Welcome to Interchange! If you’ve received this in your inbox, thank you for signing up and for your vote of confidence. If you’re reading this as a post on our site, sign up Here So that you can get it directly in future. Every week, I’ll take a look at the hottest fintech news from the past week. This will include everything from funding rounds to trends to analysis of a particular space to hot takes on a specific company or event. There’s a lot of fintech news out there and it’s my job to stay on top of it – and make sense of it – so that you know about it. Come on goo! , Mary Ann
Last week was a real roller-coaster ride in the world of fintech. It seemed that for every funding round I covered, I even reported a layoff. Real estate tech companies Redfin and Compass combined laid off more than 900 employees, while Notarize and Wealthsimple cut their own workforce. In the conflicting world that is the startup scene, PropTech Homelite raised $60 million and acquired another startup.
Meanwhile, Insurtech Sana also raised $60 million and said it has doubled its valuation. But the biggest news of the week — which some might say shook the fintech world — was that Decacorn Breaks revealed that it will no longer serve small to medium-sized businesses (SMBs). Meczyki.Net dug up the news in three separate pieces, and I’m going to go into some of the background surrounding it here. So, don’t go anywhere.
Brex cuts SMBs
Three months after announcing that it would make a big push into software and enterprise, fintech giant Brex confirmed that it was apparently leaving a segment it had started to serve — small to medium-sized businesses. .
Now initially there was some confusion as to what it meant. Prefer SMB brick-and-mortar business? SMBs Like Startups? I spoke to Henrik Dubugras, CEO and co-founder of Brex, to get some clarity. What they told me was not as comforting to some of our readers as the company had hoped.
Dubgrass emphasized that Brex, who focused his life on startups, is “committed to startups.” When asked about the criteria that determined which businesses would be affected by its move, he said Brex chose not to work with any business that had any sort of “professional” funding. There wasn’t — either venture capital, angel money or funding from an accelerator. As a result, “thousands” of businesses were told that their accounts would be closed by August 15. Dubgrass acknowledged that the set of criteria may not be “perfect”, but it “must be one.”
While the executive seemed appropriately the opposite, the move still angered some, who believe the company is leaving out the customers who need it most from what it has to offer. Comments ranged from bitterness that the brakes were “working for the people who made them.” One SMB owner who was impressed Tweeted about your frustration Noting the way the company handled the situation, the brakes left him “and other SMB owners to dry up.” still one more communication tweeted It got from Brex: “What a inconvenience, it sucks to close a Brex account. Was using it for one of our digital properties with at least ravs, looks like they’re clearing minnows.
Many were disappointed that it was only keeping SMBs who already had some sort of funding. One commenter on my LinkedIn post on the subject said, “Small business owners need to lend now in this time of uncertainty, not be deceived like this.”
He is not wrong. “Tens of thousands” is a lot of businesses that have 2 months to figure something out. As one person told me, “Her scale is truly remarkable.”
But at the same time, the move probably shouldn’t be as shocking as the one I spoke of on the matter – from the founders of rival companies to industry observers. Why here? As mentioned above, in March, the company made a big deal about entering the software business and focusing more on acquiring enterprise customers like DoorDash. Plus, it’s just a fact – and as Heinrich himself acknowledged – that the needs of a small business are very different from the needs of a large company. A lot is very different related to onboarding, sales, servicing that segment. Furthermore, there is speculation that Brex was not making enough money from working with SMBs to justify continuing to do so, with one industry insider sharing, “I think The operating cost, fraud cost, and risk cost combined with the huge rewards they were offering made this a bad segment.”
Historically, Brex has made most of its money on interchange fees, which many would argue are low margins, so a move to the SaaS model may make sense. This makes more sense especially when the macroenvironment has shifted so much since the last time the brakes were raised and it was valued at $12.3 billion. With investors now demanding more revenue (and, gasp, profits) than ever to justify the higher valuation, Brex may have realized it needed to focus more on growing its SaaS business. But doing so at the expense of your SMB customers just felt wrong. And also keep in mind, it’s still building out its SaaS offering.
Others have pointed out how difficult it is to be “everything for everyone” and that Brex’s decision was a reflection of how true this is. When I spoke to Henrik, he shared that its startup clients “we need to be more proactive with their needs.”
“They were asking us for a lot of resources that we wanted to give them, which had to be replaced elsewhere,” he said.
Past employees have shared their belief that the company lacks focus and is heading in many different directions. In January, Brex confirmed that it had raised $300 million in a Series D-2 round, raising its valuation to $12.3 billion. In its 5-year lifetime, it has raised $1.2 billion.
All I know is that as a journalist covering the fintech space, this type of change in strategy from a decacorn in the event of a breakout struck a lot of negative strings with a lot of people. Now all we are thinking is whether this strategy will backfire or will the Brex decision prove to be the best for the future of our business? Only time will tell.
After Apple starts buying now, pay later Marketplace With news that it will now be a competitor to established firms, PayPal has now launched another buy, pay later product to follow the 2020 launch of its “Pay in 4” installment program. The new offering, “PayPal Pay Monthly,” is designed to give customers a more flexible way to pay, the US payments giant said. Instead of paying for purchases over a 6-week period as before, “pay monthly” users can split the total cost into monthly payments over a 6- to 24-month period.
housing market This year has taken a big hit as mortgage interest rates have risen and homeowners are back on purchases. The latest casualties in the proptech world are Redfin and Compass, both of which announced layoffs last week, for a combined total of about 920 people. Glenn Kellman, CEO of Redfin, said, “I said we wouldn’t fire people unless we had to.” “we have to.”
Canadian fintech giant Wealthsimple, which was valued at $4 billion as of last year, said it was laying off 159 people — or about 13% of its workforce. CEO and co-founder Michael Catton addressed the move in a letter to employees, which was published as a blog post, noting that Wealthsimple’s customers are “going through a period of market uncertainty which they said Have never experienced before.
Notarize, a startup that provides remote online notarization services, has laid off 110 people – or 25% of its employees. In a statement released last week, CEO and founder Pat Kinsell said that being able to secure additional funding will be challenging. Read more here.
Klarna looking to raise more capital at an even lower valuation Compared to what was reported a few weeks ago wall street journal, which cited people familiar with the situation. The Swedish payments giant is reportedly in discussions with investors about a deal that could value the company at around $15 billion. Last month, it estimated it would raise additional capital at a valuation of $30 billion, significantly lower than last year’s $45 billion.
plaid announced this last week that it is opening an office in toronto – a market that entered 2018 as its first international market – and has entered into a data access agreement with Royal Bank of Canada, the fifth largest bank in North America. I spoke to a few executives about the news, and unfortunately I didn’t have time to cover it in story form, they shared that the agreement will bring secure, API-based financial access to over 14 million RBCs. Digital clients with the ability to “securely” connect to 6,000+ apps and services on Plaid’s data network.
India lifts trading restrictions on MasterCardThe central bank said last week, nearly a year after the ban, was once again allowed the card giant to add new customers to the South Asian market after it demonstrated “satisfactory compliance” with local data storage regulations. did. Manish Singh gives us the scoop here.
Financing and M&A
seen on techcrunch
PayCargo, a Fintech for the Freight Industry, $130M . collects
Able.ai exits sneak peek with $20M to help big lenders accelerate high-value loans
Auxilius lands $10M to help Biopharma manage financial aspects of clinical trial process
Sanaa, which provides health insurance plans to SMBs, raises $60M and doubles valuation from October
Cube, which seeks to help financial teams plan better and faster, receives $30M after seeing 400% ARR increase
Amid layoffs in the real estate tech industry, Homelite raised $60 million and acquired the lending startup.[…]Flat valuation is new,” says the CEO, as the company raised its valuation from $1.6 billion to $1.7 billion.
Mono aims to become ‘first unbanked bank’ for small businesses in Latin America
Well, that’s all for this week. Once again, thanks for reading – and Happy Juneteenth!! See you again. xoxo, mary anne