Welcome to my weekly fintech-focused column. I’ll be publishing this every Sunday, so in between posts, be sure to listen to the Equity podcast and hear Alex Wilhelm, Natasha Mascarenhas and me riff on all things startups! And if you want to have this hit your inbox directly once it officially turns into a newsletter on May 1, sign up here.
If it feels like we’ve been over-indexing on expense/spend management news, it’s because there has just been so darn much of it.
Last week, I covered Brex’s big push into software, which means that its revenue generation will be more diversified as it will now be making money off of interchange fees and recurring revenue from subscriptions to its software. It also said it is placing greater emphasis on moving upmarket to serve larger customers.
As evidence of that, Brex revealed that DoorDash — a $36 billion in market cap company — was one of the first customers who’d taken a bet on its new spend management software product, Empower.
Coincidentally, the same day, Emburse — a nearly $200 million-in-ARR expense software company — announced it was doing the exact opposite. That company said it is making a big push into the SMB space and going head-to-head with fast-growing startups like Brex and Ramp.
The number of players in this space just keeps expanding, and one founder I spoke with — Zact CEO John Thomas — considers the sheer size of the B2B payments space to be the driving factor. The market is $25 trillion in the U.S. alone, with corporate cards making up 4%, or $1 trillion, of that total.
He shared with me where his startup is positioned in the Wild Wild West of expense management. Zact says it is focused squarely on the requirements of mid-market companies: bank-grade fraud protection, budget controls, approval workflow and accounting integration with “flexible payment type and funding support.” Airbase is another player in the space focused on mid-market companies.
Lending, however, is an area in which Thomas says Zact “refuses to play.”
“We rely on the banks to do the lending, and we integrate with whatever funding solution they provide,” he told TC. “In the rush to grab market share, many fintechs are issuing credit to companies with dubious creditworthiness. We’re already seeing aggressive lending biting many of the credit card and BNPL providers.”
Thomas adds that expense management is only part of a company’s non-payroll spend management.
“We’ve built an API ecosystem that goes beyond card interfaces to include expense management, controls, accounting integration and more,” he said. “So everything you need as a customer — we have APIs for.”
Zact’s choice of card issuing processor, Fiserv, also fits in with its bank-grade strategy. “Running on a legacy processor like Fiserv gives us stability, reliability and fraud protection,” Thomas said.
Controlling the transaction from the issuer to the card network through its processing partner further enables Zact to capture all of the interchange and share more of it with its partners and customers, he added.
Brex co-founders Henrique Dubugras (L) and Pedro Franceschi (R)/Brex
Huh. Interesting. Like Emburse, Zact seems more keen on partnering with financial institutions, rather than compete with them — another example of divergent strategies in the space. It also claims to be able to keep all interchange, and not just some. Historically, some of these companies relied primarily on interchange fees for revenue (Ramp and Brex), some relied on software subscriptions (Airbase and Emburse) and now an increasing number are betting on both (Ramp, Brex, Emburse and Zact).
At first, Brex and Ramp were focused on startups — now they’re both moving upmarket to serve larger customers. Airbase and Zact are focused on the mid-market while Emburse claims to be able to serve them all, with separate products. It’s enough to make one’s head spin. But wait, there’s more.
Meanwhile, a relatively new player in the space, TripActions, shared with me some stats around its recent growth. It’s “new” in the sense that when the pandemic hit in March of 2020, and corporate travel essentially came to a halt, the company pivoted to its general expense management product, TripActions Liquid. It tells me that “in response to demand,” it just launched the ability for SMBs and growth-stage companies to self-sign up — and has had “more than a thousand companies sign up in less than a month.” Examples of new customers include Notion, Skydio and Patreon. And, a number of companies that were customers of its travel expense product have also signed on to TripActions Liquid. Those include Carta, Amplitude, Loom, Lattice and Canva.
So now, TripActions — which was once more focused on enterprises — is also going after SMBs and growth-stage companies. Like Emburse.
The company reports that business travel bouncing back contributed to a 220% increase in travel spend from January to March 2022 — up 1,650% year-over-year. Overall, it added, transaction volume processed via TripActions Liquid more than doubled (by 107%) from January 2022 through March 2022, up 1,231% year-over-year.
In a statement to me, TripActions Liquid EVP/GM Michael Sindicich said: “It’s clear that other entrants to the space are starting to realize that in a post-COVID world, you cannot only offer expense. Fintech enablers really accelerated during the pandemic, when business travel was on pause, and they made it so easy to build a corporate card company however, now that business travel has returned, if those companies want to scale and provide true value, they’ll need to have travel — it’s why you now see new entrants playing catch up and offering pseudo-travel products. Considering 70% of expenses happen in some way shape or form around travel, offering a card with basic spend limits just isn’t enough.”
His statement is an obvious slam against some of its competitors that have expanded — or plan to expand — into travel and an implication that since that’s what TripActions started out doing, it must be able to do it better.
While most of the players I talk to claim this is not a winner-takes-all space, it sure does feel like there is a lot of mud-slinging going on.
Meanwhile, London.-based Capital on Tap — a company that describes itself as a competitor to Ramp — told me that it has closed on a $200 million funding facility so that it can continue to fund SMBs. It has opened a new office in Atlanta to fuel its “explosive” U.S. growth. Capital on Tap says it has provided access to more than $5 billion of funding for more than 125,000 small and medium businesses across the U.S. and U.K.
So, let’s add one more to the list.
Silly skeptics, cryptos for kids!
This section is brought to you by the very talented Anita Ramaswamy.
There are plenty of fintechs already capitalizing on surging interest in cryptocurrency among adults. Now, some startups are aiming to capture a new market altogether: children.
Step, a Series C fintech app providing banking services to teenagers, announced last week that it will be offering a new product that will enable its 3 million-plus users to invest in equities and cryptocurrencies on its app. The company plans to launch the new product, Step Investing, sometime early this summer.
Crypto investing has been the top-requested feature from Step customers, CEO and co-founder CJ MacDonald told TC.
Step Investing’s offering, built with the Zero Hash API, will allow customers to trade over 50 cryptocurrency tokens as well as NFTs. It will also offer staking and other decentralized finance (DeFi) tools, the company says. Each user will have their own crypto wallet address through Step, through which they can deposit and withdraw currencies on-chain.
The 18-month-old startup already offers bank accounts, credit cards and a peer-to-peer payments platform to teenagers, whose parents legally own the accounts. Step’s app is free for customers, while the company makes revenue through interchange fees on transactions, MacDonald said.
Step isn’t alone in marketing crypto to the under-18 crowd. Investing app Onu launched custodial accounts for children with access to 22 cryptocurrencies last month, and children’s social network Zigazoo started dropping NFTs last week. And earlier this year, Acorns CEO Noah Kerner told TC that the startup plans to include “no more than 5% exposure” to crypto as an option for customers who would like to participate, according to Kerner, who emphasized there “will not be crypto trading on the Acorns platform.” There are even crypto-focused summer camps popping up all over the country to educate children about the asset class, Vox reported.
While the idea of exposing children to one of the most volatile and risky asset classes may raise some eyebrows, MacDonald said he isn’t concerned about kids on Step Investing making reckless decisions like YOLO-ing all their birthday money into Dogecoin. He added that parents will be able to set spending and investing limits on their children’s accounts so kids can’t “go out of control.”
“A big part of our goal with our core product, as well as things like, giving [kids] access to invest, or learn what it means to invest, is to do that in a responsible way, and put guardrails on it and protect them, so they can’t make costly mistakes,” MacDonald said.
For more crypto news on a regular basis, sign up for Lucas Matney and Anita Ramaswamy’s upcoming crypto-focused newsletter/podcast, Chain Reaction, here.
On to fundings
Since we’ve been on the topic of spend management…I wrote about a newcomer called Winden, which former Apple Card designer Daniel Sathyanesan founded last August with the aim of building a neobank that offers deposit banking, spend management and other financial products for solo digital entrepreneurs.
Image Credits: Founder and CEO Daniel Sathyanesan / Winden
Accel led its $5.3 million seed raise, which also included participation from some other high-profile investors, including the venture fund of spend management startup Ramp; Sheel Mohnot, co-founder of Better Tomorrow Ventures; Lachy Groom and founders of a number of fintech unicorns such as Deel co-founder and CEO Alex Bouaziz; Ramp co-founder Karim Atiyeh; Pipe co-founder and CEO Harry Hurst; Klayvio co-founder Ed Hallen as well as Tarek Mansour, co-founder and CEO of Kalsh.
Welcome Tech, a startup aiming to build “an operating system” for immigrant families in the U.S., raised $30 million in new capital to help these individuals not only adjust to, but feel comfortable and “thrive” in their new environment. TTV Capital led the raise. Welcome Tech co-founder, CEO and president Amir Hemmat says his company’s initial approach was different than others in the space in that rather than launch a banking product and then set out to earn the trust of the community it aims to serve, it first “worked hard to earn that trust and understand the community’s needs.”
Meanwhile, dollars continue to flow to African fintechs. Umba, a digital banking platform operating in Lagos, Nigeria, raised $15 million in Series A funding, reports our man-on-the-ground, Tage Kene-Okafor. The news came almost two years after the fintech raised a seed round of $2 million.
Moving over to Europe, Ingrid Lunden wrote about London-based Stenn — which applies big data analytics and matching them up against an algorithm to determine eligibility for a loan of up to $10 million; and on the other side taps a network of institutions and other big lenders to provide the capital for that financing. The company raised $50 million in equity funding to expand its business after seeing accelerated growth at a $900 million valuation.
Also in the U.K., Wagestream, known best for working with employers to enable salary advances for employees by way of an app, raised $175 million, money that it will use to continue adding in more features to the app, and to fuel a big push into the U.S. market.
In India, Manish Singh reports that neobank Fi is in advanced stages of talks to raise about $100 million at a $700 million valuation, according to multiple sources familiar with the matter. The deal hasn’t closed yet, so the terms may change, those sources cautioned.
On the insurtech front, insurance brokerage platform Newfront announced a $200 million investment at a $2.2 billion valuation led by Goldman Sachs Asset Management and B Capital with participation from existing investors including Founders Fund and Meritech Capital, reported Insurance Journal. Newfront said it plans to grow its technology teams and focus on harnessing data-driven insights for clients. The company also plans to expand across the U.S.
Ugami, a Miami-based, self-described “Latine” startup offering a financial rewards solution for gamers, announced that it closed a $4.8 million seed round co-led by Harlem Capital and ULU Ventures. In conjunction with the financing round announcement, the startup launched a closed beta for its inaugural Ugami Debit Card and app. A reported 265,000 gamers are on the waitlist, according to Refresh Miami.
Splitero, a financial service company providing homeowners options to access their home equity, announced raising a $5.8 million seed round and securing more than $1 billion in financing, reported FinLedger. Founded by two fintech veterans, CEO Michael Gifford and COO David Zvaifler, the company seeks to help consumers combat inflation and rising home expenses with their home equity through lump-sum cash transactions in exchange for a share of their home’s appreciation.
Speaking of real estate, here’s a deal that I missed from the week before that is quite interesting. Vontive, an “embedded mortgage platform for investment real estate” that just came out of stealth, secured $135 million — $25 million of venture capital and $110 million of debt — in a Series B round to scale its business. Anita Ramaswamy tells us all about how the company — which was founded by a former Palantir engineer and a Freddie Mac exec — wants to be the “Palantir of real estate investing.”
One more I had failed to include last week: As more people moved to remote work over the past few years, there was also an uptick in people choosing freelance or contract work, leaving companies to figure out how to manage that worker segment. The latest to receive funding to continue developing its financial infrastructure for the freelance economy is Archie, which raised $4.5 million in funding. Christine Hall gives us all the details.
In other news
Deel, a startup which helps companies pay people remotely globally (among other things) that we’ve reported on several times, revealed that it has crossed $100 million in ARR. We love the transparency! Alex Wilhelm breaks down its significance in this TC+ piece here.
Entrepreneur Amanda Peyton has always been “the friend that’s good with money,” whether as the treasurer of her high school at age 16 or today as the founder of Braid, a company that wants to make shared wallets more mainstream among consumers. Natasha Mascarenhas reports on how the group-financing platform Braid is trying to make transactions work for various entities, from shared households to side hustles to creative projects.
Is Stripe cheap at $95 billion? Happily, Stripe put out a mostly data-free 2021 update letter this month that includes just enough information for us to get dangerous with. With some creative math and,,,fair extrapolation, we can derive valuation calculations for Stripe that should help us better understand how well the payments juggernaut busy masquerading as a private company priced its last equity round. Alex examines here.
What if you could buy a Peloton with pre-tax dollars? How about vitamins and supplements? Skincare products? Or even mattresses and massages? All of those items might qualify as purchases you could make through a Flexible Spending Account (FSA) or Health Savings Account (HSA). Ami Kumordzie, a doctor who earned both her MD and MBA at Stanford, came to this realization when her mother lost her job during the pandemic. Kumordzie helped her mother find ways to spend the money so she didn’t lose it entirely, an experience that sparked Kumordzie’s idea to last year launch Sika, a fintech marketplace that allows customers to pay for qualified products at the point-of-sale using FSA and HSA funds. Anita Ramaswamy gives us the scoop here.
Speaking of scoops, I reported this week that Better.com is gearing up for yet another round of layoffs, according to multiple sources. This might be one of the few times I actually hope I’m wrong. I heard that the company will be laying off members of the Better Real Estate team and people who work in its refinance department. It is not yet clear how many staffers will be impacted by the potentially fresh round of layoffs, but it is believed to be in the “hundreds.” It would mark the third mass layoff for the company since December 1.
Image Credits: Lawrence Murata and Alice Deng, co-founders of Slope / Slope
Christine Hall reported on how Slope, which provides businesses an easy way to offer buy now, pay later services, has had a busy six months. Company founders Alice Deng and Lawrence Murata told Christine that since its $8 million seed round announced last November, Slope saw around 121% growth month over month and signed up enough enterprise customers to grow more than 20 times in the quarter, while its waitlist grows each week.
Everyware, an Austin-based contactless payments startup, released news of its Pay By Text functionality, which allows customers to use their cell phone number to make a payment. Through its collaboration with Visa, Everyware says it is leveraging Token ID, giving the company the ability to “act as a token requestor requesting network tokens on behalf of its clients and enabling its customers to pay with just a cell phone number across merchants and payment processors, wherever Visa is accepted.”
Plaid announced it has hired Ripsy Bandourian as its head of Europe to lead the company’s expansion throughout the continent. She joins Plaid from Booking.com, where she worked for eight years across a variety of senior-leadership roles in product, marketing, strategy and, most recently, partnerships. You can read more about the news on Plaid’s blog.
Arc launched a new product called Runway. Runway, it says, uses its proprietary ML-enriched underwriting algorithm to analyze net cash burn and cash on hand. Within 24 hours, it claims, founders are provided “flexible, low-cost capital with zero dilution or debt, enabling continued operations and financial stability during volatility.” I covered the company’s emergence from stealth last year with $150 million in debt financing and $11 million in seed funding. At that time, Arc told me it was building what it describes as “a community of premium software companies” that gives SaaS startups a way to borrow, save and spend “all on a single tech platform.”
Deserve, a fintech company that says it is “transforming credit cards into software that lives on mobile and in the cloud,” announced it has launched an offering “that empowers banks and B2B companies to launch corporate credit and charge cards.” The startup raised $50 million last June.
Another piece I couldn’t not include: An inside look at a Ukranian fintech startup adapting to life during wartime.
Last but not least, there was talk that Australian buy now, pay later giant Afterpay may have reason to doubt its decision to pay $29 billion for Square last year. The Sydney Morning Herald reported on April 12, 2022 that Afterpay “recorded a huge blowout in its half-year losses after a surge in bad debts and other operating costs failed to offset a big increase in the group’s revenue.” Meanwhile, there was speculation that Affirm, a U.S.-based provider of “Buy Now, Pay Later” financing, may be a takeover target.
Well, that’s it for this week. I think that was my longest edition ever. Once again, thanks for reading, and I hope you have a wonderful holiday weekend.
