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India’s 9-month-old CRED raises $120M to help people improve their financial behavior
Many Silicon Valley companies and fintech startups in India today share a common mission: They all want to bring their financial services to the next billion users. Dozens of fintech startups that we have spoken to in recent months have told us that they all want to address much of India, one of the last great growth markets globally, in the next few years.
So you can imagine our excitement when we learned there is at least one startup that is going after just a few million users in the immediate future. We’re talking about CRED, a nine-month-old, Bangalore-based startup that is building solutions to incentivize credit card users in India to become more responsible with money and thereby improve their credit score.
CRED has raised $120 million in a Series B financing round, Kunal Shah, founder and CEO of the startup, told TechCrunch on Monday. He declined to share more information. The startup, which has raised about $145 million to date, is now valued between $430 million to $450 million, a person familiar with the matter told TechCrunch.
According to a regulatory filing, existing investors Sequoia Capital, Ribbit Capital and DST Global’s Gemini Investments led the round, with participation from Tiger Global, Hillhouse Capital, General Catalyst, Greenoaks Capital and Dragoneer.
Hundreds of millions of Indians today don’t have a credit score because they have never taken a loan from a recognized entity nor owned a credit card. According to the government’s official figures, fewer than 50 million credit cards are in circulation in India currently, with industry reports suggesting that the actual number of unique credit card holders is about half of that.
“Nobody taught us about how to use money,” Shah told TechCrunch in a recent interview. “This has created a huge trust gap in India. If you look at developed markets, systematic trust is very high between all the entities. Members don’t have to rely on third-parties. In India, even if you wanted to rent a flat, you look for brokers, for instance.”
You can build that trust when you know how someone handles their money, and how they have handled it in recent history. “Our aim is to create a big membership community with high credit worthiness, therefore open up more opportunities for them,” Shah explained.
Shah is not going after the masses. He wants to focus on just the credit card users for now, and if he could win the trust of just half of those plastic card holders in India, he would consider it a success.
“Instead of chasing the mythological mass customers who are currently useful only on paper if you wanted to boast about your daily active user or monthly active user metric, our goal is to serve the existing users,” he said.
On CRED, users are offered a range of features, including the ability to better track their spending, get reminders and check their credit score, but more importantly, access to a range of lofty offers such as membership to a gym at a discounted price, access to good restaurants at low prices and subscription to various services at little to no charge. Users can access these features by earning points, which they can secure every time they pay their credit card bills on time.
Varun Krishnan, editor of technology news site FoneArena, told TechCrunch that he has found CRED useful in getting reminders to pay his bills and likes that he can pay them through a range of payment options, including UPI apps and debit cards. “I have several cards and it is hard to track amounts and due dates of payment for each one. They send all these alerts on WhatsApp, which is a blessing,” he said.
These are the reasons that attracted many people like Krishnan to join CRED. That, and some incentive to pay his bills — though he hopes that CRED expands the range of offers it currently provides to customers.
That wish may soon come true. In the coming months, CRED will enable these highly sought-after customers to access some financial services from banks in a single-click. Additionally, it is also exploring expansion to some international markets, the aforementioned source said.
CRED does not charge users any money for joining its platform, nor for availing any of the features it offers. But it is generating revenue from some of the partners that are supplying offers on the app.
It’s not a surprise that Shah, an industry veteran known for speaking the uncomfortable truths at conferences, has won the trust of so many investors already. He built one of the biggest payment apps in India, Freecharge, and sold it to e-commerce giant Snapdeal for a whopping $400 million in one of the increasingly rare exits that India’s fintech market has seen to date.
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India’s BharatPe raises $50M to help merchants accept digital payments and secure working capital
BharatPe, a New Delhi-based firm that is enabling hundreds of thousands of merchants to start accepting digital payments for the first time, and is also giving them access to working capital, has raised $50 million as it looks to scale its business in the nation.
The Series B round for the one-year-old startup was led by San Francisco-headquartered VC firm Ribbit Capital and London-based Steadview Capital, both of which have previously invested in a number of financial services in India.
Existing investors Sequoia Capital, Beenext Capital and Insight Partners also participated in the round, pushing BharatPe’s all-time raise to $65 million. The new round valued the startup at $225 million, Ashneer Grover, co-founder and CEO of BharatPe, told TechCrunch in an interview.
Google and Amazon, both of which offer payment services in India, were also in advanced stages of talks to fund BharatPe’s Series B financing round, but the startup’s founding team was not keen on diluting their stakes, especially in the wake of BharatPe’s recent growth, a person familiar with the matter told TechCrunch.
BharatPe operates an eponymous service to help offline merchants accept digital payments. Even as India has already emerged as the second largest internet market, with more than 500 million users, much of the country remains offline. Among those outside of the reach of the internet are merchants running small businesses, such as roadside tea stalls.
To make these merchants comfortable in accepting digital payments, BharatPe relies on QR codes built as part of government-backed UPI payments infrastructure. “We get them to put up a QR code in their shops, and any customer that uses a UPI-powered payments app — which is now supported by nearly every payments app in India — can pay these shop owners digitally,” said Grover.
Through BharatPe, these merchants also get access to a simplified dashboard on their phones to track the customers who owe them money and get periodic reminders.
BharatPe has amassed more than 1.5 million merchants on its platform. It processes more than 21 million transactions a month, worth more than $83 million, Grover said.
BharatPe also allows merchants to secure short-term loans. New merchants can secure about $500 for a period of three months from BharatPe. As merchants spend more time on BharatPe, the firm increases the amount to about $2,000.
The lending business is crucial to BharatPe. Payment apps make little to no money through making transactions on their platforms. Those processing UPI payments can not even charge a small commission to merchants. “There is no money to be made in doing payments in India,” Grover said. So you charge small interest on loans.
Access to working capital is a major challenge in developed markets such as India. According to a World Bank report, more than 2 billion people globally do not have access to working capital.
Grover said BharatPe aims to use the fund to add about 3.5 million merchants in the next 12 months. The firm has more than 2,000 sales people who are adding 400,000 new merchants to BharatPe each month, he said.
The rest of the money will go into financing the loans on the platform and building new solutions. Later today, BharatPe will launch a new service to connect suppliers and merchants through BharatPe so that their accounts are in sync.
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PayPal-backed money lender Tala raises $110M to enter India
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.
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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TransferWise’s debit card launches in Australia and New Zealand, with Singapore to follow
International money transfer startup TransferWise’s debit card is now available in Australia and New Zealand, with a Singapore launch expected by the end of this year as the company expands its presence in the Asia-Pacific region. TransferWise’s debit card, which features low, transparent fees and exchange rates, first launched in the United Kingdom and Europe last year before arriving in the United States in June. Since its launch, the company claims the debit card has been used for 15 million transactions.
Australian and New Zealand customers will have access to the TransferWise Platinum debit Mastercard (a business debit card is also available). Cards are linked to TransferWise accounts, which give holders bank account numbers and details in multiple countries, making it easier and cheaper to send and receive multiple currencies. The company says that over the past year, customers have deposited more than $10 billion in their accounts.
TransferWise’s debit cards allow users to spend in more than 40 currencies at real exchange rates. In an email, co-founder and CEO Kristo Käärmann told TechCrunch that TransferWise decided to launch its debit card in Australia and New Zealand because its business there has already been growing quickly. “In addition to responding to customer demand, launching the card in Australia and New Zealand was also driven by the fact that Aussies and Kiwis are being overcharged by banks for using their own money abroad. It is expensive to use debit, travel and credit cards for spending or withdrawals,” he said.
Käärmann added that “independent research conducted by Capital Economics showed that Australians lost $2.14 billion last year alone just for using their bank-issued card abroad. This is because banks and other providers charge transaction fees every time someone uses their card abroad, plus an inflated exchange rate. Similarly, in New Zealand, Kiwis lost $1 billion simply for using their card abroad.”
One of TransferWise’s competitive advantages is that unlike most legacy banking and money transfer services, its accounts and cards were designed from the start to be used internationally. “While there are existing multi-currency cards that exist in Australia and New Zealand, they are prohibitively expensive to use. For example in Australia, the TransferWise Platinum debit Mastercard is on average 11 times cheaper than most travel, debit, prepaid and credit cards,” Käärmann said.
TransferWise cards don’t have transaction fees or exchange rate markups and cardholders are allowed to withdraw up to AUD $350 every 30 days for free at any ATM in the world.
The company is currently talking to regulators in several Asian countries, a process that can take up to two years, Käärmann said. It was recently granted a remittance license in Malaysia, and plans to make its remittance service available there by the end of this year.
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Japan’s mobile payments app PayPay reaches 10 million users
Paytm, India’s biggest mobile payments firm, now has 10 million customers in Japan, the company said as it pushes to expand its reach in international markets. Paytm entered Japan last October after forming a joint venture with SoftBank and Yahoo Japan called PayPay.
In addition to 10 million users, PayPay is now supported by 1 million merchant partners and local stores in Japan, Vijay Shekhar Sharma, founder and CEO of Paytm said Thursday. The mobile payments app has clocked more than 100 million transactions to date in the nation, he claimed. In June, PayPay had 8 million users.
“Thank you India 
for your inspiration and giving us chance to build world class tech…,” he posted in a tweet.
Like in India, cash also dominates much of the daily transactions in Japan. Large medical clinics and supermarkets often refuse to accept plastic cards and instead ask for cash. This encouraged Paytm, which also has presence in Canada, to explore the Japanese market.
And it has the experience, capital and tech chops to achieve it. The mobile payments app has amassed more than 250 million registered users in India. Most of these customers signed up after the Indian government invalidated much of the cash in the nation in late 2016.
PayPay competes with a handful of local players in Japan. Its biggest competition is Line, an instant messaging app that has followed China’s WeChat model to aggressively expand its offerings in recent years.
Like PayPay, Line also has no shortage of money. Earlier this year, it announced a ¥30 billion ($282 million) reward campaign to boost usage of its payments service. Line has more than 80 million users in Japan, 32 million of whom used its payments service as of February this year. There are about 120 million internet users in Japan.
PayPay maintains a ¥10 billion ($94 million) marketing campaign of its own, as part of which customers who make a certain number of transactions and participate in referral programs earn some money. In a statement, PayPay said Thursday that moving forward it “will strive to create a society where people can buy anything through cashless payments in every corner of the country with a safe and secured service for our users.”
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Aspire raises $32.5M to help SMEs secure fast finance in Southeast Asia
Aspire, a Singapore-based startup that helps SMEs secure working capital, has raised $32.5 million in a new financing round to expand its presence in several Southeast Asian markets.
The Series A round for the one-and-a-half-year-old startup was funded by MassMutual Ventures Southeast Asia. Arc Labs and existing investors Y Combinator — Aspire graduated from YC last year — Hummingbird and Picus Capital also participated in the round. Aspire has raised about $41.5 million to date.
Aspire operates a neo-banking-like platform to help small and medium-sized enterprises (SMEs) quickly and easily secure working capital of up to about $70,000. AspireAccount, the startup’s flagship product, provides merchants and startups with instant credit limit for daily business expenses, as well as a business-to-business acceptance and other tools to help them manage their cash flow.
Co-founder and CEO Andrea Baronchelli tells TechCrunch that about 1,000 business accounts are opened each month on Aspire and that the company plans to continue focusing on Southeast Asia, where he says there are about 78 million small businesses, leaving plenty of room to scale (applications can be made through Aspire’s mobile app and are reviewed using a proprietary risk assessment engine before getting final approval from a human). Aspire claims it has seen 30% month-over-month growth since it was founded in January 2018 and expects to open more than 100,000 business accounts by next year.
Baronchelli, who served as a CMO for Alibaba’s Lazada platform for four years, says Aspire launched to close the gap left by the traditional banking industry’s focus on consumer services or businesses that make more than $10 million in revenue a year. As a result, smaller businesses in Southeast Asia, including online vendors and startups, often lack access to credit lines, accounts and other financial services tailored to their needs.
Aspire currently operates in Thailand, Indonesia, Singapore and Vietnam. The startup said it will use the fresh capital to scale its footprints in those markets. Additionally, Aspire is building a scalable marketplace banking infrastructure that will use third-party financial service providers to “create a unique digital banking experience for its SME customers.”
Baronchelli adds that “the bank of the future will probably be a marketplace,” so Aspire’s goal is to provide a place where SMEs can not only open accounts and credit cards, but also pick from different services like point of sale systems. It is currently in talks with potential partners. The startup is also working on a business credit card that will be linked to each business account by as early as this year.
Southeast Asia’s digital economy is slated to grow more than six-fold to reach more than $200 billion per year, according to a report co-authored by Google. But for many emerging startups and businesses, getting financial services from a bank and securing working capital have become major pain points.
A growing number of startups are beginning to address these SMEs’ needs. In India, for instance, NiYo Bank and Open have amassed millions of businesses through their neo-banking platforms. Both of these startups have raised tens of millions of dollars in recent months. Drip Capital, which helps businesses in developing markets secure working capital, raised $25 million last week.
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Facebook’s regulation dodge: Let us, or China will
Facebook is leaning on fears of China exporting its authoritarian social values to counter arguments that it should be broken up or slowed down. Its top executives have each claimed that if the U.S. limits its size, blocks its acquisitions or bans its cryptocurrency, Chinese company’s absent these restrictions will win abroad, bringing more power and data to their government. CEO Mark Zuckerberg, COO Sheryl Sandberg and VP of communications Nick Clegg have all expressed this position.
The latest incarnation of this talking point came in today’s and yesterday’s congressional hearings over Libra, the Facebook-spearheaded digital currency it hopes to launch in the first half of 2020. Facebook’s head of its blockchain subsidiary Calibra, David Marcus, wrote in his prepared remarks to the House Financial Services Committee today that (emphasis added):
I believe that if America does not lead innovation in the digital currency and payments area, others will. If we fail to act, we could soon see a digital currency controlled by others whose values are dramatically different.
WASHINGTON, DC – JULY 16: Head of Facebook’s Calibra David Marcus testifies during a hearing before Senate Banking, Housing and Urban Affairs Committee July 16, 2019 on Capitol Hill in Washington, DC. The committee held the hearing on “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.” (Photo by Alex Wong/Getty Images)
Marcus also told the Senate Banking Subcommittee yesterday that “I believe if we stay put we’re going to be in a situation in 10, 15 years where half the world is on a blockchain technology that is out of reach of our national-security apparatus.”.
This argument is designed to counter House-drafted “Keep Big Tech Out of Finance” legislation that Reuters reports would declare that companies like Facebook that earn over $25 billion in annual revenue “may not establish, maintain, or operate a digital asset . . . that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function.”
The message Facebook is trying to deliver is that cryptocurrencies are inevitable. Blocking Libra would just open the door to even less scrupulous actors controlling the technology. Facebook’s position here isn’t limited to cryptocurrencies, though.
The concept crystallized exactly a year ago when Zuckerberg said in an interview with Recode’s Kara Swisher, “I think you have this question from a policy perspective, which is, do we want American companies to be exporting across the world?” (emphasis added):
We grew up here, I think we share a lot of values that I think people hold very dear here, and I think it’s generally very good that we’re doing this, both for security reasons and from a values perspective. Because I think that the alternative, frankly, is going to be the Chinese companies. If we adopt a stance which is that, ‘Okay, we’re gonna, as a country, decide that we wanna clip the wings of these companies and make it so that it’s harder for them to operate in different places, where they have to be smaller,’ then there are plenty of other companies out that are willing and able to take the place of the work that we’re doing.
When asked if he specifically meant Chinese companies, Zuckerberg doubled down, saying (emphasis added):
Yeah. And they do not share the values that we have. I think you can bet that if the government hears word that it’s election interference or terrorism, I don’t think Chinese companies are going to wanna cooperate as much and try to aid the national interest there.
WASHINGTON, DC – APRIL 10: Facebook co-founder, Chairman and CEO Mark Zuckerberg testifies before a combined Senate Judiciary and Commerce committee hearing in the Hart Senate Office Building on Capitol Hill April 10, 2018 in Washington, DC. Zuckerberg, 33, was called to testify after it was reported that 87 million Facebook users had their personal information harvested by Cambridge Analytica, a British political consulting firm linked to the Trump campaign. (Photo by Chip Somodevilla/Getty Images)
This April, Zuckerberg went deeper when he described how Facebook would refuse to comply with data localization laws in countries with poor track records on human rights. The CEO explained the risk of data being stored in other countries, which is precisely what might happen if regulators hamper Facebook and innovation happens elsewhere. Zuckerberg told philosopher Yuval Harari that (emphasis added):
When I look towards the future, one of the things that I just get very worried about is the values that I just laid out [for the internet and data] are not values that all countries share. And when you get into some of the more authoritarian countries and their data policies, they’re very different from the kind of regulatory frameworks that across Europe and across a lot of other places, people are talking about or put into place . . . And the most likely alternative to each country adopting something that encodes the freedoms and rights of something like GDPR, in my mind, is the authoritarian model, which is currently being spread, which says every company needs to store everyone’s data locally in data centers and then, if I’m a government, I can send my military there and get access to whatever data I want and take that for surveillance or military.
I just think that that’s a really bad future. And that’s not the direction, as someone who’s building one of these internet services, or just as a citizen of the world, I want to see the world going. If a government can get access to your data, then it can identify who you are and go lock you up and hurt you and your family and cause real physical harm in ways that are just really deep.
Facebook’s newly hired head of communications, Nick Clegg, told reporters back in January that (emphasis added):
These are of course legitimate questions, but we don’t hear so much about China, which combines astonishing ingenuity with the ability to process data on a vast scale without the legal and regulatory constraints on privacy and data protection that we require on both sides of the Atlantic . . . [and this data could be] put to more sinister surveillance ends, as we’ve seen with the Chinese government’s controversial social credit system.
In response to Facebook co-founder Chris Hughes’ call that Facebook should be broken up, Clegg wrote in May that “Facebook shouldn’t be broken up — but it does need to be held to account. Anyone worried about the challenges we face in an online world should look at getting the rules of the internet right, not dismantling successful American companies.”
He hammered home the alternative the next month during a speech in Berlin (emphasis added):
If we in Europe and America don’t turn off the white noise and begin to work together, we will sleepwalk into a new era where the internet is no longer a universal space but a series of silos where different countries set their own rules and authoritarian regimes soak up their citizens’ data while restricting their freedom . . . If the West doesn’t engage with this question quickly and emphatically, it may be that it isn’t ours to answer. The common rules created in our hemisphere can become the example the rest of the world follows.
COO Sheryl Sandberg made the point most directly in an interview with CNBC in May (emphasis added):
You could break us up, you could break other tech companies up, but you actually don’t address the underlying issues people are concerned about . . . While people are concerned with the size and power of tech companies, there’s also a concern in the United States about the size and power of Chinese tech companies and the … realization that those companies are not going to be broken up.
WASHINGTON, DC – SEPTEMBER 5: Facebook chief operating officer Sheryl Sandberg testifies during a Senate Intelligence Committee hearing concerning foreign influence operations’ use of social media platforms, on Capitol Hill, September 5, 2018 in Washington, DC. Twitter CEO Jack Dorsey and Facebook chief operating officer Sheryl Sandberg faced questions about how foreign operatives use their platforms in attempts to influence and manipulate public opinion. (Photo by Drew Angerer/Getty Images)
Scared tactics
Indeed, China does not share the United States’ values on individual freedoms and privacy. And yes, breaking up Facebook could weaken its products like WhatsApp, providing more opportunities for apps like Chinese tech giant Tencent’s WeChat to proliferate.
But letting Facebook off the hook won’t solve the problems China’s influence poses to an open and just internet. Framing the issue as “strong regulation lets China win” creates a false dichotomy. There are more constructive approaches if Zuckerberg seriously wants to work with the government on exporting freedom via the web. And the distrust Facebook has accrued through the mistakes it’s made in the absence of proper regulation arguably do plenty to hurt the perception of how American ideals are spread through its tech companies.
Breaking up Facebook may not be the answer, especially if it’s done in retaliation for its wrong-doings instead of as a coherent way to prevent more in the future. To that end, a better approach might be stopping future acquisitions of large or rapidly growing social networks, forcing it to offer true data portability so existing users have the freedom to switch to competitors, applying proper oversight of its privacy policies and requiring a slow rollout of Libra with testing in each phase to ensure it doesn’t screw consumers, enable terrorists or jeopardize the world economy.
Resorting to scare tactics shows that it’s Facebook that’s scared. Years of growth over safety strategy might finally catch up with it. The $5 billion FTC fine is a slap on the wrist for a company that profits more than that per quarter, but a break-up would do real damage. Instead of fear-mongering, Facebook would be better served by working with regulators in good faith while focusing more on preempting abuse. Perhaps it’s politically savvy to invoke the threat of China to stoke the worries of government officials, and it might even be effective. That doesn’t make it right.
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Billie raises €30M for its B2B invoicing and payments platform
Billie, the Berlin-based fintech startup that offers a B2B invoicing and payments platform, has raised €30 million in Series B funding. Leading the round is Creandum, alongside SpeedInvest, Rocket Internet’s GFC and Picus.
Founded in 2017 by the same team behind SME online lending platform Zencap, which exited to Funding Circle in 2015, Billie wants to bring to B2B invoicing and payments the same level of convenience seen in B2C payments and e-commerce.
Claiming to be Germany’s leading “one-stop shop” for handling all outgoing invoices of B2B sellers, including sending invoices, collecting payments and invoice financing, Billie’s customers range from SMEs, large e-commerce players and transnational marketplaces.
“As B2B transactions are more than twice the volume of B2C transactions, the potential to help our customers is enormous. And, up to now, this market is unserved,” Billie co-founder Dr. Matthias Knecht tells me.
“We’re able to place ourselves in the middle of B2B payments because B2B sellers often face long payment terms until getting paid, administrative burden to handle collections on unpaid invoices and severe economic risks from payment defaults. Meanwhile, B2B buyers often face rigid one-size-fits-all payment terms that are not tailored to the cash-cycle needs of their business. As a result, they revert to old-fashioned working capital loans to cover their liquidity needs.”
To fix this, Billie currently provides two core solutions.
The first is a checkout financing solution for B2B online stores, which embeds a financing option in the online checkout process. “It enables instant financing of the customer’s purchase directly at the online point-of-sale, and takes away all administrative hassle and default risk from the seller,” explains Knecht.
The second is SME invoice factoring, which the Billie co-founder describes as a fully automated platform that handles all outgoing invoices of SMEs.
“Small and medium-sized businesses can handle all their outgoing invoices through our platform, get instant financing for each invoice (i.e. they do not need to wait 90 days to get paid by their customers), and also outsource the collections process as well as coverage of default risk to Billie,” he says. “It’s an exciting, highly automated ‘piece of mind’ product that let’s SMEs focus on what they do best and have Billie handle the operational burden of invoice management and default coverage.”
With today’s injection of capital, Knecht says the startup plans to offer new solutions that are specifically targeted at the buyer side of B2B transactions by handling all processes around payables. This could include letting B2B buyers flexibly choose payment terms and reducing the bookkeeping hassle by acting as a single creditor.
“We will furthermore start rolling out our solutions across Europe at some point, as the need to turn B2B transactions into a frictionless experience exists across countries,” he adds.
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Highlights from Facebook’s Libra Senate hearing
Facebook will only build its own Calibra cryptocurrency wallet into Messenger and WhatsApp, and will refuse to embed competing wallets, the head of Calibra David Marcus told the Senate Banking Committee today. While some, like Senator Brown, blustered that “Facebook is dangerous!,” others surfaced poignant questions about Libra’s risks.
Calibra will be interoperable, so users can send money back and forth with other wallets, and Marcus committed to data portability so users can switch entirely to a competitor. But solely embedding Facebook’s own wallet into its leading messaging apps could give the company a sizable advantage over banks, PayPal, Coinbase or any other potential wallet developer.
Other highlights from the “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations” hearing included Marcus saying:
- The U.S. should “absolutely” lead the world in rule-making for cryptocurrencies
- The Libra Association chose to be headquartered in Switzerland “not to evade any responsibilities of oversight” but since it’s where international financial groups like the Bank for International Settlements, though Calibra will be regulated by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network
- “Yes,” Libra will comply with all U.S. regulations and not launch until the U.S. lawmakers’ concerns have been answered
- “You will not have to trust Facebook” because it’s only one of 28 current and potentially 100 or more Libra Association members and it won’t have special privileges
- “Yes I would” accept compensation from Facebook in the form of Libra as a show of trust in the currency
- It is “not the intention at all” for Calibra to sell or directly monetize user data directly, though if it offered additional financial services in partnership with other financial organizations it would ask consent to use their data specifically for those purposes
- Facebook’s core revenue model around Libra is that more online commerce will lead businesses to spend more on Facebook ads
- When repeatedly asked why Facebook is pushing Libra to happen, Marcus noted that blockchain technology is inevitable and if the U.S. doesn’t lead in building and regulating it, the tech will come from places “out of reach of our national security apparatus,” raising the spectre of China
But Marcus also didn’t clearly answer some critical questions about Libra and Calibra, and may be asked again when he testifies before the House Financial Services Committee tomorrow.
Unanswered Questions
Chairman Crapo asked if Facebook would collect data about transactions made with Calibra that are made on Facebook, such as when users buy products from businesses they discover through Facebook. Marcus instead merely noted that Facebook would still let users pay with credit cards and other mediums as well as Calibra. That means that even though Facebook might not know how much money is in someone’s Calibra wallet or their other transactions, it might know how much they paid and for what if that transaction happens over their social networks.
Senator Tillis asked how much Facebook has invested in the formation of Libra. TechCrunch has also asked specifically how much Facebook has invested in the Libra Investment Token that will earn it a share of interest earned from the fiat currencies in the Libra Reserve. Marcus said Facebook and Calibra hadn’t determined exactly how much it would invest in the project. Marcus also didn’t clearly answer Senator Toomey’s question of why the Libra Association is considered a not-for-profit organization if it will pay out interest to members.
Senator Menendez asked if the Libra Association would freeze the assets if terrorist organizations were identified. Marcus said that Calibra and other custodial wallets that actually hold users’ Libra could do that, and that regulated off-ramps could block them from converting Libra into fiat. But this answer underscores that there may be no way for the Libra Association to stop transfers between terrorists’ non-custodial wallets, especially if local governments where those terrorists operate don’t step in.
Perhaps the most worrying moment of the hearing was when Senator Sinema brought up TechCrunch’s article citing that “The real risk of Libra is crooked developers.” There I wrote that Facebook’s VP of product Kevin Weil told me that “There are no plans for the Libra Association to take a role in actively vetting [developers],” which I believe leaves the door open to a crypto Cambridge Analytica situation where shady developers steal users money, not just their data.
Senator Sinema asked if an Arizonan was scammed out of their Libra by a Pakistani developer via a Thai exchange and a Spanish wallet, would that U.S. citizen be entitled to protection to recuperate their lost funds. Marcus responded that U.S. citizens would likely use American Libra wallets that are subject to protections and that the Libra Association will work to educate users on how to avoid scams. But Sinema stressed that if Libra is designed to assist the poor who are often less educated, they could be especially vulnerable to scammers.
Here @SenatorSinema cites my article warning that we need protection from Facebook Libra’s unvetted developers https://t.co/gYeYIQVFLj pic.twitter.com/QSqVDztpCU
— Josh Constine (@JoshConstine) July 16, 2019
Crypto openness versus a dangerous Wild West
Overall, the hearing was surprisingly coherent. Many Senators showed strong base knowledge of how Libra worked and asked the right questions. Marcus was generally forthcoming, beyond the topics of how much Facebook has invested in the Libra project and what data it will glean from transactions atop its social network.
Some of the top concerns, such as terrorist money laundering, encompass the entire cryptocurrency ecosystem and can’t be solved even by strong rules around Libra. Little regard was given to how Libra could improve remittance or cut transaction fees that see corporations profit off families and small businesses.
Still, if Libra actually becomes popular and evolves as an open ecosystem full of unvetted developers, the currency could be used to facilitate scams. Precisely because of the lack of trust in Facebook that many Senators harped on, consumers could go seeking Libra wallet alternatives to the company that might push them into the hands of evildoers. The Libra Association may need to shift the balance further toward safety and away from cryptocurrency’s prevailing philosophies from openness. Otherwise, the frontiers of this Wild West could prove dangerous, even if its civilized regions are well-regulated.
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Facebook’s testimony to Congress: Libra will be regulated by Swiss
The head of Facebook’s blockchain subsidiary Calibra David Marcus has released his prepared testimony before Congress for tomorrow and Wednesday, explaining that the Libra Association will be regulated by the Swiss government because that’s where it’s headquartered. Meanwhile, he says the Libra Association and Facebook’s Calibra wallet intend to comply will all U.S. tax, anti-money laundering and anti-fraud laws.
“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA),” Marcus writes. “We have had preliminary discussions with FINMA and expect to engage with them on an appropriate regulatory framework for the Libra Association. The Association also intends to register with FinCEN [The U.S. Treasury Department’s Financial Crimes Enforcement Network] as a money services business.”
Marcus will be defending Libra before the Senate Banking Committee on July 16th and the House Financial Services Committees on July 17th. The House subcomittee’s Rep. Maxine Waters has already issued a letter to Facebook and the Libra Association requesting that it halt development and plans to launch Libra in early 2020 “until regulators and Congress have an opportunity to examine these issues and take action.”
The big question is whether Congress is savvy enough to understand Libra to the extent that it can coherently regulate it. Facebook CEO Mark Zuckerberg’s testimonies before Congress last year were rife with lawmakers dispensing clueless or off-topic questions.
Sen. Orin Hatch infamously demanded to know “how do you sustain a business model in which users don’t pay for your service?,” to which Zuckerberg smirked, “Senator, we run ads.” If that concept trips up Congress, it’s hard to imagine it grasping a semi-decentralized stablecoin cryptocurrency that took us 4,000 words to properly explain, and a six-minute video just to summarize.
Attempting to assuage a core concern that Libra is trying to replace the dollar or meddle in financial policy, Marcus writes that “The Libra Association, which will manage the Reserve, has no intention of competing with any sovereign currencies or entering the monetary policy arena. It will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy. Monetary policy is properly the province of central banks.”
Marcus’ testimony comes days after President Donald Trump tweeted Friday to condemn Libra, claiming that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”
TechCrunch asked Facebook for a response Friday, which it declined to provide. However, a Facebook spokesperson noted that the Libra Association won’t interact with consumers or operate as a bank, and that Libra is meant to be a complement to the existing financial system.
Regarding how Libra will comply with U.S. anti-money laundering (AML) and know-your-customer (KYC) laws, Marcus explains that “The Libra Association is similarly committed to supporting efforts by regulators, central banks, and lawmakers to ensure that Libra contributes to the fight against money laundering, terrorism financing, and more,” Marcus explains. “The Libra Association will also maintain policies and procedures with respect to AML and the Bank Secrecy Act, combating the financing of terrorism, and other national security-related laws, with which its members will be required to comply if they choose to provide financial services on the Libra network.”
He argues that “Libra should improve detection and enforcement, not set them back,” because cash transactions are frequently used by criminals to avoid law enforcement. “A network that helps move more paper cash transactions—where many illicit activities happen—to a digital network that features regulated on- and off-ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will present an opportunity to increase the efficacy of financial crimes monitoring and enforcement.”
As for Facebook itself, Marcus writes that “The Calibra wallet will comply with FinCEN’s rules for its AML/CFT program and the rules set by the Office of Foreign Assets Control (OFAC) . . . Similarly, Calibra will comply with the Bank Secrecy Act and will incorporate KYC and AML/CFT methodologies used around the world.”
These answers might help to calm finance legal eagles, but I expect much of the questioning from Congress will deal with the far more subjective matter of whether Facebook can be trusted after a decade of broken privacy promises, data leaks and fake news scandals like Cambridge Analytica.
That’s why I don’t expect the following statement from Marcus about how Facebook has transformed the state of communication will play well with lawmakers that are angry about how those changes impacted society. “We have done a lot to democratize free, unlimited communications for billions of people. We want to help do the same for digital currency and financial services, but with one key difference: We will relinquish control over the network and currency we have helped create.” Congress may interpret “democratize” as “screw up,” and not want to see the same happen to money.
Facebook and Calibra may have positive intentions to assist the unbanked who are indeed swindled by banks and money transfer services that levy huge fees against poorer families. But Facebook isn’t acting out of pure altruism here, as it stands to earn money from Libra in three big ways that aren’t mentioned in Marcus’ testimony:
- It will earn a share of interest earned on the Libra Reserve of traditional currencies it holds as collateral for Libra that could mount into the billions if Libra becomes popular.
- It will see Facebook ad sales grow if merchants seek to do more commerce over the internet because they can easily and cheaply accept online payments through Libra and therefore put marketing spend into those efficiently converting channels like Facebook and Google.
- It will try to sell additional financial services through Calibra, potentially including loans and credit where it could ask users to let it integrate their Facebook data to get a better rate, potentially decreasing defaults and earning Facebook larger margins than other players.
The real-world stakes are much higher here than in photo sharing, and warrant properly regulatory scrutiny. No matter how much Facebook tries to distance itself from ownership of Libra, it started, incubated and continues to lead the project. If Congress is already convinced “big is bad,” and Libra could make Facebook bigger, that may make it difficult to separate their perceptions of Facebook and Libra in order to assess the currency on its merits and risks.
Below you can read Marcus’ full testimony:
For full details on how Libra works, read our feature story on everything you need to know:
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