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Credit Cards

Stripe adds card issuing, localized card networks and expanded approvals tool

At a time when more transactions than ever are happening online, payments behemoth Stripe is announcing three new features to continue expanding its reach.

The company today announced that it will now offer card issuing services directly to businesses to let them in turn make credit cards for customers tailored to specific purposes. Alongside that, it’s going to expand the number of accepted local, large card networks to cut down some of the steps it takes to make transactions in international markets. And finally, it’s launching a “revenue optimization” feature that essentially will use Stripe’s AI algorithms to reassess and approve more flagged transactions that might have otherwise been rejected in the past.

Together the three features underscore how Stripe is continuing to scale up with more services around its core payment processing APIs, a significant step in the wake of last week announcing its biggest fundraise to date: $600 million at a $36 billion valuation.

The rollouts of the new products are specifically coming at a time when Stripe has seen a big boost in usage among some (but not all) of its customers, said John Collison, Stripe’s co-founder and president, in an interview. Instacart, which is providing grocery delivery at a time when many are living under stay-at-home orders, has seen transactions up by 300% in recent weeks. Another newer customer, Zoom, is also seeing business boom. Amazon, Stripe’s behemoth customer that Collison would not discuss in any specific terms except to confirm it’s a close partner, is also seeing extremely heavy usage.

But other Stripe users — for example, many of its sea of small business users — are seeing huge pressures, while still others, faced with no physical business, are just starting to approach e-commerce in earnest for the first time. Stripe’s idea is that the launches today can help it address all of these scenarios.

“What we’re seeing in the COVID-19 world is that the impact is not minor,” said Collison. “Online has always been steadily taking a share from offline, but now many [projected] years of that migration are happening in the space of a few weeks.”

Stripe is among those companies that have been very mum about when they might go public — a state of affairs that only become more set in recent times, given how the IPO market has all but dried up in the midst of a health pandemic and economic slump. That has meant very little transparency about how Stripe is run, whether it’s profitable and how much revenues it makes.

But Stripe did note last week that it had some $2 billion in cash and cash reserves, which at least speaks to a level of financial stability. And another hint of efficiency might be gleaned from today’s product news.

While these three new services don’t necessarily sound like they are connected to each other, what they have underpinning them is that they are all building on top of tech and services that Stripe has previously rolled out. This speaks to how, even as the company now handles some 250 million API requests daily, it’s keeping some lean practices in place in terms of how it invests and maximises engineering and business development resources.

The card issuing service, for example, is built on a card service that Stripe launched last year. Originally aimed at businesses to provide their employees with credit cards — for example to better manage their own work-related expenses, or to make transactions on behalf of the business — now businesses can use the card issuing platform to build out aspects of its customer-facing services.

For example, Stripe noted that the first customer, Zipcar, will now be placing credit cards in each of its vehicles, which drivers can use to fuel up the vehicles (that is, the cards can only be used to buy gas). Another example Collison gave for how these could be implemented would be in a food delivery service, for example for a Postmates delivery person to use the card to pay for the meal that a customer has already paid Postmates to pick up and deliver to them.

Collison noted that while other startups like Marqeta have built big businesses around innovative card issuing services, “this is the first time it’s being issued on a self-serving basis,” meaning companies that want to use these cards can now set this up more quickly as a “programmatic card” experience, akin to self-serve, programmatic ads online.

It seems also to be good news for investors. “Stripe Issuing is a big step forward,” said Alex Rampell, general partner at Andreessen Horowitz, in a statement. “Not just for the millions of businesses running on Stripe, but for credit cards as a fundamental technology. Businesses can now use an API to create and issue cards exactly when and where they need them, and they can do it in a few clicks, not a few months. As investors, we’re excited by all the potential new companies and business models that will emerge as a result.”

Meanwhile, the revenue “optimization” engine that Stripe is rolling out is built on the same machine learning algorithms that it originally built for Radar, its fraud prevention tool that originally launched in 2016 and was extended to larger enterprises in 2018. This makes a lot of sense, since oftentimes the reason transactions get rejected is because of the suspicion of fraud. Why it’s taken four years to extend that to improve how transactions are approved or rejected is not entirely clear, but Stripe estimates that it could enable a further $2.5 billion in transactions annually.

One reason why the revenue optimization may have taken some time to roll out was because while Stripe offers a very seamless, simple API for users, it’s doing a lot of complex work behind the scenes knitting together a lot of very fragmented payment flows between card issuers, banks, businesses, customers and more in order to make transactions possible.

The third product announcement speaks to how Stripe is simplifying a bit more of that. Now, it’s able to provide direct links into six big card networks — Visa, Mastercard, American Express, Discover, JCB and China Union Pay, which effectively covers the major card networks in North and Latin America, Southeast Asia and Europe. Previously, Stripe would have had to work with third parties to integrate acceptance of all of these networks in different regions, which would have cut into Stripe’s own margins and also given it less flexibility in terms of how it could handle the transaction data.

Launching the revenue optimization by being able to apply machine learning to the transaction data is one example of where and how it might be able to apply more innovative processes from now on.

While Stripe is mainly focused today on how to serve its wider customer base and to just help business continue to keep running, Collison noted that the COVID-19 pandemic has had a measurable impact on Stripe beyond just boosts in business for some of its customers.

The whole company has been working remotely for weeks, including its development team, making for challenging times in building and rolling out services.

And Stripe, along with others, is also in the early stages of piloting how it will play a role in issuing small business loans as part of the CARES Act, he said.

In addition to that, he noted that there has been an emergence of more medical and telehealth services using Stripe for payments.

Before now, many of those use cases had been blocked by the banks, he said, for reasons of the industries themselves being strictly regulated in terms of what kind of data could get passed across networks and the sensitive nature of the businesses themselves. He said that a lot of that has started to get unblocked in the current climate, and “the growth of telemedicine has been off the charts.”

Read more: https://techcrunch.com/2020/04/23/stripe-adds-card-issuing-localized-card-networks-and-expanded-approvals-tool/

Credit Cards

This Clever New Service Auto-Cancels Your Free Trials

Every time you sign up for a free trial of any kind, you’re forced to take stock of your outlook on life. Realists accept that they’ll eventually wind up paying for this thing that is currently free. Pessimists understand this too, but are prematurely embittered even as they plug in their credit card numbers. Optimists assure themselves that they’ll keep track of when the trial ends and they’ll cancel before they are ever charged, if it turns out they don’t want to continue.

Oh, the naivete. It’s not until these sunny, positive thinkers are digging through their transaction history in their banking app months later that they see it: $89 a year for a mobile VPN membership? What on earth? And then they remember: It was April, Game of Thrones was finally returning for the last season, and they were in Canada, a place where HBO inexplicably doesn’t exist, and so they signed up for a free trial of a mobile VPN to try to stream it on their phone. Only it didn’t work because they had terrible Wi-Fi signal service, and they fell asleep whimpering in their hotel bed, watching as the spinning loading wheel of death never advanced and they forgot all about the free trial they’d signed up for.

OK, maybe I’m actually talking about me here. But if you’re anything like me, you can relate. You sign up for these “free” trials with your credit card, forget about them, and then are left paying for a service you aren’t using.

As of today, there is a more convenient way for you to cancel before ever being charged: a service called Free Trial Card. It's available now through the app DoNotPay, created by 22-year-old wunderkind coder and entrepreneur Joshua Browder.

The Free Trial Card is a virtual credit card you can use to sign up for free trials of any service anonymously, instead of using your real credit card. When the free trial period ends, the card automatically declines to be charged, thus ending your free trial. You don’t have to remember to cancel anything. If you want, the app will also send an actual legal notice of cancelation to the service. The DoNotPay app will send you an email when you sign up for a service and another when your trial ends—a way of nudging you with the reminder that if you want to convert your trial into a paid subscription, you’ll need to update your payment info and hand over your actual credit card number.

“The idea for this product came when I realized I was being charged for a $21.99 gym membership from over a year ago that I was never using,” says Browder.

As he sees it, companies that require you to put in a credit card in order to sign up for a free trial are engaging in deceptive practices. They’re counting on you to forget that you signed up in the hopes that you'll continue to pay whether you use their service or not. This, Browder argues, it fundamentally against the principle of “opt-in” services.

“Why should you have to give a credit card in the first place?” he asks. If free trials were truly free, you’d be able to sign up for them for a limited time without giving any financial information to the company. Then, if you wanted to continue using the services after the trial period, you could pony up the dough. That would be an actual opt-in service, argues Browder.

But since most free trials don’t work that way, Browder and his 10-person team at DoNotPay “found a way to trick the websites,” as he put it, into beginning the free trial without consumers having to put in any of their personal information, financial or otherwise.

The DoNotPay app gives you a throwaway email address you can use to sign up for free trials with the card.

DoNotPay

You can use DoNotPay’s Free Trial Card under any name, with any email and any address. When I generated my bogus credentials using the app, it also gave me a fake email: brownwarthogmilk966@privacy.donotpay.com. DoNotPay allows you to use this email to sign up for services, and forwards any emails you get from the service to your real email, after removing location and read-receipt tracking. That requires that you give DoNotPay your info though; to get that pseudonymous email address, I first had to give DoNotPay my real email address.

Money for Nothing

Using the fake email address and the name Brown Warthog, I signed up for Spotify and CBS All Access (I’ve been dying to watch Emmy-nominated The Good Fight for years!). It worked like a charm. The zip code on the card the app generated for me corresponded to a town in Oregon, or so I learned after Googling. For consistency, I entered that town’s name as my address, though Browder says that was unnecessary. It was also unnecessary for the name to match the email address. I verified that when I used the card to reactivate LinkedIn Premium from my actual real account, which I had half expected not to work, since the email address was so clearly false. But it did work.

And the reason it worked is that Browder’s team is the entity doing the approving. When I clicked Purchase after putting in my false credentials, the request did not go to a bank. It went to DoNotPay. When DoNotPay’s system got that ping, an algorithm the team spent six months building looked at the code request to see if the purchase was for a free trial. Determining that it was, the system approved my transaction. When I tried to use it to buy a $48 pair of Thinx period-proof underwear on that company’s website, it was declined. You can't use this card to make real purchases.

And yet it’s a real card. A Visa card, no less, backed by a network of community banks, which have a relationship with Browder’s company. The bank network has given DoNotPay a business credit card, and allows the company to use it to “act as an agent paying for consumers.” Starting today, one of the things it can do as your agent is create this virtual credit card for you that’s technically real … but only works when there’s no money involved in the transaction.

DoNotPay has already been acting as a financial agent on customer’s behalf in other ways. For one, if you use the app to contest a parking ticket but then you lose your appeal and still need to pay, you let the app pay your parking ticket for you. To do this, you give DoNotPay your bank account info, which it verifies with the same back-end system that Venmo uses, and then DoNotPay generates a virtual credit card for you, based on the credit of its business credit card, and pays your ticket. You don’t see that back-end transaction. (The bank network that gives Browder’s company the credit card makes money on these kinds of transactions, he says.)

Bank Shot

But by now you’ve noticed I haven’t named the bank network. That’s because Browder refuses to name it. “They might shut us down if we mention their name,” he says. Why? Well, for one, the people running the bank network don’t know their service is being used to generate virtual credit cards for the Free Trial Cards service. “Our agreement is to act as an agent for consumers on various payments. And so they do not know specifically about the free trial,” says Browder.

None of this sounds exactly on the up and up to financial experts I spoke to, though they don't think it's illegal. When told I didn’t know who the issuing bank was for these cards because Browder would not say, Sarah Grotta, director of the Debit Card and Alternative Products Advisory team at the payments analysis group Mercator, said this: “No, no, no, no, we gotta be open about that. That can't be a secret.”

For regular credit cards that are used to buy actual goods with real money, Grotta explains, consumers have the right to know who the issuing bank is in case something goes wrong. “They are sort of the holder of the card. If you had an issue, then it's the banks that you’d go to for recourse.”

But in this case, the issuing bank doesn’t know who you are. They only know who Browder and his company are, since these virtual cards are extensions of a card issued in DoNotPay’s name. And if for some reason the card failed to decline, and began actually being charged, it would be Browder paying, not you.

Financially, DoNotPay’s liability is probably nil, since if everything works right all these transactions involve zero dollars. But if the banks bristle at being used this way, it could present problems. Browder says that if the community bank network balks at being used to issue Free Trial Cards, he has three competing banks lined up instead. But then he adds, “I'm confident that this is at least going to go on for a few months.”

“I hope we don't get shut down. We'll see,” he says a few minutes later.

He’s not worried about the DoNotPay app itself, which is doing well. Earlier this month it closed a new $4.6 million seed round led by Andreessen Horowitz. It’s also working with a local San Francisco law firm to make sure all its offerings are legally compliant and robust, and has plans to become a subscription-based app that offers all its legal and convenience services for a monthly cost of around $3.

Browder is hopeful Free Trial Card will be a part of that. The system seems to work for consumers. I’m writing this while listening to music on my free Spotify trial. And DoNotPay has a good track record with its other services, and boasts good basic privacy policies. It has stopgaps in place in case bad actors try to weaponize the Free Trial Card and sign up for a ton of free trials and resell them for profit. But banks, Visa, and the companies offering the free trials may not be so happy.

A fintech lawyer for a major payments company, who spoke on the condition of anonymity because he wasn't authorized by his company to talk to the media, praised the Free Trial Card as clever, but questioned whether it was in good faith. “It could be construed as deceptive. It's a credit card that has no ability to pay. It's basically a product that's designed to defraud the free trial providers,” he says. “It’s really a device to get around the processing system. It's a game on the processing system.”

Browder’s position is that it’s the free trial companies who are being deceptive, not DoNotPay. Grotta points out that Mastercard announced earlier this year that it would require companies offering free trials for certain physical products to reach out to customers at the end of the trial period to get their explicit permission to begin charging them, so maybe a trick like this won't be necessary for long.

That sounds nice, Browder says. But until all free trials change their ways and stop asking people to opt out, he thinks consumers should have a way to make them truly opt-in. Even if that means gaming the system a bit.

Read more: https://www.wired.com/story/free-trial-card/

Credit Cards

UK fintech Jaja pays $671M in cash to acquire the Bank of Irelands UK credit card business

Fintech has been one of the bigger stories of the UK startup world — due in no small part to the fact that its capital, London, is also one of the world’s major financial centers. Today, one of those startups made a big splash by buying an incumbent business, and taking on an equity investment alongside that, to scale up its position in the market.

Jaja, a mobile-first business that provides digital and physical credit cards and other financing services, today announced that it will be acquiring the UK credit card accounts for an initial cash consideration of £530 million (or $671 million at current rates). It will also become the consumer credit card issuer for the Bank’s UK business and the AA. At the same time it’s also getting an equity investment of £20 million in its own business.

“This announcement with Bank of Ireland UK is an exciting and important development in Jaja’s journey and is part of our strategy to create partnerships that will help more people embrace a simpler way of managing credit,” said Neil Radley, CEO of Jaja Finance, in a statement. “Our vision is to enable a new generation of mobile-first credit card products with unrivalled functionality, service and security. We’re excited to be welcoming Bank of Ireland UK customers as cardholders.”

The Bank of Ireland’s UK credit business includes a number of key accounts covering the AA (UK’s Automobile Association), the Post Office, as well as a card branded Bank of Ireland itself. (It excludes the bank’s commercial card business in the Republic of Ireland.)

The Bank had put the business up for sale some time ago as part of a bigger strategy to divest of its capital-intensive, competitive operations in a push to grow profitability by improving its loans and mortgages business: amid that, the Bank’s wider UK business has been a challenge for it, with investors going so far as to value the UK business at zero earlier this month.

“Jaja is an innovative company which shares our commitment to delivering outstanding customer service. We are proud to partner with them and bring their next generation credit card to customers across the UK,” said Bank of Ireland UK CEO Des Crowley in a statement. “Today’s announcement demonstrates the Bank’s continued progress in delivering against its strategic targets for growth and transformation to 2021, as set out at its Investor Day in June 2018.”

Jaja’s deal is being done in partnership with KKR, Centerbridge Partners and other unnamed investors, who are helping finance the acquisition and are also putting £20 million ($25 million) of equity investment into Jaja (pronounced “yah-yah”) alongside it. Prior to this, Jaja had raised about about $16 million, including about £3 million by way of the Seedrs crowdfunding platform.

The company is not disclosing its valuation amid this $671 million purchase.

A spokesperson for Jaja said the startup is not releasing any numbers today that point to how much the company’s current services are being used. The company, which is today active only in the UK, has taken the route of keeping a waitlist to onboard new users, and it was reported to have some 6,000 people on it back in February just ahead of the Jaja launching its cards.

The company also has a deal with Asda, the UK business of Walmart, to provide financing at the point of sale for its online storefront George.com (an Amazon-type everything store akin to Walmart.com). Given that Jaja has up to now not operated on a massive scale — even if it took on its whole waitlist, that would only number 6,000 customers, for example — it’s likely that this latest acquisition will be adding a sizeable number of users, and key brands, into its stable in one fell swoop.

Jaja was founded by Jostein Svendsen, Kyrre Riksen and Per Elvebakk — London-based Norwegian entrepreneurs who have previously found and sold other financial and tech startups (Svenden, for example, sold a previous company to American Express) — and is currently led by CEO Neil Radley, who had previously been the MD for Barclaycard in Western Europe.

Its key mission has been to bring a more modern approach to the world of credit and credit cards. That in itself is not hugely unique — it is essentially the purpose of all consumer-facing credit startups today — but given that the vast majority of credit services, and transactions, are still handled through traditional channels, it’s disruptive nonetheless.

The company describes itself as digital, mobile-first business, which in its case means that you apply for and initiate services through the company’s app — using your phone’s camera to snap your ID and an AI-based algorithm that takes in other data about you to provide what Jaja describes as “near instant” credit decisions within minutes. Jaja provides physical cards (Visa is its credit card partner), but it also allows people to use the cards through their digital wallets immediately. The company does not change for foreign currency exchanges and offers free cash withdrawal fees, with an annual percentage rate (APR) of 18.9%. And in keeping with what is now par for the course for challenger fintech services, you can use the app to get real-time updates on your account, modify repayments and more.

On that note, in addition to the challenge of onboarding a number of established brands and a large number of users on to a new platform that up to now has been adding users intentionally slowly, it will be interesting to see how and if Jaja can inject more modern infrastructure into those established operations, and a customer base that’s used to the traditional way of doing things. For now, it says that customers of those services will continue to use them as they have done.

Read more: https://techcrunch.com/2019/06/28/jaja-bank-of-ireland-credit/

Credit Cards

Tallys Jason Brown on fintechs first debt roboadvisor and an automated financial future

Yesterday, Tally, the startup looking to automate consumers financial lives, announced it had raised a $50 million Series C round led by Andreessen Horowitz and with participation from Valley heavy hitters Kleiner Perkins, Shasta Ventures, Cowboy Ventures and Sway Ventures.

On the back of the announcement, TechCrunch’s fintech contributor Gregg Schoenberg sat down with Tally’s founder and CEO Jason Brown to discuss the round, Tally’s growth strategy and the company’s vision for an automated financial future.

Gregg Schoenberg: I never like to congratulate people when they raise a big load of capital, because if anything, the pressure is on even more. But just to level set real quickly, are there any numbers you can share that Andreessen Horowitz and the other investors saw that underscored your traction?

Jason Brown: So I agree with you. Internally, the metaphor I use is that it’s kind of like going on a long road trip where you’re stopping in the gas station to get more fuel so you can make it to your destination. You should really celebrate when you’re delivering value to customers.

Schoenberg: In terms of total credit card debt you’re managing, you were at $250mm towards the end of last year.

Brown: Yes. Now, we’re getting close to $400mm.

Schoenberg: And the savings vehicle – it’s new and totally free?

Brown: Yes, it’s completely free and just to recap, it takes 35-45 seconds to set-up, it automates the process of setting money aside every week and it gives you points. It’s still in beta, but we’re getting close to the end of beta, and have over 30,000 people on the waitlist.

AI is a non-technical term, right? I like to use the word automation because it means things are being done for you.

Schoenberg: With respect to the fundraise you just announced, the big takeaway I got was your aspiration to automate people’s entire financial lives. That’s big talk.

Brown: That is big talk.

Schoenberg: You obviously knew what you were doing when you decided to frame it that way. Where do you go from here? Obviously, credit card payments and the savings vehicle are good, but there are many other financial services out there that you’ll need to tackle.

Brown: Well one of the key portions of the investment thesis for Andreessen Horowitz is actually what’s under the hood. So we actually took three years to build the underlying infrastructure to automate the pay off my cards job. And there are two fundamental layers to the tech.

There’s the “decide what’s best for me,” which addresses the complexity of ingesting data across your entire financial life, and being able to validate that it’s accurate and consistent, and then having algorithms that can make sense of it and figure out what’s best for you. The next layer is actually doing what’s best for you, which involves being able to move money around and lend money.

Read more: https://techcrunch.com/2019/06/19/tallys-jason-brown-on-fintechs-first-debt-roboadvisor-and-an-automated-financial-future/

Credit Cards

Step raises $22.5M led by Stripe to build no-fee banking services for teens

The smartphone revolution has well and truly disrupted the world of banking. A wide range of startups have cropped up that have completely removed the need to make visits to physical branches to open accounts, make deposits, pay for things, and ask for loans: you can now do all of these on the go by way of a simple tap on an app.

Now, in the latest development, a new startup is leveraging that progress to create a new service targeting one of the most avid demographics when it comes to smartphone usage. Step, which builds mobile-based banking services for teenagers, is today announcing a round of $22.5 million led by Stripe.

“Schools don’t teach kids about money,” CJ MacDonald, the CEO and co-founder, said in an interview. “We want to be their first bank accounts with spending cards, but we also want to teach financial literacy and responsibility. Banks don’t tailor to this, and we want to be a solution teaching the next generation of adults to be more responsible with money in the cashless era. It was easy with cash to go to the mall but now everyone is using their phone for Uber and more.” (MacDonald has a track record in mobile commerce applications: his previous startup, mobile loyalty card app Gyft, got acquired by First Data.)

Step’s first market will be the US, where it’s estimated that there are just under 50 million teenagers in the population.

MacDonald said the aim with the funding will be to use it to bring Step’s first product — banking accounts with payment cards attached — to market, in partnership with Mastercard and Evolve.

Step actually launched in January this year (when its card partner was actually Visa) but only to unveil a waitlist. Since then, it has amassed 500,000 names of interested would-be users — likely one reason why it attracted this funding, and the attention of a pretty high-profile set of investors, including several who know a thing or two about the youth market.

In addition to Stripe, the round includes Will Smith’s Dreamers fund, Nas, Jeffrey Katzenberg’s Wndrco, Ronnie Lott, Matt Rutler, Kevin Gould, and Moat founders Noah and Jonah Goodhart. Previous investors Crosslink Capital, Collaborative Fund and Sesame Ventures also participated. (It’s raised just under $30 million to date. Valuation is not being disclosed.)

Step is not wading into unchartered territory by building a banking service targeting teens. Banks have been offering people the ability to open accounts for their kids under the umbrella of their accounts for many years. And other startups that have built banking services for this age group, who already have products out in the market, include teen debit card and bank app Current, and Greenlight, which makes a debit card for kids. (And that’s before you consider the likes of Chime, which don’t target teens specifically but might be used by them.)

And nor will Step be the last: there have also been rumors that Amazon has been working on its own service offering bank accounts to teens.

MacDonald said there are differences between what Step and these others are offering. First and foremost, its primary point of engagement is the teenager him/herself, with the aim being to give the account holder full autonomy (or at least the feeling of it: parents can still monitor and put controls on an under-18 account, as well as pay funds into it).

To that end, Step has been marketing directly to its future users, doing viral things like incentivizing sign-ups by giving users a dollar towards their bank accounts (when they come online) for each person that gets referred and also signs up using a person’s code. Teenagers under 18 will even be able to sign up for accounts without parental or guardian consent — although these accounts with be very limited in their functionality.

Another key difference will be the business model around which Step is built. As with any company that provides card services, Step gets a cut from card transactions, but unlike others in this space (and unlike most banks), Step is launching with a no-fee model for the basic account. This is because the idea will be to grow with the users, and over time to offer them services that will collect fees, when they are needed.

“As teens grow up we want to grow with them,” MacDonald said. “We will start offering products when they go to college, for example lending money to get books or computers.”

Stripe’s investment for now appears to be mainly a financial one in terms of the services that will be coming in the first wave of Step’s rollout this year. Behind the scenes, it’s actually strategic, too: the company has been quietly building interesting inroads into developing services for card issuers, alongside the services for merchants that you might already know. That’s included the acquisition of Touchtech earlier this year.

Step’s service will be very dependent on building out, and using, robust APIs to let parents and companies pay into their accounts, and for people to be able to use their Step accounts to pay for things, and part of that will involve using and implementing card issuing APIs.

“We are working with Stripe on its issuing API and on developing the issuing side of its business,” MacDonald said. “That is something that we are excited about.” More generally, he said their goals are aligned. “They want to grow the GDP of the internet and grow businesses online. Part of what we are trying to do is to make young people participate responsibly in the online economy, and I think that mission is in line with Stripe’s.” 

Stripe’s head of corporate development, Jordan Angelos, is joining the board of Step with this round.

“Stripe is committed to searching for new ways to remove barriers to commerce and broaden economic access to more people,” Angelos said in a statement. “Step will help teenagers responsibly participate in a financial system that’s moving online, and teach money management skills through direct experience. We’re thrilled to support their efforts.”

The bigger opportunity also seems to be that much larger and more incumbent organizations will tap into what Step is building so that it can make sure to remain relevant and a part of whatever shape financial services take for so-called “generation alpha.”

“Today’s young people are digitally savvy, having grown up with technology as a mainstay in their day-to-day lives. As a result, we also need to ensure that they become familiar with the unique aspects of digital payments including providing education about the various finance and payment products available,” said Sherri Haymond, EVP Digital Partnerships, North America for Mastercard, in a statement. “Step has taken a thoughtful approach to developing an offering for teens and families that provides that first step in educating and acclimating today’s youth to help them gain confidence and awareness around their finances.”

Read more: https://techcrunch.com/2019/06/06/step-raises-22-5m-led-by-stripe-to-build-no-fee-banking-services-for-teens/

Credit Cards

Zero raises $20 million from NEA and others for a credit card that works like debit

Just ahead of the launch of the Apple Card, a startup that has its own take on modernizing the credit card industry, Zero, is announcing the close of its $20 million Series A. The new round of funding was led by New Enterprise Associates (NEA), and brings Zero’s total raised to date to $35 million, including both equity and debt funding.

Other investors in the round include SignalFire, Eniac Ventures, Nyca Partners and some unnamed school endowments. Zero had previously announced an $8.5 million raise in fall 2017, led by Eniac, and had raised $7 million in venture debt from Silicon Valley Bank.

Zero has a clever idea that targets millennials’ hesitance to sign up for credit cards.

Today, only 33% of millennials have a major credit card, a Bankrate survey found — largely because they’re wary of falling into the vicious debt cycle. Instead, this younger demographic often only carries a debit card. But that also means they’re missing out on credit card benefits — like points, rewards and cash back.

Zero’s idea is to offer a rewards credit card that works like debit.

The Zerocard itself is a World Mastercard, so it earns credit card cash back. But unlike a traditional credit card, it’s combined with an FDIC-backed checking account called Zero Checking. That means Zerocard and Zero Checking work together in the app, allowing cardholders to see one net number they can spend from.

That way, they won’t make the mistake of accidentally going over budget, as is often the case with traditional credit cards, which then benefit from charging interest on the unpaid balance.

Zero co-founder and CEO Bryce Galen says he had always liked optimizing his personal finances, but didn’t see the value in overspending to chase rewards.

“People spend 10 to 15% more on average just because they’re putting it on a credit card, and not seeing where they stand all the time,” he says. “Spending 10 to 15% more to chase 1 to 2% in rewards doesn’t make sense.”

Plus, he adds, “half of all credit card points are never even redeemed.”

With Zerocard, the company does away with other credit card annoyances as well.

Zerocard doesn’t charge annual fees like many traditional credit cards do. And Zero Checking doesn’t add any additional ATM fees beyond what the ATM owner charges. It also does away with foreign transaction fees, minimum balance fees and overdraft fees — like many of today’s challenger banks.

Meanwhile, the Zero app is built with an eye toward what makes apps great.

Galen, who led product development for Zynga’s “Words with Friends” has experience in this department, while co-founder and COO Joel Washington previously co-founded car sales marketplace Shift. The executive team, combined, has backgrounds that include time at Affirm, Apple, Capital One, Dropbox, Google, Postmates, Silicon Valley Bank, Upgrade and Wells Fargo.

Overall, Zero’s design feels clean and simple, compared to the cluttered and dated apps from traditional banks. It has smart features, too, like a detailed transaction view that shows the vendor’s logo and location on a map to make it easier to recognize purchases.

“Zero creates an innovative debit-style experience, with an elegant design, and truly compelling rewards. It’s a fabulous banking experience,” said Hans Morris, managing partner of Nyca Partners and former president of Visa, Inc., in a statement. “Few people understand how complex it is to launch either a credit card or a checking account program, and I believe Zero is the first U.S. startup to launch both,” he said.

Zero launched in November 2018, but only to a small number of customers. Though officially open for business, it was functioning more like a public beta — though it didn’t call it that at the time. Meanwhile, its waitlist continued to grow.

Today, there are still 204,000 people waiting to be allowed in — something that Galen says is now going to happen.

“We haven’t launched to everyone on the waitlist yet, but we expect to within the next few weeks,” he says.

Another interesting twist on traditional credit cards is Zero’s path to card upgrades: it encourages but also rewards customers for telling their friends. By doing so, customers gain access to better-looking cards and higher cash-back percentages.

Zero customers start with a “Quartz” card offering 1% back on purchases. When a friend they refer joins, they receive a higher-level card called “Graphite” that offers 1.5% back. Two friends earns you the “Magnesium” card with 2% back and four friends gets you the “Carbon” card with 3% back. The Carbon card is also solid metal, capitalizing on the millennial trend of wanting their cards to look cool. And metal cards are in particular demand.

To receive the full cash-back rates, customers have to pay their balances in full by the due date, Zero says.

The company has partnered with Salt Lake City-based WebBank to issue the card, and deposits are held at Memphis-based Evolve Bank & Trust, an FDIC member. Zero makes money primarily on interchange and interest on deposits.

While some users may leave balances on the card that generate interest, Zero isn’t focused on that aspect of the business for revenue generation.

“Most companies in fintech today are launching undifferentiated debit cards as a feature or extension to their product for an additional engagement and monetization stream,” says Rick Yang, partner at NEA, as to why he invested.

“Zero is completely focused on their card programs and building a differentiated solution that actually provides a value proposition that resonates with consumers. We’ve also been fascinated by the growth of debit outpacing credit, and we think that our solution gives consumers the best of both worlds,” he adds.

Zero is currently iOS-only, but is working on an Android version that is expected to be ready in August.

Read more: https://techcrunch.com/2019/05/23/zero-raises-20-million-from-nea-and-others-for-a-credit-card-that-works-like-debit/

Credit Cards

Payment card startup Marqeta confirms $260M round at close to $2B valuation

Startups that are disrupting and unlocking the lucrative world of financial services continue to unlock big funding rounds for themselves.

Today, Marqeta — which helps third parties like Square, Affirm, DoorDash, Kabbage and Instacart build and offer card services to their customers — announced that it has raised a Series E of $260 million led by Coatue Management.

Marqeta plans to use this growth round to continue building out its platform with an emphasis on global expansion, founder and CEO Jason Gardner said in an interview. He added that the funding values the startup at close to $2 billion.

While the company is not yet profitable, it’s growing fast: Gardner said Marqeta has doubled revenues each year for the last three years, and he expects that the next step for the nine-year-old company is likely an IPO in the next 18 months.

The news today confirms our scoop about the funding two months ago. (When it was still raising, the total was $250 million.)

In addition to Coatue, other new investors include Vitruvian Partners, Spark Capital, Lone Pine and Geodesic, with participation from several of Marqeta’s existing investors: Visa, ICONIQ, Goldman Sachs, 83North, Granite Ventures, CommerzVentures and CreditEase.

“We’re incredibly excited to be partnering with Marqeta,” said Kris Fredrickson, partner at Coatue Management, in a statement. “We believe that the company has a world class team, industry leading technology, and the ability to bring about profound change in card issuing and the global payments infrastructure. The company’s momentum over the last several years is a testament to the team’s hard work and the scale of the opportunity at hand.”

The growth of the internet and the use of smartphones for e-commerce has had a big impact on financial transactions: fewer people and businesses are paying and getting paid in cash, and card usage — both physical and virtual — is on the rise. Citing research from Edgar, Dunn & Company, Marqeta estimates the volume of the card issuing industry — that is, transactions made via cards — to be worth around $45 trillion.

“Visa and Mastercard have interconnected every single merchant that accepts cards, and that is still growing significantly,” Gardner said, but that expansion is coming at the same time that banks have been pricey and slow to move to accommodate the long tail of new opportunities for payment services. That is the opportunity that Marqeta is seizing, by providing quick and flexible options to any kind of commerce company that wants to make the move into issuing cards to its customers, along with supporting services around them such as payment reconciliations, real-time fund transfers and customer interactive voice response services. Gardner notes that while credit remains king, alternatives like debit and virtual cards are growing the fastest.

On the international front, the company opened an office in London recently to start to capitalise on building more inroads to providing card-related services to so-called “challenger banks” (examples include N26, Monese, Starling and Revolut) that have emerged with lower fees and app-friendly interfaces to tap into a growing base of younger working people, and older consumers who have grown tired of bank fees and poor options to move their money digitally.

A recent report from Accenture, cited by Reuters, noted that challenger banks collectively now account for 14% of the banking market’s revenues in Europe, or €206 billion ($238 billion) compared to just 3.5% of the U.S. market (which is worth $1.04 trillion).

Further afield, Gardner said the company has its eye on Asia, where he says growth in the past year has been “stagnant,” largely because its a “cash-centric culture.” However, government efforts to bring more transactions into the digital 21st century will lead to about 30% growth next year — an opportunity Gardner said Marqeta will want to try to cash in on.

Read more: https://techcrunch.com/2019/05/21/payment-card-startup-marqeta-confirms-260m-round-at-close-to-2b-valuation/

Credit Cards

Partnering with Visa, emerging market lender Branch International raises $170 million

The San Francisco-based startup Branch International, which makes small personal loans in emerging markets, has raised $170 million and announced a partnership with Visa to offer virtual, pre-paid debit cards to Branch client networks in Africa, South-Asia and Latin America. 

Branch — which has 150 employees in San Francisco, Lagos, Nairobi, Mexico City and Mumbai — makes loans starting at $2 to individuals in emerging and frontier markets. The company also uses an algorithmic model to determine credit worthiness, build credit profiles and offer liquidity via mobile phones.

“We’ll use [the money] to deepen existing business in Africa. Later this year we’ll announce high-yield savings accounts…in Africa,” says Branch co-founder and chief executive Matt Flannery.

The $170 million round from Foundation Capital and its new debit card partner, Visa, will support Branch’s international expansion, which could include Brazil and Indonesia, according to Flannery. Branch launched in Mexico and India within the last year. In Africa, it offers its services in Kenya, Nigeria and Tanzania.

A potential Branch customer

The Branch-Visa partnership will allow individuals to obtain virtual Visa accounts with which to create accounts on Branch’s app. This gives Branch larger reach in countries such as Nigeria — Africa’s most populous country with 190 million people — where cards have factored more prominently than mobile money in connecting unbanked and underbanked populations to finance.

Founded in 2015, Branch started operating in Kenya, where mobile money payment products such as Safaricom’s M-Pesa (which does not require a card or bank account to use) have scaled significantly. M-Pesa now has 25 million users, according to sector stats released by the Communications Authority of Kenya. Branch has more than 3 million customers and has processed 13 million loans and disbursed more than $350 million, according to company stats.

Branch has one of the most downloaded fintech apps in Africa, per Google Play app numbers combined for Nigeria and Kenya, according to Flannery.

Already profitable, Branch International expects to reach $100 million in revenues this year, with roughly 70 percent of that generated in Africa, according to Flannery.

In addition to Visa and Foundation Capital, the $170 Series C round included participation from Branch’s existing investors Andreessen Horowitz, Trinity Ventures, Formation 8, the IFC, CreditEase and Victory Park, while adding new investors Greenspring, Foxhaven and B Capital.

Branch last raised $70 million in 2018. The company’s overall VC haul and $100 million revenue peg register as pretty big numbers for a startup focused primarily on Africa. Pan-African e-commerce startup Jumia, which also announced its NYSE IPO last month, generated $140 million in revenue (without profitability) in 2018.

Startups building financial technologies for Africa’s 1.2 billion population have gained the attention of investors. As a sector, fintech (or financial inclusion) attracted 50 percent of the estimated $1.1 billion funding to African startups in 2018, according to Partech.

Branch’s recent round and plans to add countries internationally also tracks a trend of fintech-related products growing in Africa, then expanding outward. This includes M-Pesa, which generated big numbers in Kenya before operating in 10 countries around the world. Nigerian payments startup Paga announced its pending expansion in Asia and Mexico late last year. And payment services such as Kenya’s SimbaPay have also connected to global networks like China’s WeChat.

Read more: https://techcrunch.com/2019/04/08/partnering-with-visa-emerging-market-lender-branch-international-raises-170-million/

Credit Cards

Apple Card will make credit card fraud a lot more difficult

Apple’s new credit card has a curious security feature that will make it much more difficult to carry out credit card fraud.

The aptly named Apple Card is a new credit card, built into your iPhone Wallet app, which the company says will help customers live a “healthier” financial lifestyle. The card is designed to replace your traditional credit card and give you perks, such as daily cash. Chief among the benefits is a range of security and privacy features, which Apple says — unlike traditional credit card providers — the company doesn’t know where a customer shopped, what they bought or how much they paid.

But its one feature — a one-time unique dynamic security code — will make it nearly impossible for anyone to use the credit card to make fraudulent purchases.

That three-digit card verification value — or a CVV — on the back of your credit card is usually your last line of defense if someone steals your credit card number, such as if your card is cloned or skimmed by a dodgy ATM or stolen from a website through a phishing attack.

But rotating the security code will increase the difficulty for an attacker to use your card without your permission.

The idea of a dynamic credit card number first came about a few years ago with the Motion Code credit card concept, built by Oberthur Technologies, which included a randomly generating number built into a tiny display on the back of the card. The only downside is if someone steals your physical card.

Since then, other credit card makers — including Mastercard, the issuing payment provider for Apple Card — have worked to integrate biometric solutions instead. By enabling a fingerprint sensor on the card, powered by the card machine it was entered into, it was hoped that fraudulent purchases would be impossible. Other credit cards have worked to roll out biometric-powered credit cards. Again — a big letdown was online fraud, which still accounts for a huge proportion of fraud.

Apple Card seems to meld the two things: a virtual credit card with a rotating security code, protected by a biometric, like Touch ID or Face ID in newer devices. Better yet, the company’s debut physical titanium credit card won’t even have a credit card number.

Now if someone wants to commit fraud, they need to steal your phone and your face or fingerprint.

Like other sensitive data — such as health, financial and biometric data — any banking and credit card data is stored on the device’s security chip, known as the secure enclave.

Apple Card will be available in the U.S. later this summer.

Apple introduces its own credit card, the Apple Card

Read more: https://techcrunch.com/2019/03/25/apple-credit-card-fraud/