FedNow may finally go live, but will it be too expensive for businesses to adopt?
Welcome to the Crossroads! If you want this in your inbox, sign up here. It was an eventful week in the fintech world, with the launch of FedNow, former fintech CEO Bolt – and the company himself – being called out by the US Securities and Exchange Commission and more. Let’s explore here.
It’s about timing
Last week, the US government’s instant payment system, FedNow Servicefinally aired.
FedNow is an instant payment infrastructure for transferring money that promises faster payment paths for financial institutions, offering immediate access to funds no matter the day or time of day. As you know, this is huge because banks usually don’t open 24/7 or let you receive money and use it on the same day.
It’s also something the US considers “left behind” even though other countries have lived with similar services for some time, including Brazil, India, the United Kingdom and the European Union. In fact, anecdotally, we hear that in Brazil, the country’s similar system, Pix, is so common that people even use it over credit cards to pay street vendors. And there is data to back it up too.
We took a deep dive into what the long-awaited service launch means for the US on Friday. But one thing we didn’t touch on: how banks choose to price FedNow to their customers and how that might impact how quickly it gets implemented.
By email, Adam Shapiro, partner at financial services advisory and investment firm Klaros Group, noted that the Fed charges banks about 4 cents for FedNow payments, compared to less than half a cent for ACH payments. However, he added, the bank is free to charge whatever fee the customer wants for the payment. Thus, according to Shapiro, “business customers deciding which to use could be hindered if banks make FedNow significantly more expensive than ACH.”
He added: “A business might be prepared to pay 3.5 cents to get someone’s money faster, but draw the line by paying 25 cents. Also, how fraud is handled and where liability falls if something goes wrong will shape adoption.
Weekly News
Christine reported on the fact that a letter written in April by an attorney representing Bolt’s investors said the SEC was investigating whether federal securities laws were violated in relation to statements made when Bolt raised money in 2021. The letter was sent to Bolt’s general counsel as part of a fact-finding mission. According to a letter referenced by The Information, Brian Reinken of WestCap Management and Arjun Sethi of Tribe Capital Management, investors in Bolt’s Series C and Series B rounds respectively, demanded to see company records, claiming that former CEO Ryan Breslow allegedly “misled” investors while raising funds for the company’s $355 million Series E round. You may recall that Breslow stepped down from his role as CEO in January 2022.
Mary Ann teamed up with Rebecca Szkutak to look at how far fintech valuations have fallen since the heyday of the venture boom (see chart below). Unsurprisingly, the valuations of most of the top-rated fintech companies have fallen, with three exceptions — all operating in the same space. They look at valuations based on secondary stock activity (as analyzed by Notice. co), which some say may be a more accurate reflection of a company’s value than public judgments at the time of fundraising. They also spoke to some industry experts to find out what to expect. Check it out here: Fintech valuations have fallen. Where do they go from here? (TC+)
TC’s Alex Wilhelm and Anna Heim took a deep dive into the world of insurance technology for Zero2Billions+, noting that while some industries have been able to overcome the inflated valuation hump starting in 2021, this industry doesn’t appear to be one of them. So much so that one report called it the “death of insurtech 1.0”. Alex and Anna take a look at how global startups are faring, and whether there are any signs that the industry may actually recover. (TC+)
Reporter Dominic-Madori Davis writes about the aftermath of the acquisition involving neobank Greenwood, which caters to Black and Latinx customers, and The Gathering Spot, a network club with similar interests. As you’ll see, everything was going well… until it wasn’t. Now there are sour feelings and lawsuits. While neither side commented, Dominic-Madori detailed what went wrong. The debate about whether niche-focused neobanks will ultimately prove successful continues as Daylight, another neobank focused on the LGBTQ+ community, recently closed.
Prepare your palms! Reporter Sarah Perez covers Amazon’s palm scan payment technology coming to Amazon’s 500 Whole Foods stores by the end of the year. Here’s how it works: Utilizing a biometric payment system, customers place their palm over a reader device that identifies an individual’s unique signature and associates it with a registered customer’s payment card to charge them for their purchase. Don’t worry, your palm data is not shared.
Medical procedures often involve a complex web of bills and payments that can drag on for months or even years. I (Christine) personally had a collection agency come after me for a $50 urine test (I’m 21 and don’t know any better), so I can imagine what it must be like for someone who owes thousands of dollars in medical expenses. This week I wrote about Collectly, a company that develops proprietary interfaces that integrate with electronic health records and practice management software to simplify patient billing operations. By making payments easier, the company claims that medical enterprise customers are, on average, able to increase patient collections for medical group partners by 75%, reducing “extraordinary sales days” to 12 days from between 60 and 90 days. Even though Collectly’s customers are medical offices, I think digitizing medical bills can also help patients. Who doesn’t want a one-click way to access and pay all bills associated with a procedure?
CB Insights released it Fintech Situation Report Q2 last week, and unsurprisingly, global funding in the space fell – plunging almost half to $7.8 billion, the lowest level since 2017. But at least one region didn’t have a bad quarter. Can you guess which one it is? Meanwhile, payments—historically the darling of the fintech space—didn’t pan out for three months. Read more here.
Visa and Mastercard have been hit by an antitrust lawsuit by fintech firm Block. In a lawsuit filed July 14 in US District Court for the Eastern District of New York, Block alleged the two credit card giants “conspired to overcharge payment platform Square, causing higher retail prices to be paid by consumers,” by increasing interchange fees as a way to maintain market share. according to a Bloomberg report.
Tech giant Apple in late March finally launched its Apple Pay Later service, which lets users split the cost of purchasing Apple Pay into four equal payments for six weeks without interest or late fees. The move puts Apple in direct competition with the likes of Affirm, PayPal and Klarna. How are you doing so far? Well, according to JD Power, very good. Recently report found that about a fifth of BNPL customers (buy now, pay later) said they used Apple Pay Later in the first three months. Additionally, the report also reveals that Apple has “a potentially more stable and sustainable user base than competitors. And beyond that, the data shows that this may attract first-time BNPL users who may not consider BNPL as an option.” This all led JD Power to conclude: “There are no guarantees, but Apple Pay Later has a lot going for it — [this] is a good thing to have generally, and especially as Apple itself dives further into financial services.”
Image Credit: Miranda Halpern/Zero2Billions
Other headlines
Daffy for Work is a kind of ‘401(k) charity’ that can unlock billions for US charities
Sundae set out to build a friendlier way to buy damaged homes (Zero2Billions reports the company’s 2021 pay rise here.)
Vest and Sproutfi team up to increase investment in the US
The Nuvei and Plaid teams are expanding payments per bank
Airwallex joins Brex in expanding its international presence
Funding and M&A
Seen on Zero2Billions
Thunes pocketed $72M at $900M+ valuation to expand its cross-border B2B payments platform
Karat, a startup building finance tool for creators, raised $70 million
Cognaize raises $18 million to build a better LLM for the finance sector that keeps people connected
Runway raises $27.5 million to streamline financial planning for businesses
Addition leads the $6 million seed round on Egypt fintech Flash
Look elsewhere
Anduin, which powers investor relations in private markets, announced $15 million Series B
Nav Acquires Tillful to Accelerate Data Platform Development
Are you Mynd? Invesco Real Estate invested $20 million more in the SFR platform. (Read Zero2Billions’s previous coverage of Mynd.)
Portrait Analytics raises $7 million for launch of AI research platform
KASO raised $10.5 million in initial fundinglaunched a payment fintech vertical offering and extended credit terms to restaurants
Payroll platform Colleen AI raised $3.5 million in seed funding for the series
Join us at Zero2Billions Disrupt 2023 in San Francisco this September as we explore the impact fintech has on our world today. Just this year, we’ll be having an entire day dedicated to all things fintech, featuring some of today’s leading fintech personalities. Save up to $600 when you buy a pass now through August 11th, and save 15% on top with promo code INTERCHANGE. Study again.
Image Credit: Bryce Durbin
