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Marijuana delivery giant Eaze may go up in smoke

Posted by | Apps, eaze, eCommerce, funding, Government, Logistics, marijuana, meadow, Mobile, payments, Recent Funding, Startups, TC, Transportation, weed delivery | No Comments

The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten its ability to make payroll or settle its AWS bill. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt a major pivot to “touching the plant” by selling its own marijuana brands through its own depots.

TechCrunch spoke with nine sources with knowledge of Eaze’s struggles to piece together this report. If Eaze fails, it could highlight serious growing pains amid the “green rush” of startups into the marijuana business.

Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple sources. The funding was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues and internal disorganization.

 

An Eaze spokesperson confirmed that the company is low on cash. Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime. The spokesperson refused to discuss personnel issues, but noted that there have been layoffs at many late-stage startups as investors want to see companies cut costs and become more efficient.

From what we understand, Eaze is currently trying to raise a $35 million Series D round, according to its pitch deck. The $15 million bridge round came from unnamed current investors. (Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers and a number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital, is said to have walked away at the eleventh hour.

Eaze is going into the fundraising with an enterprise value of $388 million, according to company documents reviewed by TechCrunch. It’s not clear what valuation it’s aiming for in the next round.

An Eaze spokesperson declined to discuss fundraising efforts, but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.”

Desperate to grow margins

The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house brands through its own delivery depots to earn a higher margin. With a number of other cannabis companies struggling, the hope is that it will be able to acquire at low prices brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges or edibles.

An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”

The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.

In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85. 

To date, Eaze has only expanded to one other state beyond California (Oregon). Its aim is to add five more states this year, and another three in 2021. But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic expansion. Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.

An employee at the company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this is total merchandise value, before any cuts to suppliers and others are made. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business. 

Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Because banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. Another source says late payments have pushed some brands to stop selling through Eaze.

Another drain on its finances has been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot-purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services or buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.

Indeed, Eaze claims that its pivot into verticalization will bring it $204 million in revenues on gross transactions of $300 million. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in “private label” products and has more depot control.

Selling weed isn’t eazy

The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.  

Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or buying from a black market dealer.

It is not the only startup that has been chasing that audience. Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some $11.9 billion in 2018 and projected to grow to $63 billion by 2025.

Eaze was founded on the premise that the gradual decriminalization of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the U.S. and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it. 

It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment. 

“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”

Eaze CEO Ro Choy

That impression was not to last. The company, this employee was told when joining, had plenty of funding with more on the way. The newer funding never materialized, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and leadership: former Yammer executive Keith McCarty, who co-founded the company with Roie Edery (both are now founders at another cannabis startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the current CEO. 

“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow.”

No ‘Push for Kush’

The quick shifts in strategy were a recurring pattern that started well before the company got into tight financial straits. 

One employee recalled an acquisition Eaze made several years ago of a startup called Push for Pizza. Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favorite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)

Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favorite mix and, at the touch of a button, order it, lowering the procurement barrier even more.

The company was very excited about the deal and the prospect of the new app. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line. 

“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (We found the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)

Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”

Something had happened, though: The company had been taking payments by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model. Push for Kush by cash was less appealing. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.” 

Eaze’s spokesperson confirmed that “we did acquire Push for Pizza . . but ultimately didn’t choose to pursue [launching Push for Kush].”

Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales. 

Eventually, it moved to cards, but not smoothly: Visa specifically did not want Eaze on its platform. Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed. Currently the company appears to only take payments via debit cards, ACH transfer and cash, not credit card.

Another incident sheds light on how the company viewed and handled security issues. 

Can Eaze rise from the ashes?

At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.

The vulnerability was brought to the company’s attention. It was something that was up to product to fix, but the job was pushed down the list. It ultimately took seven months to patch this up. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.

Today, the issue is a more pressing financial one: The company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up. 

Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”

As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. But high government taxes, enduring black markets, intense competition and a lack of financial infrastructure willing to deal with any legal haziness have caused major setbacks.

While the pot business might sound chill, operations like Eaze depend on coordinating high-stress logistics with thin margins and little room for error. Plenty of food delivery startups, from Sprig to Munchery, went under after running into similar struggles, and at least banks and payment processors would work with them. With the odds stacked against it, Eaze has a tough road ahead.

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Paytm targets merchants to fight back Google and Walmart in India’s crowded payments field

Posted by | Amazon, Android, ggv capital, Google, india, jack ma, lightspeed, payments, Paytm, sequoia capital, Softbank, TC, Vijay Shekhar Sharma, Walmart | No Comments

Paytm today announced two new features for businesses as the financial services firm looks to expand its reach in the nation that has quickly become one of the world’s most crowded and competitive payments markets.

The Noida-headquartered firm, which raised $1 billion in late November, said its app for businesses now features an “all-in-one” QR code system to accept payments from multiple platforms, including mobile wallets (that act as an intermediary between a user and their bank but provide convenience) and those that are powered by UPI, a payments infrastructure built by a coalition of banks that has been widely adopted by the industry players.

Merchants had expressed an interest in having one QR code that could understand any payments app, said Vijay Shekhar Sharma, the founder and chief executive of Paytm’s parent firm One97 Communications. In addition to supporting mobile wallet apps, and UPI-powered payment apps, Paytm’s new QR codes also support payments through popular Rupay cards. “I am sure this QR will accelerate the Digital India mission and make more financial services available to the underserved,” he said.

Merchants can also stick these QR codes on devices such as battery packs and chargers to enable quick transaction from users, Sharma explained at a press conference today.

Bookkeeping for merchants and small businesses

The nation’s highest-valued startup (at around $16 billion) also announced a bookkeeping feature for businesses to help them maintain their daily records. The feature is already rolling out to merchants, Sharma told TechCrunch.

Dubbed Paytm Business Khata, the feature will help merchants manage payments, record transactions and secure loans and insurance. The service will also enable them to set a reminder for credit transactions, receive an audio alert for new transactions, and send links to their customers to easily pay their dues, said Sharma.

Hundreds of millions of Indians, many in small towns and villages, came online for the first time in the last decade thanks to the proliferation of cheap Android smartphones and the availability of some of the world’s cheapest mobile data plans.

In recent years, millions of merchants and small businesses have also started to accept digital payments and listed them on the web for the first time. But most of them are still offline. Scores of startups and heavily backed firms such as Google, Walmart and Amazon are chasing this untapped market.

Google, which has amassed more than 67 million users on its payments app in India, last year announced a range of offerings to allow businesses to easily start accepting payments online. In the past, the company also launched tools to help mom and pop stores build presence on the web.

A number of startups today, including Bangalore-based Instamojo, Khatabook (which raised $25 million in October last year and counts GGV Capital, Sequoia Capital India and Tencent among its investors) and Lightspeed-backed OkCredit, which raised $67 million in August last year, offer bookkeeping features and allow their consumers to enable easier payment options.

Google Pay or GPay sticker pasted on the glass of a car in New Delhi India on 18 September 2019 (Photo by Nasir Kachroo/NurPhoto via Getty Images)

Paytm’s Sharma claimed that his business app has already amassed more than 10 million merchant users, a number he expects to more than double by next year.

The announcements today illustrate how aggressively Paytm, which once led the mobile payments market in India, is expanding its service.

Some critics have cautioned that the firm, which counts SoftBank, Alibaba and T. Rowe Price among its key investors and has raised over $3.3 billion to date, is quickly losing its market share and chasing opportunities that could significantly increase its expenses and losses. According to several industry estimates, Google Pay and Walmart’s PhonePe now lead the mobile payments market in India.

Paytm lost more than half a billion dollars in the financial year that ended in March 2019. The trouble for the company is that there is currently little money to be made in the payments market because of some of the local guidelines set by the government.

“The current Paytm’s potential is a pale shadow of its former self. And to stay relevant, the company is entering new businesses (and failing spectacularly in some) at a pace that shows both a lack of clarity and urgency. Paytm is stuck between a glorious past that was built on the back of digital payments and a future that doesn’t look anything like Jack Ma’s Alibaba, one of Paytm’s largest investors and Sharma’s inspiration,” wrote Ashish Mishra, a long-time journalist, in a scathing post (paywalled).

Sharma said today that the company plans to offer services such as stock brokerage and insurance brokerage in the coming months.

At stake is India’s payments market that is estimated to be worth $1 trillion in the next four years, up from about $200 billion currently, according to Credit Suisse. And that market is only going to get more crowded when WhatsApp, which has amassed over 400 million users in India, rolls out its payments service to all its users in the country in the coming months.

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Fintech’s next decade will look radically different

Posted by | Amazon, Andreessen Horowitz, Android, Angela Strange, bain capital ventures, Bank, BlackRock, equifax, Facebook, Finance, financial services, financial technology, GitHub, Google, instagram, Marqeta, Matt Harris, Open Banking, payments, PayPal, Shopify, stripe, TechCrunch, Uber, Venture Capital | No Comments

The birth and growth of financial technology developed mostly over the last ten years.

So as we look ahead, what does the next decade have in store? I believe we’re starting to see early signs: in the next ten years, fintech will become portable and ubiquitous as it moves to the background and centralizes into one place where our money is managed for us.

When I started working in fintech in 2012, I had trouble tracking competitive search terms because no one knew what our sector was called. The best-known companies in the space were Paypal and Mint.

fintech search volume

Google search volume for “fintech,” 2000 – present.

Fintech has since become a household name, a shift that came with with prodigious growth in investment: from $2 billion in 2010 to over $50 billion in venture capital in 2018 (and on-pace for $30 billion+ this year).

Predictions were made along the way with mixed results — banks will go out of business, banks will catch back up. Big tech will get into consumer finance. Narrow service providers will unbundle all of consumer finance. Banks and big fintechs will gobble up startups and consolidate the sector. Startups will each become their own banks. The fintech ‘bubble’ will burst.

Who will the winners be in the future of fintech?

Here’s what did happen: fintechs were (and still are) heavily verticalized, recreating the offline branches of financial services by bringing them online and introducing efficiencies. The next decade will look very different. Early signs are beginning to emerge from overlooked areas which suggest that financial services in the next decade will:

  1. Be portable and interoperable: Like mobile phones, customers will be able to easily transition between ‘carriers’.
  2. Become more ubiquitous and accessible: Basic financial products will become a commodity and bring unbanked participants ‘online’.
  3. Move to the background: The users of financial tools won’t have to develop 1:1 relationships with the providers of those tools.
  4. Centralize into a few places and steer on ‘autopilot’.

Prediction 1: The open data layer

Thesis: Data will be openly portable and will no longer be a competitive moat for fintechs.

Personal data has never had a moment in the spotlight quite like 2019. The Cambridge Analytica scandal and the data breach that compromised 145 million Equifax accounts sparked today’s public consciousness around the importance of data security. Last month, the House of Representatives’ Fintech Task Force met to evaluate financial data standards and the Senate introduced the Consumer Online Privacy Rights Act.

A tired cliché in tech today is that “data is the new oil.” Other things being equal, one would expect banks to exploit their data-rich advantage to build the best fintech. But while it’s necessary, data alone is not a sufficient competitive moat: great tech companies must interpret, understand and build customer-centric products that leverage their data.

Why will this change in the next decade? Because the walls around siloed customer data in financial services are coming down. This is opening the playing field for upstart fintech innovators to compete with billion-dollar banks, and it’s happening today.

Much of this is thanks to a relatively obscure piece of legislation in Europe, PSD2. Think of it as GDPR for payment data. The UK became the first to implement PSD2 policy under its Open Banking regime in 2018. The policy requires all large banks to make consumer data available to any fintech which the consumer permissions. So if I keep my savings with Bank A but want to leverage them to underwrite a mortgage with Fintech B, as a consumer I can now leverage my own data to access more products.

Consortia like FDATA are radically changing attitudes towards open banking and gaining global support. In the U.S., five federal financial regulators recently came together with a rare joint statement on the benefits of alternative data, for the most part only accessible through open banking technology.

The data layer, when it becomes open and ubiquitous, will erode the competitive advantage of data-rich financial institutions. This will democratize the bottom of the fintech stack and open the competition to whoever can build the best products on top of that openly accessible data… but building the best products is still no trivial feat, which is why Prediction 2 is so important:

Prediction 2: The open protocol layer

Thesis: Basic financial services will become simple open-source protocols, lowering the barrier for any company to offer financial products to its customers.

Picture any investment, wealth management, trading, merchant banking, or lending system. Just to get to market, these systems have to rigorously test their core functionality to avoid legal and regulatory risk. Then, they have to eliminate edge cases, build a compliance infrastructure, contract with third-party vendors to provide much of the underlying functionality (think: Fintech Toolkit) and make these systems all work together.

The end result is that every financial services provider builds similar systems, replicated over and over and siloed by company. Or even worse, they build on legacy core banking providers, with monolith systems in outdated languages (hello, COBOL). These services don’t interoperate, and each bank and fintech is forced to become its own expert at building financial protocols ancillary to its core service.

But three trends point to how that is changing today:

First, the infrastructure and service layer to build is being disaggregates, thanks to platforms like Stripe, Marqeta, Apex, and Plaid. These ‘finance as a service’ providers make it easy to build out basic financial functionality. Infrastructure is currently a hot investment category and will be as long as more companies get into financial services — and as long as infra market leaders can maintain price control and avoid commoditization.

Second, industry groups like FINOS are spearheading the push for open-source financial solutions. Consider a Github repository for all the basic functionality that underlies fintech tools. Developers could continuously improve the underlying code. Software could become standardized across the industry. Solutions offered by different service providers could become more inter-operable if they shared their underlying infrastructure.

And third, banks and investment managers, realizing the value in their own technology, are today starting to license that technology out. Examples are BlackRock’s Aladdin risk-management system or Goldman’s Alloy data modeling program. By giving away or selling these programs to clients, banks open up another revenue stream, make it easy for the financial services industry to work together (think of it as standardizing the language they all use), and open up a customer base that will provide helpful feedback, catch bugs, and request new useful product features.

As Andreessen Horowitz partner Angela Strange notes, “what that means is, there are several different infrastructure companies that will partner with banks and package up the licensing process and some regulatory work, and all the different payment-type networks that you need. So if you want to start a financial company, instead of spending two years and millions of dollars in forming tons of partnerships, you can get all of that as a service and get going.”

Fintech is developing in much the same way computers did: at first software and hardware came bundled, then hardware became below differentiated operating systems with ecosystem lock-in, then the internet broke open software with software-as-a-service. In that way, fintech in the next ten years will resemble the internet of the last twenty.

placeholder vc infographic

Infographic courtesy Placeholder VC

Prediction 3: Embedded fintech

Thesis: Fintech will become part of the basic functionality of non-finance products.

The concept of embedded fintech is that financial services, rather than being offered as a standalone product, will become part of the native user interface of other products, becoming embedded.

This prediction has gained supporters over the last few months, and it’s easy to see why. Bank partnerships and infrastructure software providers have inspired companies whose core competencies are not consumer finance to say “why not?” and dip their toes in fintech’s waters.

Apple debuted the Apple Card. Amazon offers its Amazon Pay and Amazon Cash products. Facebook unveiled its Libra project and, shortly afterward, launched Facebook Pay. As companies from Shopify to Target look to own their payment and purchase finance stacks, fintech will begin eating the world.

If these signals are indicative, financial services in the next decade will be a feature of the platforms with which consumers already have a direct relationship, rather than a product for which consumers need to develop a relationship with a new provider to gain access.

Matt Harris of Bain Capital Ventures summarizes in a recent set of essays (one, two) what it means for fintech to become embedded. His argument is that financial services will be the next layer of the ‘stack’ to build on top of internet, cloud, and mobile. We now have powerful tools that are constantly connected and immediately available to us through this stack, and embedded services like payments, transactions, and credit will allow us to unlock more value in them without managing our finances separately.

Fintech futurist Brett King puts it even more succinctly: technology companies and large consumer brands will become gatekeepers for financial products, which themselves will move to the background of the user experiences. Many of these companies have valuable data from providing sticky, high-affinity consumer products in other domains. That data can give them a proprietary advantage in cost-cutting or underwriting (eg: payment plans for new iPhones). The combination of first-order services (eg: making iPhones) with second-order embedded finance (eg: microloans) means that they can run either one as a loss-leader to subsidize the other, such as lowering the price of iPhones while increasing Apple’s take on transactions in the app store.

This is exciting for the consumers of fintech, who will no longer have to search for new ways to pay, invest, save, and spend. It will be a shift for any direct-to-consumer brands, who will be forced to compete on non-brand dimensions and could lose their customer relationships to aggregators.

Even so, legacy fintechs stand to gain from leveraging the audience of big tech companies to expand their reach and building off the contextual data of big tech platforms. Think of Uber rides hailed from within Google Maps: Uber made a calculated choice to list its supply on an aggregator in order to reach more customers right when they’re looking for directions.

Prediction 4: Bringing it all together

Thesis: Consumers will access financial services from one central hub.

In-line with the migration from front-end consumer brand to back-end financial plumbing, most financial services will centralize into hubs to be viewed all in one place.

For a consumer, the hub could be a smartphone. For a small business, within Quickbooks or Gmail or the cash register.

As companies like Facebook, Apple, and Amazon split their operating systems across platforms (think: Alexa + Amazon Prime + Amazon Credit Card), benefits will accrue to users who are fully committed to one ecosystem so that they can manage their finances through any platform — but these providers will make their platforms interoperable as well so that Alexa (e.g.) can still win over Android users.

As a fintech nerd, I love playing around with different financial products. But most people are not fintech nerds and prefer to interact with as few services as possible. Having to interface with multiple fintechs separately is ultimately value subtractive, not additive. And good products are designed around customer-centric intuition. In her piece, Google Maps for Money, Strange calls this ‘autonomous finance:’ your financial service products should know your own financial position better than you do so that they can make the best choices with your money and execute them in the background so you don’t have to.

And so now we see the rebundling of services. But are these the natural endpoints for fintech? As consumers become more accustomed to financial services as a natural feature of other products, they will probably interact more and more with services in the hubs from which they manage their lives. Tech companies have the natural advantage in designing the product UIs we love — do you enjoy spending more time on your bank’s website or your Instagram feed? Today, these hubs are smartphones and laptops. In the future, could they be others, like emails, cars, phones or search engines?

As the development of fintech mirrors the evolution of computers and the internet, becoming interoperable and embedded in everyday services, it will radically reshape where we manage our finances and how little we think about them anymore. One thing is certain: by the time I’m writing this article in 2029, fintech will look very little like it did today.

So which financial technology companies will be the ones to watch over the next decade? Building off these trends, we’ve picked five that will thrive in this changing environment.

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Robinhood lets you invest as little as 1 cent in any stock

Posted by | Apps, dividends, Finance, Mobile, payments, Robinhood, Square Cash, Startups, TC | No Comments

One share of Amazon stock costs more than $1,700, locking out less-wealthy investors. So to continue its quest to democratize stock trading, Robinhood is launching fractional share trading this week. This lets you buy 0.000001 shares, rounded to the nearest penny, or just $1 of any stock, with zero fee.

The ability to buy by millionth of a share lets Robinhood undercut Square Cash’s recently announced fractional share trading, which sets a $1 minimum for investment. Robinhood users can sign up here for early access to fractional share trading. “One of our core values is participation is power,” says Robinhood co-CEO Vlad Tenev. “Everything we do is rooted in this. We believe that fractional shares have the potential to open up investing for even more people.”

Fractional share trading ensures no one need be turned away, and Robinhood can keep growing its user base of 10 million with its war chest of $910 million in funding. As incumbent brokerages like Charles Schwab and E*Trade move to copy Robinhood’s free stock trading, the startup has to stay ahead in inclusive financial tools. In this case, though, it’s trying to keep up, since Schwab, Square, Stash and SoFi all launched fractional shares this year. Betterment has actually offered this since 2010.

Robinhood has a bunch of other new features aimed at diversifying its offering for the not-yet-rich. Today its Cash Management feature it announced in October is rolling out to its first users on the 800,000-person wait list, offering them 1.8% APY interest on cash in their Robinhood balance plus a Mastercard debit card for spending money or pulling it out of a wide network of ATMs. The feature is effectively a scaled-back relaunch of the botched debut of 3% APY Robinhood Checking a year ago, which was scuttled because the startup failed to secure the proper insurance it now has for Cash Management.

Additionally, Robinhood is launching two more widely requested features early next year. Dividend Reinvestment Plan (DRIP) will automatically reinvest into stocks or ETF cash dividends Robinhood users receive. Recurring Investments will let users schedule daily, weekly, bi-weekly or monthly investments into stocks. With all this, and Crypto trading, Robinhood is evolving into a full financial services suite that will be much harder for competitors to copy.

Robinhood Debit Card

How Robinhood fractional shares work

“We believe that if you want to invest, it shouldn’t matter how much money you have. With fractional shares, we’re opening up a whole universe of stocks and funds, including Amazon, Apple, Disney, Berkshire Hathaway, and thousands of others,” Robinhood product manager Abhishek Fatehpuria tells me.

Users will be able to place real-time fractional share orders in dollar amounts as low as $1 or share amounts as low as 0.000001 shares rounded to the penny during market hours. Stocks worth over $1 per share with a market capitalization above $25 million are eligible, with 4,000 different stocks and ETFs available for commission-free, real-time fractional trading.

“We believe that participation is power. Since day one, we’ve focused on breaking down barriers like trade commissions and account minimums to help people participate in the financial system,” says Fatehpuria. “We have a unique user base — half our customers tell us they’re first-time investors, and the median age of a Robinhood customer is 30. This means we have a unique opportunity to expand access to the markets for this new generation.”

Robinhood is racing to corner the freemium investment tool market before other startups and finance giants can catch up. It opened a waitlist for its U.K. launch next year, which will be its first international market. But in just the past month, Alpaca raised $6 million for an API that lets anyone build a stock brokerage app, and Atom Finance raised $12.5 million for its free investment research tool that could compete with Robinhood’s in-app feature. Meanwhile, Robinhood suffered an embarrassing bug, letting users borrow more money than allowed.

The move fast and break things mentality triggers new dangers when introduced to finance. Robinhood must resist the urge to rush as it spreads itself across more products in pursuit of a more level investment playing field.

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Lessons from M-Pesa for Africa’s new VC-rich fintech startups

Posted by | Airtel, Bob Collymore, China, Chipper Cash, kenya, M-Pesa, Mobile, Opera, paga, payments, Safaricom, South Africa, Tanzania, TC, Venture Capital, visa, vodafone | No Comments

In African fintech, the fourth quarter of 2019 brought big money to new entrants.

Chinese investors put $220 million into OPay and PalmPay — two fledgling startups with plans to scale in Nigeria and the broader continent. Several sources told me the big bucks had created anxiety for more than few payments ventures in Nigeria with similar strategies and smaller coffers. They may not need to fret just yet, however: lessons from Africa’s most successful mobile-money case study, M-Pesa, suggest that VC alone won’t buy scale in digital finance.

Startups and fintech in Africa

Over the last decade, Africa has been in the midst of a startup boom accompanied by big growth in VC and improvements in internet and mobile penetration.

Some definitive country centers for company formation, tech hubs and investment have emerged; Nigeria, South Africa and Kenya lead the continent in numbers for all those categories. Additional strong and emerging points for innovation and startups across Africa’s 54 countries and 1.2 billion people include Ghana, Tanzania, Ethiopia, and Senegal.

The continent surpassed $1 billion in VC to startups in 2018 and per research done by Partech and WeeTracker, fintech is the focus of the bulk of capital and deal-flow.

By several estimates,  Africa is home to the largest share of the world’s unbanked and underbanked population.

This runs parallel to the region’s off-the-grid SME’s and economic activity — on display and in commercial motion through the street traders, roadside kiosks and open-air markets common from Nairobi to Lagos.

IMF estimates have pegged Africa’s informal economy as one of the largest in the world. Thousands of fintech startups have descended onto this large pool of unbanked and underbranked citizens and SMEs looking to grow digital finance products and market share.

In this race, the West African nation of Nigeria — home to Africa’s largest economy and population — is becoming an epicenter for VC. Many fintech-related companies are adopting a strategy of scaling there first before expanding outward.

Enter PalmPay and OPay

That includes new entrants OPay and PalmPay, which raised so much capital in fourth quarter 2019. It’s notable that both were founded in 2019 and largely incubated by Chinese actors.

PalmPay, a consumer-oriented payments product, went live in November with a $40 million seed-round (one of the largest in Africa in 2019) led by Africa’s biggest mobile-phones seller — China’s Transsion. The startup was upfront about its ambitions, stating its goals to become “Africa’s largest financial services platform,” in a company statement.

To that end, PalmPay conveniently entered a strategic partnership with its lead investor. The startup’s payment app will come pre-installed on Transsion’s mobile device brands, such as Tecno, in Africa — for an estimated reach of 20 million phones in 2020.

PalmPay also launched in Ghana in November and its U.K. and Africa-based CEO, Greg Reeve, confirmed plans to expand to additional African countries in 2020.

If PalmPay’s $40 million seed round got founders’ attention, OPay’s $120 million Series B created shock-waves, coming just months after the mobile-based fintech venture raised $50 million — making OPay’s $170 million capital haul equivalent to roughly a fifth of all VC raised in Africa in 2018.

Founded by Chinese owned consumer internet company Opera — and backed by 9 Chinese investors — OPay is the payment utility for a suite of Opera -developed internet based commercial products in Nigeria that include ride-hail apps ORide and OCar and food delivery service OFood.

With its latest Series A, OPay announced it would expand in Kenya, South Africa, and Ghana.

In Nigeria, OPay’s $170 million Series A and B announced in the span of months dwarfs just about anything raised by new and existing fintech players, with the exception of Interswitch.

The homegrown payments processing company — which pioneered much of Nigeria’s digital finance infrastructure — reached unicorn status in November when Visa took a reported $200 million minority stake in the venture.

A sampling of more common funding amounts for payments ventures in Nigeria includes established fintech company Paga’s $10 million Series B. Recent market entrant Chipper Cash’s May 2019 seed-round was $2.4 million.

There is a large disparity between fintech startups in Nigeria with capital raises in ones and tens of millions vs. OPay and PalmPay’s $40 and $120 million rounds. Conventional wisdom could be that the big-capital, big spending firms have an unmistakable advantage in scaling digital payments in Nigeria and other markets.

A look at Kenya’s M-Pesa may prove otherwise.

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Omni storage & rentals fails, shutters, sells engineers to Coinbase

Posted by | Apps, clutter, coinbase, Collaborative Consumption, eCommerce, Exit, Flybridge Capital Partners, founders fund, Fundings & Exits, Highland Capital Partners, Logistics, Mobile, Omni, payments, rentals, Startups, TC, Transportation | No Comments

$35 million-funded Omni is packing up and shutting down after struggling to make the economics of equipment rentals and physical on-demand storage work out. It’s another victim of a venture capital-subsidized business offering a convenient service at an unsustainable price.

The startup fought for a second wind after selling off its physical storage operations to competitor Clutter in May. Then sources tell me it tried to build a whitelabel software platform for letting brick-and-mortar merchants rent stuff like drills or tents as well as sell them so Omni could get out of hands-on logistics. But now the whole company is folding, with Coinbase hiring roughly 10 of Omni’s engineers.

“They realized that the core business was just challenging as architected” a source close to Omni tells TechCrunch. “The service was really great for the consumer but when they looked at what it would take to scale, that would be difficult and expensive.” Another source says Omni’s peak headcount was around 70.

The news follows TechCrunch’s report in October that Omni had laid off operations teams members and was in talks to sell its engineering team to Coinbase. Omni had internally discussed informing its retail rental partners ahead of time that it would be shutting down. Meanwhile, it frantically worked to stop team members from contacting the press about the startup’s internal troubles.

We’ll be winding down operations at Omni and closing the platform by the end of this year. We are proud of what we built and incredibl y thankful for everyone who supported our vision over the past five and a half years” an Omni spokesperson says. Omni CEO Tom McLeod did not respond to multiple requests for comment. Oddly, Omni was still allowing renters to pay for items as of this morning, though it’s already shut down its blog and hasn’t made a public announcement about its shut down.

Coinbase has reached an agreement with Omni to hire members of its engineering team. We’re always looking for top-tier engineering talent and look forward to welcoming these new team members to Coinbase” a Coinbase spokesperson tells us. The team was looking for more highly skilled engineers they could efficiently hire as a group, though it’s too early to say what they’ll be working on.

Omni originaly launched in 2015, offering to send a van to your house to pick up and index any of your possession, drive them to a nearby warehouse, store them, and bring them back to you whenever you needed for just a few dollars per month. It seemed too good to be true and ended up being just that.

Eventually Omni pivoted towards letting you rent out what you were storing so you and it could earn some extra cash in 2017. Sensing a better business model there, it sold its storage business to Softbank-funded Clutter and moved to helping retail stores run rental programs. But that simply required too big of a shift in behavior for merchants and users, while also relying on slim margins.

Omni Rentals

One major question is whether investors will get any cash back. Omni raised $25 million from cryptocurrency company Ripple in early 2018. Major investors include Flybridge, Highland, Allen & Company, and Founders Fund, plus a slew of angels.

The implosion of Omni comes as investors are re-examining business fundamentals of startups in the wake of Uber’s valuation getting cut in half in the public markets and the chaos at WeWork ahead of its planned IPO. VCs and their LPs want growth, but not at the cost of burning endless sums of money to subsidize prices just to lure customers to a platform.

It’s one thing if the value of the service is so high that people will stick with a startup as prices rise to sustainable levels, as many have with ride hailing. But for Omni, ballooning storage prices pissed off users as on-demand became less afforable than a traditional storage unit. Rentals were a hassle, especially considering users had to pick-up and return items themselves when they could just buy the items and get instant delivery from Amazon.

Startups that need a ton of cash for operations and marketing but don’t have a clear path to ultra-high lifetime value they can earn from customers may find their streams of capital running dry.

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Facebook staff demand Zuckerberg limit lies in political ads

Posted by | 2020 Election, Advertising Tech, Alexandria Ocasio-Cortez, Apps, Facebook, Facebook ads, Facebook Politics, Government, Mark Zuckerberg, Media, Mobile, Opinion, payments, Personnel, Policy, Social | No Comments

Submit campaign ads to fact checking, limit microtargeting, cap spending, observe silence periods or at least warn users. These are the solutions Facebook employees put forward in an open letter pleading with CEO Mark Zuckerberg and company leadership to address misinformation in political ads.

The letter, obtained by The New York Times’ Mike Isaac, insists that “Free speech and paid speech are not the same thing . . . Our current policies on fact checking people in political office, or those running for office, are a threat to what FB stands for.” The letter was posted to Facebook’s internal collaboration forum a few weeks ago.

The sentiments echo what I called for in a TechCrunch opinion piece on October 13th calling on Facebook to ban political ads. Unfettered misinformation in political ads on Facebook lets politicians and their supporters spread inflammatory and inaccurate claims about their views and their rivals while racking up donations to buy more of these ads.

The social network can still offer freedom of expression to political campaigns on their own Facebook Pages while limiting the ability of the richest and most dishonest to pay to make their lies the loudest. We suggested that if Facebook won’t drop political ads, they should be fact checked and/or use an array of generic “vote for me” or “donate here” ad units that don’t allow accusations. We also criticized how microtargeting of communities vulnerable to misinformation and instant donation links make Facebook ads more dangerous than equivalent TV or radio spots.

Mark Zuckerberg Hearing In Congress

The Facebook CEO, Mark Zuckerberg, testified before the House Financial Services Committee on Wednesday October 23, 2019 in Washington, D.C. (Photo by Aurora Samperio/NurPhoto via Getty Images)

More than 250 employees of Facebook’s 35,000 staffers have signed the letter, which declares, “We strongly object to this policy as it stands. It doesn’t protect voices, but instead allows politicians to weaponize our platform by targeting people who believe that content posted by political figures is trustworthy.” It suggests the current policy undermines Facebook’s election integrity work, confuses users about where misinformation is allowed, and signals Facebook is happy to profit from lies.

The solutions suggested include:

  1. Don’t accept political ads unless they’re subject to third-party fact checks
  2. Use visual design to more strongly differentiate between political ads and organic non-ad posts
  3. Restrict microtargeting for political ads including the use of Custom Audiences since microtargeted hides ads from as much public scrutiny that Facebook claims keeps politicians honest
  4. Observe pre-election silence periods for political ads to limit the impact and scale of misinformation
  5. Limit ad spending per politician or candidate, with spending by them and their supporting political action committees combined
  6. Make it more visually clear to users that political ads aren’t fact-checked

A combination of these approaches could let Facebook stop short of banning political ads without allowing rampant misinformation or having to police individual claims.

Facebook’s response to the letter was “We remain committed to not censoring political speech, and will continue exploring additional steps we can take to bring increased transparency to political ads.” But that straw-man’s the letter’s request. Employees aren’t asking politicians to be kicked off Facebook or have their posts/ads deleted. They’re asking for warning labels and limits on paid reach. That’s not censorship.

Zuckerberg Elections 1

Zuckerberg had stood resolute on the policy despite backlash from the press and lawmakers, including Representative Alexandria Ocasio-Cortez (D-NY). She left him tongue-tied during a congressional testimony when she asked exactly what kinds of misinfo were allowed in ads.

But then Friday, Facebook blocked an ad designed to test its limits by claiming Republican Lindsey Graham had voted for Ocasio-Cortez’s Green Deal he actually opposes. Facebook told Reuters it will fact-check PAC ads.

One sensible approach for politicians’ ads would be for Facebook to ramp up fact-checking, starting with presidential candidates until it has the resources to scan more. Those fact-checked as false should receive an interstitial warning blocking their content rather than just a “false” label. That could be paired with giving political ads a bigger disclaimer without making them too prominent-looking in general and only allowing targeting by state.

Deciding on potential spending limits and silent periods would be more messy. Low limits could even the playing field and broad silent periods, especially during voting periods, and could prevent voter suppression. Perhaps these specifics should be left to Facebook’s upcoming independent Oversight Board that acts as a supreme court for moderation decisions and policies.

fb arbiter of truth

Zuckerberg’s core argument for the policy is that over time, history bends toward more speech, not censorship. But that succumbs to utopic fallacy that assumes technology evenly advantages the honest and dishonest. In reality, sensational misinformation spreads much further and faster than level-headed truth. Microtargeted ads with thousands of variants undercut and overwhelm the democratic apparatus designed to punish liars, while partisan news outlets counter attempts to call them out.

Zuckerberg wants to avoid Facebook becoming the truth police. But as we and employees have put forward, there is a progressive approach to limiting misinformation if he’s willing to step back from his philosophical orthodoxy.

The full text of the letter from Facebook employees to leadership about political ads can be found below, via The New York Times:

We are proud to work here.

Facebook stands for people expressing their voice. Creating a place where we can debate, share different opinions, and express our views is what makes our app and technologies meaningful for people all over the world.

We are proud to work for a place that enables that expression, and we believe it is imperative to evolve as societies change. As Chris Cox said, “We know the effects of social media are not neutral, and its history has not yet been written.”

This is our company.

We’re reaching out to you, the leaders of this company, because we’re worried we’re on track to undo the great strides our product teams have made in integrity over the last two years. We work here because we care, because we know that even our smallest choices impact communities at an astounding scale. We want to raise our concerns before it’s too late.

Free speech and paid speech are not the same thing.

Misinformation affects us all. Our current policies on fact checking people in political office, or those running for office, are a threat to what FB stands for. We strongly object to this policy as it stands. It doesn’t protect voices, but instead allows politicians to weaponize our platform by targeting people who believe that content posted by political figures is trustworthy.

Allowing paid civic misinformation to run on the platform in its current state has the potential to:

— Increase distrust in our platform by allowing similar paid and organic content to sit side-by-side — some with third-party fact-checking and some without. Additionally, it communicates that we are OK profiting from deliberate misinformation campaigns by those in or seeking positions of power.

— Undo integrity product work. Currently, integrity teams are working hard to give users more context on the content they see, demote violating content, and more. For the Election 2020 Lockdown, these teams made hard choices on what to support and what not to support, and this policy will undo much of that work by undermining trust in the platform. And after the 2020 Lockdown, this policy has the potential to continue to cause harm in coming elections around the world.

Proposals for improvement

Our goal is to bring awareness to our leadership that a large part of the employee body does not agree with this policy. We want to work with our leadership to develop better solutions that both protect our business and the people who use our products. We know this work is nuanced, but there are many things we can do short of eliminating political ads altogether.

These suggestions are all focused on ad-related content, not organic.

1. Hold political ads to the same standard as other ads.

a. Misinformation shared by political advertisers has an outsized detrimental impact on our community. We should not accept money for political ads without applying the standards that our other ads have to follow.

2. Stronger visual design treatment for political ads.

a. People have trouble distinguishing political ads from organic posts. We should apply a stronger design treatment to political ads that makes it easier for people to establish context.

3. Restrict targeting for political ads.

a. Currently, politicians and political campaigns can use our advanced targeting tools, such as Custom Audiences. It is common for political advertisers to upload voter rolls (which are publicly available in order to reach voters) and then use behavioral tracking tools (such as the FB pixel) and ad engagement to refine ads further. The risk with allowing this is that it’s hard for people in the electorate to participate in the “public scrutiny” that we’re saying comes along with political speech. These ads are often so micro-targeted that the conversations on our platforms are much more siloed than on other platforms. Currently we restrict targeting for housing and education and credit verticals due to a history of discrimination. We should extend similar restrictions to political advertising.

4. Broader observance of the election silence periods

a. Observe election silence in compliance with local laws and regulations. Explore a self-imposed election silence for all elections around the world to act in good faith and as good citizens.

5. Spend caps for individual politicians, regardless of source

a. FB has stated that one of the benefits of running political ads is to help more voices get heard. However, high-profile politicians can out-spend new voices and drown out the competition. To solve for this, if you have a PAC and a politician both running ads, there would be a limit that would apply to both together, rather than to each advertiser individually.

6. Clearer policies for political ads

a. If FB does not change the policies for political ads, we need to update the way they are displayed. For consumers and advertisers, it’s not immediately clear that political ads are exempt from the fact-checking that other ads go through. It should be easily understood by anyone that our advertising policies about misinformation don’t apply to original political content or ads, especially since political misinformation is more destructive than other types of misinformation.

Therefore, the section of the policies should be moved from “prohibited content” (which is not allowed at all) to “restricted content” (which is allowed with restrictions).

We want to have this conversation in an open dialog because we want to see actual change.

We are proud of the work that the integrity teams have done, and we don’t want to see that undermined by policy. Over the coming months, we’ll continue this conversation, and we look forward to working towards solutions together.

This is still our company.

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Lowlights from Zuckerberg’s Libra testimony in Congress

Posted by | Apps, blockchain, Congress, cryptocurrency, eCommerce, Facebook, facebook news, Finance, Libra, Libra Association, Mark Zuckerberg, Mobile, payments, Personnel, Social, TC | No Comments

“I don’t control Libra” was the central theme of Facebook CEO Mark Zuckerberg’s testimony today in Congress. The House of Representatives unleashed critiques of his approach to cryptocurrency, privacy, encryption and running a giant corporation during six hours of hearings. Zuckerberg tried to assuage their fears while stoking concerns that if Facebook doesn’t build Libra, the world will end up using China’s version. Yet Facebook won’t stop shaking up society, with Zuckerberg saying its News tab feature will be announced this week.

During the hearing before the House Financial Services Committee that you can watch here, Zuckerberg recommitted to only releasing Libra with full U.S. regulatory approval. But given the tone of the questioning and Zuckerberg’s lack of fresh answers since Facebook’s David Marcus testified about Libra in July, Libra now looks even less likely to launch in 2020.

The hearing started tensely, with Rep. Maxine Waters (D-CA) declaring that “Perhaps you believe that you’re above the law, and it appears that you are aggressively increasing the size of your company, and are willing to step over anyone, including your competitors, women, people of color, you own users, and even our democracy to get what you want . . . In fact, you have opened up a serious discussion about whether Facebook should be broken up.

However, some members of Congress used their time to advocate for American dominance instead of heavy regulation. Rep. Patrick McHenry (R-NC) said “the question is, are we going to spend our time trying to devise ways for government planners to centralize and control as to who, when and how innovators can innovate.” Many Republicans complimented Zuckerberg on his business acumen, though none showed outright support for Libra.

Zuckerberg Libra testimony

With few highlights or positive moments coming from the hearing, here are the major takeaways followed by a chronicle of the top exchanges between Zuckerberg and Congress:

  • Zuckerberg claims China will soon have its own version, so regulators shouldn’t block Libra
  • He’s open to regulators requiring Libra to be majority-backed by the U.S. dollar
  • Zuckerberg would leave inheritance to his children in Libra since it’s backed one-to-one with real currency
  • He wouldn’t commit to blocking anonymous wallets but he’s open to baking more anti-money laundering into Libra’s network
  • Zuckerberg plans to expand verifying users via government ID to battle abuse of Facebook
  • He said Libra partners left because “it’s a risky project and there’s been a lot of scrutiny”
  • Zuckerberg confirmed the Libra Association has abandoned or modified its plan to deal themselves dividends on interest from the Libra reserve
  • Facebook will pull out of Libra if it does something Facebook can’t allow or that it’s prohibited from by regulators
  • Zuckerberg didn’t discuss Facebook’s policy allowing misinformation in political ads with President Trump during their meeting
  • He says Facebook is developing anti-deepfakes technology and a policy about takedowns
  • He repeated his call for more government regulation instead of Facebook making its own rules
  • Facebook will comply with subpoenas for info on discrimination in housing ads
  • Zuckerberg wouldn’t commit to trying out the role of Facebook content moderator
  • Facebook plans to announce its upcoming News tab this week
  • Congress’ questions were smarter than a year ago, but still pried little new information on Libra out of Zuckerberg
  • Zuckerberg repeatedly relied on the Libra Association’s independence from Facebook to avoid substantial answers

On Libra versus China

Zuckerberg tried to leverage nationalist sentiment to deflect scrutiny. “As soon as we put forward the white paper around the Libra project, China immediately announced a public private partnership, working with companies . . . to extend the work that they’ve already done with AliPay into a digital Renminbi as part of the Belt and Road Initiative that they have, and they’re planning on launching that in the next few months.” He later said that for Libra, “Chinese companies would be the primary competitors.”

Facebook’s executives have repeatedly leaned on this “let us, or China will” argument we chronicle here.

What if the Libra Association chooses to add the Chinese currency to the basket used to back Libra and reduces the U.S. dollar’s fraction of the basket? “I think it would be completely reasonable for our regulators to try to [implement] a restriction that says that it has to be primarily U.S. dollars,” Zuckerberg responded in one of his most substantial answers of the day. Zuckerberg was receptive to feedback that the Libra Association should keep its white paper updated.

As for why Libra isn’t just backed 100% with the U.S. dollar, Zuckerberg explained that “I think from a U.S. regulatory perspective, it would probably be significantly simpler. But because we’re trying to build something that can also be a global payment system that works in other places, it may be less welcome in other places if it’s only 100% based on the dollar.” Still, Zuckerberg said he would leave his children their inheritance in Libra because it’s backed one-to-one by the Libra reserve.

On Libra and regulation

Zuckerberg wouldn’t commit to blocking anonymous Libra wallets that could facilitate money laundering, only saying Facebook’s own Calibra wallet would have strong identity checks. He did say Libra was exploring whether it could encode “know your customer” protections at the network level instead of relying on developers to build this into their wallets.

On whether Facebook will increasingly seek to verify users’ identities through government ID, Zuckerberg was enthusiastic. “This is an area where I think we are going to do a lot more in the years to come. We started with political ads . . .  over the coming years for anything that people are doing that is sensitive, we’re likely going to increasingly require verification either by government ID or other things so we can have a clear sense of people’s authentic identity.”

Rep. Dean Phillips (D-MN) mentioned this could be a competitive advantage, implying Facebook’s size and resources might allow it to embark on a verification initiative other companies couldn’t.

Calibra Know Your Customer

Facebook has assured regulators that Calibra’s data would be kept separate from the social network. But Facebook said the same when it acquired WhatsApp, then reneged and integrated its data. This time around, Congresswoman Nydia Velázquez declared that “we’re going to need to make sure that . . . you learned that you should not lie.”

When pushed on why Libra Association members like Visa, Stripe and eBay left the organization, Zuckerberg admitted, “I think because it’s a risky project and there’s been a lot of scrutiny.” Zuckerberg struck back at finance incumbents, saying “I think that the U.S. financial industry . . . is just frankly behind where it needs to be to innovate and continue American financial leadership going forward.”

In an awkward moment, Zuckerberg could not answer which Libra members were run by women, minorities or LGBTQ+ people. “Is it true that the overwhelming majority of persons associated with this endeavor are white men?,” Rep. Al Green (D-TX) asked. “Congressman, I don’t know off the top of my head,” Zuckerberg responded.

Zuckerberg was criticized for trying to profit and potentially helping money laundering while claiming Libra is designed to help the unbanked. Zuckerberg said the Libra Association “hadn’t nailed down policies” about whether anonymous payments are allowed.

Rep. Brad Sherman (D-CA) said “for the richest man in the world to come here and hide behind the poorest people in the world, and say that’s who you’re really trying to help. You’re trying to help those for whom the dollar is not a good currencydrug dealers, terrorists.” Some members of Congress like Sherman chose to use their entire time monologuing instead of actually asking questions. 

Zuckerberg got a chance to clear up a major snafu from Marcus’ testimony, where he said the Libra Association was in contact with the Swiss data regulator, which CNBC reported hadn’t heard from Libra. Zuckerberg explained today that the Libra Association had been in contact with the primary Swiss Financial Market Supervisory Authority instead. He says Facebook plans to earn money from Libra on ads from small businesses if cheap transactions lead to more e-commerce.

In one revealing exchange, Rep. Lance Gooden (R-TX) asked if the Libra Association still planned to offer profit incentives by offering dividends based on interest earned on currency in the Libra reserve after expenses are paid. Zuckerberg said the idea had either been “modified or abandoned.”

Screen Shot 2019 10 23 at 11.51.30 AM

The highlighted section detailing how Libra Association members earn dividends on Libra reserve interest has been removed from the Libra whitepaper

 

 

 

 

 

Claiming Facebook isn’t Libra

Throughout the testimony, Zuckerberg tried to distance himself and Facebook from the Libra Association’s decision making process. “We might be required to pull out if the Association independently decides to move forward on something that we’re not comfortable with,” Zuckerberg said. That means if Facebook can’t launch Libra, it could still theoretically launch without the social network, though it does most of the engineering heavy-lifting.

The strategy was crystallized by Zuckerberg’s response to whether he could commit to moving Libra’s headquarters from Switzerland to the U.S. “At this point, we do not control the independent Libra Association so I don’t think we can make that decision.” Rep. Ayanna Pressley (D-MA) refuted this position, stating, “Mr. Zuckerberg, Libra is Facebook, and Facebook is you.”

Mark Zuckerberg Hearing In Congress

The Facebook CEO, Mark Zuckerberg, testified before the House Financial Services Committee on Wednesday October 23, 2019 Washington, D.C. (Photo by Aurora Samperio/NurPhoto via Getty Images)

 

The “we don’t control Libra” argument provides Facebook and Libra an escape hatch from criticism, because any member and even the newly appointed chairperson and board can’t unilaterally control or make promises about its actions.

On misinformation and encryption

Many Congress members remain fixated on Facebook’s recently solidified policy of refusing to submit political ads for fact-checking. Rep Sean Casten (D-IL) asked if in Zuckerberg’s recent meeting with President Trump, “Did anyone discuss the policy change along the exemption of political figures and parties from misinformation prohibition on Facebook?” Zuckerberg responded, “Congressman, that did not come up,” quieting theories that Trump pushed for the policy that would exempt false claims in his ads.

Zuckerberg defended the policy to Rep. Alexandria Ocasio-Cortez (D-NY), saying “I think lying is bad, and I think if you were to run an ad that had a lie, that would be bad,” but that outside of calls for violence or voter suppression, Facebook thinks it’s best to leave lies in ads from politicians so they can be scrutinized by the press and public. Yet that too heavily leans on the media to scrutinize thousands of ad variants being run as part of multi-hundred-million-dollar political ad campaigns.

Rep. Ann Wagner (R-MO) chided Zuckerberg, saying “you’re not working hard enough” to stop the spread of child exploitation imagery online despite Facebook submitting millions of reports. She brought up worries that Facebook moving entirely to encrypted messaging could hide child abusers, and Zuckerberg merely said “I think we work harder than any other company.” He failed to explain how Facebook would continue improving detection through encryption.

Oddly, Zuckerberg was directly confronted about his views on vaccines since Facebook works to hide vaccine hoaxes and avoid recommending groups spreading unverified information about them. “I don’t think it would be possible for anyone to be 100% confident, but my understanding of the scientific consensus is that it is important that people get their vaccines,” Zuckerberg said, defending Facebook’s decision to hide some of this content.

In another strange moment, Rep. Madeleine Dean (D-PA) demanded if Facebook had bought blocks of hotel rooms at Trump properties but never used them just to curry favor with the president. Zuckerberg said he’d never heard of that and would be surprised if it was true.

On deepfakes, Zuckerberg confirmed that “I think deepfakes are clearly one of the emerging threats that we need to get in front of and develop policy around to address. We’re currently working on what the policy should be to differentiate between media that has manipulated and been manipulated by AI tools like deepfakes, with the intent to mislead people.” Zuckerberg later said the doctored Nancy Pelosi video should have been flagged sooner, and highlighted Facebook needs a separate deepfakes policy. Yet Facebook’s policy allows politicians’ ads to mislead people, weakening faith that it will properly address this new problem.

Questions about Facebook’s fair practices led Zuckerberg to reiterate his call for regulation, saying “I think we need federal privacy legislation. I think we need data portability legislation. I think clear rules on elections-related content would be helpful too because it’s not clear to me that we want private companies making so many decisions on these important areas by themselves.”

On diversity, discrimination and moderation

Regarding housing discrimination via Facebook ads, Zuckerberg committed to working with regulators to provide information under subpoena, noted Facebook has banned discriminatory housing ads, and said “Nobody wants to redline and I’m sure that was accidental.”

Zuckerberg received his heaviest criticism of the day from Rep. Joyce Beatty (D-OH), who grilled him about not knowing if diverse bankers manage Facebook’s cash or if diverse law firms handle its court cases. She chastised Facebook for a lack of diverse leadership, saying “this is appalling and disgusting to me.” Of COO Sheryl Sandberg, who leads Facebook’s civil rights task force, Beatty said “we know she’s not really civil rights.”

Facebook CEO Mark Zuckerberg Testifies Before The House Financial Services Committee

WASHINGTON, DC – OCTOBER 23: Facebook co-founder and CEO Mark Zuckerberg arrives to testify before the House Financial Services Committee in the Rayburn House Office Building on Capitol Hill October 23, 2019 in Washington, DC. Zuckerberg testified about Facebook’s proposed cryptocurrency Libra, how his company will handle false and misleading information by political leaders during the 2020 campaign and how it handles its users’ data and privacy. (Photo by Chip Somodevilla/Getty Images)

Some of the day’s most astute questioning came from Congresswoman Katherine Porter (D-CA). She hammered Zuckerberg about Facebook lawyers fighting to avoid liability over data breaches. Then she trapped Zuckerberg on the issue of the mental health harms of being a Facebook content moderator that reviews horrific and graphic violence.

Would you be willing to commit to spending one hour a day for the next year, watching these videos and acting as a content monitor and only accessing the same benefits available to your workers?,” she asked.I’m not sure that would serve our community for me to spend my time,” Zuckerberg said. “What you’re saying is you’re not willing to do it,” she replied.

Rep. Katie Porter challenges Mark Zuckerberg to work as a content moderator and view the same violent, disturbing videos Facebook contractors do https://t.co/iVB9nAcvHO pic.twitter.com/TfPuXkiJp8

— Bloomberg Technology (@technology) October 23, 2019

Facebook will announce news service

There’ll be more major launches from Facebook that could raise questions about its impact on society, Zuckerberg revealed. “Later this week we actually have a big announcement coming up on launching a big initiative around news and journalism, where we’re partnering with a lot of folks to build a new product that’s supporting high-quality journalism.” Facebook plans to launch a News section featuring headlines from top outlets, though only some will be paid.

“I think that there’s an opportunity within Facebook in our services to build a dedicated surface, a tab within the apps for example, where people who really want to see high quality curated news, not just social content . . . I’m looking forward to discussing that in more length in the coming days.” That service is sure to trigger debates about whether Facebook is trustworthy enough to be a formal conduit for news.

Overall, the questioning today was much more intelligent than the vague and easily-Googleable queries launched at Zuckerberg by Congress in April 2018. We had no “Senator, we run ads” moments. Instead, it was Zuckerberg who repeatedly used the separation between Facebook and the Libra Association plus the fact that Libra’s policies are still being defined to avoid giving many substantial answers. Combined with the short five-minute Q&A period per member of Congress, Zuckerberg was often able to just repeat existing talking points.

Facebook CEO Mark Zuckerberg Testifies Before The House Financial Services Committee

WASHINGTON, DC – OCTOBER 23: Facebook co-founder and CEO Mark Zuckerberg testifies before the House Financial Services Committee in the Rayburn House Office Building on Capitol Hill October 23, 2019 in Washington, DC. Zuckerberg testified about Facebook’s proposed cryptocurrency Libra, how his company will handle false and misleading information by political leaders during the 2020 campaign and how it handles its users’ data and privacy. (Photo by Chip Somodevilla/Getty Images)

In one of the few lighthearted moments of the day, Rep. Juan Vargas recognized the tough position Zuckerberg has gotten himself into. “It’s good to have someone that’s sturdy and resilient. You’re probably the right person at the right time to take this beating.” Yet Rep. McHenry depressingly concluded that, after six hours, “I’m not sure we’ve learned anything new here.”

The question is what array of Libra and Facebook executives would Congress need to have testify together to get real answers to critical questions about how to keep the two from harming the global economy.

The hearing is ongoing and we’ll continue to update this article with major take-aways.

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India’s mobile payments firm MobiKwik reaches rare key profit milestone

Posted by | Apps, Asia, Finance, Google, india, Mobikwik, Mobile, Online lending, payments, Upasana Taku | No Comments

Indian mobile payments firm MobiKwik has reached a milestone very few of its local rivals can even contemplate: not burning money. The 10-year-old Gurgaon-headquartered firm said Tuesday it is now generating a profit excluding interest, taxes, depreciation and amortization.

“We have been in an ecosystem where we have seen a lot of high-growth and several regulatory changes in the payments domain. But what we realized was that payments alone is likely not going to be a very profitable business,” Bipin Singh, co-founder and CEO of MobiKwik, told TechCrunch in an interview.

To get to the path of profitability, MobiKwik has made a number of significant changes to its business in recent years. It stopped participating in the race to aggressively acquire users and fighting with heavily backed firms such as Paytm, which has raised more than $2 billion to date.

Paytm remains unprofitable and an analysis of its financial performance shows that this is not going to change anytime soon. Google, which also offers a payments service in India, has no shortage of cash, either. MobiKwik has raised about $118 million to date from Sequoia Capital, American Express and Cisco Investments, among others.

Upasana Taku, co-founder and COO of MobiKwik, said the company has taken inspiration from Kotak and ICICI banks, both of which have about 15 million to 20 million customers — a fraction of many digital payment apps — but are profitable. MobiKwik, which employs 400 people, has 110 million users, she said.

In the last two and a half years, MobiKwik has cut down on cashbacks it bandies out to users — a practice followed by every company offering a payments solution in India — and focused on building financial services on top of its wallet app to retain customers and find additional sources of revenue.

The company continues to focus on its mobile wallet and payments processing businesses that account for about 75% of its revenue, but its growing suite of financial services, such as providing credits and insurance to customers, is already bringing the rest of the revenue, she said.

That’s not surprising, as India remains alarmingly under served. Fewer than 50 million credit cards are in circulation in the nation currently, and for people with limited income, getting a loan of any size remains a major challenge.

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“Even the population that has access to smartphones and cheap internet data can’t get a credit card in India. We found it a good match for the growth of our payments app. We started serving these users who have the discipline to repay money and have certain kind of income,” the couple said, who are now also donning the role of angel investors.

MobiKwik works with banks and other lenders to finance loans between Rs 5,000 ($69) to Rs 100,000 ($1,380). In the 18 months since it started offering this, MobiKwik has provided 800,000 loans and disbursed $100 million.

In late 2018, the company launched “sachet-sized” insurance plans to provide protection from cyber fraud, fire, accident and hospitalization. These sachets start at as little as Rs 20 (28 cents) and thousands of users buy these everyday. Similarly, it also allows users to buy mutual funds for as little as $1.30.

MobiKwik expects its revenue to hit $69 million in the financial year that ends in March next year, up from $28 million a year earlier. The company, which expects to turn fully profitable by fiscal year 2021, plans to go public in four to five years, Taku said.

MobiKwik competes with a number of players, many of which are increasingly adding financial services, such as loans, to their platforms. Since these digital platforms are able to process loans without the need of salespeople and support staff, it becomes feasible for banks to chase customers with weak financial power.

India’s overall retail credit demand is expected to grow 60% to $771 billion over the next four years, according to the Digital Lenders Association of India.

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PayPal-backed money lender Tala raises $110M to enter India

Posted by | Apps, Asia, Finance, funding, Mobile, payments, Recent Funding, RPS Ventures, Startups, tala | No Comments

Tala, a Santa Monica, Calif.-headquartered startup that creates a credit profile to provide uncollateralized loans to millions of people in emerging markets, has raised $110 million in a new financing round to enter India’s burgeoning fintech space.

The Series D financing for the five-year-old startup was led by RPS Ventures, with GGV Capital and previous investors IVP, Revolution Growth, Lowercase Capital, Data Collective VC, ThomVest Ventures and PayPal Ventures also participating in the round.

The new round, which takes the startup’s total fundraising to more than $215 million, valued it above $750 million, a person familiar with the matter told TechCrunch. Tala has also raised an additional $100 million in debt, including a $50 million facility led by Colchis in the last year.

Tala looks at a customer’s texts and calls logs, merchant transactions, overall app usage and other behavioral data through its Android app to build their credit profile. Based on these pieces of information, its machine learning algorithms evaluate the individual risk and provide instant loans in the range of $10 to $500 to customers.

This model is different from how banks and most other online lenders assess a person’s eligibility for a loan. Banks look at a user’s credit score while most online lenders check the financial history.

Tala is also much faster. It approves loans within minutes and disburses the money via mobile payment platforms. The startup has lent over $1 billion to more than 4 million customers to date — up from issuing $300 million in loans to 1.3 million customers last year, Shivani Siroya, founder and CEO of Tala, told TechCrunch in an interview.

The startup, which employs more than 550 people, will use the new capital to enter India, said Siroya, who built Tala after interviewing thousands of small and micro-businesses.

In the run up to launch in India, Tala began a 12-month pilot program in the country last year to conduct user research and understand the market. It has also set up a technology hub in Bangalore, she said.

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Shivani Siroya (Tala CEO) at TechCrunch Disrupt NY 2017

“The opportunity is very massive in India, so we spent some time customizing our service for the local market,” she said.

According to World Bank, more than 2 billion people globally have limited access to financial services and working capital. For these people, many of whom live in India, securing a small size loan is extremely challenging as they don’t have a credit score.

In recent years, several major digital payment platforms in India, including Paytm and MobiKwik, have started to offer small-sized loans to users. Traditional banks are still lagging to serve this segment, industry executives say. (Outside India, Tala competes with Branch, a five-year-old San Francisco-based startup that has raised more than $170 million to date and earlier this year inked a deal with Visa.)

Tala goes a step further and takes liability for any unpaid returns, Siroya said. More than 90% of Tala users pay back their loan in 20 to 30 days and are recurring customers, she added.

The startup also forwards the positive credit history and rankings to the local credit bureaus to help people secure bigger and long-term loans in the future, she added.

Tala, which charges a one-time fee that is as low as 5% for each loan, relies on referrals, and some marketing through radio and television to acquire new customers. “But a lot of these users come because they heard about us from their friends,” Siryoa said.

As part of the new financing round, Kabir Misra, founding general partner of RPS Ventures, has joined Tala’s board of directors, the startup said.

Tala said it will use a portion of its new fund to expand its footprint and team in its existing markets — East Africa, Mexico and the Philippines — and also build new solutions.

Siroya said the startup has identified some more markets that it wishes to serve. She did not disclose the names, but said she is eyeing more countries in South Asia and Latin America.

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