Category Archives: Entrepreneurs and Start-ups

Facing disaster, corporate venture capital to undergo key stress test

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Pitchbook | Alexander Davis | March 24, 2020

Sanfrancisco - Facing disaster, corporate venture capital to undergo key stress testAfter driving much of the venture capital market's hyper-growth in recent years, corporations are poised for a decisive stress test of their zeal for funding startups.

Heading into 2020, it wasn't unreasonable to forecast another record year for VC financing involving corporate venture capital arms, such as those of titans Intel, Salesforce and Google.

But that was before the coronavirus brought the world economy to a standstill.

Turmoil spurred by the global health emergency has given rise to a new mantra for business decision-makers: Hit pause.

Inside boardrooms of every stripe, countless investment decisions are either being postponed or subjected to fresh scrutiny. Companies are suddenly on guard as they struggle to take the measure of an unfolding economic disaster, in a challenge of their commitment to venture funding.

"In that hunker-down scenario, all spending goes through a rigorous review, obviously," said Pradeep Tagare, head of the $250 million corporate venture fund at UK-based energy company National Grid. "One of the first things that gets hit is the venture capital part of it because that's an easy thing to step back on."

Corporate VC departments make strategic bets on markets, innovations, partnerships and entrepreneurial talent as a way to propel their parent companies to stretch into bold new directions. In recent years, a wide variety of corporations across all industrial sectors and geographies have jumped into the VC market, including JetBlue, Yamaha Motor and even outdoor gear company Patagonia. Just last week Dating.com said it would start investing out of a $50 million corporate fund for early-stage deals.

See:  Bank On It Podcast: Turning a Funding Failure Into a Win

Because corporations, notably SoftBank, played such a pivotal role in private fundraising recently, their willingness to stick to their VC strategies in this new downturn could go a long way toward shaping the pool of capital that will be available in the months and perhaps years to come.

Last year, startups raised roughly $136 billion in VC funding and about $141 billion in 2018. For their part, corporate venture firms participated in 1,849 US funding rounds totaling $57 billion—second only to the 1,871 deals worth $71 billion in 2018, according to PitchBook data.

Already there are signs of the coronavirus epidemic's chilling effects. Tagare said that two separate funding rounds that National Grid is backing have seen a pair of would-be CVC partners back out in recent days.

"A freeze in all activity is definitely starting to happen," Tagare said, adding that the remaining firms in the deals expect to find partners to fill the gaps left by the ones that got cold feet.

In SoftBank's case, the outlook is so dire that the company, which operates the $100 billion Vision Fund, said publicly this week that it will shed about $41 billion worth of assets as it struggles to regain investor confidence following a series of stumbles even before the global pandemic wiped out 40% of its market capitalization. SoftBank invests off its own balance sheet in addition to the Vision Fund, which raised outside capital from sovereign wealth funds and other institutions.

Under more predictable market conditions of the past several years, VC firms grew accustomed to writing checks in funding rounds that were left open without all the target capital spoken for. Tagare said that will no longer happen in this environment, adding,

"Investors are making sure that capital coming in will give the company 18 to 24 months of runway."

See:  Corporate venture capital deals hit new record as banks invest in fintech competitors

As of Friday, there have been 304 deals worth $14.2 billion with CVC participation in Q1. That's about 100 deals behind the quarterly pace seen in the past years, according to a PitchBook analysis.

One corporate VC based in Silicon Valley said that the COVID-19 crisis has caused "quite a bit of disruption" for the firm's portfolio companies in the midst of fundraising. "We're also seeing cash runways getting squeezed as revenue targets get lowered."

The damage done to the VC investing landscape may not be known until midyear, said Kyle Stanford, a venture analyst at PitchBook.

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NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Applications OPEN: UNCDF Announces Gig Economy Challenge – Driving Financial Health for Gig Workers

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UNCDF | Jia Wei Khor | April 2, 2020

Gig economy challenge - Facing disaster, corporate venture capital to undergo key stress testAPEC Malaysia, Bank Negara Malaysia (BNM), Malaysia Digital Economy Corporation (MDEC) and United Nations Capital Development Fund (UNCDF) launched the Gig Economy Challenge.

The challenge is funded by MetLife Foundation through the i3 (Innovate, Implement and Impact) program.

In light of COVID-19, gig workers are likely to face new and unforeseen challenges which will affect their financial health.

Calling for applications to seek viable solutions for improving the financial health of gig workers in APEC's (Asia-Pacific Economic Cooperation) 21 member economies.

If you have a solution, apply now!

See:  Malaysia’s potential as the fintech hub for the ASEAN region

Why participate?

  • Technical assistance worth $100,000 to pilot your technology product or service
  • Up to $30,000 grant per team as seed capital
  • Opportunity to pilot the solution in Malaysia
  • Access to enabling partnerships, including financial institutions, technology companies and other infrastructure providers

 

Questions?

Join the info sessions!  Click below to register

7 April (Tue) 11 am ( GMT +8)

14 April (Tue) 10 am ( GMT +8)

23 April (Thurs) 11 am ( GMT +8)

 

Where can I know more?:  www.bit.ly/GigEconomyChallenge

Application Deadline:  27 April 2020

Contact finlab@uncdf.org

 


NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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CCI tells feds emergency wage subsidy must be expanded to support Canadian tech

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Betakit | | April 2, 2020

Canadian flag3 - Facing disaster, corporate venture capital to undergo key stress testThe Council of Canadian Innovators (CCI) and its members are calling on the federal government to make adjustments to the 75 percent emergency wage subsidy, arguing that it does little to support Canada’s tech sector.

The CCI is recommending that the government expand the eligibility criteria for the subsidy, which currently requires businesses to have seen a 30 percent year-over-year decline in gross revenue directly related to COVID-19.

In a copy of the CCI’s latest submission to the federal government, obtained by BetaKit, the lobby group states, “this measurement is only appropriate for a small number of static, traditional businesses, and is not appropriate for high growth firms in Canada’s technology sector, or SMEs that experience monthly recurring revenue.”

“The intention of the wage subsidy program is to save Canadian businesses from making drastic job cuts or going bankrupt so that we can reignite the Canadian economy,” CCI vice-chairman and OMERS founder John Ruffolo said in a statement to BetaKit. “The program as currently outlined seems aimed to make it difficult to apply for, to receive funds, and to attest to the criteria in a timely manner.”

See:  How Governments Should Use Crowdfunding to Battle the Economic Impact of #Socialdistancing

Similar sentiments have been shared by the Canadian innovation and tech sector, which was quick to respond to Finance Minister Bill Morneau’s Wednesday announcement outlining the details of the program. CEOs and venture capitalists alike took to social media arguing that the subsidy does not support startups.

Matt Roberts, partner at ScaleUp Ventures, told BetaKit that the revenue clause “might be a killer for the tech ecosystem.” Alistair Croll, founding partner of Montreal’s Startupfest, shared a similar sentiment on Twitter, noting that the revenue criteria “basically eliminates huge swathes of the startup sector (where revenue growth is the whole point) from support.”

“Absolutely needs to be fixed,” Croll added.

“We appreciate this is highly complicated,” Ruffolo told BetaKit. “But we need a second kick at the can in designing this program for success.”

In a copy of the CCI’s latest submission to the federal government, obtained by BetaKit, the lobby group states, “this measurement is only appropriate for a small number of static, traditional businesses, and is not appropriate for high growth firms in Canada’s technology sector, or SMEs that experience monthly recurring revenue.”

“The intention of the wage subsidy program is to save Canadian businesses from making drastic job cuts or going bankrupt so that we can reignite the Canadian economy,” CCI vice-chairman and OMERS founder John Ruffolo said in a statement to BetaKit. “The program as currently outlined seems aimed to make it difficult to apply for, to receive funds, and to attest to the criteria in a timely manner.”

Similar sentiments have been shared by the Canadian innovation and tech sector, which was quick to respond to Finance Minister Bill Morneau’s Wednesday announcement outlining the details of the program. CEOs and venture capitalists alike took to social media arguing that the subsidy does not support startups.

See:  4 Important strategies to help your business recover from coronavirus

Matt Roberts, partner at ScaleUp Ventures, told BetaKit that the revenue clause “might be a killer for the tech ecosystem.” Alistair Croll, founding partner of Montreal’s Startupfest, shared a similar sentiment on Twitter, noting that the revenue criteria “basically eliminates huge swathes of the startup sector (where revenue growth is the whole point) from support.”

“Absolutely needs to be fixed,” Croll added.

“We appreciate this is highly complicated,” Ruffolo told BetaKit. “But we need a second kick at the can in designing this program for success.”

The CCI letter states that in order for the Canada Emergency Wage Subsidy (CEWS) program to have its intended impact, the eligibility needs to reflect the operating metrics and structures of Canada’s fastest-growing businesses.

The lobby group notes that it is not necessarily reasonable to expect small-and-medium-sized enterprises (SMEs) to have monthly income statements that report sales. In most cases, sales is not the right metric to determine a business’ growth or activity, said CCI.

“From the CEOs we’ve heard from, most SMEs do not generate monthly income statements; instead they track key quantifiable activities (such as bookings, net new subscribers, units shipped or billable hours) that vary from business to business and sector to sector.”

One founder and CEO who spoke to BetaKit on condition of anonymity echoed this statement, noting that the subsidy may be helpful for well-capitalized businesses where operations are more focused on revenue, but not useful for a majority of startups.

The CCI’s submission outlines four recommendations for expanding the criteria on an and/or basis:

  • Billable hours/receivables;
  • Units shipped;
  • Gross Bookings and;
  • Subscription Revenue.

The group also notes that measuring declines by billable hours will support services companies, non-point of sale companies, companies that have delayed billing processes, and deferred revenue companies. Using units shipped as a metric opens up the door to medical or wearable device companies, with CCI noting that a reduction in units shipped is also an indication of a decline in business activity.

See:  How payments can adjust to the coronavirus pandemic—and help the world adapt

The lobby group adds that for some tech companies a decline in gross bookings is a significant indicator, while subscription revenue for software-as-a-service (SaaS) companies translates to revenues lost.

The current revenue criteria do not necessarily reflect the activity in tech businesses, CCI says in the submission. “Few innovative companies prepare monthly GAAP revenue financials; criteria must reflect the type of business. A demonstration in material drop in one of the aforementioned should be considered,” the group says.

The CCI has been coordinating calls with various federal ministers and providing the government offering numerous recommendations to help support the tech sector. This latest submission also asks the government to backdate the 75 percent wage subsidy program to February, noting that COVID-19 began to impact global supply chains much earlier than March 2020.

Currently, the program is retroactive until March 15, which emergency measures to help curb COVID-19 were initially put in place in Canada.

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NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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How Governments Should Use Crowdfunding to Battle the Economic Impact of #Socialdistancing

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Crowdfund Insider | | March 31, 2020

crowdfunding options for covid 19 - Facing disaster, corporate venture capital to undergo key stress testThe Crowdfunding industry is well aware of what economists call externalities – the fact that behavior of some people has an unintended impact on other people. Positive externalities can be observed on the Crowdfunding platforms every day due to the willingness of people to join their forces. These days, everyone becomes aware of the impact other people have directly on our lives, health, financial situation, liberties.

Crowdfunding platforms were very quick in meeting the challenge of channeling funds to those places where they are needed. Governments are now pumping billions and most likely trillions of dollars through the banking system into the economy. The alternative finance industry should not be ignored when creating the right response to the COVID-19 pandemic.

RESILIENT CAPITAL:  How Regulation Crowdfunding Stood up to the First Weeks of Coronavirus

What could governments do?

They could support the donation-based platforms by reimbursing transaction fees, because essentially it will allow more donations to flow. They could also facilitate partnerships between municipalities, regions, and platforms that encourage local donations to local projects. For instance, the platform Helfen.Berlin which collects donations for companies in exchange for gift certificates is a private initiative from the start-up industry, but it charges around 3% in transaction fees. The city of Berlin could easily support this initiative by covering these costs. This form of civic crowdfunding will be an important pillar in creating regional demand and financial support.

Some, such as the City of Berlin, are enabling access to webinars, in this case with the Crowdfunding Campus. The support could go way beyond that.

A lot of SMEs may not apply to receive the wide range of support measures given by the government, because the application procedure is too tedious or too complicated, or simply because the SME does not fit into the support categories.

But the governments could easily match the contributions from the crowd, for instance, and pledge that for every Euro in pre-sales the government contributes 0.25 Euro up to an amount of 1000 Euro. Therefore, if an SME raised 4000 Euros from the crowd, it would receive an additional 1000 Euro.

Of course, these sums are small compared to what can be raised on equity- and lending-based Crowdfunding platforms. It is too early to see the impact that COVID-19 will have on those startups, real estate, and renewable energy investment financed on equity platforms.

Start-ups might have a difficult time in the next couple of weeks, although some business models in electronic retail or electronic services might scale much quicker. But other startups might have a hard time, so we would not be surprised to see the insolvency rate going up.

SEE:  Canadian securities regulators propose new nationally harmonized crowdfunding rules for comment by May 27

In real estate equity-based crowdfunding, it depends on each location, at least in Germany and the Netherlands, it is not expected that housing prices and rents will decrease immediately, so the case for investing in real estate through crowdfunding platforms might still be there.

For renewable energy projects, the investment case continues to be strong because the climate crisis needs continued investments into solar and wind.

For all three types of equity-based crowdfunding, the investments have a long-term perspective, the payout is in the future, and at that time the markets and economies might have recovered. So investors who took a hit in the stock market might look for these platforms to diversify their portfolio, so at least in the medium-term, we should see increased investor appetite.

The equity-based Crowdfunding platforms in Germany, the Netherlands and in Europe, in general, have responded to the challenge by increasing their capacity to onboard SMEs. The Austrian-German platform Conda created the #condahilft-Landing page and promised to reduce the fees on all SME funding rounds on their platform.

In many countries, we can see that the investors don’t only want a financial return, but want the projects to succeed. In the Netherlands, all the large equity-based crowdfunding platforms announced that their investors will agree to a grace period between 3-6 months in which the project or company doesn’t need to pay the interest and does not need to repay their loans.

Aescuvest, an equity-based crowdfunding platform based in Germany with a focus on health startups created a fast-track for start-ups developing vaccinations against Covid19 and is currently in the process of partnering with other equity-based Crowdfunding platforms in Germany.

Fundedbyme, a Swedish equity-based Crowdfunding platform, has opened its platform to include donations as well, which is a sign of the shifting business models of platforms.

In the Netherlands, the banks have access to a guarantee fund if loans get into default. This week Dutch crowdfunding platforms will also get access to these funds, providing additional support for individual crowdfunding investors. This will create additional support for companies that are now in need of attracting additional funding.

MORE:  Getting In Early: SEC Sees Growth In Equity Crowdfunding

Some of the lending platforms in Europe have announced a freeze on repayments, but there is not yet evidence that governments are supporting lending platforms to recoup these costs.

There is anecdotal evidence that investor appetite is decreasing on lending-platforms throughout Europe, with investor forums advising to shift peer-to-peer investment back towards cash and other more liquid assets and investors not willing to invest in new loans because of the uncertainty in the market. The numbers of people and companies seeking loans have increased on the platforms – the increased supply and decreased demand for investments into loans made it necessary that the owners of loans had to provide substantial rebates in order to sell off their portfolio. The interest rates on new loans have increased at many lending-based crowdfunding platforms. For the platforms, the next couple of weeks might be quite difficult, since often their fee structure is based on the repayment of the loans, not just on the intermediation.

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NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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How payments can adjust to the coronavirus pandemic—and help the world adapt

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McKinsey & Company | By Philip B, Reet C., Olivier D., Tobias L., and Marc N  | March 2020

payments and covid19 1 - Facing disaster, corporate venture capital to undergo key stress testThe challenges are immediate, with long-term implications for global, regional, and local economies—and for the payments industry itself. Here’s what to expect.

Any projection of industry performance rests on assumptions about overall economic activity. The outlook largely depends on the spread of the virus, the public-health response, and the effectiveness of the fiscal, monetary, and broader public response. A relatively optimistic scenario, taking into account these variables, assumes that the virus will be contained after an economic lockdown of two to three months in Europe and the United States. Under this scenario, global GDP would decline in 2020 by 1.5 percent, which we estimate would result in, at most, a decline in payments revenues of around $165 billion, some 8 percent lower than they were in 2019.

See:  All businesses seeing 30% drop in revenue due to pandemic will be eligible for 75% wage subsidies: Trudeau

Cross-border consumer-to-business transactions are likely to drop. One-quarter of the total decline in revenues in our analysis is driven by cross-border payments, led by a 25 to 30 percent decline in cross-border C2B transactions. This would be explained mostly by the disruption of travel and tourism, but also by increasingly localized commerce ecosystems, such as those promoted through buy-local campaigns. Examples of highly vulnerable markets would be Saudi Arabia, with 40 percent of online payments related to travel and entertainment, and Thailand, a major destination of international travelers. Major expat markets, such as the United Arab Emirates, could also see a substantial share of their revenues disappear.

Cross-border business-to-business transactions have also been affected. Container freight is down since January, considerably lower than its level in the comparable period of 2019. However, supply chains will be disrupted over the longer term because different geographies will emerge from the crisis at different times. Chinese manufacturers, for example, won’t be able to sell engine parts to US automakers until US car production resumes.

Payments related to securities transactions are at record highs, reflecting the market’s instability and volatility. This volatility is creating a higher degree of risk for international securities-clearing transactions.

Retail payments and merchant-services businesses will be severely affected. Classic point-of-sale (POS) payments volumes could drop by as much as 30 to 40 percent in the short term, though online sales will be less affected. Data for retail show that as of March 18, foot traffic was down, compared with the same period in 2019, by around 20 percent in the United Kingdom and by more than 70 percent in Italy and the United States. Sales at restaurants and hotels and for recreation, culture, and travel have virtually collapsed. In 2018, these categories represented over 30 percent of EU household expenditures and an even higher percentage of POS transactions.

The gig economy—and fintech wallets based on it—is also suffering. Our industry observations suggest that flows are down by 20 to 30 percent for some leading wallets in Asia, despite a growing number of users. Offline merchant payments and ride hailing are most affected, while online payments and food delivery are holding up.

See:  Bank of Canada Speech: Money and Payments in the Digital Age

Finding the next normal

As the crisis plays out, we will get more clarity about the depth and duration of the pain. One thing is clear now: there will be no return to the norms of 2019; the impact on the behavior and expectations of customers and businesses—indeed the entire fabric of the economy—will be profound. So it is critical not only for the payments ecosystem but also for the economy as a whole to develop, today, the payments solutions that will allow economies to emerge from the current crisis efficiently and define the post-COVID-19 future.

Here we highlight ten fundamental changes that require us all to be prepared. These are not only things we believe the industry should predict or anticipate but also things that we should all ensure will happen for the effective and lasting relaunch of our economies.

Rationalize cash. Physical means of payments, such as cash and checks, have been actively discouraged through the crisis for their potential of carrying the virus. Banks have closed branches for security reasons, and clients and staffs have readjusted to changed interaction models, either over the phone or by appointment only. Some branches will never open again. Now is the time to promote and design digitization programs for commerce and the economy.

Ensure universal access. The current crisis is highlighting the fact that not everyone has the same level of access to the necessary new technologies and digital tools. Moving away from cash affects unbanked citizens disproportionately. Merchants without access to digital payments lose out more as remote buying increases. Now is the time to design setups where all merchants and all consumers, irrespective of finances and education, will have access to the tools of the future. Limits in the payments infrastructure or prices should not be used as an excuse.

See:  The Cash Crisis: Why America’s financial plumbing has seized up

Stabilize digital currencies. With values collapsing and trust eroding, digital currencies have proved incapable of delivering on their promise of a universal payments solution in a time of need. The crisis is reinforcing the importance of governments in maintaining the global financial system. Consider, for example, the momentous currency swap lines of credit made available by the US Federal Reserve to global central banks.

Make the leap to omnichannel payments solutions to support omnichannel commerce. The growth of online commerce has accelerated and will continue to do so, especially as markets, such as those in Southern Europe, close the gap with more advanced Northern European or Anglo-Saxon economies and China. Some smaller retailers forced to close in the crisis may not reopen physically but seek a digital future instead. The rapid build-out of omnichannel capabilities—which will bridge payments in any environment, physical or digital—will become an essential requirement for all payments players in most geographies.

Make all payments touchless. The fear of contact with contaminated surfaces has given a real boost to the use of contactless payments, card and wallet based. Cashiers are being trained not to take cards from customers and to promote the insertion of cards into readers by customers. The educational impact of, say, local shopkeepers who actively encourage customers to use contactless payments and refuse to take cash will convert some of the more reluctant users. As this habit becomes further engrained, it will become the key to removing barriers to further growth.

Expand digital-wallet solutions beyond payments. Payments using digital devices—phones or wearables—had already started to emerge before COVID-19 struck. Enabling wallets to offer other features, such as digital IDs and transaction monitoring and reporting, will promote even more growth. Your phone could tell you when it is too crowded to go shopping or alert you when your goods are ready to pick up when you arrive. Such capabilities will make a difference to the reopening of some stores. Companies that provide viable options for integrated and contactless payments, to both customers and merchants, will probably have a distinctive edge over competitors.

See:  Fintechs getting a boost from coronavirus outbreak

Deploy data as a protection against fraud. The COVID-19 crisis has opened new avenues to use data. In China, phone data were used to help people understand “safe corridors” for movement and to track contagion cases rapidly. Even in Europe, consumers are more open to the use of data for their own benefit. The protections against fraud that can be developed should benefit users, not providers, in the weeks when activity resumes. Benefits delivered then will carry the mindset change forward. Fraud prevention is likely, more than ever, to be the priority here.

Promote a new era of cooperative competition. The universal disruption of our societies is triggering a new wave of innovation, with a cooperative mindset not common in past crises. The liquidity and profitability crunch provoked by the crisis will lead to a shakeout in the fintech industry, eliminating initiatives that lack clear long-term economic viability. We believe this development will lead to a new fintech landscape, geared more to marketwide cooperation and win–wins and less to challenging the incumbents. Given the change in valuations and market expectations, market consolidation and the development of local and regional champions may continue. In that context, companies will also be reviewing their prospects for growth, as well as considering partnership models and organic and M&A growth, to support their strategies.

Transform bank-payments operating models. Banks will also have to readjust to the new normal. Payments today are a major cost burden for many banks, and most spending maintains existing systems instead of creating change. In the postcrisis world, banks will need to reflect on how to organize themselves for change, possibly by running some of their payments businesses in a completely different way. They could, for example, consider structural moves on the use of onshoring versus outsourcing, cloud-based infrastructure, automation, and analysis-driven decisions to reimagine scale or the realignment of products. Payments-as-a-service business models, in their infancy before the crisis, are likely to get a boost, particularly where they can provide relief for reduced IT budgets.

See:   Globalizing Fintech In Action: A Discussion With Harinder Takhar of Paytm

Redesign the regulatory model. In a time of change, we must move to setups that solve real-world problems—guaranteed by regulators but not imposed. This will require a new model of collaboration between the payments sector and regulators—a model focused on innovation in payments, adapted to the new economic reality in a sustainable and resilient fashion. Early indications are hopeful: for example, the US Federal Reserve, the FDIC, and the OCC announced, on March 27, that they will allow companies to delay the adoption of current-expected-credit-loss (CECL) standards on regulatory capital for two years. This will support lending activity in the wake of COVID-19 while maintaining the quality of regulatory capital.

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NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Eight virtual banks transforming Hong Kong’s fintech sector

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Fintech Magazine | By Matt High | March 31, 2020

Virtual banking - Facing disaster, corporate venture capital to undergo key stress testWe take a closer look at the eight innovative virtual banks that are digitally disrupting Hong Kong's financial services industry using technologies like AI, machine learning and Big Data

With a national GDP of $341.4bn, Hong Kong is a rapidly growing economy and a centre of innovation and digital transformation. The special administrative region's history is rooted in the financial sector due to its low taxation, legislation that favours free trade and a currency pegged to the US Dollar.

Despite the financial sector in Hong Kong being dominated by incumbents, it is seeing a rapid rise in fintechs, digital banks and new propositions that are driven by the latest technologies.

The rise of virtual banking

Last year the Hong Kong Monetary Authority announced that eight virtual banks had been selected to receive licenses to operate in the country. Below we look in more detail at those virtual banks.

Ant SME: A subsidiary of Ant Financial, the virtual bank is reportedly going to target the Hong Kong SME market, and is dedicated to providing inclusive banking solutions to smaller businesses in the nation’s economy.

Insight Fintech: A joint venture between smartphone brand Xiaomi and AMTD Group, with Xiaomi owning 90% of the company, Insight Fintech provides capital markets and advisory, asset management, insurance brokerage, and strategic investment services. According to a recent press release, the bank will use Xiaomi’s strong foothold in the IoT technology space to create modern, integrated banking solutions that are easier to use and more accessible than traditional alternatives.

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Fusion Bank: The Hong Kong challenger with the most impressive backing is Fusion Bank (originally branded as Infinium), which is a joint venture between Chinese giants Tencent and ICBC, with additional support from Hillhouse Capital. Fusion Bank is reportedly looking to provide a full-service virtual banking experience, particularly highlighting small-value deposit services to the under-banked. The bank’s service also won’t require any minimum account balance, or low-balance fees both to the general public and SMEs.

Livi VB: Another of Hong Kong’s new challengers banks to have backing from mainland Chinese financial giants, Livi VB is a joint venture by the Bank of China, JD Digits and Jardines. Worth an estimated $2bn, the resulting company has huge cash reserves behind it and plans to use cutting edge fintech solutions driven by artificial intelligence (AI), blockchain and Big Data to deliver a truly seamless digital experience comparable to some of the leading European virtual banks.

SC Digital: Backed by global finance giant Standard Chartered (alongside PCCW Limited, HKT and Ctrip Hong Kong) SC Digital is looking to corner the retail banking market in Hong Kong. In addition to standard digital banking solutions, the virtual bank is looking to offer retailers and shoppers better ways of spending and transferring money.

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NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Better Buy: Square vs. American Express

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Nasdaq Markets | | March 31, 2020

incumbent versus growth - Facing disaster, corporate venture capital to undergo key stress testAmid the market volatility, two financial services companies held investor presentations in the past several weeks. Digital payments ecosystem Square (NYSE: SQ) and financial services company American Express (NYSE: AXP) provided updates on the current market situation, and, more importantly, their long-term growth plans.

Both companies play in the financial services sector, but they are at different points in their growth cycles and appeal to different kinds of investors. Let's dive into the details and make a determination as to which is a better buy today.

See:  Growth in Canadian FinTechs Having Impact on Canada’s Banking Landscape

The companies at a glance

American Express was founded more than 150 years before Square, but it is only three times Square's size in market capitalization. For dividend and value-minded investors, the financial stalwart boasts almost a 2% yield and incredible bottom-line profits. But Square is growing faster and has more growth opportunity.

square versus american express - Facing disaster, corporate venture capital to undergo key stress test

Data from company SEC filings and Yahoo Finance. Table by author.

 

 

The case for Square

Square's stock has gotten slashed recently as small shops are suffering under shelter-in-place and closure orders for non-essential businesses. In its investor day meeting, company management indicated payment transactions have declined in March, lowered its guidance for the first quarter by about 2%, and retracted its outlook for the full year. Investors shouldn't be surprised, as it is really impossible to say how this outbreak will affect its business for the short term. But for the long term, the future is bright.

See:  Neobanks Can’t Fight the COVID-19 “Flight to Quality”

The company has grown through providing payment tools and an ecosystem for small businesses and entrepreneurs worldwide. But this innovative fintech has quietly added a second ecosystem for individuals around its Cash App. The Cash App allows individual users to initiate person-to-person payments, act as a bank account or credit card, buy stocks, and even process bitcoin transactions. Since its release in 2017, this has become a $1.1 billion annual revenue business, growing 157% from 2018. Square's brand and powerful easy-to-use software has been able to stand up this segment in record time and adds another $60 billion to its market opportunity.

In 2020, Square will start reporting its business in two segments, seller ecosystem and Cash App. Combined, these two opportunities provide a $160 billion addressable market. As for short-term viability concerns, there really aren't any. It had over $1 billion in cash and cash equivalents as of its last quarterly earnings report. After adding a recent $1 billion debt offering, the company is flush with cash to deal with an extended length of reduced economic activity or even a recession.

The case for American Express

American Express serves as a premium credit card offering for affluent consumers and cards and services for small and large corporate businesses. It has an incredible brand and, as a result, can charge more than its larger competitors. But in 2017, its revenue growth declined due to increased competition in the premium space and losing its long-time partnership with Costco Wholesale. After that difficult year, longtime executive Stephen Squeri took over as CEO in February 2018 and set a course for returning to growth.

See:  Amazon, Walmart, the Secret Battle for FinTech Supremacy: Part II

Squeri's focus and efforts to right the ship have paid off. Since he took over, the company has executed eight quarters of 9%-plus currency-adjusted revenue growth and adjusted earnings-per-share growth of 13% and 12% for 2018 and 2019 full-year results. It is the No. 1 small business card issuer in the U.S.. It serves over 60% of the Fortune 500 with its corporate expense cards, and its consumer cardholders spend about three times that of other networks.

For growth, it is focused on what it does best -- serving the premium consumer, strengthening its strategic partnerships, and expanding its presence internationally. Even though it is seeing weakness in its first-quarter billings, its $24 billion in cash and cash equivalents will allow the company to weather even an elongated downturn.

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NCFA Jan 2018 resize - Facing disaster, corporate venture capital to undergo key stress test The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Facing disaster, corporate venture capital to undergo key stress testFF Logo 400 v3 - Facing disaster, corporate venture capital to undergo key stress testcommunity social impact - Facing disaster, corporate venture capital to undergo key stress test
Coronavirus resources 800 1 - Facing disaster, corporate venture capital to undergo key stress test

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FFCON20 Homepage Banner v3 updated - Facing disaster, corporate venture capital to undergo key stress test

 

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