The worst year for banks since 2008; HSBC Takes on Revolut, Wise with new forex app for non-customers; Money is traveling digitally more than ever;
In this edition:
1️⃣ Fintech’s wild ride in 2023
2️⃣ HSBC Takes on Revolut, Wise with new forex app for non-customers
3️⃣ Affirm’s stock quintupled this year, beating all tech peers, on buy now, pay later boom
4️⃣ The worst year for banks since 2008
5️⃣ How Apple will power their banking features: 5 predictions
6️⃣ Banks shed 60,000 jobs in one of worst years for cuts since financial crisis
7️⃣ Money is traveling digitally more than ever
News
Fintech’s wild ride in 2023
It was an eventful 12 months, even if funding was down. We saw a bunch of M&A activity, BNPL made a comeback (sort of), new fintech-focused venture firm capital raises (Flourish and Vesey), some startup shutdowns (Daylight is one example) and more layoffs than we would have liked.
***
HSBC Takes On Revolut, Wise With New Forex App for Non-Customers
HSBC is set to debut an international payments app aimed at directly challenging the dominance of fintechs like Revolut and Wise Plc that have gathered tens of millions of retail customers by offering cheap foreign exchange.
***
Affirm’s stock quintupled this year, beating all tech peers, on buy now, pay later boom
A year ago, there was little holiday cheer at Affirm. The point-of-sale lender was confronting rising interest rates, recession fears and weakening consumer spending. Affirm shares ended 2022 down 90%, wiping out billions of dollars in market value.
Insights
The worst year for banks since 2008
***
How Apple will power their banking features: 5 predictions
For example, Apple could try to follow in Varo’s footsteps, investing five years and $5M to obtain a national bank charter. They could work directly with a bank, as Uber and Lyft did. That would take about two years and $2M. Finally, they could work with a banking-as-a-service platform. Even within that framework, there would still be important decisions to make.
Apple would likely choose to partner with an existing platform rather than build its own banking infrastructure.
✅ Apple won’t seek a bank charter. Although this might, at first, appear to be an attractive option, it’s actually not viable in the US. In order to become a bank or a bank holding company, Apple would legally be required to limit its activities to banking and closely related activities, which wouldn’t be consistent with its core business.
✅ Apple will choose to partner with an existing platform rather than build its own banking infrastructure. Companies like Uber, Lyft, and Chime built their own banking backend — largely because, at the time, there weren’t any other options. But we predict that Apple would take a different path. Rather than build technology like ledgers, KYC, AML, transaction monitoring, interest calculations, bank statements, and payment integrations — outside their core competencies —
Apple would choose to partner with an existing banking-as-a-service platform. This would significantly improve their speed to market, and it would drastically reduce the size of the banking and compliance teams they would need to hire.
✅ Apple won’t rely on legacy banking infrastructure. At first glance, it can be hard to tell the difference between bank technology platforms. But many rely on core banking technologies that were built in the 1980s or 90s. Their infrastructure is brittle, breaks often, and is impossible to configure; it severely limits the kinds of financial products — not to mention, speed of execution — that companies like Apple could offer.
✅ Apple will choose to work with multiple bank partners. Working with multiple bank partners enables you to go to market faster, offer a more complete set of financial products, negotiate better terms, and avoid latency issues. Also, so as to avoid having any one of its bank partners’ balance sheets increase beyond $10B (see next bullet point), Apple would require a stable of banks across which to spread their customers’ deposits and loans.
✅ Apple’s bank partners will be small enough to qualify for increased interchange fees under the Durbin Amendment. This one is pure economics. If you’re a bank with assets under $10B, you earn more money on each debit-card transaction. That applies to your partners as well — in this case, Apple. To maximize the revenue they’d earn on interchange, Apple would likely choose to work with a stable of smaller, fintech-oriented bank partners.
Source Unit
***
“Better Growth” neobanks — the secret sauce for success
Diversified revenue streams including lending and trading: Generating revenues beyond account fees or transactional revenues has always been essential in banking to achieve profitability. All of our Better Growth Neobanks have established or are in the process of building a sizeable lending business with the exception of Wise, which traditionally had its focus on currency exchange. Starling Bank, for example, made almost 80% of its fastgrowing 2022 revenue pool from interest-linked business. On the contrary, ~50% of the remaining neobanks are yet to seriously offer credit to their clients.
Innovation, innovation, innovation: Yes, we get it, neobanks by definition are innovative. But frankly, there is a huge difference between real innovation and just designing a fancy MVP product or upgrades thereof. Truly pioneering neobanks are launching products on a loop and gradually increasing the value-add for their customers. Think of Revolut, for example. It now offers more than 20 products, including pioneer features like “Stays” or “Experiences”, airline lounge passes and cryptocurrencies. Or take Nubank and its one-of-a kind tokenized loyalty system. That said, pockets of innovation of course also exist outside of this group: an example is Zenus, a new Puerto-Rican-based neobank that facilitates US account opening for non-US clients.
Sharp regional focus: Deep understanding of customer needs, regulatory advantages, undivided management attention, and an edge over global competitors — a localized approach provides many advantages. Better Growth Neobanks have focused their efforts on one or few home markets, really cracking things at home before planting flags elsewhere. Nubank is a good example, spending the first six years focused on excelling in Brazil, where they have now gathered 80 million clients, making it the fourth largest financial institution in the country. Others like Starling Bank or Kakao grew rapidly in their domestic markets for several years before only recently announcing international expansion plans.
Exploring the edge of analytics and technology: Is the secret to the Better Growth Neobanks’ success their advanced use of (Generative) AI or the ability to monetize technology/data via Banking as a Service and Open Banking offers? It would be too early to make that link. But the banks ranking high on our meter are taking these areas to the next level. We see immense efforts in applying AI to deal with the rapidly increasing customer base or provide Banking as a Service — showcased by Starling’s Engine business or MoneyLion’s integration of its embedded banking platform Even, now also known as Engine. Once value propositions and customer levels reach a certain maturity among the leading neobanks, the use of new technology will be crucial to maximize monetization potential and minimize the costs to serve those clients
Source Simon Kucher
***
Banks shed 60,000 jobs in one of worst years for cuts since financial crisis
Global banks eliminated more than 60,000 jobs in 2023, marking one of the heaviest years for cuts since the financial crisis and reversing much of their hiring as they emerged from the Covid-19 pandemic.
Investment banks suffered a second consecutive year of plummeting fees as dealmaking and public listings dried up, leaving Wall Street trying to protect profit margins by reducing headcount.
Elsewhere, the takeover of Credit Suisse by UBS has already resulted in at least 13,000 fewer roles at the combined bank, with further big redundancy rounds expected in the year ahead.
Twenty of the world’s biggest banks cut at least 61,905 jobs in 2023, according to Financial Times calculations. That compares with more than 140,000 jobs slashed by the same lenders during the global financial crisis of 2007–08.
Previous years of extensive job losses by banks, such as 2015 and 2019, were affected by large-scale cuts at European lenders struggling to cope with historic low interest rates. But at least half of 2023’s reductions came from Wall Street lenders, whose investment banking businesses have struggled to cope with the speed of interest rate rises in the US and Europe.
In many of those instances, the lenders are rowing back on hires they made coming out of the pandemic when pent-up demand for dealmaking sparked a war for talent between investment banks.
However, the biggest cuts by a single institution came at Switzerland’s UBS as it began to digest its former rival.
Within hours of Credit Suisse’s rescue in March, market watchers began predicting that the most significant banking merger since the financial crisis would result in tens of thousands of job cuts.
Credit Suisse had already planned to slash 9,000 roles, but UBS was expected to cut further and faster as it removed duplicate positions and wound down much of its former competitor’s accident-prone investment bank.
In November, UBS disclosed that it had already cut 13,000 jobs from the combined group, leaving it with a total headcount of 116,000. But chief executive Sergio Ermotti has signalled that 2024 will be the “pivotal year” for the takeover and analysts expect thousands more jobs to go in the months ahead.
The second-biggest cutter of 2023 was Wells Fargo, which this month revealed it had lowered its global headcount by 12,000 to 230,000. The bank said it had spent $186mn on severance costs in the third quarter alone, with 7,000 jobs jettisoned.
Citigroup cut 5,000 jobs, Morgan Stanley shed 4,800, Bank of America 4,000, Goldman Sachs 3,200 and JPMorgan Chase 1,000. Collectively, the big Wall Street banks cut at least 30,000 staff in 2023.
Source Financial Times
***
Affirm’s growth strategy
Affirm is one of the world’s leading buy now, pay later (BNPL) companies. Founded in 2012, the company went public in January 2021 at a $12B valuation. Since then, Affirm’s stock has lost 90% of its value, as rising competition and economic uncertainty put pressure on the company to tamp down losses.
As Affirm looks to enhance its core BNPL offering — and drive profitability and new growth — the company has forged hundreds of partnerships, invested in a handful of companies, and made 2 acquisitions over the last 3 years.
For example, the BNPL leader has deepened its partnerships with e-commerce platforms like Shopify and Amazon, reducing its reliance on Peloton — historically one of Affirm’s most important partners. Meanwhile, the company has grown its presence in new retail verticals and industries like travel. And its made strategic relationships, including the December 2020 acquisition of Canada-based BNPL provider PayBright, to expand beyond the US into Canada.
Source CBInsights
Reports
Money is traveling digitally more than ever
Remittances, or the transfer of money by a migrant worker to a family member or friend in their home country, are a lifeline for many individuals around the world and are vital to the livelihood of many developing economies. Globally, it is estimated that 800 million people receive money from family or friends to pay for things like food, utilities and education.1 In 2021, global remittance inflows reached a new record of $733 billion, of which $605 billion went to low and middle-income countries.
