3 FINTECH NEWS STORIES
#1: Aspirations
What happened?
Bloomberg published a thoroughly reported deep dive into Aspiration, the green neobank and sustainability-as-a-service provider. The findings from Bloomberg’s reporting are … not good:
In late 2020, just as company executives began holding meetings about a potential public offering, Aspiration signed its first deals with corporate clients. Within a year, this new unit leapt to more than half of Aspiration’s sales—accounting for $56 million of the $100 million in revenues it reported for 2021. But the explosive growth in Aspiration’s new business was driven in part by dubious deals that inflated the company’s revenue, according to a Bloomberg Green investigation that relied on interviews with 28 former employees and several of Aspiration’s corporate customers, as well as a review of numerous internal company documents.
In its pursuit of a public listing, Aspiration told investors it had signed deals with nearly three dozen business customers. While a few were household names—including the Los Angeles Clippers basketball team and consulting giant Deloitte—most were never disclosed. Many of these deals baffled the Aspiration insiders who had access to the information, and [Aspiration co-founder and former CEO Andrei] Cherny said in a statement that there were parts of some agreements he didn’t know about.
So what?
While most people operating or investing in fintech in 2020 and 2021 didn’t really want to acknowledge all of the shady shit that was happening, it wasn’t difficult to see that Aspiration, as a business, didn’t make a lot of sense.
In October of 2021, Ryan Martin and I co-published an essay about the weirdness of Aspiration (and MoneyLion), calling out specific numbers and claims that seemed suspicious. My favorite was Aspiration’s use of EBITDAM as a profitability metric:
You’ve heard of EBITDA — Earnings Before Interest, Tax, Depreciation, Amortization. Pretty standard. How about EBITDAM? The ‘M’ at the end stands for marketing and it’s an addition you make to the acronym when you really need to not count marketing expenses in your profitability calculations.
Aspiration spent $22 million on marketing in 2020. In 2021, it estimates that it will spend $149 million. By 2023, Aspiration estimates that it will spend $332 million on marketing.
Putting all of this in context, Aspiration made $14.7 million in total revenue in 2020.
We also pointed out how strange it was that Aspiration positioned itself as a consumer neobank while claiming to make most of its money from selling carbon offsets to other companies:
Just over 30% of that revenue came from Aspiration’s financial services products. 69% of revenue came from “ESG services”, with “corporate ESG services” taking up a lion’s share (56% of total revenue).
As mentioned above, “corporate ESG services” is basically selling carbon offsets (via reforestation).
And now, thanks to Bloomberg’s reporting, we know that many of the corporate ESG contracts that Aspiration was recognizing revenue against in the lead-up to its SPAC-facilitated entrance into the public market (which didn’t end up happening) were actually just letters of intent, most of which never went to contracting, service delivery, or payment.
According to Bloomberg, much of Aspiration’s malfeasance appears to have involved Joseph Sanberg, the company’s co-founder, board member, and major shareholder. Andrei Cherny, Aspiration’s co-founder and former CEO who is now running for Congress in Arizona, claimed in a written statement that he had no knowledge of this activity, though it’s difficult to absolve him of all of the blame given that we was the CEO and was responsible for, among other things, the internal controls that are supposed to stop this type of thing from happening in the first place.
Today, Aspiration’s corporate ESG business has been rebranded to “Catona Climate” and the brand and IP for the consumer neobank have been sold back to Tim Newell, the former COO at Aspiration, for an attempted pivot back to the company’s roots as a bank for climate-conscious consumers.
I wish Tim and the team a lot of luck.
#2: KYB is Suddenly Hotter than the Sun
What happened?
Accend, a Know Your Business (KYB) vendor, raised some money:
Accend, an AI-driven onboarding and risk assessment startup for B2B fintechs, has raised $3.2 million in seed funding
Accend automates the process of researching a business’s product, services, and beneficial owners, among other things, speeding up business onboarding.
It provides insights into industry risks using a customizable AI model trained and tailored to a client’s specific risk appetite.
And Niva, another provider of KYB services, also raised some money:
Niva, a global business identity platform, officially launched today, introducing an AI-powered solution designed to overcome the significant challenges of establishing trust in businesses internationally. With marquee customers and more than $3.3 million in funding led by Gradient Ventures
By leveraging Niva’s compliance and fraud AI agents, businesses can reduce onboarding cycles from weeks to less than 10 minutes. This innovation not only enhances application conversion rates by providing a better onboarding experience, but also eliminates the need for training ops teams in multiple languages, regional laws, and fraud tactics.
So what?
Miriam Cross at American Banker recently wrote about KYB, which has quietly become the single hottest area in fintech (sorry corporate cards and expense management … you had a great run).
In the article, Miriam offers what is probably the most likely reason for the recent surge of interest in KYB and business onboarding solutions:
There are numerous reasons why the KYB space is hot right now — and why banks are eager for more automated solutions to ensure companies are legitimate and not shells, to understand who the beneficial owners are and to screen for sanctions and adverse media. There were more than 430,000 business applications in the U.S. in June, according to data from the U.S. Census Bureau — about double the number of applications ten years ago.
An upswing in entrepreneurship, particularly digital entrepreneurship, is the most likely answer. More small businesses = more demand for (better) KYB solutions.
Still … this is getting crazy. Niva and Accend join Baselayer, Ballerine, Coris, TrueBiz, Parcha, and Greenlite as relatively new entrants within the KYB space, to say nothing of Middesk, which was founded in the ancient long-before times of … checks notes … 2018.
This space is ripe for consolidation, but honestly, at this point, the number of options for a Dun & Bradstreet or LexisNexis to pick from is paralyzing.
#3: Why Are We Tokenizing T-Bills?
What happened?
Hamilton, a crypto startup that specializes in tokenizing real-world assets, announced that they have tokenized U.S. Treasury bills on Bitcoin Layer 2 solutions:
The tokenization project seeks to make government-backed assets more accessible and tradable within Bitcoin’s defi ecosystem. By utilizing Bitcoin’s L2 solutions, Hamilton told Bitcoin.com News that it aims to improve scalability, reduce costs, and enhance the liquidity of these assets. Hamilton further highlighted a Boston Consulting Group report, showing the RWA market is projected to reach $16 trillion by 2030, underlining the potential impact of this initiative.
So what?
Crypto is tricky for me to write about because a lot of it is highly technical and difficult to understand, and a lot of it is stupid. Separating the bits that I don’t understand from the bits that no one understands is always a challenge.
I’d love it if someone could make this one make sense to me because I don’t get it.
Real-world asset tokenization seems most valuable when the assets that you are tokenizing are illiquid. Here’s how the Boston Consulting Group report that Hamilton pointed to defines illiquid assets:
A large chunk of the world’s wealth today is locked in illiquid assets. In a survey conducted in the U.S. in 1997, 56%+ of assets held by taxpayers with a net-worth of between $600,000 and $1 million were illiquid. All else being equal, illiquid assets typically trade at a discount vs. liquid assets, and are characterized by a high stock-to-flow ratio, lower trading volumes and imperfect price discovery vs liquid assets. For example, illiquid physical art assets have a stock-to-flow ratio of 28.3 as opposed to 1.11 for liquid Real Estate Investment Trusts (REITs). Primary examples of illiquid assets include real estate (incl. home equity), natural resources, land, commodities, public infrastructure like mines/ports, fine art, computing infrastructure, private equity etc. On top of that, there are multiple other asset classes which are only accessible to limited wealthy investors/institutions due to constraints on ticket size, e.g., pre-IPO stocks, hedge funds, infrastructure projects, commodities and alternate investment instruments, private credit. The total size of illiquid asset tokenization globally would be $16 trillion by 2030.
U.S. Treasury bills are the most liquid non-cash asset on the planet! Trillions of dollars in T-bills are bought and sold every year! Why are we tokenizing them?
And if the answer to my question is, “We want to make the stability of U.S. debt available to people living in countries with unstable currencies,” isn’t that what stablecoins are for?
[Josh Baskin voice] I don’t get it.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Fed Chair Powell Got It Wrong (by Jason Mikula, Fintech Business Weekly) 📚
If you’d like to understand the myriad of different ways in which federal and state banking regulators can directly regulate and supervise BaaS middleware platforms like Synapse, Unit, Treasury Prime, and Synctera, read this newsletter by Mr. Mikula.
And, if I might add, this newsletter pairs very well with my essay from last week – Why Can’t We Have a National Fintech Charter?
#2: What is the purpose of liberalism? (by Jeremiah Johnson, Infinite Scroll) 📚
This isn’t fintech content, but given recent events, it feels very much worth making the exception. This is an exceptional piece on why political violence is so corrosive to everything we treasure.
1 QUESTION TO PONDER
What questions do you have for me?
I am going to be hosting a Fintech Office Hours event on July 25th (please register to join us if you’re available … the event is free) and I plan to publish an Ask Me Anything essay in the newsletter at some point, so I’d love to hear from you – what questions (fintech or otherwise) are on your mind?
