Why A2A won’t catch on in retail; Open Banking and Open Finance regulations as at Q1 2024; Google is sunsetting the Google Pay app in the US later this year;
Credit card spend surpassed $13T globally in 2022 and transaction volume continues to increase. Despite the higher fees, lower security, and slower settlement, card volume was nearly 25 times greater.
In this edition:
1️⃣ Google is sunsetting the Google Pay app in the US later this year
2️⃣ Block shares surge 16% after company announces surprise profit
3️⃣ Capital One-Discover deal carries $1.38B termination fee
4️⃣ 2023 M&A volume is 72% less than 2021
5️⃣ Why A2A Won’t Catch on in Retail
6️⃣ Open Banking and Open Finance Regulations as at Q1 2024
7️⃣ BNPL in the GCC
News
Google is sunsetting the Google Pay app in the US later this year
Google has announced that Google Pay is shutting down in the United States in June, as the standalone app has largely been replaced by Google Wallet. The company says the move is designed to simplify its payment apps. After the standalone app shuts down in the United States, it will only be available in Singapore and India.
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Block shares surge 16% after company announces surprise profit
Block stock closed up 16% Friday, a day after the payments company reported fourth-quarter earnings that beat analysts’ estimates on gross profit and showed strong growth in its Square and Cash App revenue.
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Capital One-Discover deal carries $1.38B termination fee
McLean, Virgina-based Capital One’s proposed acquisition of Discover carries a $1.38 billion termination fee if the board of directors on either side has a change of heart, according to Securities and Exchange Commission filings from both companies Thursday.
Insights
2023 M&A volume is 72% less than 2021
US and Canadian fintech M&A activity saw a quieter year in 2023 after retreating from record levels in 2021 and 2022. We recorded $28.3 billion in reported deal value for 2023, marking a 45.8% decrease from $52.2 billion in 2022 and a 36.5% decrease from $44.5 billion in 2021. M&A count told a similar story for the year. A total of 145 acquisitions were seen in 2023, representing a 15.7% decline from 2022’s 172 deals and a 48.9% decline from 2021’s 284 deals. Notably, both fintech M&A value and count in 2023 were at their lowest levels in over three years.
We attribute this decline in M&A activity to increased interest rates, lower availability of capital, shifted focus from growth to profitability, and heightened geopolitical tensions. These factors have led to increased market volatility and more conservative capital-deployment approaches, resulting in softer fintech M&A activity in 2023 than in recent years. The decline in acquisitions is also reflective of broader fintech market trends. In 2023, fintech companies raised $34.6 billion in venture capital across 2,055 deals, down 43.8% and 32.4% from 2022’s $61.4 billion and 3,039 deals, respectively.
Exit predictions
PitchBook’s proprietary VC Exit Predictor estimates the probability that a startup, or VC-backed company, will successfully exit via IPO, be acquired, or merge. In the following charts, we provide the average Exit Predictor scores for each fintech segment. Companies included in these average Exit Predictor scores are those that raised either a second or third round of funding in any period from 2020 to 2023.
For example, a segment may have a 70% average Exit Predictor score for companies that raised a second round. This would imply that the companies in this segment have a 70% chance on average to exit via IPO or M&A. The exit score can additionally be broken down into the sum of the average IPO score and average M&A score. In the aforementioned example, the 70% exit score may be composed of a 10% IPO exit score and a 60% M&A exit score, implying that companies in this segment have, on average, a 10% chance to exit via IPO and a 60% chance to get acquired.
For companies that raised a second round between 2020 and 2023, the highest average Exit Predictor scores were primarily seen in B2B segments rather than B2C segments. In particular, the top exit scores were captured by the CFO stack (63%), financial services infrastructure (63%), and commercial finance (62%) segments. These segments also saw the highest average M&A exit scores of 61%, 62%, and 61%, respectively. Segments with the lowest exit scores include retail alternative lending (47%), retail payments (48%), and retail wealthtech (50%). Similarly, these segments saw the lowest average M&A exit scores of 46%, 45%, and 49%, respectively.
Source F-Prime Capital
Open Banking and Open Finance Regulations as at Q1 2024
Open Banking regulations continue to be introduced across the world, with keen interest from countries looking at the various successful implementations, such as in the UK, Europe, Australia and Brazil.
69 countries currently have implemented some stage of open banking regulations (including one that is currently stalled). There are a further 18 countries with a current market-driven approach at various stages of discussion towards a regulatory framework, including the United States which has recently introduced new proposals to consider financial data sharing and portability, and in Switzerland, where the Federal Department of Finance announced that, this year, measures will be imposed against institutions that fail to make data available to TPPs (third-party providers).
In countries where regulators seek to promote open banking or open finance models, goals should be clearly defined. In 26 countries, the promotion of competition and/or innovation are the main goals given, but often other goals that reflect the economic and social context of the region or country are included. For example, increasing financial inclusion is a goal that makes sense in low- and middle-income countries and regions where there is a predominantly underbanked population (13 countries stipulate financial inclusion as one of the goals of their open banking regulation), while higher income countries tend more towards focused on “financial health of consumers” (31 countries have included this as a goal).
124 countries have a market-driven approach to open banking, that is, individual banks and fintech providers could make use of APIs if they so desired, as long as they meet more general financial data and service regulations (such as data protection regulations generally if they exist, or anti-money laundering, or payment institution regulations and so on).
Market-driven countries include those where there may be an active data exchange and lack of a regulatory framework, but also those where we have not identified any impediment that would prevent innovators from building solutions based on data exchange. As such, some of these markets are more active than others. In some regions, market-driven open banking and open finance stakeholders include telecommunications carriers that may offer digital wallets, initially introduced to allow pay-as-you-go of mobile phone services but increasingly used as a digital money wallet allowing payments to sole traders and to transfer money through telco agent branches across a country.
Source Platformable
Why A2A Won’t Catch on in Retail
Credit Cards: The 800-pound Gorilla
Credit card spend surpassed $13T globally in 2022 and transaction volume continues to increase for both in-store and online commerce according to FIS. Despite the higher fees, lower security, and slower settlement, card volume was nearly 25 times greater than A2A volume in 2022.
Card payments have a particularly strong foothold in retail for a few reasons:
Familiarity and Ease of Use
Consumers are used to swiping a card or tapping their phone’s digital wallet to make a payment. According to MX, 78% of consumers prefer to pay for things with familiar payment methods and credit cards fit this bill. Further, the infrastructure required to accept credit cards is ubiquitous among merchants, so card payments are convenient and familiar to merchants, too.
Rewards
Consumers can earn generous discounts, cash back, or points as a reward for using credit cards to transact. Rewards are very popular with consumers and serve as a strong incentive to use cards, even if they are worth more in sentiment than in actual value (typically 1 point is equal to 1 cent).
Float
Credit cards provide a free, 30 day credit line to consumers for every purchase. Even if consumers don’t think of credit cards in this way, “free financing” is one of the strongest incentives to use cards.
Fraud Protection
The card networks (Visa, Mastercard, Amex) provide fraud protection for the merchants who accept their cards and the consumers who use them to transact. The cost of this service is baked into the network fees charged to merchants and it’s highly effective in preventing fraud. For example, global credit card fraud reached $32.4B in 2021 according to Merchant Cost Consulting, which, compared to the $13T in credit card spend in 2022, is just 0.24% of total spend — strong performance if you ask me.
Source Motivate / Jackson Bubala
Progressive modernization: a tech leader’s blueprint for future-proofing banks
Let’s take a look at the top three ways legacy systems are actively stifling your progress.
Manual software delivery and outdated development methodologies Banks’ legacy systems often lack automated deployment pipelines, continuous integration and delivery (CI/CD) capabilities, DevSecOps practices, and robust testing frameworks. That limits their agility, and the delivery of software updates and new features becomes a manual, time-consuming, and error-prone process.
Integration complexities and interoperability nightmares When you combine legacy systems with new applications, third-party services, or emerging technologies, things quickly become complex. Without standardized interfaces and protocols, you’ll end up having to deal with bespoke solutions and custom integrations that eventually become so unique to your bank, they’re almost impossible to migrate during any modernization attempts. This creates even more technical debt, due to the difficulty of managing and maintaining a whole web of interconnected systems.
Low straight-through processing (STP) rates The complex, monolithic structures of legacy systems often lack the seamless integration and automation capabilities required for high STP rates. As a result, banks experience a high level of manual intervention and human touchpoints throughout various stages of transaction processing. And it gets worse: low STP rates limit your bank’s ability to scale and handle increased transaction volumes efficiently. As you grow and your number of transactions rises, manual processing becomes a real bottleneck.
Progressive modernization
Where to start? Start small. Identify specific pain points within various banking journeys and build up from there. Adopting an incremental strategy avoids the high-risk big-bang method. It provides a roadmap for journey-based upgrades, allowing you to modernize progressively and differentiate on your terms while keeping the engine running smoothly.
From onboarding to daily banking, lending, and investing, even incorporating features like Robo-advisory trading, each step is a deliberate move toward a more efficient and future-proof banking system. The infographic below shows a visual representation of this strategic shift.
The idea is to prioritize iterative enhancements, ensuring a steady evolution that not only minimizes risks but also maximizes adaptability. More than embracing change, it’s about strategically implementing improvements that align with the ever-evolving needs of both customers and the financial landscape. As we navigate the modernization highway, we’re not just swerving legacy tech dead-ends; we’re actively paving the way for a banking system that’s up-to-date and anticipates the needs of tomorrow.
Source Backbase
Reports
BNPL in the GCC
The triumph of BNPL is accentuated in the GCC, propelled by faster e-commerce growth versus global averages and promising market penetration prospects. Investors are taking notice, demonstrating their confidence with unprecedented funding. Customers are swiftly embracing BNPL, evidenced by 50% adoption levels among highly diverse addressable shoppers in the leading markets, with everincreasing repeat rates. In parallel, over 40,000 businesses, including major category leaders and retail groups, have enabled BNPL in response.
