"Inflation is always and everywhere a monetary phenomenon." – Economist Milton Friedman
The late American economist and Nobel laureate Milton Friedman is famous for identifying inflation as monetary inflation. While he first introduced this argument decades ago, controversial as it was at the time, his theory is playing out today as the Fed grapples with how to manage its balance sheet in a high-inflationary economy.
High inflation continues to rear its head, and policymakers plan to use what firepower they have left in the form of hiking rates to combat rising prices.
In the latest Fed minutes, officials made it clear that more tightening could be up ahead before this rate-hike cycle finally comes to a close. This scenario should bode well for fintech companies that continue to reap the benefit of higher interest income — while it lasts.
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While the IPO pipeline might be light, London has welcomed a new fintech stock. U.K.-based CAB Payments made its debut on the LSE, but investors did not roll out the welcome mat. The new stock fell over 9% in its stock market debut, a reminder of the challenging environment for new issues in the British stock market.
CAB Payments still managed to raise GBP 300 million in the offering for a market cap of GBP 851 million. This fintech IPO was a blockbuster deal, representing the largest new issue of 2023, not including SPAC deals. CAB Payments is focused on the foreign exchange and payment services in the emerging markets.
Separately, Singapore-based fintech Nium is exploring a U.S. IPO in the next couple of years. Nium, a payments provider valued at $2 billion, is looking to make its public market debut in Q2 2024, according to a Bloomberg report.
The startup, which is backed by California-based Riverwood Capital, is also seeking growth through M&A, all of which bodes well for Southeast Asia’s startup market, which has been hurt by high inflation and rising interest rates.
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London-based neobank Revolut is expanding its footprint down under. The fintech has made itself available in New Zealand amid robust demand from kiwis, as the locals are known. With more than 26,000 New Zealanders on Revolut’s waitlist, the company decided now was the time to grow.
Among the services Revolut is offering include foreign exchange across hundreds of currencies, P2P payments and a split-group-bills feature.
Revolut is also expanding in Europe by introducing personal loans in Germany. Customers can now apply for loans valued between EUR 1,000 and EUR 50,000 via Revolut’s mobile app. The loans can be directed toward personal expenses such as housing, travel or buying a vehicle.
Separately, Revolut was also the target of a scam that resulted from a flaw in its technology, Bloomberg reports, citing the Financial Times. Bad actors were able to exploit that vulnerability, absconding with over $20 million of Revolut’s funds.
The problem stems back to nuances between Revolut’s U.S. and U.K. platforms involving transactions through which certain transactions were declined only to later be refunded. Criminal groups have been seizing this opportunity since last year after spotting the issue in 2021, urging individuals to pursue big transactions that would be declined and later withdraw the funds that would be refunded through ATMs.
One of Revolut’s U.S. partners noticed what was happening in response to a cash shortfall at the company. The tech flaw has since been fixed.
Private equity firm Blackstone is reportedly nearing an investment in Stampli, an Israeli AI-focused fintech play. The PE firm could lead a funding round of over $50 million into Stampli, whose AI technology is used to power automated accounts payable solutions. Since launching, Stampli has attracted $87 million to its coffers. Existing investors are expected to participate in the upcoming funding round.
While fintech might not be part of the social media ecosystem, the CEOs of these companies, including Elon Musk and Mark Zuckerberg, have payments in their sights.
As a result, we thought it was worth mentioning Facebook’s latest competitive move to launch Threads, a social media platform that takes aim at Musk’s company, Twitter.
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Incidentally, Anthony Noto, who is currently at the helm of fintech SoFi, is also a Twitter alum and previously served as the company’s finance chief. He weighed in on the launch of Threads to Barron’s, saying that it’s Twitter with the world’s most valuable content that has the added bonus of being in real-time. And consumers can access it for free.
However, with Facebook now throwing Threads into the rink, Noto says that Musk must make Twitter more consumer-friendly to compete.
Aussie-based buy-now-pay-later company Zip is undergoing a restructuring of sorts in which it will streamline its operations, including its cost base, according to a Reuters report. Australia’s BNPL market is under the regulatory spotlight while the industry’s valuations remain under pressure. Zip has already reduced its staff by 20%.
Upstart: After a strong performance in June, shares of Upstart are off to the races in July, too. UPST stock, which advanced more than 30% last month, has tacked on another 22% since July 1. For the year, Upstart is up an eye-popping 175%, making it one of the best performers of 2023. Wall Street analysts are mixed on the stock, with some seeing a risk of downside for the stock after its historic run while others remain bullish.
Upstart, which is behind personal loans, uses AI for its credit decisions and therefore investors see it as an artificial intelligence play. The stock is also sensitive to the whims of the interest rate environment.
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Earnings season is just around the corner once again. Fintech stocks will be among the sectors in the spotlight as they should continue to benefit from the high interest rate economy. Meanwhile, bank fundamentals could continue to struggle, something the market seems to already expect.
Market experts say mega tech companies will show strong growth in Q2. And with the second half of 2023 in full swing, the focus has already begun to shift to 2024. The stage is set for the Big Tech party to continue while fintech valuations could have nowhere to go but up.