Welcome to The Interchange, a take on this week’s fintech news and trends. To get this in your inbox, subscribe here.
Greetings from Austin, Texas, where the temps have been over 100 degrees for days now and we’re trying hard just not to melt.
The global funding boom in 2021 was unlike anything most of us have ever seen before. While countries all over the world saw surges in venture capital investments, Latin America in particular saw a massive bump in dollars invested. Unsurprisingly — with so many people in the region being underbanked or unbanked and digital penetration finally taking off — fintech startups were among the largest recipients of that capital.
The trend continued in the first quarter of 2022, according to LAVCA, the Association for Private Capital Investment in Latin America, which found that startups in the region overall raised $2.8 billion across 190 transactions during that 3-month period ending March 31. This marked the fourth largest quarter on record for investment in the region, the data showed, and represented a 67% increase compared to the $1.7 billion raised in the first quarter of 2021. It also was up 375% versus the $582 million raised in the first quarter of 2020.
Notably, fintech startups were by far the largest recipients of venture capital funding in the 2022 first quarter, with 43% of dollars raised — or $1.2 billion – having flowed into the category. That’s up from 16% in the first quarter of 2021. Meanwhile, investments into fintechs made up 30% of all deals in the second quarter, compared to 25% in Q1 2021.
Carlos Ramos de la Vega, director of venture capital of LAVCA, told TechCrunch: “We have continued to see the cross-pollination of business models within the sector: Payment platforms are increasingly incorporating BNPL alternatives, lending platforms have become full-service digital banks, challenger banks have expanded their product suite to include embedded credit products and working capital facilities.”
Now, with the global venture slowdown under way, it’s notable that Latin American fintechs continue to raise large rounds in the second quarter of this year. For example, this past week, Ecuador got its first unicorn when payments infrastructure startup Kushki raised $100 million at a $1.5 billion valuation. And, Mexico City–based digital bank Klar landed $70 million in equity funding in a round led by General Atlantic that valued that company at around $500 million. I first wrote about Klar back in September 2019, when it aspired to be the “Chime of Mexico.” You can read about how its model has evolved here.
Does all this mean that LatAm is an outlier? Not necessarily. But it does signal that investor appetite in the region remains.
Now, we all know insurtechs have taken a beating in the public markets. And last week, I covered a significant round of layoffs in the sector. So it’s extra interesting that a startup in the space not only continues to raise capital and boost its valuation, but also is reportedly actively working toward becoming cash-flow positive.
I wrote about Branch, a Columbus, Ohio–based startup offering bundled home and auto insurance, which raised $147 million in Series C funding at a postmoney valuation of $1.05 billion. I first heard/wrote about Branch in the summer of 2020, and it’s been wild watching the company steadily grow its business.
With the latest news, I wanted to drill down on what differentiates Branch from the other struggling insurtechs out there. CEO and co-founder Steve Lekas told me in an interview: “Now we’re at a scale where we’re selling more product than most of those that came before us. I think the thing we’ve made is the thing that everyone thought they were investing in to begin with.” To learn more, read my story on the topic from June 8.
TC’s Kyle Wiggers and Devin Coldewey dug into Apple’s biggest move into financial services to date — becoming a formidable player in the increasingly crowded buy now, pay later (BNPL) space. This article covered the news to begin with. This one took a look at how Apple is doing its own lending. And this one drilled down deeper into how other BNPL providers are reacting to the news. And ICYMI, the week before, Square announced it would begin to support Apple’s Tap to Pay technology later this year. It was a partnership that MagicCube founder Sam Shawki predicted despite buzz that Apple would kill Square. In his view, that partnership only continues to increase the need to provide an equivalent payment acceptance solution for Android.
Also, this past week, two large players announced big crypto-related moves. I took a look at how PayPal users will (finally) be able to transfer cryptocurrency from their accounts to other wallets and exchanges. “This move shows we’re in this for the long term,” an exec told me in an interview. And Anita Ramaswamy — who was on the ground at Consensus in the inferno that is currently Austin, Texas — reported on American Express’s new partnership with crypto wealth management platform and wallet provider Abra. The card will allow users transacting in U.S. dollars to earn cryptocurrency rewards on their purchases through the Amex network. Amex users have been waiting for an announcement like this for some time, as its competitors Visa and Mastercard have already launched their own crypto rewards credit cards through partnerships with digital asset companies.
It feels like no more than a couple of weeks can go by without Better.com making headlines yet again. This time, the digital mortgage lender is being sued by a former executive who alleges that she was pushed out for various reasons, one of which includes expressing concerns that the company and its CEO Vishal Garg misled investors when it attempted to go public via a SPAC.
Other interesting reads:
Out of Money 20/20 Europe