Super Apps: An Overlooked Partnership Opportunity For MTO’s

Super Apps are integrating payments and financial services into their app ecosystems. They have large and growing client bases, and they allow for services to be paid for with their digital wallets. Rather than develop their own digital wallets, MTOs can leverage the reach of Super Apps’ digital wallets. In fairness to Super Apps, MTOs must ask themselves if they are attractive digital candidates. They need to consider where they are on their digital journey and what level of digital enablement they can or want to adopt and support.

We believe that Super Apps should be rapidly engaged as potential partners rather than wait for them to become rivals.

Click Here to Download KoreFusion’s Super Apps and MTOs White Paper

Silver Lining In Covid Storm Clouds For Banking & Lending Fintechs

There Are Reasons For Optimism For The High-Yield Lending Fintechs Which Weather The Storm

Across the world, the last decade has seen a proliferation of well-funded banking and lending fintechs. Built as a response to a perceived dissatisfaction with existing bank services, neobanks and specialty lending fintechs have gained increasing traction among consumers and SMEs. Challengers such as N26 (Germany), Revolut (England), Nubank (Brazil), and Xinja (Australia) have been at the vanguard for retail bank disruption. At the same time, innovative lenders such as Kabbage (US), OnDeck Capital (US), Funding Circle (UK), and Judo Bank (Australia) have focused on SME lending while taking advantage of a lean cost structure and innovative underwriting processes. These challengers have built businesses on the promise of profitably providing credit at scale to customers who had historically been ignored or underserved by banks. 

The question hanging in the air as these fintechs swallowed venture funds and grew was: how would they survive their first economic downturn? The answer so far has been mixed. Many have seen default rates soar just as their funding sources dried up. However, there is also reason to believe that this could be a significant growth opportunity for the sector. 

Intuitively, it seems that fintechs catering to higher risk and unsecured borrowers would be the first to feel the impacts of an economic slowdown. Unlike well capitalized incumbent banks with access to cheap long-term deposit based capital, fintechs have funded their lending with higher cost capital, which is often more sensitive to short-term market fluctuations. While this formula works during economic expansion, it would seem to make banking and lending fintechs more vulnerable during economic contraction, and also seem to lead to the consequent drying up of funding and increased borrower default. Indeed, this pressure is already starting to show. New York based OnDeck Capital reported a Q1 loss of US$59 million due largely to Covid-19 related loan delinquencies. In response, it boosted capital reserves and put down almost a billion dollars in credit to ensure ongoing liquidity. The SME lending fintech Kabbage was reported to have furloughed hundreds of employees in early March as it turned off the credit tap to SMEs, citing Covid-19. The situation was even worse for the European challenger bank Moven, which announced in March that it was shutting down due to funding challenges related to the Coronavirus outbreak.

In addition to funding issues, these fintechs have even greater existential risk due to their client base. Most serve customers with thin margin or credit files, and it is fair to expect higher than average defaults. US based retail neobank MoneyLion has reported that its delinquencies on personal loan repayments have nearly doubled. During good times, this risk was rewarded with APRs that could reach 70-80%. However, there is reason to believe that in a normal world, they would likely be the first to feel the market turn.

Nonetheless, we aren’t living in a normal world. We are living in a world where many 70-80% APR loans are being backstopped by the full weight of government monetary and fiscal policy; whether this is a smart thing for society is yet to be seen. In many countries however, government support is enduring worse Covid impacts than anyone else and this will create significant short and medium-term opportunities for fintechs which can pivot and weather the storm. 

In the near future, fintechs that can act quickly to leverage their digital capabilities and build their customer base will position themselves well for recovery and growth. Fintechs have always focused on servicing the long tail of customers, unlike traditional lenders who have had the luxury of focusing on a more narrow segment of the market. This crisis is now forcing governments to also focus on quickly serving the financial needs of an extremely long tail of customers, and this is what fintechs were built for. 

Fintechs’ agility and digital reach will allow them to quickly develop products in response to emerging market demands.

Kabbage is providing funding for small businesses and delivering smaller than average size PPP loans to the long tail of SMEs.

(Source: US Small Business Administration, IBSintelligence.com)

These platforms have grown to provide the exact functions that are needed now: quick onboarding, easy KYC, product agility, efficient disbursement of funds, and post-loan account management across the long tail of users. Not surprisingly, fintechs will adjust much faster than banks to achieve product-market fit in a Covid and post-Covid world. For example, at the same time Kabbage was shutting down SME lending, it was repurposing its platform to administer and provide the US Small Business Administration’s Paycheck Protection Program (PPP) loans. The crisis is proving to be a catalyzing event for Kabbage, which reported over 37,000 paycheck loan applications representing more than $3.5 billion in just the first four days of the program. For context, Kabbage has issued 225,000 small business loans for $9.5 billion since it was founded 11 years ago.   

In addition to increasing their user base by quickly pivoting to act as a distribution channel for government programs, this crisis has created new business opportunities for lending and banking fintechs. Once they are satisfied that the borrowers have been qualified, they can issue loans immediately against the credit of the government lender and ultimately sell the debt. In the US, for example, the SBA loans pay a handsome origination fee (ranging between 5% for loans <$350,000 to 1% for loans >$2,000,000). While these loans only pay 1% interest on the principal, they should nonetheless be attractive to fixed income funds as they are basically risk-free loans and are superior to other options in an extremely low yield environment. This creates a lucrative business opportunity for fintechs that lack the balance sheet—or desire—to hold debt, but have a comparative advantage in origination, onboarding, and KYC. This is in contrast with slow moving incumbent banks, many of whom insisted on pre-existing banking relationships with prospective SBA funding program borrowers. 

Covid is also emerging as a milestone event for the regulatory acceptance of fintechs: no longer are they just fringe players in the financial ecosystem, they are now being recognized by policy makers as having unique capabilities and fulfilling an important role in the financial services world. The increasing importance of fintechs as an integral part of the financial services ecosystem became a political issue in the US and was recognized by Treasury Secretary Steven Mnuchin who promised that “Any fintech lender will be authorized to make [PPP] loans.” While regulatory approvals may have been slower than desired, a number of fintechs including Square, PayPal, and Intuit have been authorized to issue loans, while others (including Kabbage) have partnered with banks, further accelerating the trend towards open banking and the separation of regulated and non-regulated banking services. Outside of the US, their ability to quickly implement government stabilization policies and get money to the long tail of citizens and SMEs most in need is also being recognized. In early April, for example, the government of Australia provided AUD$500 million to the digital bank Judo to provide SME loans. Interestingly, that funding comes from both specialty funds for Coronavirus relief and from normal operations. 

Taking a longer term perspective, the lending and banking fintechs that survive the crisis will likely be very well positioned for longer term success. In addition to enjoying a survivorship bias and larger user databases, they will emerge into a world of low fixed income yield which will create a positive environment for equity funding and debt facilities. 

Whenever and however the world normalizes, it is likely that interest rates will be lower than they were when the crisis started. This low yield environment will have two re-enforcing benefits for lending and banking fintechs. First, as yield hungry institutions search for risk, it will likely compound the rush of capital into higher risk investment opportunities such as venture capital investment. While this will obviously benefit all startups, it will have a doubly beneficial impact on those which were able to leverage the crisis to scale. Second, there will likely be an excess of debt made available to lending and banking fintechs, as investors search for the type of high yield fixed income opportunities enabled by these business models. This will provide the liquidity needed for these fintechs to scale their businesses quickly—either on their own balance sheets or with their willing partners. 

Despite legitimate reasons for scepticism about the prospects of lending and banking fintechs, some of these businesses will enjoy significant gains over the coming months and beyond. This will create high impact opportunities for both financial and strategic investors looking to invest or acquire. However, distinguishing successful from unsuccessful businesses will take a deep understanding of business models, market conditions, and policy and regulatory dynamics across different geographies.   

See The LATAM Fintech Landscape Through Our Eyes

The inaugural KoreFusion 2020 LATAM Fintech Report reframes the definition of fintech expands well beyond the usual subcategories. The result is you get the most accurate and robust data.

Why Is This Report Different?

Actionable

This report is more than just a list and a map. You can use this report and its insights as the basis for a playbook to engage with fintechs in Latin America.

Hands-On Experience

We can put ourselves in your shoes. Our team has experience as entrepreneurs and is mentor to both fintechs and incumbents. We are also active investors.

One Stop Shop

Need more? At your service. We are a strategy consulting and M&A advisory firm that covers this sector for a over a decade.  We are partners to banks, processors, fintechs and the investment community.

Curated By Experts

We did the heavy lifting for you. The best curation of existing maps, reports, and funding databases, coupled with the most robust categorization of fintech categories and subcategories.

Report Highlights

Click here to access the report.

Inquire Now.

Book a 1 hour fintech strategy consultation.

For more insights from the KoreFusion team, and to discuss how these trends impact your business, please Marisa Richetta at m.richetta@korefusion.com.

5G And Payments: Velocity Vs. Vulnerability

Can Payment Systems & Infrastructure Keep Up?

5G promises to extend network reach and density while improving the speed and connectivity of individual connections. Are legacy payment systems and infrastructure equipped to handle the coming rush of payments and data volume?

The ability of regulators and financial institutions to upgrade payment systems to handle this increased payment velocity, while simultaneously protecting against new threats will be key to realizing the promise of 5G. If these open networks cannot do so, more nimble closed-loop networks will have the upper hand.

Click Here to Download KoreFusion’s 5G & Payments Whitepaper

Join Us In Miami At The 2019 Mastercard LAC Innovation Forum

The Age of Acceleration

Join us at the Mastercard Innovation Forum 2019 on December 3rd. Founding Partner, Jan Smith will moderate the panel: “Moving Beyond Cash: The Opportunity for Card-Based Push Payments in LAC”.

Join Us in Singapore at Money2020

SINGAPORE, March 14, 2018 — KoreFusion moderated an oversubscribed panel on Real Time Payments (RTP) at Money2020 Asia with panelists from ACI Worldwide and MasterCard.  Founding Partner, Jan Smith, who leads our firm’s commercial payments practice, moderated the panel and showcased findings from our recent RTP study spanning  600 businesses across 14 countries and 20 industries.

The panel, titled “Real-time payments – Understanding the use cases, the practicality, and potential friction with other payment products”, was part of the Money2020 Asia’s track on Processing Payments & Open Platforms. The panelists for the talk included Geoff Tunbridge, Director Solution Consulting – APAC at ACI Worldwide and Rama Sridhar, EVP, Asia Pacific Digital & Emerging Partnerships, New Payments at MasterCard Worldwide.

The talk was standing room only, indicative of the far reaching interest in real time payments across all aspects of fintech, with audience interaction from the major banks, e-wallets, and large merchants.

  You can download the slides from the talk here

About KoreFusion

With a presence in six international locations, KoreFusion is the only firm that combines strategy consulting and M&A advisory services exclusively for the international fintech, payments, and financial services industries.

KoreFusion’s strategy consultants work with a broad range of product and regional leadership within the payments and fintech industry to further their clients’ strategic and operational objectives, while seamlessly providing unmatched subject matter expertise to our M&A clients. KoreFusion also works closely with investors, corporate development teams and the leadership of established players and innovative disruptors on their most pressing M&A objectives.

www.korefusion.com

Press Contact:

Isaac Matzner
information@korefusion.com

Join Us In Miami At The 2018 Mastercard LAC Innovation Forum

Limitless

Join us at the Mastercard Innovation Forum 2018 on November 27th. Founding Partner, Jan Smith will present a workshop on Commercial Opportunities in the Procure-to-Pay Value Chain

KoreFusion Moderates Money2020 Asia Panel on Real Time Payments

SINGAPORE, March 14, 2018 — KoreFusion moderated an oversubscribed panel on Real Time Payments (RTP) at Money2020 Asia with panelists from ACI Worldwide and MasterCard.  Founding Partner, Jan Smith, who leads our firm’s commercial payments practice, moderated the panel and showcased findings from our recent RTP study spanning  600 businesses across 14 countries and 20 industries.

The panel, titled “Real-time payments – Understanding the use cases, the practicality, and potential friction with other payment products”, was part of the Money2020 Asia’s track on Processing Payments & Open Platforms. The panelists for the talk included Geoff Tunbridge, Director Solution Consulting – APAC at ACI Worldwide and Rama Sridhar, EVP, Asia Pacific Digital & Emerging Partnerships, New Payments at MasterCard Worldwide.

The talk was standing room only, indicative of the far reaching interest in real time payments across all aspects of fintech, with audience interaction from the major banks, e-wallets, and large merchants.

You can download the slides from the talk here

About KoreFusion

With a presence in six international locations, KoreFusion is the only firm that combines strategy consulting and M&A advisory services exclusively for the international fintech, payments, and financial services industries.

KoreFusion’s strategy consultants work with a broad range of product and regional leadership within the payments and fintech industry to further their clients’ strategic and operational objectives, while seamlessly providing unmatched subject matter expertise to our M&A clients. KoreFusion also works closely with investors, corporate development teams and the leadership of established players and innovative disruptors on their most pressing M&A objectives.

www.korefusion.com

Press Contact:

Isaac Matzner
information@korefusion.com

Would Dodd-Frank Changes Affect The Region’s Banks?

KoreFusion’s Founding Partner, Jan Smith, is an active Board Member and contributor to the Inter-American Dialogue Board.  This July 26, 2017, edition of their Financial Services Issue features perspectives from Jan Smith on the headline page of their newsletter, discussing the potential impacts of repealing Dodd-Frank on banks within Latin America and the Carribean.


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Jan Smith Presents at Fintech Diaspora Americas Forum

On July 18th, KoreFusion’s Founding Partner, Jan Smith, presented at the Fintech Diaspora Americas Forum in Los Angeles, sharing his thoughts on the state of Fintech in Latin America. Jan’s presentation was based on KoreFusion’s experience working with payments and fintech firms throughout the region over the past few years, and looked at key drivers and potential opportunities in the region.

Jan started his presentation by providing an overview of the market, highlighting some of the key sectors fintechs have focused on, and underscoring how early in its development this industry is within the region – pointing out that over 60% of fintech’s in Latin America are less than 3 years old.

After highlighting 6 of the key drivers supporting the development of fintech in the region, Jan discussed how these drivers, along with the convergence of technology and regulations, will affect some of the key industry sub-verticals going forward. Jan also highlighted some areas with overlooked potential.

Finally, Jan discussed how homegrown fintechs in Latin America have overcome market constraints in building their businesses and the challenges that foreign firms would face entering the market.  Jan closed by highlighting some of the main opportunities we as a firm see for both foreign and local fintechs and the investor community.

You can download Jan’s presentation here.

If you would like to discuss the opportunities for payments firms, fintechs and/or investors in Latin America, please reach out at information@korefusion.com.

KF Advises The Bancorp Sale Of European Operations, Transact Payments Ltd.

SAN FRANCISCO, July 11, 2017 — KoreFusion acted as exclusive adviser to The Bancorp, Inc. (NASDAQ: TBBK), a financial holding company based in Wilmington, Delaware, in the sale of Transact Payments Ltd. (TPL), its wholly owned UK-based European prepaid subsidiary and licensed electronic money institution, to Neptune International Ltd., a private investment firm. Terms of the transaction were not disclosed; the deal was completed and approved by regulators in April 2017. [mehr…]

Deal Thoughts – First Data Acquires CardConnect

Earlier today, First Data, a global leader in payment processing announced that it had entered into an agreement to acquire CardConnect, an innovative provider of payment processing technology for $750,000,000. This transaction comes less than ten months after CardConnect’s acquisition by FinTech Acquisition Corp., a Special Purpose Acquisition Company (SPAC), for $438,000,000, which took CardConnect public in August of 2016.

This is an especially interesting deal as it further supports KoreFusion’s observations about the evolving payment service provider/payment processing industry.  In particular, it is illustrative of 3 trends we see shaping the industry going forward:

If you would like to discuss KoreFusion’s perspectives on the payment service provider/payment processing sector, other implications of this deal on this industry, or the opportunities available through SPAC transactions, please feel free to reach out at information@korefusion.com.

KoreFusion Presents at ACG SF Fintech Panel: ‘FinTech 3.0’

On April 4th, KoreFusion’s Founding Partner, Yogesh Oka, participated in the Association for Corporate Growth’s (ACG) FinTech Panel in San Francisco. The theme of the panel was on the future of fintech and Yogesh presented the firm’s perspectives on the emergence of ‘Fintech 3.0’.

‘Fintech 1.0’ was characterized by rapid identification and exploitation of opportunities to leverage technology to disintermediate traditional financial services.  However, this stage was focused primarily on proof-of-concepts and undisciplined customer acquisition.

‘Fintech 2.0’ saw a rapid increase in intra-vertical consolidation within the fintech industry, a shift towards partnerships and co-opetition, and greater discipline around business model development and customer acquisition models.

Strategic and technological partnerships will remain important, but as fintech continues to become increasingly global, with emerging market players like Alibaba and Tencent (in Asia) and Mercado Libre and PayU (in Latin America) increasingly focused on their cross-border payment capabilities, inter-vertical consolidation between fintech verticals will become more common, and on a global scale.  This will likely lead to numerous “black swan” and “blockbuster” M&A scenarios, more pressure on mid-sized players who will be most acutely impacted by rapidly evolving industry trends, and the entry of less speculative (“smart”) money entering the industry

In these contexts, acquisition rationale will be driven less by immediate financial impact and more by strategic positioning.  For fintech players, ‘Fintech 3.0’ will mean new types of creative exit opportunities and a new set of potential partners. This, in turn, opens a range of options for them as they plan their growth and exit strategies.

You can download KoreFusion’s panel presentation here.

If you like to discuss what Fintech 3.0 means for you, please reach out at information@korefusion.com.

Join Us In Miami At The 2016 Mastercard LAC Innovation Forum

5th Annual Edition

Join us at the Mastercard Innovation Forum 2016 on November 29th. Founding Partner, Jan Smith will present a workshop on Commercial Payment Opportunities in Latin America.

What Trends Will Shape Financial Services In 2017?

KoreFusion’s Founding Partner, Jan Smith, is an active Board Member and contributor to the Inter-American Dialogue Board.  This December 14, 2016, edition of their Financial Services issue features perspectives from Jan Smith in their “Featured Q&A” on Page 2.

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