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Thought Machine nabs $83M for a cloud-based platform that powers banking services

Published March 2, 2020

The world of consumer banking has seen a massive shift in the last ten years. Gone are the days where you could open an account, take out a loan, or discuss changing the terms of your banking only by visiting a physical branch. Now, you can do all this and more with a few quick taps on your phone screen — a shift that has accelerated with customers expecting and demanding even faster and more responsive banking services.

As one mark of that switch, today a startup called Thought Machine, which has built cloud-based technology that powers this new generation of services on behalf of both old and new banks, is announcing some significant funding — $83 million — a Series B that the company plans to use to continue investing in its platform and growing its customer base.

To date, Thought Machine’s customers are primarily in Europe and Asia — they include large, legacy outfits like Standard Chartered, Lloyds Banking Group, and Sweden’s SEB through to “challenger” (AKA neo-) banks like Atom Bank. Some of this financing will go towards boosting the startup’s activities in the US, including opening an office in the country later this year and moving ahead with commercial deals.

The funding is being led by Draper Esprit, with participation also from existing investors Lloyds Banking Group, IQ Capital, Backed and Playfair.

Thought Machine, which started in 2014 and now employs 300, is not disclosing its valuation but Paul Taylor, the CEO and founder, noted that the market cap is currently “increasing healthily.” In its last round, according to PitchBook estimates, the company was valued at around $143 million, which, at this stage of funding, puts this latest round potentially in the range of between $220 million and $320 million.

Thought Machine is not yet profitable, mainly because it is in growth mode, said Taylor. Of note, the startup has been through one major bankruptcy restructuring, although it appears that this was mainly for organisational purposes: all assets, employees and customers from one business controlled by Taylor were acquired by another.

Thought Machine’s primary product and technology is called Vault, a platform that contains a range of banking services: checking accounts, savings accounts, loans, credit cards and mortgages. Thought Machine does not sell directly to consumers, but sells by way of a B2B2C model.

The services are provisioned by way of smart contracts, which allows Thought Machine and its banking customers to personalise, vary and segment the terms for each bank — and potentially for each customer of the bank.

Food for Thought (Machine)

It’s a little odd to think that there is an active market for banking services that are not built and owned by the banks themselves. After all, aren’t these the core of what banks are supposed to do?

But one way to think about it is in the context of eating out. Restaurants’ kitchens will often make in-house what they sell and serve. But in some cases, when it makes sense, even the best places will buy in (and subsequently sell) food that was crafted elsewhere. For example, a restaurant will re-sell cheese or charcuterie, and the wine is likely to come from somewhere else, too.

The same is the case for banks, whose “Crown Jewels” are in fact not the mechanics of their banking services, but their customer service, their customer lists, and their deposits. Better banking services (which may not have been built “in-house”) are key to growing these other three.

“There are all sorts of banks, and they are all trying to find niches,” said Taylor. Indeed, the startup is not the only one chasing that business. Others include Mambu, Temenos and Italy’s Edera.

In the case of the legacy banks that work with the startup, the idea is that these behemoths can migrate into the next generation of consumer banking services and banking infrastructure by cherry-picking services from the VaultOS platform.

“Banks have not kept up and are marooned on their own tech, and as each year goes by, it comes more problematic,” noted Taylor.

In the case of neobanks, Thought Machine’s pitch is that it has already built the rails to run a banking service, so a startup — “new challengers like Monzo and Revolut that are creating quite a lot of disruption in the market” (and are growing very quickly as a result) — can integrate into these to get off the ground more quickly and handle scaling with less complexity (and lower costs).

Money talks

Taylor was new to fintech when he founded Thought Machine, but he has a notable track record in the world of tech that you could argue played a big role in his subsequent foray into banking.

Formerly an academic specialising in linguistics and engineering, his first startup, Rhetorical Systems, commercialised some of his early speech-to-text research and was later sold to Nuance in 2004.

His second entrepreneurial effort, Phonetic Arts, was another speech startup, aimed at tech that could be used in gaming interactions. In 2010, Google approached the startup to see if it wanted to work on a new speech-to-text service it was building. It ended up acquiring Phonetic Arts, and Taylor took on the role of building and launching Google Now, with that voice tech eventually making its way to Google Maps, accessibility services, the Google Assistant and other places where you speech-based interaction makes an appearance in Google products.

While he was working for years in the field, the step changes that really accelerated voice recognition and speech technology, Taylor said, were the rapid increases in computing power and data networks that “took us over the edge” in terms of what a machine could do, specifically in the cloud.

And those are the same forces, in fact, that led to consumers being able to run our banking services from smartphone apps, and for us to want and expect more personalised services overall. Taylor’s move into building and offering a platform-based service to address the need for multiple third-party banking services follows from that, and also is the natural heir to the platform model you could argue Google and other tech companies have perfected over the years.

Draper Esprit has to date built up a strong portfolio of fintech startups that includes Revolut, N26, TransferWise and Freetrade. Thought Machine’s platform approach is an obvious complement to that list. (Taylor did not disclose if any of those companies are already customers of Thought Machine’s, but if they are not, this investment could be a good way of building inroads.)

“We are delighted to be partnering with Thought Machine in this phase of their growth,” said Vinoth Jayakumar, Investment Director, Draper Esprit, in a statement. “Our investments in Revolut and N26 demonstrate how banking is undergoing a once in a generation transformation in the technology it uses and the benefit it confers to the customers of the bank. We continue to invest in our thesis of the technology layer that forms the backbone of banking. Thought Machine stands out by way of the strength of its engineering capability, and is unique in being the only company in the banking technology space that has developed a platform capable of hosting and migrating international Tier 1 banks. This allows innovative banks to expand beyond digital retail propositions to being able to run every function and type of financial transaction in the cloud.”

“We first backed Thought Machine at seed stage in 2016 and have seen it grow from a startup to a 300-person strong global scale-up with a global customer base and potential to become one of the most valuable European fintech companies,” said Max Bautin, Founding Partner of IQ Capital, in a statement. “I am delighted to continue to support Paul and the team on this journey, with an additional £15 million investment from our £100 million Growth Fund, aimed at our venture portfolio outperformers.”

Nova Credit banks $50M to expand its service sourcing credit reports across borders

Published February 12, 2020

Around 70% of the world’s population now has some form of bank account or — thanks to mobile phones — a facility to receive and send money virtually, according to the World Bank. But when it comes to people crossing borders and setting up lives in new countries, they essentially leave behind their financial histories, starting again from scratch in their new homes. But there are signs of that starting to change. A startup called Nova Credit has built a facility to import financial histories from one country to another, and today it’s announcing a $50 million round of funding to grow that business to cover more countries.

The funding is being led by Kleiner Perkins, with a list of other big names also participating. They include Canapi Ventures, a new fund focused on fintech startups, as well as previous backers Index Ventures, General Catalyst and Nyca Partners. Ashton Kutcher and Guy Oseary’s fund Sound Ventures is also in this round, along with baseball legend Alex Rodriguez and U2 guitarist the Edge.

Nova is not disclosing its valuation, but according to PitchBook, in the first-close of the round it was estimated at around $295 million. CEO and co-founder Misha Esipov would only say it was “much higher” than the company’s valuation in its previous round — supported by the facts that revenues grew four-fold in 2019, and that it now covers more than 1 billion consumer credit profiles, working out to over 50% of the most popular U.S. immigrant countries of origin.

Prior to this Series B, the company had raised just under $20 million, which also included funding from Y Combinator (where it was part of a 2016 cohort).

Esipov — who has worked as a banker at Goldman Sachs and at private equity firm Apollo, and himself is a first-generation Russian immigrant moving to the U.S. with his parents when he was three — said he and co-founders Loek Janssen and Nicky Goulimis first came up with the idea for Nova when they were still graduate students at Stanford, where they turned to their own classmates to look for gaps in the market of financial services.

“We made a discovery among the international students we surveyed, which was that many said they couldn’t get credit, cell phone plans, leases and anything else that required credit histories,” he said. “Many of them said the same thing to us: ‘I feel like a second-class citizen.’ And that was the light-bulb moment for us. We saw it was a systemic problem, and four years later I believe we’re solving a decent share of this problem.”

Nova’s solution is that it has built a digital framework that connects an individual’s credit history information from one country back into the country where the person is currently residing, creating a product that it refers to as a “Credit Passport.”

Nova partners with businesses that rely on this credit history in order to decide whether to do business with an individual. In cases where it comes up short in accessing an in-country history for a specific person — for example, American Express, in evaluating a person’s credit history to determine whether it should issue a card for a particular applicant — it can now use Nova to source a history from another market, using details provided by the user in question.

Nova’s business model is that it pays a fee to the credit bureau where the records are originating in order to source the data, and it then charges the business that is making the request for the data.

For now, the service is not global in a number of ways. The first is in terms of the geographies covered: Nova has so far only facilitated links between 11 countries, with the originating requests coming from the U.S. They include Australia, Canada, India, Kenya, Mexico and the U.K. Esipov said that the starting point came from close analysis of which countries send the most people to the U.S.

The other is that the service is largely geared toward people who have a credit history to speak of in their previous country. For many immigrants to the U.S., that is not actually the case for a number of financial, political and other reasons.

The strategy is to increasingly cover both of those bases better over time, Esipov said.

For example, while there are only 11 countries “live” at the moment, the company actually has deals with 19 countries currently, a list it hopes to grow more. The Dominican Republic and the Philippines will be the next two countries to launch. One reason for the relatively slow rollout is that this isn’t exactly a scalable problem with the same issues in each market, although it’s finally started to get some momentum.

“It’s an absolute nightmare,” Esipov said with a laugh when I asked him about the challenges of scaling the business. “Each country has its own complexities, whether it’s in terms of the partnership or technical complexity. Every market is different.” Some are surprising. He noted that France, for example, is the only G20 country without a centralised credit bureau, only a repository that logs “bad marks,” not good behaviour. “So we haven’t been able to develop a solution covering France so far.”

He notes that it has taken Nova a few years to build these relationships. “When we were still trying to find our footing, it was difficult, but now the five biggest credit agencies in the world work with us. We have established ourselves as the solution for cross-border credit reporting access.”

And on the side of making the product something that can be useful for more than just the percentage of immigrants who came from the credit-using class in their previous countries — the typical type of person who might end up at Stanford business school, if you will — Nova is working on that, too.

“There are a lot of potential strategies for those countries where central credit bureaus don’t exist,” Esipov said. “We have to be creative in using potential data sources that we can find to say this is a new and good segment. There are alternative data sources, and we are exploring how to bring those into the U.S. market. But, if they are not as well-established, no matter how creative we are, it’s a matter of working with risk officers and trying to teach them, too.” Indeed, we are starting to see a rise of other services aiming at immigrants — for example, new bank accounts launched by Remitly last week — speaking to how multiple startups are tuning into demographics that have been traditionally overlooked, but now represent growth opportunities in what is otherwise a tight and competitive market with slowing growth.

“In a competitive financial services industry with shifting demographics, developing a strategy to attract the growing newcomer segment has become a strategic necessity for banks to defend and grow market share,” said Gene Ludwig, managing partner of Canapi Ventures, in a statement. “Nova Credit stands out as the only enduring solution to financial access for the millions of newcomers who come to the US each year. They’ve assembled an exceptional, mission-driven team that has what it takes to bring systemic change to life.”

It can’t come a moment too soon. Nova, citing research from Pew, notes that immigrants account for 55% of U.S. population growth, which will grow to 80% by 2050. Helping them get better integrated into the economy is a critical step for integrating into society.

“Credit is fundamental to economic success, but today’s systems and infrastructure have not kept up with an increasingly mobile world,” said Ilya Fushman, a partner at Kleiner Perkins, in a statement. “Nova Credit is democratizing access to credit globally and we’re delighted to lead the Series B.

The don’ts of debt for fast-growing startups

Published January 30, 2020

Roger Hurwitz
Contributor

Roger Hurwitz is a founding partner at Volition Capital. He focuses primarily on investments in software and technology-enabled business services.

I work every day with company founders who are grappling with the challenges of driving business growth while keeping their finances on an even keel. One topic we often discuss is how to take advantage of debt to drive business growth — without it turning into a problem.

In my experience, debt can serve as a valuable piece of a company’s capital structure. The key is to use debt for the right purposes and to understand the implications of doing so. For example, short-term loans (one to two-year terms) are useful for financing receivables and inventory to help manage cash flow. These working capital facilities have attractive interest rates (often in the 5% range) and are well understood by the lending community.

By contrast, mezzanine loans (usually three to five-year terms) are better suited to provide the flexibility and runway needed to prove out certain initiatives prior to securing an equity investment or a liquidity event. These loans tend to have limited covenants, are not secured by specific working capital assets and are junior to the working capital loans. Given their higher-risk profile, they are more expensive than short-term loans, with lenders typically targeting a return of 15% to 20%, split between a current pay interest rate of 10%+ and expected stock appreciation from the receipt of warrant coverage.

Regardless of the type of debt a company takes on, there are certain principles to consider to keep the debt from threatening the success of the business. Should you decide to take on debt, understand the implications and consider the following five rules:

A founder’s guide to recession planning for startups

Published January 24, 2020

Schwark Satyavolu
Contributor

Schwark Satyavolu is a general partner at Trinity Ventures where he makes early-stage investments in fintech, security and AI. A serial entrepreneur, he co-founded Yodlee (YDLE) and Truaxis, both of which were acquired. Previously, he held senior executive positions at LifeLock and Mastercard. He is an inventor on 15 patents.

Startups Weekly: Understanding Uber’s latest fintech play

Published November 2, 2019

Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about how SoftBank is screwing up. Before that, I noted All Raise’s expansion, Uber the TV show and the unicorn from down under.

Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets. If you don’t subscribe to Startups Weekly yet, you can do that here.

Uber Head of Payments Peter Hazlehurst addresses the audience during an Uber products launch event in San Francisco, California, on September 26, 2019. (Photo by Philip Pacheco / AFP) (Photo credit should read PHILIP PACHECO/AFP/Getty Images)

The sheer number of startup players moving into banking services is staggering,” writes my Crunchbase News friends in a piece titled “Why Is Every Startup A Bank These Days.”

I’ve been asking myself the same question this year, as financial services business like Brex, Chime, Robinhood, Wealthfront, Betterment and more raise big rounds to build upstart digital banks. North of $13 billion venture capital dollars have been invested in U.S. fintech companies so far in 2019, up from $12 billion invested in 2018.

This week, one of the largest companies to ever emerge from the Silicon Valley tech ecosystem, Uber, introduced its team focused on developing new financial products and technologies. In a vacuum, a multibillion-dollar public company with more than 22,000 employees launching one new team is not big news. Considering investment and innovation in fintech this year, Uber’s now well-documented struggles to reach profitability and the company’s hiring efforts in New York, a hotbed for financial aficionados, the “Uber Money” team could indicate much larger fintech ambitions for the ride-hailing giant.

As it stands, the Uber Money team will be focused on developing real-time earnings for drivers accessed through the Uber debit account and debit card, which will itself see new features, like 3% or more cash back on gas. Uber Wallet, a digital wallet where drivers can more easily track their earnings, will launch in the coming weeks too, writes Peter Hazlehurst, the head of Uber Money.

This is hardly Uber’s first major foray into financial services. The company’s greatest feature has always been its frictionless payments capabilities that encourage riders and eaters to make purchases without thinking. Uber’s even launched its own consumer credit card to get riders cash back on rides. It’s no secret the company has larger goals in the fintech sphere, and with 100 million “monthly active platform consumers” via Uber, Uber Eats and more, a dedicated path toward new and better financial products may not only lead to happier, more loyal drivers but a company that’s actually, one day, able to post a profit.

VC deals

Meet me in Berlin

The TechCrunch team is heading to Berlin again this year for our annual event, TechCrunch Disrupt Berlin, which brings together entrepreneurs and investors from across the globe. We announced the agenda this week, with leading founders including Away’s Jen Rubio and UiPath’s Daniel Dines. Take a look at the full agenda.

I will be there to interview a bunch of venture capitalists, who will give tips on how to raise your first euros. Buy tickets to the event here.

Listen to Equity

This week on Equity, I was in studio while Alex was remote. We talked about a number of companies and deals, including a new startup taking on Slack, Wag’s woes and a small upstart disrupting the $8 billion nail services industry. Listen to the episode here.

Equity drops every Friday at 6:00 am PT, so subscribe to us on iTunes, Overcast and all the casts.

Walmart and Green Dot to jointly establish a new fintech accelerator, Tailfin Labs

Published October 29, 2019

Walmart announced today an expansion of its existing relationship with financial services provider Green Dot, which will continue to serve as the issuing bank and program manager for the Walmart MoneyCard program for another seven years. The two companies also agreed to partner on the creation of a new accelerator that focuses on the intersection of retail and consumer financial services.

The accelerator, called Tailfin Labs, will help startups develop solutions that integrate omni-channel shopping and financial tech, which can be aimed either at consumers or businesses. These may involve products built on top of Green Dot’s “Banking-as-a-Service” (BaaS) platform.

“Green Dot is extremely proud and honored to both extend our MoneyCard partnership for many years and to additionally enter into an entirely new equity partnership with Walmart in the creation of a fintech accelerator,” said Steve Streit, founder and CEO, Green Dot, in a statement. “We believe the combination of Walmart’s unmatched retail ecosystem with Green Dot’s innovative and highly flexible BaaS platform, which enables the world’s largest technology and consumer brands to address their consumers with bespoke financial products and services, has the opportunity to create and bring to market many new and exciting innovations over the years to come.”

walmart money card Walmart partnered with Green Dot in 2006 to create the Walmart MoneyCard, which offers FDIC-insured accounts and cash-back rewards on Walmart purchases, alongside other features, like early direct deposit, online bill pay, prize savings entries and more — as well as the usual set of features you’d have in a personal checking account, but without the fees. It’s now the largest retailer exclusive prepaid account program in the U.S.

In many ways, it was also a precursor to the sort of mobile banking startups seen today, which directly target consumers with similar products.

This is a busy space these days, as more companies go after the growing market of millennials (and even their younger Gen Z counterparts) who don’t want a traditional bank. Instead, they want banking services in a modern, easy-to-use mobile interface, where innovative features help them to better save and manage their money.

Just last week, for example, mobile banking app Current snagged $20 million more in funding for its service, now used by half a million users. Others in the space include Step, Cleo, N26, Chime, Simple and Stash, to name a few.

The new accelerator is seemingly poised to capitalize on this trend, while also giving Walmart and Green Dot a new foothold in the market.

“Over the years, Walmart has brought to market many innovative industry-defining financial services offerings to serve our customers – including several introduced through the Walmart MoneyCard program managed by Green Dot,” noted Daniel Eckert, senior vice president, Walmart Services and Digital Acceleration, in an announcement. “With this expanded relationship, and by leveraging Walmart’s footprint and existing offerings with Green Dot’s cutting-edge capabilities, we’ll be uniquely positioned to offer an unmatched set of customer experiences that sit at the nexus of omni-channel retail and tech-enabled financial services,” he said.

The new agreement between Green Dot and Walmart begins January 1, 2020 and will replace the agreement that would have otherwise expired in May 2020.

Mobile banking app Current raises $20M Series B, tops half a million users

Published October 24, 2019

Mobile banking app Current, which began as a teen debit card controlled by parents, expanded to offer personal checking accounts earlier this year. Now the company says it has grown to host more than 500,000 accounts on its service and has closed on $20 million in Series B funding to further its growth.

The round included new investors Wellington Management Company, Galaxy Digital EOS VC Fund and CMFG Ventures — the venture capital arm of the CUNA Mutual Group, a mutual insurance company serving credit unions and their 120 million members. Returning investors included QED Investors, Expa and Elizabeth Street Ventures.

phone in context app The first version of Current, which debuted in 2017, was focused on giving parents a more modern way to dole out allowances and reward their kids for chores. But over time, the product became more like a real bank account for teens, culminating with the addition of routing and account numbers late last year. This allowed working teens to direct their paycheck to Current, as they could with a traditional bank.

This year, Current launched personal checking using the same core technology powering its teen banking product. The product includes features like faster direct deposits, gas hold crediting and merchant blocking without charging overdraft fees, hidden fees or requiring minimum balances.

While the teen checking account users have an average age of 15, the average age for the new personal checking account users is 27.

Although personal checking was only launched in late January, it already accounts for about half of Current’s accounts. It also benefits from conversions from Current’s teen users who turn 18 and want to graduate to their own banking app. (Around 98% of teens on Current move to the personal checking app when they come of age, the company noted.)

This puts Current in a more competitive market, where a number of banking apps are now targeting a younger, more mobile generation that has begun to favor modern, feature-rich apps over brick-and-mortar banks. Among its rivals are apps like Step, Cleo, N26, Chime, Simple, Stash and others.

Like many in this space, Current isn’t actually a bank — its banking services are provided by Choice Financial Group and Metropolitan Commercial Bank, which allows it to offer FDIC insurance up to $250,000. Instead, many of the banking apps focus instead on the feature set and user experience they can offer.

Both of Current’s products include a Visa co-branded debit card tied to the Current account. Along with the funding, Current and Visa are also announcing an expanded joint marketing partnership, which will help Current reach new customers.

“We believe everyone should have access to affordable financial services that improve the chances for a better life,” said Stuart Sopp, Current founder and CEO. “We have made this a reality through rebuilding financial infrastructure with the Current Core. It allows us to build more products that offer new ways to interact with money. Our rapid growth to half a million accounts serves as a testament to the ways our products and cost savings are bringing better financial outcomes and we anticipate bringing those benefits to over 1,000,000 customers by mid-2020.”

The company is planning to launch more features starting next year, including a cash-back system with brands and merchants in Q1, and further down the road, it’s considering things like a credit product and maybe Bitcoin investing. But this will require further education and careful attention to do well.

“It’s expensive to be poor — it really is,” he says. “If you don’t have much money, you’re paying 30% or 35% for your credit, whereas if you’re rich you’re paying 5%. So it’s like the world is inverted for you and it holds you down,” Sopp says. “So if we were to do [credit], we are going to do it right.”

In the near-term, the focus is on offering better budgeting tools and more ways for users to save money. This, Sopp argues, is what Current’s young users need most.

To date, Current has raised $45 million in funding.

Brex wants to replace startup bank accounts with Brex Cash

Published October 2, 2019

Brex, a Silicon Valley fintech darling, has lofty plans to battle big banks —and Stripe.

Code-named “Gemini,” Brex today announced a new product designed to replace and improve the functionality of traditional bank accounts. Brex Cash, as it will be known publicly, is a business cash management account integrated with the Brex Card, a corporate card for startups launched in 2018.

Brex tells us they’ve built the core banking infrastructure from scratch, allowing the company to forgo third-party processing fees and provide a much-needed tech infusion to antiquated banking systems. In partnership with Boston’s Radius Bank, Brex Cash will allow customers to send payments quickly and easily with no transaction fees attached. Rather, Brex plans to reward its users for making or receiving payments using Brex Cash with points redeemable for cash back, travel and air miles. Customers will also receive 1.6% yield on deposits.

It’s not a bank, but in practice, it can replace a bank, says Brex co-founder and co-chief executive officer Henrique Dubugras .

“Our idea is that new businesses —the new Y Combinator companies —we hope a big percent of them never open a bank account,” Dubugras tells TechCrunch.

How the 22-year-old founders of Brex built a billion-dollar business in less than 2 years

Brex now has many similarities to a bank. What differentiates it is its lack of physical branches — it’s exclusively digital — and it’s insurance. Traditional banks are insured by the Federal Deposit Insurance Corporation (FDIC), which protects up to $250,000 per depositor. Brex Cash users are protected by the Securities Investor Protection Corporation (SIPC), a nonprofit agency overseen by the U.S. Securities and Exchange Commission that protects up to $500,000 and specializes in protecting customers of brokerage firms from the loss of cash and securities.

We think we’ve won a lot of credibility. Before, who was going to give their money to a random-ass startup called Brex? -Brex co-CEO Henrique Dubugras

Additionally, Brex invests its customers’ money in a money market mutual fund of U.S. treasury bonds. “If Brex goes out of business, customers’ money will be safe,” the company writes in a press statement. “The only scenario where money could be lost is if the U.S. government defaults.”

Brex Cash user interface

“It’s not that we are inventing this — this model exists with Fidelity,” says Dubugras. “Fidelity isn’t necessarily a bank — we are bringing that concept to businesses to give lower fees, better interest rates, better experiences and more security.”

Brex, a graduate of the winter 2017 Y Combinator cohort, has quickly become a Silicon Valley success story for the ages. The rapid adoption of its startup credit card, which doesn’t require a personal guarantee, and its ability to issue cards instantly and provide higher limits than other options on the market has attracted thousands of customers and venture capitalists. The business, led by a pair of young Brazilian repeat entrepreneurs, including Dubugras and co-CEO Pedro Franceschi, has collected more than $300 million in equity funding, including a $100 million C-2 financing that valued the company at $2.6 billion earlier this year.

“There will always be customers that are skeptical, but I think by starting out with a card, we built a lot of trust,” Dubugras said. “It was us giving them money instead of them giving us money. A few years in … We think we’ve won a lot of credibility. Before, who was going to give their money to a random-ass startup called Brex?”

In the weeks ahead of TechCrunch Disrupt San Francisco, where Dubugras announced Brex Cash on Wednesday, the CEO told TechCrunch that Brex had no immediate fundraising plans and that they were “waiting for the right time” to raise again. As for what’s next, he said the company is discussing the launch of a debit card and plans to add another 100 employees in the next year, bringing the Brex headcount to 400.

The Brex news follows the launch of Stripe Capital, a new offering from payments behemoth Stripe that will make instant loan offers to customers on its platform, and the announcement of the Stripe Corporate Card. Akin to Brex, Stripe will issue a no-fee, no interest rate credit card intended for Stripe customers. Brex and Stripe, two Y Combinator grads, will go head-to-head in a battle for customers, particularly YC grads looking for friendly financial tools.

Immediately following Stripe’s announcements, the business announced a $250 million funding at a $35 billion valuation. Brex may be following a similar playbook, announcing a major product on the heels of a large capital infusion.

Brex Cash represents a new era for the company. Though the product may be costly for Brex, it opens the business up to thousands more potential customers. Now, any startup, regardless of funding, can create a Brex account to store cash, explains Dubugras, and all companies using Brex Cash will be immediately issued a Brex corporate credit card.

“If you’re starting out, if you don’t have funding yet, you can still receive your payments using Brex,” Dubugras said. “That’s a super big deal for us.”

Brex Cash was built under product lead Ritik Malhotra, who joined the team as part of an acquisition of his startup, Elph. Brex poached the company, which was focused on blockchain infrastructure, right out of YC for an undisclosed amount. In retrospect, the deal looks much more like an acqui-hire of Malhotra, who had the digital payments infrastructure acumen necessary to complete this project.

“It’s an easy way to move money, which is the lifeblood of a business,” Malhotra tells TechCrunch of the new product.

Brex Cash is itself not a cash cow for Brex; rather, the startup makes money on purchases made on its corporate card, in which it charges the merchant, not the customer. This model is particularly beneficial when its customers are spending a lot of money, growing quickly and raising capital. In a downturn, however, this model isn’t as attractive.

Brex seems unconcerned with the possibility of an impending recession. Brex writes that even in downturns, entrepreneurs will start companies and attempt to raise money. The Brex Cash product, regardless of the economy, will help Brex better underwrite Brex Cards, as it gives them better access to a customer’s financial health.

In a battle against Stripe, Brex is at a disadvantage. At only two years old, the company may have garnered a lot of credibility in a short time but it doesn’t have the decade of experience building fintech products that Stripe has and, more importantly, it doesn’t have 10 years of customer loyalty.

Upstart banking company Dave is now worth $1 billion, as Norwest puts in $50 million

Published September 30, 2019

Two years after the Los Angeles-based fintech startup Dave launched with a suite of money management tools to save consumers from overdraft fees, the company is now worth $1 billion thanks to a nascent banking practice that had investors lining up.

The company used its overdraft protection service and money management display to shift customers’ focus away from the total balance that their account would show by giving them a sense of how much was actually left in their accounts once debits were included in their statements.

“What was cool about our financial management product was that we were trying to use Dave as a replacement for their current bank,” says Jason Wilk, Dave’s co-founder and chief executive.

Dave now counts over 4 million users for its financial management app and has roughly 800,000 people on the waiting list to use its banking services, Wilk says.

The company has taken a methodical approach to opening its doors as a digital bank, in part because it wants to have the necessary support infrastructure in place to service the demand that Wilk expects to see for its service.

“It’s one thing to help people with budgeting. It’s another to actually manage their money,” says Wilk.

Dave will use the $50 million raised from Norwest to significantly expand its product and engineering team within the next 12 months, in order to double down on the core business and ensure the success of the banking product.

“We can prove that Dave can be helpful by showing how we can help you manage your current account, and then Dave banking is the marketing lever from there,” says Wilk.

For now, customers need to have the financial management app installed to be able to access the company’s banking service.

Dave charges $1 per month for access to its financial management tools and that also gives customers the ability to use a cushion of between $50 to $75 to avoid being hit with overdraft fees from their current bank account. Dave asks for a tip every time a customer uses that cushion to cover expenses — something that Wilk says is still cheaper than having to worry about overdraft fees.

And, to add a bit of environmental spin, for every tip that Dave receives, the company plants a tree. “We plant millions and millions of trees,” says Wilk.

The company is FDIC insured through a partner bank, the Memphis-based Evolve Bank and Trust, which acts as a backstop for the company’s financial management activities.

“We already had a relationship with them for some payment processing stuff,” says Wilk. “We liked the team and liked the terms and went with them.”

Terms between financial services firms can vary, and, Wilk says, Evolve Bank was willing to give the company a good deal on splitting the interchange fee, which is a big source of revenue for upstart banks.

It’s possible that Dave could have received a bigger check at a potentially higher valuation, but Wilk says the startup is trying to stay lean.

“The company is growing so quickly, we didn’t want to get too diluted on this round,” he says. “We think the company is quite a bit more valuable than [$1 billion]. You don’t want to raise too much money too quickly if you really think the valuation is going to climb… Since we signed the term sheet the company has already grown another 40%.”

It was only four months ago that Dave was announcing a $110 million credit financing with Victory Park Capital and the launch of its banking product.

Dave’s products and services have a few advantages for customers that are just getting started on the path to financial security. The company monitors everyday monthly payments and reports them to credit agencies to improve customers’ credit ratings. The company also provides up to $100, interest-free, overdraft protection.

“Banks have failed their customers by building products that put their own interests ahead of the humans who use them. People don’t need predatory fees, they need tools that actually solve their challenges around credit building, finding work and getting access to their own money to cover immediate expenses. Dave is the banking product that works with its customers, not against them,” said Wilk, in a June statement announcing the funding and banking product launch.

While Dave is getting some hefty firepower and a generous valuation from Norwest, it’s also operating in a market where its core services that were a point of differentiation are quickly becoming table stakes.

Earlier in September, the new startup banking company Chime announced that it had hit 5 million banking customers and was offering its own overdraft protection service.

Chime now has 5 million customers and introduces overdraft alternative

The San Francisco-based bank has also raised a lot more capital for a potential piggy bank to raid if it needs to acquire or spend on engineering talent to build out new products and services. Earlier this year, the company announced a $200 million round and said it had hit roughly 3 million customers. Clearly Chime is adding new banking customers at a torrid pace.

And they’re facing global competition as well. N26, the European startup bank with a $3.6 billion valuation and hundreds of millions in financing launched in the U.S. a few months ago as well.

The company sees a global opportunity to create new digital banking services in a world where large amounts of capital and an elite set of consumers move easily between international markets.

“We have an opportunity that we build a bank that has more than 50 million users around the globe. Today, we only have 3.5 million users but we’re accelerating,” said N26 chief executive, Valentin Self, in an interview with TechCrunch. “From a country perspective, we have agreed already that we go to Brazil. There’s no plan after Brazil yet. Now let’s focus on the U.S., then on Brazil, then next year we’ll find out what’s the feedback from these two markets.”

IEX’s Katsuyama is no flash in the pan

Published September 17, 2019

When you watch a commercial for one of the major stock exchanges, you are welcomed into a world of fast-moving, slick images full of glistening buildings, lush crops and happy people. They are typically interspersed with shots of intrepid executives veering out over the horizon as if to say, “I’ve got a long-term vision, and the exchange where my stock is listed is a valuable partner in achieving my goals.” It’s all very reassuring and stylish. But there’s another side to the story.

I have been educated about the realities of today’s stock exchange universe through recent visits with Brad Katsuyama, co-founder and CEO of IEX (a.k.a. The Investors Exchange). If Katsuyama’s name rings a bell, and you don’t work on Wall Street, it’s likely because you remember him as the protagonist of Michael Lewis’s 2014 best-seller, Flash Boys: A Wall Street Revolt, which explored high-frequency trading (HFT) and made the case that the stock market was rigged, really badly.

Five years later, some of the worst practices Lewis highlighted are things of the past, and there are several attributes of the American equity markets that are widely admired around the world. In many ways, though, the realities of stock trading have gotten more unseemly, thanks to sophisticated trading technologies (e.g., microwave radio transmissions that can carry information at almost the speed of light), and pitched battles among the exchanges, investors and regulators over issues including the rebates stock exchanges pay to attract investors’ orders and the price of market data charged by the exchanges.

I don’t claim to be an expert on the inner workings of the stock market, but I do know this: Likening the life cycle of a trade to sausage-making is an insult to kielbasa. More than ever, trading is an arcane, highly technical and bewildering part of our broader economic infrastructure, which is just the way many industry participants like it: Nothing to see here, folks.

Meanwhile, Katsuyama, company president Ronan Ryan and the IEX team have turned IEX into the eighth largest stock exchange company, globally, by notional value traded, and have transformed the concept of a “speed bump” into a mainstream exchange feature.

Brad Katsuyama. Image by Joshua Blackburn via IEX Trading

Despite these and other accomplishments, IEX finds itself in the middle of a vicious battle with powerful incumbents that seem increasingly emboldened to use their muscle in Washington, D.C. What’s more, new entrants, such as The Long-Term Stock Exchange and Members Exchange, are gearing up to enter the fray in US equities, while global exchanges such as the Hong Kong Stock Exchange seek to bulk up by making audacious moves like attempting to acquire the venerable London Stock Exchange.

But when you sell such distinct advantages to one group that really can only benefit from that, it leads to the question of why anyone would want to trade on that market. It’s like walking into a playing field where you know that the deck is stacked against you.

As my discussion with Katsuyama reveals, IEX may have taken some punches in carving out a position for itself in this high-stakes war characterized by cutting-edge technology and size. However, the IEX team remains girded for battle and confident that it can continue to make headway in offering a fair and transparent option for market participants over the long term.

Gregg Schoenberg: Given Flash Boys and the attention it generated for you on Main Street, I’d like to establish something upfront. Does IEX exist for the asset manager, the individual, or both?

Brad Katsuyama: We exist primarily for the asset manager, and helping them helps the individual. We’re one step removed from the individual, and part of that is due to regulation. Only brokers can connect to exchanges, and the asset manager connects to the broker.

Schoenberg: To put a finer point on it, you believe in fairness and being the good guy. But you are not Robinhood. You are a capitalist.

Katsuyama: Yes, but we want to make money fairly. Actually, we thought initially about starting the business as a nonprofit, But once we laid out all the people we would need to convince to work for us, we realized it would’ve been hard for us to attract the skill sets needed as a nonprofit.

Schoenberg: Do you believe that the US equity market today primarily serves investors or traders?