World News – UA – Pandemic plutocrats: how Covid creates new Fintech billionaires

In 2015, Nick Molnar was living with his parents in Sydney, Australia, and selling jewelry from a desktop computer in his childhood bedroom between $ 250 Seiko watches and engagement rings at $ 10,000, the 25-year-old had gotten so good at online marketing he became Australia’s # 1 jewelry seller on eBay, shipping thousands of packages a day

That same year, he teamed up with Anthony Eisen, a former investment banker who was 19 years his senior and lived across the street They co-founded Afterpay, an online service that allows buyers from the US, UK, Australia, New Zealand and Canada to pay for low-cost items like shoes and shirts in four interest-free payments on six weeks “I was a millennial who grew up in the 2008 crisis, and saw this great shift from credit to debit,” says Molnar, 30, today. Either in the absence of credit cards or fearful of accumulating high interest rate debt on their credit cards, the Molnar generation quickly embraced this new way of buying and getting goods now. , while paying a little later

Five years later, Molnar and Eisen, who each own around 7% of the company, became billionaires – during a pandemic After initially plummeting at the start of lockdowns, the shares of Afterpay – which went public in 2016 – Almost tenfold, thanks to an increase in activity related to online sales In the second quarter, it processed $ 3.8 billion transactions, an increase of 127% compared to the same period a year earlier

They are not the only ones to have taken off in recent months According to Forbes analysis, at least five fintech entrepreneurs, including the two Australians, have been raised to the billionaire rankings by the pandemic Others include Chris Britt, founder of digital bank Chime, and Vlad Tenev and Baiju Bhatt, co-CEOs of “free” stock trading app Robinhood. Several other founders of companies such as Klarna and Marqeta have also received improvements and are suddenly approaching billionaire status

As in other industries, the Covid recession created both winners and losers in fintech For example, LendingClub, which offers personal loans to high-risk consumers, laid off 30% of its staff ; Small business lender On Deck sold in fire auction

But for a significant number of consumer-contact and payments-related fintechs, the virus has generated a burst of growth, just as it has for e-commerce giant Amazon and home-based gamers Zoom , Slack and DocuSign

« Consumer adoption of fintech was already strong before the pandemic, especially among people aged 20 to 40, » says Victoria Treyger, general partner who leads fintech investments at Felicis Ventures  » The pandemic has become a growth spur, fueling the rapid acceleration of adoption across all age groups, including 40 to 60 years old. « 

Several Covid-focused developments are helping specific types of fintech players For example, consumers’ shift to more online spending and delivery services is a boon for some companies that favor payments Marqeta, a payment processor specialist whose clients include Instacart, DoorDash and Postmates, has been in talks to release a valuation of $ 8 billion, four times what it was valued in March 2019 That would give CEO Jason Gardner, who owns around 10% of Marqeta, a stake worth $ 800 million.

Meanwhile, the more than $ 2 trillion CARES Act convention passed in March, with its stimulus checks of $ 1,200 per adult, student loan payment holidays and unemployment supplements of $ 600 per adult. weeks (now expired), have helped many Americans stay financially out of digital banks like Chime to thrive

In the second quarter of 2020, amid lockdowns and Covid fears, consumers cut spending on travel, restaurants, and luxury items that they usually put on their credit cards, but continued to spending on basic necessities and smaller items – the kinds of things they’re « more likely to pay for with debit cards In this quarter, Visa credit card transaction volumes were down 24 % from a year ago, while debit card transactions grew 10%, according to research firm MoffettNathanson And debit cards (rather than checks or credit cards) are the most common spending vehicle offered by fintech neobanks like SoFi, Dave and MoneyLion

San Francisco-based digital bank Chime in particular used stimulus payments to their advantage In mid-April, about a week before the $ 1,200 government stimulus checks started hitting American accounts, the company advanced this money to customers, ultimately exceeding $ 15 billion « Following the progress of the relaunch, we had the biggest day for new registrations in the history of the company », reports CEO Britt

The pandemic has depressed total consumer spending and the unemployment rate remains high 84%: two factors affecting Chime’s middle-income customer base Yet, per user, « the average spend per customer is up from last year, « says Britt » Part of the reason is government programs on stimulus payments and unemployment « 

Today, Chime’s annualized revenue stands at $ 600 million, according to a person familiar with the figures for the private company At its dazzling new valuation of $ 14.5 billion announced with fundraising of 485 million dollars in mid-September, venture capitalists estimate the company at 24 times its revenue Some investors ask if Chime should get such high value when Green Dot, a publicly traded fintech that offers checking accounts and prepaid debit cards for low income customers, trades at twice its earnings “We’re really more like a payment processor,” Britt responds Indeed, almost all of Chime’s revenue comes from interchange – the fees merchants pay when Chime users swipe their L debit cards. ‘business is not making money on interest from their new secured credit card (it’s a starter card where the cardholder puts money to cover their credit limit), even though Britt says he does not exclude lending in the future

Now Britt himself has sailed into the « three comma club » Forbes estimates his stake in Chime to be at least 10%, which means his holdings are worth $ 1 Over 3 billion (Forbes applies a 10% reduction on all private company holdings) And he plans an IPO “Over the next 12 months we have a number of initiatives to implement to make us even more ready for the IPO « , he says

Then there’s the Robinhood phenomenon.The boredom of being stuck at home, wild stock market swings, and government stimulus checks have turned some Millennials and Gen Z into day traders and market players. options Robinhood’s latest fundraiser in September gave it $ 11 billion in valuation and its co-founders a paper net worth of $ 1 billion each But considering Morgan Stanley’s $ 13 billion acquisition of E-Trade in February and Schwab’s earlier $ 26 billion purchase of TD Ameritrade, some believe Robinhood could get a $ 20 billion valuation if it goes public or is acquired

As part of stay-at-home orders and with coronavirus stimulus checks in hand, some Americans have started actively trading stocks and options on Robinhood, helping to make Baiju Bhatt (left) and Vladimir Tenev (photo from 2015) billionaires

If there is one fintech segment that has been an undisputed winner of the pandemic, it is the Afterpay affair: financing by installments at online points of sale It benefits both from the passage of consumers buying online and their reluctance, in uncertain economic times, to incur new credit card debt

While Afterpay’s Nick Molnar and Anthony Eisen reached billionaire status in July, their competition is not far behind Take Klarna, which was founded in Stockholm in 2005 and entered the US market in 2016 Two of the three founders, Sebastian Siemiatkowski and Niklas Adalberth, met while flipping patties at a Burger King in Sweden They pioneered the buy-it-now-pay-later model in fintech, calling it « try before to buy ”and letting people own products for 30 days before making their first payment (It’s much more appealing than the old-fashioned layaway, the once popular store system for Christmas gifts and major appliance purchases, in which shoppers had to make all of their installment payments before buying. an article)

Klarna CEO Sebastian Siemiatkowski Uses Installment Financing To Start A Banking Business “If you were to talk to a Swedish or German bank and ask them, ‘Does Klarna represent a threat to your bank offer? detail? « They would certainly answer yes »

Klarna charges retailers 3% to 4% of each transaction (slightly less than the 4-5% post-payment fee) to deliver its service A key difference separating the two companies: Klarna becomes a financial services company Full-fledged It became an authorized bank in Sweden in 2017 and offers longer term financing of up to 24 months, with interest charged, for big ticket items like laptops sold by a small number of retailers Siemiatkowski has already turned Klarna into a digital bank in Europe with a debit card for everyday purchases He will likely do the same in US soon

The pandemic has propelled Klarna’s business on a steep path By the end of the first half of 2020, its US customer base reached 9 million, up 550% from the same period a year earlier Worldwide, 55,000 consumers download the Klarna app every day, more than twice the rate of last year Klarna is now available in 19 countries, has 90 million users and plans to generate more than one billion in revenue this year When it raised a new round of funding last week, its valuation nearly doubled from a year ago, reaching $ 10 7 billion

Co-founder Victor Jacobsson has a 10% stake, while Siemiatkowski owns 8% in the still-private company (Niklas Adalberth only retains 04% after selling shares to fund his philanthropic organization and investing in startups Ni neither he nor Jacobsson are still involved in Klarna)

So it’s no surprise that, as FinTech tiered purchases gain more customers and attention, they’re also coming under additional scrutiny from regulators In March, Afterpay agreed to disburse more than $ 1 million, including $ 905,000 in refunds to consumers, after the California Department of Business Oversight (DBO) found the late payment after payment fees meant he was running a loan business without Licence « Afterpay rejects the view that the company is operating illegally, » the Australian company said in a statement “Although Afterpay does not believe that such an arrangement requires a license from the DBO, Afterpay has agreed to operate under the DBO license as part of this settlement.A spokesperson adds that Afterpay « has applied for and obtained licenses [in other states], if applicable”In 2017, Klarna was fined $ 15,000 in New Hampshire for operating without a loan license. Today Klarna has such licenses in every US state

Another fintech winner in the installment payments industry is Silicon Valley-based Affirm, the creation of serial entrepreneur Max Levchin, founder of PayPal, who got himself into the payments business. phased in last month Between November 2019 and July 2020, Affirm nearly doubled its US users to 56 million It raised $ 500 million last week for a valuation of over $ 5 billion, up from $ 2 billion last year Although Levchin’s exact stake is not disclosed, probably worth hundreds of millions

Eight years after founding Affirm, Levchin has raised $ 1.3 billion in venture capital and lucrative partnerships with Peloton and Shopify for a valuation of over $ 5 billion

Affirm also took advantage of a special Covid kicker from expensive home fitness equipment Since 2015, it has fueled funding for Peloton, whose sales have grown as affluent young consumers, lacking in motivation for group exercise classes, flocked to purchase the stationary bikes over $ 2,000 with their streaming workout classes Affirm is now also funding purchases of Mirror, the $ 1,495 home fitness coaching device acquired by Lululemon this summer

Of course, the current strong valuations of fintech companies hinge on continuing strong consumer spending and consumers maintaining some of the online shopping habits they’ve developed over the past six years. month With a pre-election deal between Congress and the White House on a new stimulus package that seems unlikely and the future course of Covid-19 unknown, there are no guarantees But for now, these fintechs are soaring

I cover fintech, cryptocurrencies, blockchain and investing at Forbes I have also written frequently on leadership, company diversity and entrepreneurs Before

I cover fintech, cryptocurrency, blockchain and investing at Forbes I also wrote frequently on leadership, corporate diversity and entrepreneurs Before Forbes I worked for ten years in marketing consulting, in roles ranging from client advice to talent management Graduated from Middlebury College and Columbia Journalism School Have a tip, question or comment? Email me jkauflin @ forbescom or send tips here: https: // wwwForbescom / tips / Follow me on Twitter @jeffkauflin Disclosure: I own bitcoin and ether

I’m an associate editor at Forbes and cover the money and the markets I graduated from the University of Virginia with degrees in history and economics More importantly, I

I’m an associate editor at Forbes and cover the money and the markets I graduated from the University of Virginia with degrees in history and economics Most importantly, I covered the latest news for his journal student The Cavalier Daily, while writing for the school’s underground satirical magazine Since then, I’ve worked at Bloomberg and Pitchbook News, writing on everything from plastic straws to pizza robots

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