Fintech: Robinhood acquires X1 smart credit card company at discount; $500MM+ AUM Alternativ's digital RIA strategy
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Hi Fintech Futurists —
You’re the best, today’s agenda below.
CREDIT: Robinhood buys credit card startup X1 for $95MM (link here)
INVESTING: Alternativ raises $10MM as digitally native RIAs pick up steam (link here)
BUILDING COMPANY PLAYBOOK #6: Using token design for financial and product success (link here)
PODCAST CONVERSATION: From mobile credit to autonomous accounting using financial data and AI, with Puzzle CEO Sasha Orloff (link here)
CURATED UPDATES
FINTECH NEXUS WEBINAR
Double Whammy: How Criminals Exploit Economic Turbulence and New Technology to Attack Fintechs and Banks
The collapse of FTX and Silicon Valley Bank are dramatic illustrations of why fear and chaos create a perfect storm for risk and abuse. Cybercriminals already are jumping aggressively to exploit customer fears. Our experts will discuss the strategic decisions executive and security leaders in fintech must address, uncover the mercenary schemes and technical tools bad actors are deploying, and more.
Digital Investment & Banking Short Takes
CREDIT: Robinhood buys credit card startup X1 for $95MM (link here)
Robinhood, the brokerage app known for its commission-free offering, has agreed to purchase X1, the smart credit card account, for $95MM in cash. X1 had raised $62MM all together from their seed, Series A, and Series B rounds, which would suggest a $150MM+ valuation. Looks like X1 joined the hordes of fintechs taking a discount on their valuation over the past year. For context, fintech deal value in 2022Q4 was down 90% from 2021Q4.
X1 offers a credit card and an app that underwrites their customers based on income through data analysis, instead of traditional credit scores. This is done by using Plaid's API to connect to user bank accounts and derive predictions from their income patterns. Using this method, X1 asserts that they can provide credit limits five times larger than those of traditional providers. Additionally, they provide escalating purchase points starting at 2x, influenced by monthly spend and friend referrals. The company managed to attract a significant user base, evidenced by a waitlist of 500,000, before opening up in July last year.
The card attempts to differentiate in user experience — cancel subscriptions in a click, see refunds instantly, end trial periods automatically using auto-expiring virtual credit cards, attach receipts to purchases, and use virtual cards for one-time purchases. In our podcast with the company, we saw this as a personal financial management software that happened to be attached to card, rather than a card competing for underwriting. We liked that idiosyncratic approach, but perhaps such focus hampered the execution along more traditional lines in customer acquisition based on rates and rewards, leading to a necessary exit at a *relatively* low price.
There are many of such card products in the space, even though X1 was more deeply integrated into its bank partner and more thoughtful about UX than others.
For Robinhood, the brokerage business has suffered, as has crypto trading and usage numbers, and the antidote is somewhat uncorrelated interchange and underwriting revenue. Adding spending and savings to its product suite is consistent with the long-standing “fintech bundle” strategy, which suggests that any financial business at scale will turn into Citigroup and try to bundle all financial products in order to cross-sell and increase revenue per customer. We also like the idea of round-up stock purchases using transaction data.
👑Related Coverage👑
INVESTING: Alternativ raises $10MM as digitally native RIAs pick up steam (link here)
Alternativ, the parent company of $500MM+ AUM Alternativ Wealth, has raised $10MM. The founding team’s experience caught our eye, spanning alternatives, fintech, and asset management with co-founder Christian Haigh behind private credit investment firm Legalist ($660MM in AUM) and Alex Farmaian, an early employee at Carta (recently valued at $8B). Alternativ integrates with CRM and portfolio management tools, providing digital subscription documents required for alternatives as well as digital account opening across custodians such as Schwab Advisor Services, Fidelity Institutional, and Folio Investing. One of our digital investing themes is that alternative asset classes will be as liquid and seamless as their public counterparts.
Industry trends show that alternatives are becoming a bigger part of the investing landscape with an industry focus on distribution to retail investors. Preqin forecasts that AUM for alternatives is expected to reach $23T by 2026, while Boston Consulting Group predicts that it will comprise 51% of global AUM revenue. There’s meaningful market share up for grabs, and the competition in the space is heating up (e.g., Moonfare). And even though client uptake of digital advice offerings has been gradual, McKinsey finds that those who have adopted digital platforms report higher levels of client satisfaction.
Historically, there has been a disconnect in access and opportunity for the average investor to invest in alternatives due to long lock-ups — i.e., low liquidity — and higher investment minimums from other traditional investments. At the same time, 33% of retail investors also believe that the traditional mix of stocks and bonds is outdated and no longer effective for investing. 42% feel the 60/40 portfolio is “dead”.
One answer is a portfolio with a higher concentration of assets uncorrelated with the public markets — whether crypto, commodity, or private equity. Despite outperformance over a 15-year period, the latter is held primarily by institutional investors, accounting for over 90% of raised capital. Whether a platform like Alternativ can capture sufficient market share on the current raise is a separate question, but we are excited about the independent space moving deeper into hybrid tech/advisor business models. Next step is to realize that crypto assets are like PE/VC, just ten years younger.
👑Related Coverage👑
Digital Wealth: $130B Alts fintech iCapital acquiring $7B investments feeder fund platform from UBS
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Blueprint Deep Dives
Building Company Playbook #6: Using token design for financial and product success (link here)
We continue our Building Company Playbook series, targeted at addressing the key questions in getting Fintech and DeFi projects off the ground.
This entry will focus on cryptoeconomics and token engineering, and the key considerations when designing token-based projects and systems.
Podcast Conversation: From mobile credit to autonomous accounting using financial data and AI, with Puzzle CEO Sasha Orloff (link here)
In this conversation, we chat with Sasha Orloff - Co-Founder and CEO of Puzzle Financial. Prior to this, He was CEO and Co-founder of LendUp and the co-founder, and an Advisor to Mission Lane, the credit card division that started and spun out of LendUp in 2019.
Orloff focused on expanding financial services to new segments or markets and finding ways to harness new technology to improve lives. Ten years ago, after reading Banker to the Poor by Nobel Peace Prize winner Muhammad Yunus, Sasha was inspired to go move to one of the poorest countries in the world, Honduras, where he worked for The Grameen Foundation.
Curated Updates
Here are the rest of the updates hitting our radar.
Neobanks
⭐ Lithuania revokes licence of former Railsr unit - Finextra
Welsh fintech secures $13m in funding - Finextra
Digital Investing
UK fintech TreasurySpring secures $29m Series B funding - Fintech Futures
Financial Function
⭐ Finfra lets Indonesian businesses add embedded finance to their platforms - TechCrunch
What is Stripe? Inside the tech stack of the highest paying fintech - efinancialcareers
AI
Google Cloud launches AI-powered AML tech - Finextra
JPMorgan Chase appoints Teresa Heitsenrether to lead AI efforts - Finextra
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Read our Disclaimer here — this newsletter does not provide investment advice and represents solely the views and opinions of FINTECH BLUEPRINT LTD.
Contributors: Lex, Laurence, Matt, Farhad, Daniel, Daniella, Michiel
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