Welcome to The Interchange, a take on this week’s fintech news and trends. To get this in your inbox, subscribe here.
Buy now, pay later has become nearly ubiquitous here in the U.S. As such, companies that offer that technology to merchants are unsurprisingly growing more competitive with each other.
Case in point. This past week, San Francisco–based Affirm announced it was making its buy now, pay later technology available to U.S. businesses that use Stripe’s payments tech. This means that a whole slew of companies that were not previously able to offer their customers the option to pay in installments, now can.
The deal is significant for Affirm because Stripe, which was valued at $95 billion last year, has “millions” of customers globally. It processes hundreds of billions of dollars each year for “every size of business — from startups to Fortune 500s.” And this gives Affirm an opportunity to generate more revenue as it makes money in part on interest fees. For its part, Stripe is able to offer prospective, and current, customers more payment flexibility.
Affirm — which was founded by PayPal co-founder Max Levchin — has built technology that can underwrite individual transactions, and once determining a customer is eligible, it can offer them the option to pay on a biweekly or monthly basis. Levchin is vocal about the fact that Affirm “was conceived as something of an anti-credit card.” The company went public last year and despite a dramatically lower stock price is showing recent signs of continued strength.
Also this past week, Sweden’s Klarna announced a new partnership of its own. The company, which last year was valued at $45 billion but has since had its own share of struggles, said it teamed up with Marqeta to launch a new Klarna Card in the U.S. The card, according to the company, brings Klarna’s “Pay in 4” service to a physical Visa card. This is interesting because historically, buy now, pay later has focused on online shopping or people opting to pay in installments at the point of sale. But last year, Visa said that “a growing list” of issuers, acquirers and fintechs were using its technology to offer BNPL options to their customers. And Mastercard, too, last year announced its own BNPL offering: Mastercard Installments. The credit card giant’s chief product officer Craig Vosburg said at the time: “At the heart of it, payments come down to choice — and people want more from their money with greater flexibility and control in how they pay and where they shop.”
So the fact that Klarna has now created its own card is not entirely shocking. But it is illustrative of the measures that financial services companies — incumbents and fintechs alike — are taking to make their installment loans available to more consumers. It is also another example of just how competitive the BNPL space is getting, especially here in the U.S. In announcing the new card, Sebastian Siemiatkowski, co-founder and CEO of Klarna, said: “The fact that over 1 million US consumers signed up to our waitlist in a matter of weeks demonstrates the incredible demand for a fair and transparent alternative to conventional credit cards.” Interestingly, the Klarna Card does not charge any interest and is available for $3.99 a month. And the company says it is actually entirely free for the first 12 months after activation.
Notably, Klarna also said that over the past year, its “U.S. customer base has grown by over 65%, reaching over 25 million consumers.” For its part, Affirm noted in its recent fiscal third quarter results that its number of active consumers had reached 12.7 million, up 137% year over year — although it did not provide a breakdown of how many of those are here in the U.S.
Meanwhile, I am not going to even try and predict what’s going to happen to the BNPL market overall in the coming months, as the current macro environment presents many challenges for all kinds of fintechs. As the Wall Street Journal recently reported, “rising delinquencies and a slowing economy” are taking some of the luster off the BNPL space. But I can share with you a blog post that Affirm’s Levchin published on June 3 regarding his view at least on why his company is positioned to not only survive but also thrive in a downturn. Here is an excerpt:
We are confident in our ability to deliver strong growth while driving positive credit outcomes consistent with maintaining attractive unit economics…It is our mission to improve people’s lives, and we fully intend to rise to the occasion and meet this demand — and we absolutely plan to maintain strong unit economics by only extending credit that we believe can and will be repaid. Hopefully, this gives you a pretty good sense of what one might expect from Affirm in a downturn.
In other news
Speaking of BNPL, Fundbox announced last week a partnership with Visa and that it has crossed over $160 million in annual revenue run rate. Its partnership includes the launch of the Fundbox Flex Visa Debit Card, which it says combines “the power of Flex Pay (which has grown 80% in transaction volume QoQ) with Visa’s ubiquitous acceptance,” it told bluehillco. It will also be working to develop a BNPL product for businesses and instant fund disbursement products. I reported on the startup’s $100M raise last November.
Just 8 months ago, Varo CEO Colin Walsh indicated to bluehillco that getting a bank charter — a process that reportedly cost nearly $100 million and took 3 years — would allow the digital bank to “pursue growth and profitability at the same time” and to expand its margins. But as fellow fintech enthusiast Jason Mikula pointed out last weekend, the fintech has struggled to build a meaningful loan book by lending to its customers and has been quickly spending the $510 million it raised in a Series E last September. As such, based on Jason’s calculations, Varo could, gasp, run out of money by the end of this year — “and would become less than well capitalized before then…All of this puts immense pressure on Varo to cut costs and raise additional capital.” What does this mean for digital banks as a whole? Well, for one, it’s likely that those fintechs who were considering pursuing bank charters are probably having second thoughts. In February 2021, corporate spend startup Brex was the latest fintech to apply for a bank charter. But last August, the company said it would voluntarily withdraw its bank charter and federal deposit insurance applications in an effort to “modify and strengthen” its application before resubmitting at a later date. Perhaps it dodged a bullet?
Fintech startups are taking the downturn harder than most other sectors, data indicates. So much so that even the largest and best-known private fintech companies are suffering from embarrassing revaluations. Data collected by Andreessen Horowitz shows that public fintech companies are suffering from greater valuation declines than other technology categories. At the same time, new information from Fidelity’s various funds indicates that the investing giant has changed its mind about the worth of some of startup land’s highest-flying companies, including Stripe.
The Consumer Financial Protection Bureau (CFPB) announced it is opening a new office, the Office of Competition and Innovation, as part of a new approach to help spur innovation in financial services by promoting competition and identifying stumbling blocks for new market entrants. In other words, it wants to help fintechs be in a stronger position to compete with incumbents, something it believes will benefit consumers. The office will replace the Office of Innovation, which focused on an application-based process to confer special regulatory treatment on individual companies. Among other things, the new office said it will do things like make an effort to understand how bigger players can gain advantage over smaller players: “Sometimes startups simply get run over by bigger players. For example, big companies can easily pitch new products to their large customer bases and stymie outside players who may have more favorable products. Big tech companies, with their huge reaches, are also seeking new ways to join consumer finance markets and may threaten fair competition.”
Policygenius, an insurtech that raised $125 million in a Series E round less than 3 months ago, has reportedly laid off about 25% of its staff. The number of employees affected is not confirmed but is believed to be around 170, according to multiple sources. At the time of its Series E in March, Policygenius — whose software essentially allows consumers to find and buy different insurance products online — said that its home and auto insurance business had “grown significantly,” with new written premiums having increased “more than 6x from 2019 to 2021.” In a statement, Jennifer Fitzgerald, CEO and co-founder of Policygenius, said “the sudden and dramatic shift in the economy” forced the company to adapt its strategy.
Fundings and M&A
Seen on bluehillco
And last but certainly not least, I did a little Q&A with bluehillco senior reporter Natasha Mascarenhas, who recently started covering more fintech — especially as it pertains to inclusion and access. Enjoy!
First off, I know how wonderful you are, but I want our readers to know too. Just who is Natasha Mascarenhas, anyway??
Your biggest fan! Heh. I have loved writing my entire life, but started reporting as a middle schooler at my school’s newspaper. It turned out that I was onto something, as I went on to study journalism at Boston University and intern at publications including BostInno, the Boston Globe, and the San Francisco Chronicle.
The Chronicle internship inevitably threw me into the world of tech and startups, where I ran into Alex Wilhelm and eventually the Crunchbase News team. That’s where we met, and where I formally began working as a tech reporter. My favorite moments there were covering the Uber S-1, penning a series about loneliness and landing my first funding round scoop.
Today, I’m a senior reporter here at bluehillco, as well as a co-host of Equity, a thrice-weekly podcast about venture and startups. I also write Startups Weekly, a self-explanatory newsletter that gets into whatever I couldn’t fit into my pieces or the podcast. These are my most-read pieces, which is a vote of confidence that I should lean into my weirdness more. Lol.
Beyond journalism, I find lots of fulfillment from writing about emotions and relationships, food, friends, and then alone time to reflect on all of the above. I’m based in San Francisco but have a soft spot for Cincinnati and Central Jersey.
I’m so thrilled you’ll be covering some fintech now. What drew you to the beat, and what do you plan to focus on?
Money is so emotional, and I love covering all the tensions that exist when people make more, talk louder and decide to share it. I especially plan to focus on the promise of democratization of capital, multiplayer fintech and wealth creation.
I have always struggled to underscore what draws me to stories, because it feels so disparate. But, after talking to my former colleague and forever friend Danny Crichton, I realized that there’s such a thing as a horizontal beat — aka covering multiple verticals that share a common thread. For me, my favorite stories focus on what Lightspeed’s Mercedes Bent so aptly says is the “economic empowerment of individuals.”
What’s the best way to pitch you?
Tip me about happenings in the fintech world — especially the ones that don’t always have something to do with your company and coverage. I can never be a fly on the wall the same way a founder can, so tell me what I’m missing! Oh, and the best way to actually do the above is just to tweet at me @nmasc_ or e-mail me email@example.com.
That’s it for this week! Thank you for reading. And to borrow from Natasha, you can support me by forwarding this newsletter to a friend or following me on Twitter.