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GlobalData Predicts Future Fintech Unicorns

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Whether to enhance the efficiency in the usage of financial services provided by existing financial companies or to increase customer retention through speed and convenience, startups are transforming the financial services and allied sectors by tech driven solutions. Against this backdrop, the Unicorn Prediction Model of GlobalData, a leading data and analytics company, has released a list of 50 fintech startups that have the potential to become unicorns (valuation > US$1bn).

Apoorva Bajaj, Practice Head of Financial Markets at GlobalData, says: “Ranging from digital payments to insurtech, from mobile banking to cross-border payments, startups aim to disrupt finance using modern technologies and innovative business models to attract various new-age consumers. The COVID-19 has certainly provided tailwinds to the industry, as more consumers turned to fintech solutions to manage their finances. New opportunities keep emerging in the fintech sector across the globe, which bodes well for the startups working in the space.”

GlobalData’s latest report ‘Future Unicorns in Fintech, reveals that in Q3 2021, the fintech industry reported investment in excess of US$27.2bn spanning 650 deals globally. During the period, North America (primarily the US) accounted for nearly 40% of overall venture capital (VC) deal volume, followed by APAC with almost one-fourth of total investments.

When it comes to social media discussions, ‘fintech’ and its use cases in banking-as-a-service, insurtech and digital payments are increasingly being mentioned by social media influencers. Key mentions on social media include Klarna launching ‘Pay Now’ option in US, Mastercard offering SMEs digital cash-flow solutions via strategic partnerships and Russian food retailer launching X5 Bank to offer financial services.

Some of the fintech startups in GlobalData’s list of potential unicorns include Boost Insurance, Open, XTransfer, Moneytree and Ocrolus.

Boost offers an API-driven infrastructure-as-a-service platform for property and casualty insurers, which reduces the cost of building and managing an insurance company by packaging the necessary operational, compliance, and capital components and making them accessible.

Open is Asia’s first neo-banking platform for SMEs and startups that develops and offers an online platform for banking and intercompany settlement. It offers services ranging from deposit accounts, money transfers, debit cards for online/offline purchases, expense management, to invoice management. It currently serves more than 15,00,000 SMEs and processes US$24bn in transactions annually.

XTransfer is a one-stop cross-border platform offering financial and risk control services for foreign trade enterprises, dedicated to helping SMEs to greatly reduce the threshold and cost of global exhibition industry and improve global competitiveness.

Moneytree is a financial data aggregation platform offering personal financial management solution, an expense tracking tool for small businesses, and a customer database software for financial enterprises. It aims to bring people and institutions closer together, help them find balance and discover new opportunities to grow personal wealth.

Ocrolus is a document automation platform powering digital lending ecosystem, automating credit decisions across banking, fintech, and mortgage.

Bajaj concludes: “The adoption of ‘fintech’ is increasing as is evident by latest tech innovations in the banking, financial services and insurance sector, massive surge of digital-only banks, increase in number of related mentions in corporate filings and continued increase in jobs posted to hire talent in this space. With all the emerging trends in fintech, it will be interesting to see how future shapes up for companies investing in digital transformation of the traditional banking, investment and insurance services.”

Fintech

Visa and Mastercard Face Setback as Judge Indicates Likely Rejection of $30 Billion Deal

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Visa Inc. and Mastercard Inc. are facing a potential setback as a federal judge in Brooklyn indicated she is likely to reject their $30 billion settlement with retailers.

The deal, aimed at capping credit-card swipe fees, has been a focal point of contention between the card giants and merchants for years.

Judge Margo Brodie of the U.S. District Court for the Eastern District of New York expressed skepticism about the settlement during a hearing on Thursday.

According to court records, Judge Brodie suggested she might not approve the agreement, stating she would issue a written decision in the coming days.

Retailers have long campaigned to reduce their share of the costs associated with accepting card payments, known as interchange fees.

These fees, which are partially passed on to banks that issue the cards, including major institutions like JPMorgan Chase & Co. and Citigroup Inc., have been a burden for many merchants.

Announced in March and pending court approval, the settlement was designed to allow merchants to charge consumers extra for transactions involving Visa or Mastercard credit cards.

The agreement also aimed to introduce pricing tactics to steer consumers towards lower-cost cards.

“The court’s comments strongly suggest that she won’t accept the settlement,” noted Justin Teresi, an analyst with Bloomberg Intelligence. “While Judge Brodie doesn’t seem convinced that larger retailers should be allowed to opt out from the settlement, provisions like changes to digital wallet acceptance rules and some state bans on surcharges likely present real adequacy issues.”

Both Visa and Mastercard expressed disappointment over the developments. A Mastercard representative stated, “We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card acceptance activities. We will pursue our options to ensure a proper resolution of this matter.”

Visa’s spokesperson echoed this sentiment, emphasizing that “continued engagement between industry and the merchants is the best way forward.”

Swipe fees have become a substantial financial issue for retailers, totaling more than $160 billion last year, according to the Merchants Payments Coalition. Reactions to the settlement were mixed when it was announced, with some retail coalitions pledging a thorough review and others quickly opposing it.

The Retail Industry Leaders Association, representing large merchants such as Target Corp. and Home Depot Inc., described the settlement as a “mere drop in the bucket” and urged careful review to assess if it adequately addresses the harm inflicted on retailers.

Doug Kantor, general counsel for the National Association of Convenience Stores, praised the judge’s remarks, stating, “We’re gratified to see that the court recognized how bad this settlement was.”

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African Fintech Kuda Raises $100M Despite Investment Challenges

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Kuda Technologies, a leading fintech company with operations in Nigeria and the United Kingdom, has successfully raised nearly $100 million in funding over the past five years.

This significant milestone was revealed by the company’s Chief Executive Officer, Babs Ogundeyi, during a panel session at the GITEX Africa conference in Morocco.

The GITEX Africa 2024 technology fair, which runs from May 29 to 31 in Marrakech, brings together over 1,500 exhibitors from 130 countries and nearly 700 startups.

During the event, Ogundeyi highlighted Kuda’s growth journey and the difficulties African fintech startups face in attracting foreign investment.

“We launched in Nigeria in August 2019 and have raised close to $100 million within that period,” Ogundeyi announced during the panel session titled “Beyond the Starting Lane: Navigating Advanced Funding.”

The session also featured prominent figures such as Sacha Michaud, co-founder of Glovo in Spain; Yassine Oussaifi, partner at Africinvest Tunisia; and Katlego Maphai, CEO of Yoco South Africa.

The discussion centered on the challenges and strategies for securing advanced funding for startups.

Ogundeyi emphasized that African startups often struggle to secure foreign investment due to investors’ unfamiliarity with the local market environment.

To mitigate this, Kuda Technologies established its headquarters in the UK, facilitating easier access to funding from Western investors.

“We are headquartered in the UK, but we are Africa-focused, and there is a reason why we are headquartered in the UK. It’s very much related to access to funding. The capital comes primarily from the west. It’s easier to attract capital in those jurisdictions,” Ogundeyi explained.

He stressed that securing funding is a rigorous process, particularly in Africa, where trust levels are low.

“When we raised our seed funding, the majority of investors had not been to Africa before, making it difficult to connect with something they didn’t understand. It goes beyond investors seeing the numbers or potential; if you don’t have a feel for the environment or understand the psyche of the people, it becomes very difficult to connect resources to that region,” Ogundeyi elaborated.

Despite the challenges, Kuda Technologies has made significant strides. Its subsidiary, Kuda Microfinance Bank in Nigeria, has grown its customer base to 7.5 million users, making it one of the largest fintech companies in Africa.

The company’s expansion strategy includes obtaining licenses in Canada and Tanzania, reflecting its vision of global reach.

Ogundeyi’s insights were echoed by Sacha Michaud, who noted that venture capitalists tend to invest in regions where they feel comfortable.

“We launched in Africa six years ago and were in high funding mode. In every funding round, we had to convince our investors why we were focusing on the region when we could invest our resources in higher-return areas like Europe,” Michaud shared.

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Flutterwave Hit by Another Security Breach, Billions of Naira Diverted to Multiple Bank Accounts

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In another blow to the financial technology sector, Flutterwave, a prominent player in Nigeria’s digital payment landscape, has been rocked by yet another security breach, resulting in the diversion of billions of naira to multiple undisclosed bank accounts.

This incident is the latest in a series of setbacks for the fintech company, raising concerns about the integrity of its systems and the safety of customer funds.

According to insider sources familiar with the matter, unauthorized transactions amounting to approximately ₦11 billion ($7 million) were illicitly transferred to several accounts during April 2024.

However, other sources suggest the figure could be as high as ₦20 billion ($13.5 million), underscoring the magnitude of the breach.

Flutterwave, responding to inquiries regarding the breach, acknowledged the unauthorized activities but stopped short of confirming the exact amount involved.

In a statement to TechCabal, the company assured the public that no customer funds were lost or compromised, and the confidentiality of customer data remained intact.

The modus operandi of the perpetrators involved transferring the stolen funds to various accounts across five financial institutions over a span of four days.

To evade detection, the transactions were carefully orchestrated to stay below thresholds that trigger fraud checks, highlighting the sophistication of the operation.

Law enforcement agencies have been notified of the breach, and investigations are underway to apprehend those responsible.

Flutterwave has also initiated measures to mitigate the impact of the incident, including temporarily restricting the accounts implicated in the unauthorized transfers.

Industry analysts note that this is not the first time Flutterwave has fallen victim to such security breaches. Over the past fourteen months, the company has grappled with multiple incidents of unauthorized transfers, raising serious concerns about the adequacy of its cybersecurity measures.

In October 2023, Flutterwave reported unauthorized transactions totaling ₦19 billion ($24 million), affecting thousands of account holders across 35 banks and financial institutions.

Subsequent breaches in March and February 2023 saw millions of naira diverted to numerous bank accounts, further exposing vulnerabilities in the company’s systems.

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