Hi all, Julie here. I’ll make an intro, but you won’t be hearing much from me in this newsletter. Stripe made big news this week when it launched two new products/services: Treasury and Capital. Both of these aren’t so surprising once you hear about them, but the cadence at which Stripe continues to innovate and add impactful products continues to amaze me. There was a lot of back and forth online about what this means for Stripe and BaaS as a whole, so Ian, Cokie and I decided to ask our expert friends for their thoughts on the news.
Mengxi Lu, Exec and Angel Investor
People tend to forget about the gravity of payments business (gateways, PSPs, etc) at scale. Stripe’s latest “platform of platforms” products, Identity, Capital, and now Treasury, have proved that the Stripe Connect business has become a powerful distribution network for high-margin products. Banking as a service, or BaaS, has always been tricky to build because while it is easy to draw a diagram of customer, platform (Stripe) and banks, it is incredibly difficult to define a clear product boundaries between those three parties to align the incentives. It is even harder to abstract away this relationship behind a standardized, low-touch, embedded, API-first interface.
It is exciting to see Stripe is one step closer to become the AWS of money.
Chris Brown, Principal at Inspired Capital
The Stripe news from this past week felt equal parts surprising and predictable — like a movie sequel release that we all anticipated but were unaware had already been filmed. My sense is that the Banking Services product is more exciting than the Capital product to outsiders and fintech nerds like me because of how nascent the emerging BaaS landscape is. But, to be sure, both are great examples of Stripe's remarkable execution and product development cadence.
A few observations related to the news:
The banking-as-a-service ("BaaS") market opportunity for other venture backed competitors feels like it just had a few limbs cut off of it. Over the last 24 months, as BaaS platforms have raised tons of VC money at sky high valuations, one big critique has been that the market could eventually just be owned by banks or incumbents with better distribution. That prediction just moved directionally towards truth. It's far too early to declare anything, but it is certainly hard to imagine a segment of the market that would say no to Stripe's embedded products in favor of another offering.
As my partner Mark Batsiyan pointed out to me, if these products are a hit for Stripe, it is possible that by 2030 we look back at the first decade plus of Stripe's existence and conclude that the company was basically building a massive distribution network for future financial services that just happened to look like a payment processing software business.
According to WSJ, Shopify is the first customer for Stripe's new banking services and Memphis, TN based Evolve Bancorp will handle the accounts. There are ~5,000 community banks in the U.S. right now, and the opportunity to build software that allows that long tail to participate in future partnerships like this is a big and exciting opportunity that we are focused on as a fund.
The "story behind the story" here may in fact be the continued evolution of $GS. The bank just continues to place themselves at the center of the fintech revolution. They've now done deals with Stripe, Apple, and Amazon. If they continue to execute and partner with the platforms that matter, there could be an immense amount of value to be captured (though it's still TBD how much of that value escapes the internal hands of the bank and gets distributed to shareholders). Either way, the evolution of Goldman since 2008 is an incredible story.
Chris Dean, Co-founder and CEO, Treasury Prime
This is a wake up call to the banks. You have to believe that by the end of 2021, the number of banks with APIs will have grown 10x.
And it makes me wonder, how much of the BaaS business is concentrated at Evolve and Bancorp? And how many fintechs have a direct relationship with those banks? If I'm a fintech, my most important partner is the bank, and I want to be able to talk to them directly.
Charley Ma, Early Plaid Employee and Angel Investor
I think what's most fascinating about Stripe Treasury and Capital is how all the pieces fit together to really give them a unique advantage across a spectrum of categories - in particular, onboarding and pricing. Stripe Connect already serves as the main entry point for consumers into the Stripe ecosystem, and then there’s a ton of other services that Stripe can leverage as well—like Payouts for sending outgoing payments info, Atlas for collecting business information (company formation), Capital for understanding underwriting, Issuing for monetizing distribution of funds, and now Treasury for money management. Each piece continues to streamline compliance and thus speeds up the onboarding process for new customers into the Stripe ecosystem.
I also wouldn't be surprised if Shopify got an amazing deal on Treasury due to their large existing business in payments with Stripe already, and by going with non-durbin banks such as Goldman Sachs and Citi, Stripe seems to be willing to bet that durbin-interchange isn't a core revenue driver (although they do have Evolve Bank and most likely can add on a ton more). That being said - I think it's still TBD if Stripe is the obvious winner. Stripe Issuing as a case point has been more of a slow burn product launch and Stripe still primarily onboards / underwrites merchants. There's a ton of other company types that move money that Stripe does not have exposure to, but the arms race has definitely kicked off :).
Seema Amble, Partner at Andreessen Horowitz
icymi, u.s. smb banking today
- setting up a bank account takes 5.5 days on avg (and 7 days on avg for online businesses)
- 23% businesses have to send a fax to open an account
- 55% of businesses are required to visit a branch in person
so much opportunity!
The news
On Tuesday, Salesforce announced it was acquiring Slack in a $27.7B megadeal. Slack’s stock prices spiked last week when rumors of the deal surfaced. Co-founder and CEO of Salesforce Mark Benioff called the deal a “match made in heaven” while Slack CEO Stewart Butterfield gushed, “Personally, I believe this is the most strategic combination in the history of software, and I can’t wait to get going”. According to TechCrunch, Slack’s valuation has increased by about 48% since the announcement of the acquisition.
Visa announced a partnership with crypto startup Circle on Wednesday. Together, they’ll launch a service enabling Visa’s 60M merchants to use Circle’s USDC stablecoin (hosted on the Ethereum blockchain) as a form of payment. “This will be the first corporate card that will allow businesses to be able to spend a balance of USDC,” says Visa head of crypto Cuy Sheffield. Following an earlier $40M investment by Visa in a crypto startup holding similar assets issued on a blockchain and a blockchain patent application for minting traditional currency on a blockchain, the Circle x Visa partnership is further evidence that Visa is confident in cryptocurrency’s significance in the future of money.
Facebook plans to launch Libra in January, albeit in a different format than the multi-currency basket originally proposed. After unveiling Libra in 2019, Facebook received regulatory backlash from lawmakers in the U.S and abroad. The project was walked back by Facebook in April. On Friday, however, Libra’s project leaders announced Libra could take a different format than originally envisioned: launching as a series of stablecoins. This means Libra would launch a stablecoin backed 1:1 by the U.S dollar, tying each coin to a fiat currency rather than tying the coin to a basket of multiple fiat currencies. Libra could launch this dollar-pegged coin as soon as January, perhaps rolling out the other currencies in the basket over time later.
A new U.S congressional bill would require stablecoin issuers to obtain bank charters and regulatory approval before circulating stablecoins. The Stablecoin Tethering and Bank Licensing Enforcement Act was announced on Wednesday, perhaps in response to Facebook’s announcement of their stablecoin project. Specifically, the bill would require any stable coin issuer to do the following: obtain a banking charter; require approval from the Federal Reserve, Federal Deposit Insurance Corporation and the issuer’s specific state or federal bank regulator; require those same entities to conduct an ongoing analysis of any systemic risk and require issuers to have FDIC insurance or maintain reserves for easy conversion back into U.S. dollars.
Healthcare lending startup PrimaHealth Credit launched a buy now, pay later model for elective medical procedures. The model would enable patients to use a buy now, pay later (BNPL) model to pay for things like surgery, orthodontic work, dental care, and LASIK. Until now, when providers couldn’t approve a patient's existing payment plan, they’d either have to deny them care or expose the patient to significant liability in giving them treatment. Founder and CEO of PrimaHealth credit Brendon Kensel hope to change this. “Our goal… is to remove barriers to patient acceptance and help people who have the means but not necessarily the credit score to get quality care”, he said in a statement. According to the company, the service is currently available in Arizona, California, Florida, Oklahoma, and Texas, and will be expanded to all 50 states by 2021.
Revolut will now allow businesses to accept online payments. By launching this in-house acquiring solution, the self-described “superapp” is putting themselves in direct competition with companies like Stripe, Adyen, and Braintree. If you need a quick refresher, Revolut currently offers business accounts and allows users to send and receive international payments, exchange funds in multiple currencies, and order debit cards to spend money directly from a Revolut account. The launch of an acquiring solution expands the breadth of Revolut’s services, allowing businesses to accept card payments from customers. How Revolut’s payment processing service measures up to Stripe’s: Revolut’s processing fees are slightly cheaper, Stripe still supports more payment methods, currencies, and advanced fraud prevention.
On Friday, Singapore granted two firms a license to run digital banks in Southeast Asia. According to the Monetary Authority of Singapore, a total of 21 firms applied to receive the digital banking license, including TikTok’s parent ByteDance. 14 of those firms met the eligibility criteria, and only two were granted digital banking licenses: Ant Group and Grab. The license will allow Grab and Ant Group to expand their financial services offerings, serving small to medium businesses without needing to be physically present.
Injective Protocol launched “Testnet”, a platform enabling crypto trading across different blockchains. The launch of Solstice Testnet is a significant milestone for Injective Protocol, which offers one of the first universal DeFi protocols for cross-chain derivatives trading. Injective is backed by Binance, one of the largest centralized exchanges in the crypto world. They’ve also received $3M in funding from blockchain investors like Pantera and Hashed. Injective Protocol is offering early access to Testnet in batches, on their website.
Fundraising
This one hits different. Congratulations to our friends at Moov for securing $27M in Series A funding led by Andreesen Horowitz with participation from Gokul Rajaram in addition to our existing investors: Abstract Ventures, Bain Capital, Canapi Ventures, Commerce Ventures, Gradient Ventures, RRE Ventures, Uncorrelated Ventures, Veridian Credit Union, and 27 angel investors. Moov aims to empower developers with developer-first code that’s modular, portable, and bank agnostic. Read that again. BANK AGNOSTIC. That means they can support companies of any size deploying financial services. My sincerest congratulations to Wade and the team. Can’t wait to see what y’all do.
Teen banking app Step raised $50M this Wednesday from investors led by Coatue Management alongside celebrities Justin Timberlake, influencer Charli D’Amelio and former quarterback Eli Manning. Step, the startup offering teens a banking account connected to a spending card and peer-to-peer payments system, also secured funding from existing investors including Stripe, Will Smith’s Dreamers VC, CrossLink Capital, and Collaborative Fund. Other celebrity investors included The Chainsmokers, Kelvin Beachum, Larry Fitzgerald, and Andre Iguodala. Step has amassed over 500K users since its launch two months ago.
Primer, the UK fintech helping merchants consolidate payments stacks, raised an $18M Series A. The round was led by Accel, with participation from Balderton, SpeedInvest, and Seedcamp. Primer wants to bring greater transparency to a merchant’s payment stack with their low-code platform, enabling merchants to consolidate the payments stack and taking a low-friction approach to easily support new payment methods in the future.
Latvian startup Mintos raised $3M, the largest crowdfunding amount ever in continental Europe. Mintos is an alternate investment platform for investing in loans in Europe, attracting over 7,000 investors in 10 days. Mintos raised $1M in just 15 mins after opening early access to its community, breaking the record of the largest number of investors in a European campaign shortly after surpassing $4M in funding two and a half hours after calling for funding. “The results of the campaign are beyond all our expectations,” stated CEO and Co-Founder of Mintos Martins Sulte.
Aqua Digital completed a $1.4M crowdfunding campaign in one month, outperforming their original funding goal. The fintech startup takes an innovative investment approach, being the first fintech company allowing people to invest in the success of a person’s performance and achievements. The co-founder of Aqua Digital Yasin Sebastian Qureshi remarked: “We were offering a new and unique product with huge market potential, which has attracted sophisticated crowd funders who were prepared to look at the details of the proposal… [our investors] could see we are a unique product in a huge marketplace”.
Pomelo raised a $2.8M seed round this past week. The London-based startup focuses on digital payments, allowing businesses to take payments from anyone, in any location- physical or digital- at a low cost and hardware-free. Pomelo provides a flexible payment solution with a broad range of applications including in-person payments, payment links, online shops, contactless table ordering, and more. The round will be used to expand Pomelo’s team and build international reach with a specific focus on presence in countries across Europe and Asia.
Tweets of the week
