Asia Financial Industry Blog

Fintech Research

In Kapronasia’s 2021 Asia-Pacific Fintech Trends report published in January, we predicted that Singapore would be a fundraising hotspot in the region this year. As it turns out, that might have been something of an understatement, at least based on the first quarter. In the January-March period, Singapore fintechs raised US$496 million, up 355% year-on-year and equivalent to roughly 46% of total funding in 2020, according to a new report by Boston Consulting Group (BCG).

Three times is usually the charm, but in this case it means that China's fintech giants are finally out of luck. Firms that had seemed untouchable in two previous crackdowns are suddenly in regulatory crosshairs. Perhaps tech juggernauts should have seen the writing on the wall. After all, Beijing dealt harshly with crypto and P2P lending firms - when it got around to dealing with them. This time around, regulators will make it harder for Ant Group, WeChat Pay and others to profit handsomely from digital finance. They will force the tech giants to meet tough new capitalization requirements and take on more risk for lending, instead of passing it on to incumbent banks. This strategy will not hobble China's platform companies, but it will force them to rejig their business models.

February 02 2021

Nubank is in the money

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Brazil's Nubank had a pretty good 2020. Although Brazil was hit hard by the pandemic, Nubank still managed to triple its customer base to 34 million from 12 million in 2019. Last week, Nubank announced it had raised US$400 million in a Series G fundraising round at a valuation of US$25 billion. Participants in the equity funding included GIC, Whale Rock, Invesco, Sequoia, Tencent, Dragoneer and Ribbit.

Chime may turn out to be the neobank unicorn that proves the naysayers wrong. Following a mammoth Series F funding round that raised US$485 million, Chime's valuation surged to US$14.5 billion from US$5.8 billion in December. The San Francisco-based neobank is now officially the world's most valuable venture-backed fintech. Not only that, but the San Francisco-based neobank is closing in on profitability. By one measure - EBITDA - Chime is already profitable, having reached that milestone during the pandemic, its chief executive Chris Britt told CNBC.

Neobank unicorns have a fundamental problem: Their business model is shaky. They prioritize customer numbers rather than profitability. It's like an e-commerce vendor focusing more on site traffic than sales. Sweden's Klarna is one of the few exceptions. It has generally been profitable since its 2005 founding, although it lost money in 2019 and again in the first half of 2020 amid the pandemic-induced downturn. Klarna's backers, however, remain sanguine. The company recently closed a new US$650 million funding round, bringing its valuation to US$10.65 billion. Klarna is now Europe's most valuable fintech unicorn.

Among neobanks, there are those that lose money and then those that lose a lot of money. "A lot" is a relative term, but it is apt to describe some of the European neobank unicorns. The UK's Monzo lost US$151 million in 2019 while Revolut only did a tad better, losing almost US$140 million. In contrast, Brazil's Nubank lost just US$17 million in the first half of 2020. It's not exactly profitable, but profitability looks a lot closer for Nubank - the world's largest independent digital bank - than some of its counterparts in Europe.

For all of their slick technology, neobanks can sometimes seem like a dime a dozen. Take this example: "the mobile banking platform redesigning banking for the 21st century." That could be just about any neobank in existence. In fact, the phrase comes from an Aug. 26 press release published by German neobank unicorn N26, whose backers include Tencent, Peter Thiel, Allianz and reportedly Mike Bloomberg. N26 put out the press release to announce it had reached the milestone of 500,000 customers in the United States after one year in the U.S. market.

It is not often that a company can shrug at its losses growing 300%. But in the world of fintech unicorns, where we don't always know what is real and what is make believe, going deep into the red is par for the course. Just ask Revolut: The UK's most valuable fintech startup lost £107 million in 2019, more than triple the £33 million loss a year earlier. A hiring spree was largely responsible for that, the company says, noting that it its headcount rose to 2261 from 633. Otherwise, Revolut says that it is in shipshape and expects to be profitable by year-end, pandemic or not.

The super app is the most elusive of tech platforms. It's not easy to bundle messaging, digital banking, e-commerce and content into one tidy package at enormous scale. So whenever we hear about platform companies ready to bring users a super app, we take it with a grain of salt. It's not easy to duplicate the success of WeChat or Alipay in mainland China. The latest company to throw its hat into the super app ring is South Africa's telecoms giant Vodacom Group, which is teaming up with Alipay. 

As the pandemic-induced downturn worsens, two of the UK's most prominent neobanks are taking diverging paths. Revolut continues to defy gravity. It raised yet another US$80 million as part of an extended Series D round in July. In total, Revolut raised US$580 million in that round at a valuation of US$5.5 billion, unchanged from February. Monzo, on the other hand, appears to be on shakier ground. While Monzo recently managed to raise another US$76 million, its valuation plummeted 40% to US$1.6 billion from US$2.6 billion. Worse yet, the company's annual report reveals heavy losses of US$149.5 million in its 2020 fiscal year, up 140% from the previous year's US$62 million.

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