Fintech Headlines: September 26 - October 2, 2022

Major U.S. indices posted another week of losses. Investors got a breather on Wednesday after the Bank of England (BoE) intervened in the bond market, suspending its plan to start selling government bonds (a policy known as “quantitative tightening”), and announcing a two-week purchase program for long-dated obligations (a policy known as “quantitative easing”). The intervention was intended to address the sharp rise in the government bond yields, which put pension funds, holding those bonds, under pressure (the value of bonds declines, when yields rise).

The markets rallied following the BoE’s intervention, which made some investors believe that the U.S. Federal Reserve might also blink and reverse its policy. However, investors’ hopes were crashed by the higher-than-expected inflation data and affirmation from the Federal Reserve executives on the continuation of rate hikes. The major indices continued the decline on Thursday and Friday.

This week closed the third quarter, which was a true rollercoaster for investors. It started with a rally that lasted until mid-August and was fueled by the expectations that the Federal Reserve will “pivot” and stop hiking rates. Nevertheless, the Federal Reserve Chairman, Jerome Powell, dismissed any intentions to change the course following the central bank’s annual meeting at Jackson Hole. The indices lost all their gains and some by the end of the quarter. Inflation is high, and the Federal Reserve is determined to fight it.

🚀 Billtrust (NASDAQ: BTRS) shares advanced 60.49% this week following the announcement of the acquisition by EQT Private Equity. EQT valued the company at $1.7 billion, or $9.50 per share. The stock closed the week at $9.26 reflecting a risk that the deal might not close. More thoughts on this deal are below.

🚨 Banco Inter (NASDAQ: INTR) shares declined 22.20% during the week after JPMorgan’s analyst lowered the company’s target share price and forecasted losses for Q3 2022. Brazil’s statistics agency reported deflation in August, which might be good for the economy, but not good for the company’s bond and credit portfolio.

🚨 MoneyLion (NYSE: ML) shares declined 21.01% after the company got sued by the Consumer Finance Protection Bureau (CFPB) for allegedly overcharging service members and “trapping consumers into costly membership.” MoneyLion responded to the watchdog by calling its allegations meritless.

✔️ Stocks End Month With Worst Losing Streak in 20 Years✔️ Stocks Finish a Losing Week, Month and Quarter✔️ Wild Moves Send Stocks and Bonds Lower in Third Quarter✔️ Bank of England intervenes in bond market after historic sell-off✔️ Pension fund panic led to Bank of England’s emergency intervention✔️ UK 10-year bonds see record monthly fall after fiscal upset✔️ Fed’s preferred gauge shows inflation accelerated in August✔️ Fed Vice Chair Brainard warns against retreating from inflation fight prematurely✔️ Bitcoin Is Getting Slammed This Month. At Least It’s Doing Better Than Stocks.

Nubank, the world’s largest neobank, announced reaching 70 million clients in Latin America. 64 million of those customers are based in Brazil, the company’s home market, 3.2 million in Mexico, and 0.4 million in Colombia. The company claims to be “the fifth largest financial institution in Brazil” in terms of the number of customers. Nubank Cripto, the company’s crypto offering, reached the milestone of 1.8 million customers just a few months after its launch.

Nubank’s growth has been nothing short of spectacular (just check the chart below). The company continues to win customer hearts in Brazil, where it already serves “35% of the adult population”, and in its new markets, Mexico and Colombia. I believe succeeding in Mexico and Colombia is of particular importance to the company, and the company recently secured a $650 million credit line from Morgan Stanley, Citi, Goldman Sachs, and HSBC to fuel the expansion effort.

✔️ Nubank reaches 70 million customers in Latin America✔️ Buffett-backed Nubank reaches 70 million clients✔️ Brazil's Nubank aims to triple Brazilian clients, boost profitability✔️ Nubank Reaches 70 Million Customers; Almost 2 Million Have Purchased Crypto

A private equity firm, EQT, agreed to acquire Billtrust (NASDAQ: BTRS), a B2B payments company, for $1.7 billion or $9.50 per share in an all-cash deal. Before the announcement of the acquisition, the company’s shares traded at $5.77, so EQT will be paying a 64% premium. Naturally, shares advanced on the news, closing the week at $9.26 per share. The deal is expected to close in the first quarter of 2023.

Billtrust went public in January 2021 via a SPAC merger (merging with South Mountain Merger Corporation), and at the time of the merger, the company was valued at $1.5 billion (or $10 per share). EQT deal values the company higher ($1.7 billion vs. $1.5 billion), but the SPAC investors will be losing money due to dilution ($9.50 vs. $10.00 per share). Nevertheless, I don’t think Billtrust investors will object to the deal given where other deSPAC-ed companies are trading.

Image source: Investor Presentation, October 2020

✔️ Billtrust to be Acquired by EQT Private Equity for Equity Value of $1.7 Billion✔️ EQT to take payments firm Billtrust private in $1.7 bln deal✔️ Business payments firm Billtrust up for sale - sources✔️ Billtrust to become publicly traded company through combination with South Mountain Merger Corporation

This week Robinhood announced the release of its Web3 wallet to 10,000 beta customers. The company already launched a crypto wallet with a great deal of fanfare in April 2022, so when I saw the news about a “Robinhood web3 wallet”, I thought this was just another spin on the past event. However, this time, the company is launching a standalone crypto wallet, not a wallet integrated into the main Robinhood app. The new wallet [eventually] will allow users to store, send, receive and stake cryptocurrencies, interact with dApps (i.e. DeFi), and trade NFTs.

Anyways, what strikes me is how much Robinhood is investing in its crypto capabilities. The company is acquiring a UK crypto company Ziglu (though at a much lower price than originally announced), it partnered with Circle to offer its clients access to USDC stablecoin, and now has launched not one, but two crypto wallets. Moreover, they continue investing in crypto, while aggressively cutting costs (two rounds of layoffs, cancelation of leases on new offices, etc).

In Q2 2022, crypto represented just 13% of the Assets Under Custody and 18% of the revenue, and the company earned more money on securities and margin lending than it earned on crypto trading. Can crypto become as important as securities trading for Robinhood? It looks like the company’s management is ready to bet on this.

Image source: Robinhood Blog

✔️ Robinhood’s Web3 Wallet Beta is Now Live✔️ Robinhood Releases Beta Version of Web3 Wallet to 10,000 Users✔️ Robinhood’s Crypto Push Picks Up With ‘DeFi’ Wallet and No Network-Fee Trading✔️ Robinhood Slashes Offer To Buy Crypto Exchange Ziglu by 60%✔️ Robinhood and Circle Join Forces to Bring USDC to Customers✔️ Robinhood Needs a Deal Like Coinbase’s to Make ‘Stablecoins’ Work✔️ Robinhood to close five offices as part of restructuring program

✔️ Lawmakers Step Up Efforts to Advance Bill Taking on Visa, Mastercard✔️ Coinbase stock labeled Underweight by Wells Fargo✔️ Coinbase’s Path to Sustainable Profit Is Unclear, Says Analyst✔️ Jim Chanos on Coinbase: It’s not a good business model✔️ Coinbase Denies Proprietary Trading. There Are Other Ways to Make Money.✔️ FTX Wins Auction for Bankrupt Crypto Broker Voyager Digital’s Assets✔️ Big Banks Haven’t Warmed to Crypto. Here’s Why.✔️ Shopify targets physical retailers after an overly aggressive bet on e-commerce✔️ Square Launches Tap to Pay on iPhone for US Sellers✔️ Jack Dorsey’s TBD Teams Up With Circle to Take US Dollar Stablecoin Global✔️ How a decline in Google searches shows retail investors are leaving the market✔️ PNC buys restaurant point-of-sale firm Linga✔️ How Many of Gensler’s Reforms Will the SEC Achieve? Few, Says Wall Street✔️ A Guide for Stock Investors to Brazil’s Presidential Election✔️ Latin American Central Banks Seen Raising Interest Rates Further✔️ Getnet-Nubank Dispute Batters Both Fintechs’ Share Values✔️ For Brazilian shareholders, Nubank’s IPO has a bitter aftertaste✔️ Revolut adds Brazil and Mexico to global expansion

Disclosure & Disclaimer: despite rocky performance in 2021 and 2022, I own shares in most of the companies that I write about in this newsletter, as I am extremely bullish on the transformation in the financial services industry. However, none of the above is financial advice, and you should do your own research.