Wooden Cash Register (1942) by Wilbur M Rice.
3 FINTECH NEWS STORIES
#1: Consolidation is Coming to the Office of the CFO
What happened?
Paylocity is acquiring Airbase:
HR and payroll software company Paylocity has agreed to acquire corporate spend startup Airbase for $325 million, the companies announced Wednesday.
Headquartered in Schaumburg, Illinois, Paylocity is publicly traded and, according to Yahoo Finance, has a current market capitalization of just under $9 billion, with about 40,000 customers. The company in a statement said the addition of Airbase would help it expand its total addressable market beyond human capital management (HCM) and “further into the office of the CFO.”
And Mercury is acquiring Teal:
Today, we’re excited to announce that Mercury has acquired Teal, a seed stage startup that builds accounting products.
In May, we announced new software to simplify essential financial workflows by powering them directly from the Mercury account. We introduced Mercury Bill Pay to help customers pay bills more accurately, new accounting automations to close the books faster, and Mercury Invoicing to collect customer payments on time. And soon, we’ll add reimbursements alongside our existing corporate credit card to make it possible to control employee spend right from the Mercury account.
The acquisition of Teal, and the expertise this team brings in accounting and with accountants, is another step toward simplifying complex financial workflows around the bank account.
So what?
I think there are a couple of takeaways here.
First, consolidation is coming to the office of the CFO. B2B fintech has been given a bit more latitude, from a venture investment perspective, over the last couple of years (during which time VCs have basically gutted B2C fintech), but that would appear to be ending. If you want to start a corporate spend management or fintech for vertical SaaS company, you should expect to face some tough questions about competitive differentiation and winner-take-most dynamics.
Second, despite my enthusiasm for vertical B2B SaaS (and the embedded finance opportunities those platforms present), these acquisitions seem to suggest that horizontal B2B software platforms are still a force to be reckoned with.
My general theory about the B2B software market is that there is a growing gap between small businesses (which want the convenience of a single unified platform for everything, tailored to their vertical) and medium-sized and enterprise companies (which want the flexibility to assemble their own finance and software stacks, with as little vendor lock-in as possible).
Paylocity clearly believes that it can win in the medium-sized company segment with a single unified platform if that platform’s capabilities are good enough and broad enough (this acquisition reminds me a little of Bill scooping up Divvy in 2021). Perhaps they’re right.
And Teal clearly believes that its original vision — enabling a wide range of vertical B2B SaaS companies to offer accounting capabilities to their small business customers — isn’t worth continuing to pursue when presented with the alternative to create better accounting capabilities for one vertical (startups). Maybe that’s just about Teal and its prospects (building startups is hard, and getting a good exit and joining a company you admire is an appealing outcome), or maybe it says something more broadly about the vertical-SaaS-will-eat-SMB thesis that I and others are so bullish on.
#2: Akoya Embraces Cash Flow Underwriting
What happened?
Akoya and Nova Credit have partnered up:
Nova Credit, the credit infrastructure and analytics company, and Akoya, the 100% API-connected data access network, announced today a partnership to help lenders deploy cash flow and income analytics to improve credit decisioning.
Through the partnership, Akoya’s industry-leading bank data connectivity can be used to access and verify customers’ cash flow and income data.
So what?
I usually cut the company appellations out of the quotes I pull out of press releases, but I left them in here this time because Akoya’s “the 100% API-connected data access network” self-bestowed title is some A+ trolling. Well done.
Part of Nova Credit’s platform is a data access abstraction layer, which allows customers to use multiple data aggregators (Plaid, MX, Finicity, etc.) without having to build and manage the integrations themselves. This flexibility is important for use cases where high levels of coverage and connectivity are essential (like cash flow underwriting) because no single data aggregator is amazing on those metrics (yet).
Adding Akoya, which I have heard is not the easiest aggregator to integrate with, to the Nova Credit platform is a big win and will be useful to companies interested in accessing consumer-permissioned data.
I also think it’s an interesting indicator of the emerging competitive battle lines being drawn in the open banking space generally, and in the cash flow underwriting market more specifically.
Akoya, which is owned by the big banks, doesn’t play nicely with everyone. The fact that it is partnering with Nova Credit suggests that A.) Nova Credit’s long history of working with large banks has positioned it well to continue selling into these accounts, and B.) the big banks see an opportunity in cash flow underwriting that excites them far more than other open banking use cases.
#3: Can We Stop, Please?
What happened?
Revolut is enabling its customers to generate virtual cards so they can spend their crypto at the point of sale:
Integrated with Apple Pay and Google Pay, the new virtual cards enable users to pay in person and online for shopping using crypto, from big budget items to everyday essentials, such as the daily commute and morning coffee.
Users can set up their cards with a few taps on the Revolut app and select which cryptocurrency they choose to spend from.
So what?
Revolut is calling this “the future of spending,” which is possible, I guess. But if true, I have to say — the future is stupid.
Many other companies have tried this (remember Dan Schulman demoing how PayPal customers could buy cowboy boots with Bitcoin?) and it has never worked.
Do you know why?
Customers don’t want this. They don’t buy crypto to use it as a currency. It’s an investment. And selling your investments in order to pay for stuff at the point of sale is a stupid way to manage both your investments and your payments.
Can we stop trying to make this a thing, please?
2 FINTECH CONTENT RECOMMENDATIONS
#1: Home Insurance is a Really Big Problem (by Kyla Scanlon) 📚
Kyla Scanlon has the enviable ability to identify and write eloquently about trends that are somehow both obviously important and under-discussed.
This ability is on full display in this piece about the problem of home insurance and how we price the risk of the American dream.
#2: The next cross border rail will be 10x more efficient (by Simon Taylor, Fintech Brainfood) 📚
Good stuff here from Mr. Taylor on the potential for stablecoins in cross-border payments.
1 QUESTION TO PONDER
What are the biggest barriers stopping cash flow data from disrupting the credit bureaus and FICO in the loan securitization market?
Obviously, inertia is the big barrier, and mortgage is its own beast (though we are making progress), but I’m curious if there are other mechanical or systemic issues stopping cash flow data and cash flow underwriting from eating into this part of the market.
