PFM

OPEN BANKING: Newly-horned unicorn Plaid acquires data aggregator Quovo for up to $200 million

In another unicorn story, let's take a look at Plaid, which we discussed just a few weeks back when they raised $250 million at a $2.7 billion valuation. Plaid solved the problem of financial authentication. Some of you may remember that when you connected a third party service to your bank account in the Dinosaur Age, that service would send you a few pennies into the account as a secret pass-phrase. It would be a random number, which you would then tell to the provider as proof you control the account. A few billion dollars later, Plaid has replaced this for tech companies with a simple API call. They do other stuff too -- which, broadly speaking, can be said to encompass all of the "Open Banking" PSD2 regulation in Europe. They just do it in the US, regardless of the wishes of the banks.

So we were delighted to see that Plaid used some of its new money to buy Quovo, a strong player in the digital wealth data space for up to $200 million. Unlike Plaid's banking focus, Quovo is strong at understanding investment management data. Take for example the following -- credit card transaction data categorization (Starbucks is a coffee shop), and tax basis reporting for stock purchases (bought at $100). These are different problems and require different teams. Quovo had built a strong stack on the investments side, powered a meaningful amount of the account aggregation for folks like Betterment and AdvisorEngine. Still, the acquisition likely has (1) much of the consideration in the form of Plaid stock, since venture investors don't love funding acquisitions, and (2) revenue-based valuation earn-outs. The cash outlay in that $200 million, we suspect, is more modest.

But also, let's look back and compare. Quovo's closest analog would be ByAllAccounts, which Morningstar bought for $28 million. Someone wasn't good at selling! Plaid's closest analog would be Yodlee, which used to power Mint and was purchased by wealth platform Envestnet for $590 million. In turn, BlackRock has bought into over $100 million of Envestnet stock. These more traditional versions of the same business were way, way cheaper than the Silicon Valley equivalents, and were prescient moves by the incumbents. Yet these are early days for financial data -- we are rooting for the whole industry to open up and digitize. 

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Source: Envestnet (Yodlee), Investment News (Morningstar), RIA Biz (Plaid/Quovo)

ONLINE BANK: Walmart chooses Even for Employee PFM, which raises $40 Million

We are big fans of Fintech companies that actually make  lives better by creating good behavior, removing costs, and improving planning. A decade back, several personal financial management companies (PFMs) like Mint, Wesabe and Gezeo tried to make budgeting and planning easily accessible to regular people. Despite some nice exits, generally speaking, PFMs failed to make a dent in the fact that 70% of Americans live paycheck-to-paycheck. And often, the timing of the paychecks (every two weeks) doesn't align with costs (all the time), which leads low income households to resort to credit card debt and payday lenders. So software should solve this right? Not if you have a customer acquisition cost problem and can't scale.

Startup Even has done a nice job building around this. The solution is deployed either direct to consumer or by companies to their employees (like HelloWallet or Securing Life Today). Features include getting an interest-free advance on your paycheck, budgeting using data aggregation, and goal-based drip-savings like Acorns or Digit. What we are seeing is a massive polish of customer experience on several fintech ideas, now built natively for mobile and deployed at scale.

How did they get around the customer acquisition problem? By partnering with Walmart, which has 1.4 million workers in the target demographic for this app. Leveraging this partnership, Even just raised $40 million to deliver on the premise. You don't need to be a financial institution that makes product to make a financial difference. And Walmart is making other  moves as well, like switching from Synchrony to Capital One to offer digitally enabled credit cards, controlling the brand but not having to be an issuer. If your financial products are not smart, they are commodities to be traded in and out of the feature set.

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ONLINE BANK: Virtual Assistants - Chase, Finn or Facebook?

Source: Chase, Tearsheet

Source: Chase, Tearsheet

Financial virtual assistants. They will know everything about us, give us sage financial advice, and implement everything through financial products available via open APIs. Roboadvisors and microinvesting companies have pointed the way, but these FVAs will be far more powerful and embedded into the core of our daily life. So who will be the winner? First contender is non other than JP Morgan, leader in our Bankosaurus innovation analysis and heavy investor into Fintech. The banking giant launched a neobank app called Finn, which is targeted at Millennials. While the design may be new, the idea has been pretty well established before by companies like Simple (not to mention Mint in 2007) -- a Personal Financial Management tool. The idea could get incumbent traction by default, like Zelle, but doesn't seem particularly thought leading.

Speaking of Finns, the second alternative to win the FVA market is a software like Finn.ai, which is a chat-based AI-powered private label software that banks can deploy to interact with their customers. Not just interact, but check balances, move money, and pay bills. The company  raised $3mm and launched a partnership with ATB financial. One day it may live inside all other chat and voice bots, like Facebook and Alexa, or connected in a decentralized manner through something like Hut 34.

Speaking of Facebook, the tech giant is in a prime position to own the virtual assistant market more generally, and also control the feature set of financial products that access their customers. McKinsey just pointed out that big tech is a bigger danger than Fintech, something we highlighted in the Future Vision analysis. Two examples of Facebook following an Amazon strategy are (1) integrating Visa's tokenized payments services into the platform for digital payments and (2) lending made available to small businesses on the Facebook platform for up to $500,000 in growth capital via digital lender Clearbanc. Finance is a platform enabler in this equation, not a standalone product pushed at strangers. The cash advances are often spent back on Facebook advertising, which provides insights into how well businesses connect with customers, which could further inform underwriting risk. We still need the manufacturer, but they are far less powerful.