China’s draft payments rules put Ant, Tencent on notice

A string of recent events in China’s payments industry suggests the duopoly comprising Ant Group and Tencent may be getting a shakeup.

Following the abrupt call-off of Ant’s public sale and a government directive to reform the firm’s business, the Chinese authorities sent another message this week signaling its plan to curb concentration in the flourishing digital payments industry.

The set of draft rules, designed to regulate non-bank payments and released by the People’s Bank of China (PBOC) this week, said any non-bank payments processor with over one-third of the non-bank payments market or two companies with a combined half of the market could be subject to regulatory warnings from the anti-monopoly authority under the State Council.

Meanwhile, a single non-bank payments provider with over one half of the digital payments market or two companies with a combined two-thirds of the market could be investigated for whether they constitute a monopoly.

The difference between the two rules is nuanced here, with the second stipulation focusing on digital payments as opposed to non-bank payments in the first.

Furthermore, the rules did not specify how authorities measure an organization’s market share, say, whether the judgment is based on an entity’s total transaction value, its transaction volume, or other metrics.

Alipay processed over half of China’s third-party payments transactions in the first quarter of 2020, according to market researcher iResearch, while Tencent handled nearly 40% of the payments in the same period.

 

As China heightens scrutiny over its payments giants, it’s also opening up the financial market to international players. In December, Goldman Sachs moved to take full ownership of its Chinese joint venture. This month, PayPal became the first foreign company with 100% control of a payments business in China after it bought out the remaining stake in its local payments partner Guofubao.

Industry experts told TechCrunch that PayPal won’t likely go after the domestic payments giants but may instead explore opportunities in cross-border payments, a market with established players like XTransfer, which was founded by a team of Ant veterans.

Ant and Tencent also face competition from other Chinese internet firms. Companies ranging from food delivery platform Meituan, e-commerce platforms Pinduoduo and JD.com, to TikTok’s parent firm ByteDance have introduced their own e-wallets, though none of them have posed an imminent threat to Alipay or WeChat Pay.

The comprehensive proposal from PBOC also defines how payments processors handle customer data. Non-bank payments services are to store certain user information and transaction history and cooperate with relevant authorities on data checks. Companies are also required to obtain user consent and make clear to customers how their data are collected and used, a rule that reflects China’s broader effort to clamp down on unscrupulous data collection.

PPRO nabs $180M at a $1B+ valuation to bring together the fragmented world of payments

The pandemic has hastened a shift of most commerce becoming e-commerce in the last year, and that has brought a new focus on startups that are helping to enable that process.

In the latest development, PPRO, a London-based startup that has built a platform to make it easier for marketplaces, payment providers and other e-commerce players to enable localised payments — that is, make and take payments in whatever form local customers prefer to use, which extend well beyond basic payment cards — has closed a round of $180 million, funding that catapults PPRO’s valuation to over $1 billion.

PPRO (pronounced “P-pro”, as in payments professionals) plans to use the funding to continue expanding in newer markets.

Simon Black, PPRO’s CEO, said in an interview that two particular areas of focus in the coming year will be more activity in Asian countries like Singapore and Indonesia, as well as Latin America, where the company acquired a local player, allpago, back in 2019.

In both cases, the opportunity comes in the form of high growth stemming from more transactions moving online, as well as the chaos that is the fragmented payments market.

The capital is coming from a group of investors that includes Eurazeo Growth, Sprints Capital, and Wellington Management. It comes on the heels of a $50 million round the company raised last August from Sprints, along with Citi and HPE Growth; and a further $50 million it picked up in 2018 led by strategic investor PayPal.

PayPal, alongside Citi, Mastercard Payment Gateway Services, Mollie, and Worldpay are among PPRO’s 100 large global customers, which use the company’s APIs for a variety of functions, including localised gateway, processing and merchant acquirer services.

The flood of activity coming from consumers and businesses buying more online — a by-product of the pandemic leading to many businesses shutting down physical operations for the moment — has seen the company double transaction volumes between Q4 2020 and the same quarter in 2019.

PPRO is not the only company to be targeting that opportunity.

The fragmentation of financial services overall — where realistically, there is only handful of types of transactions that might be made (usually: deposits, payments, credit), but quite literally thousands of permutations and methods to make them, with specific markets and their populations typically coalescing around their own localised selections.

That has led to the rise of a number of companies providing what has come to be called “banking as a service” or “fintech as a service,” where a tech provider stitches together in the background a number of services, sometimes thousands, and makes it easier for their customers, by way of an API, to plug those services in for their own customers to use more easily, most often connected to a range of other services provided to them like money management.

Others in this wider space that includes payments and other fintech services include the likes of Rapyd, Mambu, Thought Machine, Temenos, Edera, Adyen, Stripe and newer players like Unit, with many of these raising large amounts of money in recent times in particular to double down on what is currently a rapidly expanding market.

The unique aspect of PPRO is that it was an early mover in the area of identifying the conundrum of fragmentation in payments for companies that operate in more than one country or region, and that it has continued to play only in payments, without a jump to adjacent services.

“We’re ultra focused because the local payments problem is actually growing,” said Black, who believes that “the disconnect between what a consumer wants to use, but also their appetite and the proliferation of payment options” all contribute to more complexity (with the trade-off being more choices for consumers, but equally possibly too much choice?).

As Black sees it, the company’s focus on payments has given it more momentum to build better tech specifically to address that globally.

“PPRO is building solutions for performance in industrial strength. It’s growing rapidly because there are no other players that are truly global. We are globalizing to support the needs of customers who want to nationalize, so we have an opportunity to focus on payments, to be a strategic outsource partner.”

This doesn’t mean that there isn’t room for product expansion: alongside payments, Black highlighted product compliance and providing better analytics as two areas where the company is already active and will be doing more for customers.

“Where we partner and provide value is in anticipating changes in consumer demand,” he noted. “We monitor how customers are using those methods and — whether you are are service provider or furniture or travel company — determine which are the best relevant payment methods.” Services like open banking, tools for banks to enable allowing payments directly from customers’ accounts, or buy-now-pay-later payments, are examples, he said, of areas that speak of further opportunities.

“We are delighted to support Simon and the team at PPRO as they continue to develop best-in-class local payment solutions,” commented Nathalie Kornhoff-Brüls, Managing Director at Eurazeo Growth, in a statement. “All signs for the future indicate that digital commerce, and even more so cross-border commerce, will continue to grow exponentially while innovation in payment methods remains strong. As a result, facilitating local payments is becoming increasingly complex. Payment service providers, however, no longer have a choice as merchants and their customers are pushing for the adoption.”

“PPRO has proven to be the go-to problem solver in this area, providing the local payments technology and expertise that the world’s biggest payment players rely on. Our investment reflects our confidence in the growth potential for PPRO and we’re excited to support PPRO and its team on their journey,” added Voria Fattahi, a partner at Sprints Capital, in a separate statement.

TikTok’s Chinese version Douyin launches an e-wallet

Tencent’s WeChat Pay and Alibaba’s affiliate Alipay have long dominated digital payments in China, but they have always faced new challengers. The latest entrant in online payments is Douyin, TikTok’s Chinese version.

The short video app recently added “Douyin Pay” to its list of existing payment options, which have included Alipay and WeChat Pay.

“The set-up of Douyin Pay (Douyin Zhifu) is to supplement the existing major payment options, and to ultimately enhance user experience on Douyin,” a Douyin spokesperson said.

Payment is a natural step for Douyin, which has a growing e-commerce business. Users can be directed to a product link while watching a video of an influencer reviewing, say, a lipstick. Instead of the ubiquitous WeChat Pay and Alipay, they may opt for Douyin Pay one day, if the incentives are great enough.

Other internet giants, such as e-commerce giant JD.com and food delivery service Meituan, have also tried luring people to use their own payment methods, though the market duopoly is hard to break. All in all, Alipay and WeChat Pay handle about 90% of China’s electronic payments.

Like other internet firms, Douyin parent ByteDance snapped up a coveted payments license by acquiring a third-party payments firm. Last September, a company controlled by ByteDance founder Zhang Yiming bought out a payments solution provider called Wuhan Hezhong Yibao Technology Co. The license, in turn, allows Douyin, Toutiao and other ByteDance services to offer payment features.

Users can, for instance, receive a cash-filled electronic red packet from a Douyin campaign and deposit that cash to their bank accounts.

Douyin Pay

The rollout of Douyin Pay seems well-timed with the upcoming Chinese New Year holiday, a time when families and friends gift each other red packets. Over the past decade, WeChat has been popularizing electronic versions of these auspicious money-filled envelopes, which helped WeChat Pay take off in the early days.

Douyin inked a deal with Chinese state broadcaster CCTV to be its red envelope technology provider for the Spring Festival Gala, traditionally a major advertising event of the year, according to Chinese business news provider LatePost. Alibaba’s young rival Pinduoduo had a similar deal last year in an attempt to grow its own payments users.

Extra Crunch roundup: antitrust jitters, SPAC odyssey, white-hot IPOs, more

Some time ago, I gave up on the idea of finding a thread that connects each story in the weekly Extra Crunch roundup; there are no unified theories of technology news.

The stories that left the deepest impression were related to two news pegs that dominated the week — Visa and Plaid calling off their $5.3 billion acquisition agreement, and sizzling-hot IPOs for Affirm and Poshmark.

Watching Plaid and Visa sing “Let’s Call The Whole Thing Off” in harmony after the U.S. Department of Justice filed a lawsuit to block their deal wasn’t shocking. But I was surprised to find myself editing an interview Alex Wilhelm conducted with with Plaid CEO Zach Perret the next day in which the executive said growing the company on its own is “once again” the correct strategy.


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In an analysis for Extra Crunch, Managing Editor Danny Crichton suggested that federal regulators’ new interest in antitrust enforcement will affect valuations going forward. For example, Procter & Gamble and women’s beauty D2C brand Billie also called off their planned merger last week after the Federal Trade Commission raised objections in December.

Given the FTC’s moves last year to prevent Billie and Harry’s from being acquired, “it seems clear that U.S. antitrust authorities want broad competition for consumers in household goods,” Danny concluded, and I suspect that applies to Plaid as well.

In December, C3.ai, Doordash and Airbnb burst into the public markets to much acclaim. This week, used clothing marketplace Poshmark saw a 140% pop in its first day of trading and consumer-financing company Affirm “priced its IPO above its raised range at $49 per share,” reported Alex.

In a post titled A theory about the current IPO market, he identified eight key ingredients for brewing a debut with a big first-day pop, which includes “exist in a climate of near-zero interest rates” and “keep companies private longer.” Truly, words to live by!

Come back next week for more coverage of the public markets in The Exchange, an interview with Bustle CEO Bryan Goldberg where he shares his plans for taking the company public, a comprehensive post that will unpack the regulatory hurdles facing D2C consumer brands, and much more.

If you live in the U.S., enjoy your MLK Day holiday weekend, and wherever you are: thanks very much for reading Extra Crunch.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

 

Rapid growth in 2020 reveals OKR software market’s untapped potential

After spending much of the week covering 2021’s frothy IPO market, Alex Wilhelm devoted this morning’s column to studying the OKR-focused software sector.

Measuring objectives and key results are core to every enterprise, perhaps more so these days since knowledge workers began working remotely in greater numbers last year.

A sign of the times: this week, enterprise orchestration SaaS platform Gtmhub announced that it raised a $30 million Series B.

To get a sense of how large the TAM is for OKR, Alex reached out to several companies and asked them to share new and historical growth metrics:

  • Gthmhub
  • Perdoo
  • WorkBoard
  • Ally.io
  • Koan
  • WeekDone

“Some OKR-focused startups didn’t get back to us, and some leaders wanted to share the best stuff off the record, which we grant at times for candor amongst startup executives,” he wrote.

5 consumer hardware VCs share their 2021 investment strategies

For our latest investor survey, Matt Burns interviewed five VCs who actively fund consumer electronics startups:

  • Hans Tung, managing partner, GGV Capital
  • Dayna Grayson, co-founder and general partner, Construct Capital
  • Cyril Ebersweiler, general partner, SOSV
  • Bilal Zuberi, partner, Lux Capital
  • Rob Coneybeer, managing director, Shasta Ventures

“Consumer hardware has always been a tough market to crack, but the COVID-19 crisis made it even harder,” says Matt, noting that the pandemic fueled wide interest in fitness startups like Mirror, Peloton and Tonal.

Bonus: many VCs listed the founders, investors and companies that are taking the lead in consumer hardware innovation.

A theory about the current IPO market

Digital generated image of abstract multi colored curve chart on white background.

Digital generated image of abstract multi colored curve chart on white background.

If you’re looking for insight into “why everything feels so damn silly this year” in the public markets, a post Alex wrote Thursday afternoon might offer some perspective.

As someone who pays close attention to late-stage venture markets, he’s identified eight factors that are pushing debuts for unicorns like Affirm and Poshmark into the stratosphere.

TL;DR? “Lots of demand, little supply, boom goes the price.”

Poshmark prices IPO above range as public markets continue to YOLO startups

Clothing resale marketplace Poshmark closed up more than 140% on its first trading day yesterday.

In Thursday’s edition of The Exchange, Alex noted that Poshmark boosted its valuation by selling 6.6 million shares at its IPO price, scooping up $277.2 million in the process.

Poshmark’s surge in trading is good news for its employees and stockholders, but it reflects poorly on “the venture-focused money people who we suppose know what they are talking about when it comes to equity in private companies,” he says.

Will startup valuations change given rising antitrust concerns?

GettyImages 926051128

financial stock market graph on technology abstract background represent risk of investment

This week, Visa announced it would drop its planned acquisition of Plaid after the U.S. Department of Justice filed suit to block it last fall.

Last week, Procter & Gamble called off its purchase of Billie, a women’s beauty products startup — in December, the U.S. Federal Trade Commission sued to block that deal, too.

Once upon a time, the U.S. government took an arm’s-length approach to enforcing antitrust laws, but the tide has turned, says Managing Editor Danny Crichton.

Going forward, “antitrust won’t kill acquisitions in general, but it could prevent the buyers with the highest reserve prices from entering the fray.”

Dear Sophie: What’s the new minimum salary required for H-1B visa applicants?

Image Credits: Sophie Alcorn

Dear Sophie:

I’m a grad student currently working on F-1 STEM OPT. The company I work for has indicated it will sponsor me for an H-1B visa this year.

I hear the random H-1B lottery will be replaced with a new system that selects H-1B candidates based on their salaries.

How will this new process work?

— Positive in Palo Alto

Venture capitalists react to Visa-Plaid deal meltdown

A homemade chocolate cookie with a bite and crumbs on a white background

OLYMPUS DIGITAL CAMERA

After news broke that Visa’s $5.3 billion purchase of API startup Plaid fell apart, Alex Wilhelm and Ron Miller interviewed several investors to get their reactions:

  • Anshu Sharma, co-founder and CEO, SkyflowAPI
  • Amy Cheetham, principal, Costanoa Ventures
  • Sheel Mohnot, co-founder, Better Tomorrow Ventures
  • Lucas Timberlake, partner, Fintech Ventures
  • Nico Berardi, founder and general partner, ANIMO Ventures
  • Allen Miller, VC, Oak HC/FT
  • Sri Muppidi, VC, Sierra Ventures
  • Christian Lassonde, VC, Impression Ventures

Plaid CEO touts new ‘clarity’ after failed Visa acquisition

Zach Perret, chief executive officer and co-founder of Plaid Technologies Inc., speaks during the Silicon Slopes Tech Summit in Salt Lake City, Utah, U.S., on Friday, Jan. 31, 2020. The summit brings together the leading minds in the tech industry for two-days of keynote speakers, breakout sessions, and networking opportunities. Photographer: George Frey/Bloomberg via Getty Images

Zach Perret, chief executive officer and co-founder of Plaid Technologies Inc., speaks during the Silicon Slopes Tech Summit in Salt Lake City, Utah, U.S., on Friday, Jan. 31, 2020. The summit brings together the leading minds in the tech industry for two-days of keynote speakers, breakout sessions, and networking opportunities. Photographer: George Frey/Bloomberg via Getty Images

Alex Wilhelm interviewed Plaid CEO Zach Perret after the Visa acquisition was called off to learn more about his mindset and the company’s short-term plans.

Perret, who noted that the last few years have been a “roller coaster,” said the Visa deal was the right decision at the time, but going it alone is “once again” Plaid’s best way forward.

2021: A SPAC odyssey

In Tuesday’s edition of The Exchange, Alex Wilhelm took a closer look at blank-check offerings for digital asset marketplace Bakkt and personal finance platform SoFi.

To create a detailed analysis of the investor presentations for both offerings, he tried to answer two questions:

  1. Are special purpose acquisition companies a path to public markets for “potentially-promising companies that lacked obvious, near-term growth stories?”
  2. Given the number of unicorns and the limited number of companies that can IPO at any given time, “maybe SPACS would help close the liquidity gap?”

Flexible VC: A new model for startups targeting profitability

12 ‘flexible VCs’ who operate where equity meets revenue share

Spotlit Multi Colored Coil Toy in the Dark.

Spotlit Multi Colored Coil Toy in the Dark.

Growth-stage startups in search of funding have a new option: “flexible VC” investors.

An amalgam of revenue-based investment and traditional VC, investors who fall into this category let entrepreneurs “access immediate risk capital while preserving exit, growth trajectory and ownership optionality.”

In a comprehensive explainer, fund managers David Teten and Jamie Finney present different investment structures so founders can get a clear sense of how flexible VC compares to other venture capital models. In a follow-up post, they share a list of a dozen active investors who offer funding via these non-traditional routes.

These 5 VCs have high hopes for cannabis in 2021

Marijuana leaf on a yellow background.

Image Credits: Anton Petrus (opens in a new window) / Getty Images

For some consumers, “cannabis has always been essential,” writes Matt Burns, but once local governments allowed dispensaries to remain open during the pandemic, it signaled a shift in the regulatory environment, and investors took notice.

Matt asked five VCs about where they think the industry is heading in 2021 and what advice they’re offering their portfolio companies:

5 reforms necessary to create a truly cashless society

The coronavirus pandemic challenged the status quo and completely changed normal life as we knew it. However, with these challenges have come new opportunities to adapt and participate differently in the world. One of the first trends was that cash is no longer accepted.

The transition to cashless transactions, which at first seemed minor, made my customer experience seamless. Going wallet-free made me wonder why I ever carried cash at all!

Cashless life has been widely adopted in Asian countries for quite some time, but it wasn’t universally adopted across the United States until the coronavirus pandemic. The convenience of cashless transactions just makes sense, but my hope is that this convenience doesn’t come at the cost of other aspects of commerce.

The transition to cashless transactions made my customer experience seamless.

Inaccessibility, fees and thoughtless spending are some of the potential problems that come to mind with cashless spending. For a truly cashless society, here are five key points for consideration:

1. Payment processors currently have the upper hand, forcing fees onto customers

For the sake of a cashless transaction, we have given up our last direct authentic connection with our favorite baristas, small businesses and independent brands. When I take out my credit card or phone to pay, I am not thinking about the fees that both myself and the merchant are paying to facilitate what was once a fee-less transaction. Losing this direct connection with my merchant has given payment processors the upper hand, allowing them to demand an unjustifiable fee of up to 3%.

With virtual payments, my cash is essentially in my phone and the barista is directly in front of me, but the transaction does not work like cash. The merchant will need to pay the fee on my transaction. If the cash revenue for that coffee shop used to be 20% of their revenue pre-COVID, they will now need to pay the fees on 20% of their revenue. Sadly, the merchant response over time is to raise prices. Historically, the adoption of a cashless exchange results in fees being passed through to the customer.

Through price increases across the board, the customer is always bailing the merchant out for the cost of the electronic, seamless, safer-than-ever money exchange. Furthermore, the customers are even “forced” to tip digitally from predefined settings, removing all meaning of tips as an emotional social contract. This new normal means that customers will end up paying $4 in a digital transaction for a coffee that used to cost $3 in cash.

2. Platforms must adapt new models to forgo transaction fees

Given that software and intelligent platforms have always lowered the cost of services when they are used at scale, why has this reduction of cost not yet applied to digital financial transactions? Customers need to demand that cashless transactions operate in the same way as cash transactions.

Even if we continue with a fee model, why would regular, loyal and verified customers always pay (directly or indirectly) the hefty cost of the exchange on top of the cost of credit? There should be a differentiation between these different types of transactions, regular or new, and appropriate fees that make sense.

3. Product experiences must promote conscious spending

Paying with digital or credit cards almost feels like paying with someone else’s money, which can be a dangerous feeling when considering that the user does not see this money spent instantly. Say your regular coffee costs $3. Paying for that coffee with cash is a very different experience than paying with a card or a digital wallet.

When you have a finite amount of cash in your pocket, the physical act (and sometimes mental pain) of spending makes the money feel different and more valuable than the invisible money that you spend via your credit or debit card. In many ways, the silent pain we endure while paying in cash has been subconsciously raising our awareness about our spending.

4. Accessibility and use must extend to all

The idea of a cashless society has thus far not been very inclusive to the unbanked and underbanked population. To support a new model, this underserviced sector needs to be able to utilize this software. A user needs to be able to walk into a grocery store and give the cashier $100 for them to upload the money to their virtual wallet.

Alternatively, a friend needs to be able to send $100 to their virtual wallet. For a cashless society to work, virtual payments need to work with ease and certainty that they will be accepted at any and all locations, just like cash.

5. The path to an open wallet

Have you ever ordered a $15 meal on a food delivery app, only for the total to end up over $25? Beyond the delivery fee, tips and taxes, delivery apps are pricing in extra fees to offset the fees charged by credit card and payment companies. In an effort to avoid these extra fees, apps like Lyft and Uber have begun deploying their own digital wallets supported by ACH transfers.

Sadly, consumers are unlikely to see the benefit until these wallets reach wide adoption, which is clearly not happening because no one wants yet another app-specific wallet.

The way forward

To truly empower the consumer, both Google and Apple should keep developing their digital wallets with an open API payment system to allow all apps to securely interact with it for free. This will transform the Google and Apple wallet and will better service the unbanked and underbanked populations instead of just being a gateway for credit cards.

This would further support the unbanked or underbanked population as they too would be able to utilize an open wallet that can be refilled with cash in person. I should be able to use the cash I have in my virtual wallet with any app, website or physical merchant without paying a fee. I should also be able refill the wallet from my bank account or directly deposit some of my paycheck into my phone wallet. Merchants would also benefit from wallet-to-pay by paying no fees to Google and Apple.

Instead, the mobile wallet creator could introduce a new business model focused on discovery and connecting users and merchants, charging merchants for the connections that they facilitate.

In a not-so-distant future, when I get my new Apple or Google phone, it will have a wallet that can be used without fees for payment across all apps, in physical retail locations, and for peer-to-peer money transfers. The credit cards, or rather lines of credit, on my digital wallet will use an Affirm-like loan service that allows me to buy anything from a pack of gum to a luxury watch or even a car, just using my phone’s wallet.

Goldman Sachs and Mastercard should not be the only players in the credit space. Innovation is necessary in the digital wallet space to pioneer the movement to change the outdated fee models for the simple act of money exchange.

Indian B2B e-commerce startup Udaan raises $280 million

Business-to-business marketplace Udaan has raised $280 million from new and existing investors as the Indian startup builds a war-chest to accelerate its growth and fend off rivals.

The new capital is not part of a new financing round but is an extension of Series D. The Bangalore-based startup, which secured $585 million prior to the new capital as part of its Series D round and overall $1.15 billion to date, is now valued at over $3.1 billion, a source familiar with the matter told TechCrunch.

Octahedron Capital and Moonstone Capital are financing the fresh capital, with participation from existing investors Lightspeed Venture Partners, DST Global, GGV Capital, Altimeter Capital, and Tencent.

Much of the business-to-business market in India remains unorganized. This means that merchants in the nation today have to travel to other cities — where all the major dealers operate — to stock up their inventory. But these merchants don’t have much negotiating leverage, so they struggle to find best-value for money and access to a wider selection of catalogues.

Udaan, co-founded by three former Flipkart executives, is solving this problem by connecting small retailers with wholesalers and traders. The startup today serves over 3 million retailers and small and medium-sized businesses and it has on boarded thousands of brands including Coca Cola, PepsiCo, Boat Lifestyle, Micromax, HP, LG, ITC, HUL, and P&G.

Amod Malviya, co-founder of Udaan, said in a statement that the coronavirus pandemic underscored the significance of small businesses and mom-and-pop shops (popularly known as kiranas) in the country.

“Udaan is at the forefront of this uniquely Indian e-commerce opportunity, emerging in the last 4 years as one of the largest e-commerce platforms in India, while taking an India-first mobile-first approach to e-commerce. This financing enables us to further our journey of taking e-commerce to the depth and breadth of the country, with Udaan’s unique low-cost model for core middle India,” he said.

Other than the inventory problem, Udaan also helps merchants secure working capital. Small businesses, especially mom-and-pop shops, rely on money they secure from selling their existing inventory to buy the next batch. Since Udaan is able to see the engagement of different merchants on the platform, it is able to provide working capital to them ahead on time.

These decades-old challenges also present a massive potential reward to firms. “The unaddressed SME credit demand in India is ~US$300-$350 billion, with more than 90% of current demand being met by banks. A typical digital SME lender focusses on Rs1-5 million ($13,575 to $67,875) ticket size with no collateral, average tenure ~12-18 months, and with some ecosystem anchor,” analysts at Bank of America wrote in a recent equity research report, obtained by TechCrunch.

“While growth potential in theory is high, despite much higher yields, we don’t find their economics to be much superior to banks even in a steady state. Overall, steady state ROE (return on equity) for an average digital SME lender is unlikely to be much more than 18% levels — not meaningfully higher than a big private bank,” they wrote.

Udaan said it will deploy the fresh capital in further creating the market, and expanding the selection of products and categories it currently offers. Additionally, the four-year-old startup said it will expand its financing capabilities for small businesses and its supply chain network.

The fresh fundraise “reflects the long-term truly transformative and fundamental value creation potential that Udaan platform offers for the lives and businesses of Indian MSMEs, who are major job creators and form the backbone of our economy and the society,” said Malviya. “Participation of existing and new investors in this financing highlights the increasing recognition of capital markets of this unique nature of the Indian market, and the opportunity it offers.

In the past two years, scores of startups and giants such as Reliance, and Amazon have started to explore the business-to-business market in India. Reliance Retail is the largest retail chain in India, where it serves more than 3.5 million customers each week through its nearly 10,000 physical stores in more than 6,500 cities and towns in the country.

The retail chain entered the e-commerce space with JioMart in late 2019 through a joint venture with Jio Platforms. By mid last year, JioMart had established presence in over 200 Indian cities and towns. On top of this, Reliance Retail has a partnership with Facebook for WhatsApp integrationFacebook, which invested $5.7 billion in Jio Platforms earlier this year, has said that it will explore various ways to work with Reliance to digitize the nation’s mom and pop stores, as well as other small- and medium-sized businesses.

For JioMart, Reliance Retail is working with retail shops, giving them a digital point-of-sale machine to make it easier for them to accept money electronically. It is also allowing these shops to buy their inventory from Reliance Retail, and then using their physical presence as delivery points. It’s currently largely focused on grocery delivery, however.  In a recent report to clients, Goldman Sachs analysts estimated that Reliance could become the largest player in online grocery within three years.

Venmo adds a check cashing feature, waives fees for stimulus checks

Venmo this morning announced it will begin to offer a new check cashing service, “Cash a Check,” in the Venmo mobile app. The feature, which is being rolled out to select users starting today, can be used to cash printed, payroll and U.S. government checks, including the new stimulus checks, the company says. Though typically there will be fees associated with the Cash a Check feature, Venmo says these are being waived on stimulus funds for a limited time.

To be eligible to use Cash a Check, Venmo customers will need to have either Direct Deposit or a Venmo Debit Card enabled on their account, location services turned on, and a verified email address.

Customers who gain access to the feature will then be able take a picture of their endorsed check and send it to the Venmo app to review, much like they would if cashing a check in a mobile banking app. The check will be reviewed in a few seconds, though in special circumstances, the review may take several minutes or even up to an hour before the approval decision is made.

If approved, the money will be immediately transferred to the customer’s Venmo account.

Venmo will temporarily waive fees on stimulus checks rolling out now and over the next couple of weeks, but eventually 1% fees will apply to any government or payroll check cashed in the app with a pre-printed signature, with a minimum fee of $5.00. Other checks, including hand-signed payroll and government checks, will have a 5% check cashing fee, or $5.00 minimum, according to PayPal’s terms.

At launch, the Cash a Check service is provided by partners First Century Bank, N.A. and Ingo Money, Inc. Ingo Money already offers a similar feature to Venmo parent company, PayPal, to allow users to cash checks in the PayPal app. 

“We’re always looking for new ways to make it easier for our community to access and manage their money, especially as people continue to experience financial hardships amidst the global pandemic,” said Darrell Esch, Venmo SVP and GM, in a statement about the new service.

“We know that with health and safety top of mind for many, having a safe way to access stimulus payments is essential for many of our customers, especially those who are receiving paper checks and traditionally would have to visit a physical check-cashing location,” he said. “By introducing the Venmo Cash a Check feature, we are not only enabling our customers to access their money quickly and safely from the comfort of their own homes but are also waiving all fees for cashing government issued checks to ensure customers can use their stimulus funds to pay for the things they need most,” he added.

The company’s move into check cashing doesn’t make the peer-to-peer payment app an alternative to online banking, however. Instead, it serves largely as a way for Venmo to benefit from the influx of stimulus payments that are rolling out now to its U.S. users.

Fintech companies have been scrambling to prove their worth to customers by offering faster and easier access to stimulus payments. Banking startups like Current and Chime, for example, began sending out payments to customers ahead of other traditional banking institutions.

In addition, the stimulus funds can help boost Venmo’s bottom line beyond just the fees it charges. As Venmo users gain access to their stimulus payments or payroll in the app, they may then use that money to make transactions with online merchants or with their Venmo debit card. This transactions allow Venmo to make money through transaction fees, as well.

Venmo said the feature is rolling out now to mobile app users on iOS and Android. The company recommends users download the latest version of the app and updated to the latest operating system on their mobile device for the best performance.

Venmo adds a check cashing feature, waives fees for stimulus checks

Venmo this morning announced it will begin to offer a new check cashing service, “Cash a Check,” in the Venmo mobile app. The feature, which is being rolled out to select users starting today, can be used to cash printed, payroll and U.S. government checks, including the new stimulus checks, the company says. Though typically there will be fees associated with the Cash a Check feature, Venmo says these are being waived on stimulus funds for a limited time.

To be eligible to use Cash a Check, Venmo customers will need to have either Direct Deposit or a Venmo Debit Card enabled on their account, location services turned on, and a verified email address.

Customers who gain access to the feature will then be able take a picture of their endorsed check and send it to the Venmo app to review, much like they would if cashing a check in a mobile banking app. The check will be reviewed in a few seconds, though in special circumstances, the review may take several minutes or even up to an hour before the approval decision is made.

If approved, the money will be immediately transferred to the customer’s Venmo account.

Venmo will temporarily waive fees on stimulus checks rolling out now and over the next couple of weeks, but eventually 1% fees will apply to any government or payroll check cashed in the app with a pre-printed signature, with a minimum fee of $5.00. Other checks, including hand-signed payroll and government checks, will have a 5% check cashing fee, or $5.00 minimum, according to PayPal’s terms.

At launch, the Cash a Check service is provided by partners First Century Bank, N.A. and Ingo Money, Inc. Ingo Money already offers a similar feature to Venmo parent company, PayPal, to allow users to cash checks in the PayPal app. 

“We’re always looking for new ways to make it easier for our community to access and manage their money, especially as people continue to experience financial hardships amidst the global pandemic,” said Darrell Esch, Venmo SVP and GM, in a statement about the new service.

“We know that with health and safety top of mind for many, having a safe way to access stimulus payments is essential for many of our customers, especially those who are receiving paper checks and traditionally would have to visit a physical check-cashing location,” he said. “By introducing the Venmo Cash a Check feature, we are not only enabling our customers to access their money quickly and safely from the comfort of their own homes but are also waiving all fees for cashing government issued checks to ensure customers can use their stimulus funds to pay for the things they need most,” he added.

The company’s move into check cashing doesn’t make the peer-to-peer payment app an alternative to online banking, however. Instead, it serves largely as a way for Venmo to benefit from the influx of stimulus payments that are rolling out now to its U.S. users.

Fintech companies have been scrambling to prove their worth to customers by offering faster and easier access to stimulus payments. Banking startups like Current and Chime, for example, began sending out payments to customers ahead of other traditional banking institutions.

In addition, the stimulus funds can help boost Venmo’s bottom line beyond just the fees it charges. As Venmo users gain access to their stimulus payments or payroll in the app, they may then use that money to make transactions with online merchants or with their Venmo debit card. This transactions allow Venmo to make money through transaction fees, as well.

Venmo said the feature is rolling out now to mobile app users on iOS and Android. The company recommends users download the latest version of the app and updated to the latest operating system on their mobile device for the best performance.

India’s CRED raises $81 million, buys back shares worth $1.2 million from employees

Bangalore-based CRED is kickstarting the new year on a high note.

The two-year-old startup, led by high-profile entrepreneur Kunal Shah, said on Monday it has raised $81 million in a new financing round and bought shares worth $1.2 million (about 90 million Indian rupees) from employees.

The Series C financing round, as first reported by TechCrunch in late November, was led by DST Global. Existing investors Sequoia Capital, Ribbit Capital, Tiger Global, and General Catalyst also participated in the round, and so did a few new names including Satyan Gajwani of Indian conglomerate Times Internet, Sofina, and Coatue.

The round gave CRED — which operates an eponymous app to reward customers for paying their credit card bill on time and offers deals from interesting online brands — a post-money valuation of $806 million.

In an interview with TechCrunch, Shah said that about 10 percent of CRED’s captable is currently allocated to employees and those who held vested stocks were eligible to sell up to 50 percent of their shares back to the startup in its first ESOP liquidity program. “We believe that startups should think about creating wealth for every shareholder, including employees.”

CRED has nearly doubled its customer base to about 5.9 million in the past year, or about 20 percent of the credit card holder base in India. The startup said that the median credit score of its customer was about 830, and about 30 percent of its customer base today holds a premium credit card. (On a side note, more than 50 percent of CRED customers pay their bills using UPI.)

CRED is one of the most talked about startups in India, in part because of the scale at which its valuation has soared and the amount of capital it has been able to raise in such a short period.

One of the biggest questions surrounding CRED today is just how it makes money, given how most fintech startups in the country today — and there are many of them — are struggling to find a business model.

Shah said CRED makes money by cross-selling financing products — for which it has a revenue-sharing arrangement with banks and other financial institutions — and levies a similar cut from merchants who are on the platform today. More than 1,300 brands including big names Starbucks, TAGG, Eat.Fit, Nykaa, and emerging premium direct-to-consumer brands such as The Man Company, Sleepy Cat, and Crossbeats have joined the platform in recent years.

Direct-to-consumer market in India is still in its nascent stage, though some estimates say it could be worth $100 billion by 2025.

“I don’t think we were very deliberate to make D2C happen. It just so happened that in the early days when we offered rewards for D2C brands, they started to see huge traction,” he said, adding that CRED drove more than 30 percent sales for some brands.

“We realized that we were able to solve the discovery problem for customers. We are approaching this with themes — work-from-home and coffee — and it’s working out well. We are now playing matchmaking role between customers and brands that otherwise had to spend a lot of money in marketing.”

One of the biggest propositions of CRED is that it has been able to court some of the most sought-after customers in India. Unlike many other startups and giants such as Google and Facebook, CRED is not going after the next billion users.

“About 20 million customers account for 90 percent of all online consumption in India. These are the customers we are focusing on,” said Shah, who previously ran financial services firm Freecharge and delivered one of the rare successful exits in the country. The core challenge in chasing customers in smaller cities and towns in India is that very few people have the financial capacity to buy things, Shah said.

For that model to work, the GDP of India — where the average annual income of an individual is about $2,000 — needs to grow. And for that, we need more participation from females, said Shah. Less than 10 percent of the female population in India are currently part of the workforce, compared to over 90 percent in China.

An interesting use case for CRED today is that it could potentially license data about the traction D2C brands are seeing on its platform to venture firms, who could use it as a signal to inform their investment decisions.

Shah cautioned that the startup is “extraordinarily sensitive about data” but said the team is thinking about ways to help venture firms discover these firms. “We are planning to create a newsletter to showcase many of these brands to the investor world,” he said.

And finally, will CRED launch a credit card? “Will we cross-sell every product that banks today offer? The answer is yes,” said Shah, though he cautioned that the startup is in no hurry to supercharge its offerings and will likely engage with other players in the industry to enable these services.

2020 was a defining year for cannabis: What comes next?

To say that COVID-19 has dominated the past year would be an understatement. We’ve seen the pandemic reorient how we interact with businesses, each other and the world around us. It’s accelerated many trends in business — from e-commerce to digital payments — by several years in a matter of months.

The cannabis industry is no exception. Cannabis was already the country’s fastest-growing industry, but 2020 has taken the space to another level. A record-high percentage of Americans now support cannabis legalization.

By all accounts, cannabis was one of the biggest winners on Election Day, with legalization passing in Arizona, Montana, Missouri, New Jersey and South Dakota. More than one-third of the country — over 111 million people — now live in a state with legal recreational cannabis. By 2021, the legal industry is expected to be worth $24.5 billion.

A record-high percentage of Americans now support cannabis legalization.

Never has it been more clear that cannabis is now a staple in mainstream America. As we look toward 2021, this upward trajectory not only opens new doors for the industry, but the economy as a whole, with greater innovation, investment and employment opportunities flowing into the space.

A green economy

More than 57 million Americans have filed for unemployment since March. While the financial and employment opportunities around cannabis are not a silver bullet, they’re certainly not something we should ignore.

Legal cannabis sales reached nearly $20 billion this past year and are expected to top $40 billion annually within the next four years. As the industry continues to grow, companies are hiring to keep pace. The legal cannabis market supports 243,700 full-time-equivalent American jobs, which are set to multiply by 250% between 2018 and 2028. This makes the cannabis industry America’s largest source for new jobs.

Cannabis can also strengthen state economies and generate opportunities for increased tax revenue, particularly as state and local budgets dwindle. For example, with its new legalization measure, Arizona will issue a 16% tax on cannabis sales that will go toward community colleges, police, fire departments and public health programs.

Accelerating cannabis e-commerce

If there’s one point that’s been reinforced this year, it’s that cannabis is a highly demanded and indispensable consumer good.

At the height of widespread shelter-in-place orders this spring, dispensaries were classified as “essential” in many states alongside grocery stores, gas stations and pharmacies. While people couldn’t shop at department stores or go to the movies, they could still purchase from their local dispensary. This government recognition was a major signal to the market that the space has been elevated to the mainstream.

A resounding response from consumers followed with record cannabis sales. Unprecedented demand forced cannabis retailers to revolutionize the ways they do business and how customers purchase products. To minimize direct person-to-person contact that can potentially spread the virus, dispensaries turned quickly to e-commerce and digital payment solutions to keep employees and consumers safe while modernizing their business.

As a result of these changes across industries, online sales will reach $794.5 billion by the end of the year, far surpassing original estimates. Experts estimate that the pandemic accelerated the shift to e-commerce by five years. At Dutchie, we’ve seen this firsthand. Since March, we’ve experienced a 700% surge in online orders and a 32% increase in average order size.

Looking ahead to 2021

These political and business transformations were milestones that we’ve fast-forwarded to at breakneck speed. So, what comes next?

I see technological innovation at the forefront of the legal industry moving forward. Technology will enable dispensaries to streamline operations in a highly regulated space where compliance is essential. In turn, data will increasingly become more important as retailers will need to better understand their data to make more proactive, informed decisions. This will be a focus for dispensaries of all sizes, but in particular larger businesses that are looking for an increasingly high level of sophistication for their online experiences.

To meet this need, we’re finally seeing new enterprise-level solutions on the market that empower dispensaries to fully leverage their data to design their unique online identity so they can remain competitive as more players join the space.

As legalization continues to spread, wider adoption will further legitimize the industry and de-stigmatize cannabis sales and use. We will likely see cannabis companies attracting more top talent from some of the most notable companies across mainstream industries, and more software platforms, businesses and investors that were formerly hesitant to enter the space begin to work with and invest in cannabis-related businesses. Federal legalization of cannabis also has the potential to enhance liquidity and open the floodgates to more investment deals.

Additionally, as we’ve already begun to see, there will be an increasing trend toward consolidation across the space as retailers continue to make big acquisitions and mergers. More multistate operators will consume smaller players and smaller players will combine forces, creating a space that is more cohesive and less fragmented.

The future of cannabis

The cannabis industry is still in its infancy, but its potential is crystal clear.

As more states legalize and the industry grows and matures, we will see the needle move even closer to where we want to be: Where legal cannabis is afforded the same technological and financial resources as other mainstream industries; innovators can more freely come together to develop modern technology solutions to push the space forward; and where consumers and patients can get what they want more conveniently.