In Front of Yorktown (1863 – 1866) by Winslow Homer.

3 Fintech News Stories

#1: Two Camps

What happened?

Zest AI, a fintech infrastructure company founded in 2009, raised $50 million:

Zest AI, the leader in automating underwriting with more accurate and inclusive lending insights powered by AI, announced today a fresh expansion round of more than $50 million.

So what?

The interesting bit to me is who put up the money:

The round was co-led by Insight Partners, an existing global software investor, and CMFG Ventures, a new investor, with participation from CU Direct, Curql, Suncoast Credit Union, Golden1 Credit Union, Hawaii USA Federal Credit Union, and NorthGate Capital.

I’m a huge fan of banks and credit unions investing in fintech companies. I love the model. However, I have observed that banks and credit unions investing in fintech companies tend to fall into one of two camps.

In the first camp, you have financial institutions who recognize that there are a lot of things happening in fintech that they don’t understand well, and they use VC investing as a mechanism to force themselves to learn. In the second camp, you have banks and credit unions that invest in fintech in order to affirm what they already believe to be true.

The second camp tends to be populated by smaller financial institutions, and they tend to invest in well-vetted companies and concepts that may offer some utility but present basically no threat of upending their market position.

I like Zest AI, but I’m pretty sure this investment falls into the second camp.

#2: Niche Neobank Revival?

What happened?

A new niche neobank raised a seed round:

Fursure, a San Francisco, CA-based provider of a pet insurance marketplace and mobile banking solution for pet parents, raised $3M in Seed+ funding.

Founded by Catherine Dennig and Keji Xu, Fursure provides a marketplace to make it easier to find and compare pet insurance policies, and a Pet Rewards Debit Card that helps pet parents save for their pet’s healthcare. Card holders earn points on everyday spend that can be redeemed towards the cost of veterinary bills.

So what?

This is very 2020.

The belief back then was that niche neobanks – digital banks focused on hyper-specific customer segments with unique or differentiated banking needs – were going to become a major part of the financial services landscape based on their ability to craft more tailored and compelling value propositions for their target customers.

Then VC investors fell out of love with B2C neobanks in general, and niche neobanks in particular. And since then, I haven’t seen a lot of new companies in this category pop up.

This one seems fine? I mean, pet parents spend an outrageous amount of money on their fur babies (eeghh … I didn’t enjoy typing that), something like $100 billion annually in the U.S. So it’s a big market. I’m just not sure the affinity play here is strong enough to create a sustainable customer acquisition advantage.

I’m honestly surprised this got funded, but my dog and I are rooting for them.     

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#3: A Parallel Universe

What happened?

There is apparently a company called NiftyApes, and it recently raised a seed round:

NiftyApes, a firm that lets users take out loans on any NFT collection, has raised $4.2 million in seed funding.

NiftyApes intends to augment the secondary debt economy for NFTs, moving it away from the predatory lending practices that benefit the wealthy in web2 settings. NiftyApes intends to do this through facilitating market competition to refinance an NFT loan automatically.

So what?

The core concept here is interesting – automated auctions for refinancing existing debt.

This isn’t a new idea, but it’s a good one and one that I’d love to see get some traction in the market … just not the NFT market.

Interestingly, one of the co-founders of NiftyApes was inspired to solve this problem after working in the secondary mortgage market:

NiftyApes started as a series of questions that at first had nothing to do with crypto, but with mortgages. Questions like: Why is refinancing so time consuming? Why isn’t it easier for borrowers to get better terms if their collateral grows in value? Why is the secondary debt market limited to institutions?

These may not be the most exciting questions. But when you realize the personal loan market in the US is $178 billion, a small innovation could bring meaningful change to millions of people.

Prior to working in crypto, I spent time working on secondary debt markets products in the mortgage industry. I have a passable understanding of how they work; namely, they don’t. Not well anyway, and especially not for the borrower. It’s shocking to see the same inefficiencies in the mortgage industry redeveloping in crypto, especially around NFT lending. 

Imagine that there is a parallel universe in which crypto and web3 don’t exist. Would this person’s doppelgänger in this parallel universe have just stayed in the mortgage market? Might they have started a similar company (with a less silly name probably) focused on bringing automated mortgage refinance to homebuyers?

I don’t know, but when I see smart people with good ideas in our universe building the infrastructure for a more liquid collateralized lending market for the owners of cartoon ape pictures, I can’t help but wonder.

2 Fintech Content Recommendations

#1: Did OCC Scrutiny of Column Drive Brex to Dump SMBs? (by Jason Mikula, Fintech Business Weekly)

Jason did extensive reporting on this one, chasing down rumors that many folks in the industry (including myself) have been hearing and trying to fill in as many details as possible. It’s worth a read if you haven’t gotten to it yet. My quick take is that Column got over their skis (signing up fintech clients too fast) at exactly the wrong time (the OCC and other regulators have really started cracking down on BaaS this year).

William Hockey (co-founder and co-CEO of Column) responded to this story on Twitter, claiming that it was factually incorrect and that he wasn’t given an opportunity to tell his side of the story on the record. That second claim is incorrect (Column declined to comment on the original story), which causes me to think the first claim isn’t worth taking seriously either. I guess we’ll see.

#2: Can A Bunch Of Ex-PayPal Execs Lead MX To Open Banking Dominance? (by Ron Shevlin, Forbes)  

This article is built around an interview that Ron did with Jim Magats, the newly installed CEO of MX (I did a similar interview with Jim, which you can listen to here). However, this article goes much broader than just MX, exploring the evolving competitive dynamics within the open banking data aggregation space. It’s chock-full of great insights, but my favorite was Ron’s assertion that acquisitions will be necessary if MX (or any company in the open banking space) wants to dominate the market.

1 Question to Ponder

Why hasn’t someone built the infrastructure to better enable owner financing in the proptech space?

I know owner financing, in which the seller of the home directly finances the buyer rather than the buyer getting a mortgage from a lender, has a checkered history and a potential for abuse (particularly by large single-family home investors). However, the model can work well for both parties, and in a market where interest rates are prohibitively high, but buyers are still motivated and financially capable, I’d think it would be an attractive option. All you would really need to do is bring back the old P2P lending set-up – a platform for buyers and sellers that handles all of the risk evaluation, paperwork, servicing, and collections.

Can someone smart explain why this is a bad idea?

Alex Johnson
Alex Johnson
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