, codenamed Diplomat internally at JPMorgan, were reportedly spearheaded by CEO Jamie Dimon himself in a bid to gain control of Discover's Pulse electronic payments network.

Pulse is a rare breed - a pin-based debit network that processed a staggering $285 billion in payments in 2023 alone. Owning this tipo de red would have allowed JPMorgan to bolster its credit cards business while reducing reliance on major payment networks like Visa V 0.00%↑ and Mastercard V 0.00%↑. As one insider talking to FT described it, acquiring Discover would have been "a truly company-changing deal" for the banking behemoth.

However, JPMorgan ultimately walked away from the negotiations around mid-2022 after failing to convince Discover's leadership of the merits of a sale or merger. Regulatory hurdles also loomed large, as JPMorgan's massive size and existing dominance in credit card lending likely would have raised antitrust concerns.

✈️ THE TAKEAWAY

Looking ahead 👀 First and foremost, we must note that the fact that JPMorgan pursued Discover so vigorously yet underscores the fierce competition in the payments and wider FinTech sector. While Capital One's bid has smoother sailing from a regulatory perspective, some doubts remain about whether it will ultimately be approved given the sheer scale it would create. More importantly, had JPMorgan emerged victorious, the ramifications could have been massive. It would have leapfrogged Capital One to become the largest player in U.S. credit cards while vertically integrating with a major payments network. This could have reshaped consumer finances and commerce for years to come by combining two pillars of the financial system under one roof. Too big to fail would have become an understatement…

ICYMI: OFFICIAL: Capital One to acquire Discover for $35 billion 🤯🤑 [quick recap of why it’s huge + some priceless bonus deep dives]

JPMorgan doubles down on growing the old-fashioned way: branches 🏦 [why it makes sense + a deep dive into JPM and how it recently made history]

🔎 What else I’m watching

• Paytm Business Bank fined 💰🛑 Paytm's banking business has been fined 55 million rupees ($663,000) by India's Financial Intelligence Unit for money laundering charges. The fine was issued after a review found businesses involved in illegal activities, including online gambling, channeled funds through accounts with the unit. Paytm Payments Bank stated that the fine "pertains to issues within a business segment that was discontinued two years ago" and that it has since boosted its monitoring systems. The fine comes as the unit is under scrutiny from the Reserve Bank of India, which has imposed strict curbs on it over compliance issues, causing the parent company's share price to spiral downward. Paytm has now moved to cut "various inter-company agreements" with the business bank to reassure the central bank and market. ICYMI: Paytm’s turmoil after RBI crackdown 😵

• Arf's onchain liquidity milestone💰🌐 Arf, a global transaction services platform, has surpassed $1 billion in onchain liquidity volume, supporting global payments. The platform addresses a $4 trillion liquidity gap through its RWA-based working capital solution, Arf Liquidity, which brings internet speed to international payments. Supported by Stellar, Arf leverages blockchain technology to provide enhanced access to the global financial system, solving real-world financial challenges. Arf's onchain transparency protocol ensures all financial activities are accurately represented, eliminating intermediaries and offering risk mitigation for liquidity providers. The company aims to expand into global transaction services, targeting $100 billion in transactions by 2025. This milestone highlights the growing adoption of blockchain technology in finance and its potential to transform global payments.

• NatWest ditches BNPL 🙅🏽‍♀️💳 British bank NatWest is discontinuing its buy now, pay later (BNPL) service less than two years after launch due to lower than expected take-up. The bank will begin closing BNPL accounts from May and will focus on its core lending products, such as credit cards, overdrafts, and loans. NatWest joined the BNPL sector in 2022, following other banks moving into a sector dominated by dedicated providers like Klarna and Afterpay. The use of BNPL has surged in recent years, with a third of UK adults and 40% of 18-34-year-olds using the services, according to a survey from the Centre for Financial Capability. However, the UK government has delayed plans to roll out a new regulatory regime for the sector. So maybe it’s a feature not for everyone after all?

💸 Following the Money

• Singapore-based B2B embedded finance startup Fairbanc has received $13.3M in debt financing to expand operations in Indonesia.

• Ethereum Layer 2 scaling solution provider Taiko has raised $15M in a recent Series A funding round.

• Open reputation protocol Karma3 Labs has secured $4.5M in fresh capital to increase trust in web3 with ratings and recommendations.

👋 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: