*This article is being continuously updated as more deals take place or get cancelled!

SoFi x Galileo (updated 4/14/2020)

Plaid x Visa (updated 1/19/2021)

Every year since 2010 has been called THE “Year of FinTech.” Three months into the new year and it’s hard not to make the same case of 2020. 2019 was the “Year of the FinTech Unicorn” due to the numerous companies having a new valuation over $1B. 2020 should be labeled “Year of the FinTech Deal” as the amount of activity in the industry (from investing, acquisition, and partnerships) is at an all-time high. There has been an overflow from the end of 2019, which saw some considerable moves made — big names are getting involved early (such as PayPal, Visa, and Charles Schwab) and fintech companies (such as LendingClub) are also doing their share of acquisitions, public offerings, licensing, and monumental partnerships.

Here’s a breakdown of the FinTech deals and activity (starting from the end of 2019, with 4 of the 8 deals made taking place between Feb 11 - 19 of this year):

FinTech Acquisitions

PAYPAL ACQUIRES HONEY (November 20, 2019)

PayPal acquired Honey Science Corp. (a FinTech company with a deal-finding browser extension and mobile app) for $4B. The acquisition gives PayPal a presence earlier in the shopping journey, instead of being only an option at time of checkout — effectively competing against other purchase options currently available (e.g. credit cards, Apple Pay, Google Pay) and emerging threats (such as upcoming Facebook Pay).

Honey’s 17M monthly users were using it as an automated money-saver to track prices, receive alerts, review offers, and enroll in a proprietary rewards program (Honey Gold) — targeting young millennials. The company tracks marketing codes and automatically tries all the eligible promos during checkout, selecting the best discount option and applying it to the purchase. The movement by shoppers to e-commerce over the last 5 years further fueled the growth of Honey, who now has over 30K merchants and saved consumers over $800M.

PayPal’s network of 24M merchant partners also benefits by gaining the ability to offer targeted and personalized offers to acquire new revenue streams and deepen existing sales.

CHARLES SCHWAB ACQUIRES TD AMERITRADE (November 25, 2019)

Technological changes paved a road towards automated portfolio advice from roboadvisers. The influx of start-ups using these platforms and charging $0 fee trades forced large firms, such as Schwab and JPMorgan Chase, to do the same. The prior month (October 2019) is when Schwab decided to eliminate fees (for stocks and exchange-traded funds), which triggered a domino-effect of TD Ameritrade and E-Trade making similar announcements soon after.

Charles Schwab’s $26 billion acquisition of TD Ameritrade is to maintain its spot in the brokerage sector as the financial services industry must evolve to drive revenue without fee income. The two companies combine to hold about $5T in total assets — behind Fidelity (who holds 1/3 of the self-directed market).

For Schwab, eliminating commissions cost perhaps $100 million a quarter, or roughly 4% of overall revenue, but for other firms this size loss of that revenue would be much more burdensome.

Schwab gains a larger customer base (12M retail & adviser accounts for a total of $24M) and is also able to reduce its overhead expenses.

VISA ACQUIRES PLAID (January 13, 2020) [UPDATE for Jan. 2021 - the deal has been called after Dept. of Justice challenge on monopoly concerns; separate article to follow]

Visa agreed to purchase Plaid for $5.3 billion. A well-known brand in the world of fintech (especially for developers), Plaid maintains massive reach in banking by helping connect 1 of 4 bank accounts domestically. This wide net is supported by its 11K integrations with banks and financial institutions, which allow connections of over 200M personal accounts. The unicorn has also integrated with other industry giants such as Venmo, Robinhood, and Coinbase.

For Visa, the acquisition allows the company to expands its total market towards fintech companies as a long-term focus.

ALLY ACQUIRES CARDWORKS (February 18, 2020)

Ally Financial Inc. acquires CardWorks, Inc. for $2.65B. The deal should be finalized in Q3 (of 2020) after closing conditions and regulatory approvals are satisfied. Based in Woodbury, NY, CardWorks is a U.S. credit card issuer that is privately held — focusing on the non-prime sector and offering a wide array of servicing functions (from third-party partners to recovery services). As part of the new arrangement, CardWorks’ subsidiary (Merrick Bank) will merge with Ally Bank as well.

The acquisition is a strong boost to Ally Financial’s top auto finance, insurance, and commercial product offerings — and should enhance the company’s consumer banking platform. The deal aligns with the company’s long-term vision of sustainable growth through differentiated financial services for consumers with a low-cost deposit base. Overall, Cardworks represents another buyout that allows Ally to diversify its revenue sources and deepen relationships.

LENDINGCLUB ACQUIRES RADIUS BANK (February 19, 2020)

LendingClub made its acquisition (of $185M) to acquire Radius Bank (neobank) in the U.S. with over $1B in assets.

This is the first FinTech company to buy into the banking industry — side-stepping the process of applying (and being approved) for a national bank charter (which a few other fintechs have chosen — see Varo’s FDIC approval below). By expanding into banking, LendingClub will be able to offer both existing and new clients a set of deposit products in addition to its current suite of lending solutions. The fintech will also reduce its use of expensive warehouse lines, generate increased recurring interest income, and offer low-cost funding to enhance resiliency during economic downturns (such as what we’re experiencing globally in March).

To prevent the deal from being delayed, LendingClub adopted a Temporary Bank Charter Protection Agreement, which deters stock position in excess of the thresholds put in place by the Federal Reserve.  LendingClub has been talking to regulators for over a year about the transaction and its approval.

SOFI ACQUIRES GALILEO (April 7, 2020)

SoFi, personal finance platform first popular for student loan refinancing, acquired Galileo Financial Services, a 3rd party FinTech infrastructure provider that helps other top companies run (such as Robinhood and Chime). The deal was for $1.2B and helps SoFi added depth to its already versatile products and services.

Galileo brings its own capabilities into the fold, such as account setup and funding, direct deposit, early paycheck access, direct deposit, cards, and bill pay.

As the acquisition gets finalized, the industry will be looking for movement of existing Galileo customers off their platform, especially companies that compete directly with SoFi’s current offerings of a card program, deposit accounts, and lending solutions.

FINTECH GOES IPO with bill.com

On December 12, 2019, Bill.com (B2B software and payments fintech) priced its IPO at $22 a share, above the initial $16 - $18 target range. The company sold over 9M shares, raised $216M, and gained a valuation of $1.6B — despite its increasing net loss of $7.3M (over the $7.2M for the year prior). The loss was slightly offset by the growth in revenue to $108M, from $64M in the previous year. 

In light of the botched IPO market of 2019 from WeWork’s unraveling bid to go public, Bill.com was still able to magnetize so much investor attention even as losses increased — a great sign for the small and medium-sized business (SMB) payments sector. Large banks and institutions have mainly ignored this area leaving emerging fintech startups the ability to deliver robust payment management platforms and automation. For small businesses still using paper checks and manual account reconciliation, Bill.com has been able to support them with innovation that has already taken place in consumer banking arena. These businesses will then have capacity to focus on growing and scaling their own operations, instead of bookkeeping.

more FINTECH power moves

VARO MONEY RECEIVES FDIC APPROVAL TO BECOME A BANK (February 11, 2020)

After three years and multiple rounds of applications, the FDIC finally approved Varo’s application for a national bank charter, allowing the fintech to accept customer deposits. Instead of partnering with community banks and layering its own mobile app, the current process of companies (such as Chime, Apple, Brex, Google, and Robinhood) — Varo can be completely independent, both in holding customer funds AND handling the banking interface.

This milestone is the first of its kind for a consumer-focused fintech — a commercial-focused fintech (Grasshopper) with a niche in business banking received approval in July 2018. The banking license gives Varo the ability to launch its own lending programs, without added costs of physical branches, ATMs, and other overhead from traditional banks.

Currently, most Fintech companies have their eye on a specialized fintech bank charter, which can provide a faster avenue in becoming a bank; however, New York’s federal district court ruled last year that the Office of the Comptroller of the Currency (OCC) didn’t have the necessary authority to make this happen.

COINBASE DEEPENS VISA PARTNERSHIP FOR CARD (February 19, 2020)

Visa has granted its principal membership to Coinbase (a top cryptocurrency company in the US) for the first time, which allows the fintech to issue debit cards on its own (without a banking intermediary) that can be funded by crypto (bitcoin, ether, litecoin, bitcoin cash, BAT, REP, ZRX, and Lumen) — at all merchant locations that accept Visa. To be clear, Visa itself won’t be accepting payment in cryptocurrency — having Coinbase take care of the transaction into fiat. This level of membership also allows Coinbase to issue cards on behalf of other companies (such as exchanges and traditional institutions) and gain access to Visa Direct (payout option that is instant, similar to traditional wires and faster than ACH).

Even though the fintech won’t issue cards for sometime, this new revenue source comes at a time when it needs it most (coming off of a historic 2018 to 2019 in which it dropped 40% in revenue). The introduction of cryptocurrency as an everyday method of payment (through Visa) has huge long-term ramifications for the legitimacy of digital coins and tokens.

Operated by Coinbase’s fully-owned U.K subsidiary (based in London), the card automatically converts cryptocurrency into whatever fiat the merchant accepts — available in 29 countries later this year (such as Denmark, Estonia, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, and the U.K). No availability for U.S. residents yet, since purchasers would have to pay additional taxes (based on price differences at time of purchase). The E.U. doesn’t have this tax requirement.

Previous attempts at a Coinbase Visa card (in April 2019) through Paysafe Group Holdings Limited, Soldo (corporate spending company), and Luna (mobile banking app that charges a fee) struggled due to the partner’s scope of risk and business model. Other partnerships between Metropolitan Commercial Bank and BitPay or DiPocket Limited and Nexo, have also resulted in publicly-launched crypto cards. Being a principal Visa member, allows Coinbase to take complete ownership of being a card issuer and drive cost-efficiency by reducing overall fees to the end-user.

HOW ABOUT THE REST of 2020?

Despite the fast-paced movement of the last four months, the remainder of the year is influx with the impact of the coronavirus on the global economy. Some top investment firms, such as Sequoia Capital, are planning for the worse and being cautious of making new bets on emerging startups. If other companies follow suit, we may see a slowdown with industry growth and innovation until the current market volatility stabilizes. Certain leaders see these “Black Swan” events as the optimal time to jump in on new ventures while competitors anxiously await on the sidelines. This upcoming 2nd Quarter of 2020 will be the best indicator for the year as governments are doing their best to respond to the economic downturn through stimulus and minimizing interest rates.

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