Tag: fintech

  • U.S. Fintech IPOs Surge, Then Fizzle

    U.S. Fintech IPOs Surge, Then Fizzle

    After several years of a slow deal pipeline, U.S. fintech IPOs rebounded strongly in 2025. The concerns about inflation and high interest rates that had made investors risk-averse dissipated this year, despite ongoing macroeconomic uncertainty linked to the United States’ trade policy.

    2025 saw several long-awaited big-ticket deals come to fruition, including Chime, Circle, and Klarna. Deal flow has remained steady in the second half of the year, with Wealthtech making its market debut in December.  

    While the fintech IPO resurgence is welcome, it comes with a reality check. Public markets are less forgiving than their private counterparts—whose complex methodologies for calculating valuations often result in overly high expectations for startups. The process requires estimating future revenue/EBITDA multiples, a target return on investment (often 20-50% or more), and then discounting that future value back to the present. The assumptions around exit timing and target returns are subjective. 

    It is thus unsurprising that the share prices of Chime, Circle, and Klarna – all erstwhile high flyers in private markets – have fallen by double digits since their respective IPOs—though these are early days.

    Chime: Overreliance On Interchange Fees

    The June 2025 IPO of Chime, the biggest American digital bank, was a success. The San Francisco-based company priced its market debut at US$27 per share, above the expected range, raising US$700 million at a valuation of US$11.6 billion. Chime’s arrival in public markets was long anticipated and helped thaw an erstwhile tepid fintech IPO pipeline.

    Yet since then, Chime’s share price has fallen 28%. On the one hand, investors are likely reacting to a perception the stock was initially overvalued.

    On the other hand, Chime remains unprofitable. In the third quarter, revenue grew a brisk 29% to US$544 million, surpassing sales guidance, while its active member base grew 21% to 9.1 million. But Chime still lost US$55 million in the September quarter but posted a significant improvement in adjusted EBITDA of $29 million.

    With 22 million customers, Chime exceeds the size of U.S. online banks like SoFi, Dave, and MoneyLion, according to a 2024 Cornerstone Advisors survey. It has been successful tapping into a market where there has historically been limited competition given fragmentation, regulatory barriers, and hesitancy among American consumers to switch banks.

    The online lender relies on interchange fees for its core business, offering no-fee banking services, debit cards, and early paycheck access. These fees account for about 72% of revenue and are paid by merchants when customers use their Chime debit or credit cards.

    The company’s model, and that of its bank partners, is built on a regulatory exemption from the Durbin Amendment for banks under a certain asset threshold. This allows them to earn higher interchange fees than large, regulated banks.

    Yet the model is inherently risky because Chime is betting that it can continue to enjoy a regulatory exemption that may not last. The digital lender is much less diversified than traditional banks, which have revenue streams from lending, wealth management, and other fee-based services.

    Klarna’s BNPL Challenge

    After several years of delays, Klarna finally went public on the New York Stock Exchange (NYSE) in September at a valuation of US$15.1 billion, which is about 1/3 of what it was worth in private markets back in 2021. Although the fintech IPO itself was considered successful, the company’s share price has dropped 35% since September as investors worry about Klarna’s ability to generate sustained profits. 

    While Klarna’s third-quarter revenue reached a record US$903 million, its net loss widened to $95 million. Klarna says that it posted a loss mainly due to a US$235 million provision for credit losses, an accounting requirement tied to the rapid growth of its expanding Fair Financing product.

    The U.S. is a key growth area for Klarna, but its credit loss rates are higher there than in its core European markets. This is partly because Klarna must compete more directly with traditional credit cards in the U.S., where its primary users tend to be consumers who need more time to pay. 

    With its core BNPL product showing its limitations, Klarna has decided to hop on the stablecoin bandwagon as part of its diversification strategy. In a news release, Klarna explains its rationale for the issuance of KlarnaUSD, which is currently in a testing phase and will be available to the public on mainnet in 2026—likely in the middle of the year. Citing consultancy McKinsey, the Swedish fintech giant says that stablecoin transactions now exceed US$27 trillion a year and could overtake legacy payment networks before the end of the decade. 

    Launching a stablecoin does not fundamentally address the issues with Klarna’s current business model, but it could reduce the US$32.7 billion in cross-border fees the company pays, lowering its costs and allowing it to make faster payouts to merchants. 

    As Crypto Goes, So Does Circle 

    Speaking of stablecoins, Circle’s June IPO was a blockbuster fintech IPO, raising $1 billion at an $8 billion valuation. Shares surged 168% on its first day (June 5th) after pricing at $31 and opening at $69 on the NYSE. Investors rushed to snap up the shares of the USDC issuer, which benefited from optimism about stablecoin regulation (the GENIUS Act).

    Since then, the company’s shares have fallen about 50%. However, unlike Klarna and Chime, there is no fundamental shortcoming in Circle’s business model. Rather, investors are reacting to how lowered interest rates may impact Circle’s core revenue from USDC reserves. Lower interest rates will reduce the company’s income on cash and U.S. Treasuries.  

    In addition, the ultra-volatile crypto market is currently experiencing a downturn that Circle cannot escape. Macroeconomic jitters, year-end portfolio rebalancing, and high investor leverage leading to forced liquidations are all factors that have pushed crypto market capitalization to under $3 trillion, down from $4.3 trillion in October. 

    Auguring well for Circle is its strong third-quarter performance. The company’s net income tripled to $214 million, driven by increased USDC stablecoin circulation boosting reserve income, despite a lower return rate on those reserves. Total revenue reached $740 million, beating Wall Street estimates. Other highlights of the September quarter for Circle included a 60% rise in reserve income, strong service revenue growth, increased operating expenses from headcount, and an overall beat on earnings per share.

    What To Expect In 2026

    Looking ahead, the U.S. fintech IPO pipeline is likely to remain robust in 2026. One possible big-ticket deal next year is Airwallex. In mid-2024, CEO Jack Zhang said that the payments unicorn was aiming to be fintech IPO-ready by then. Airwallex’s financials have continuously improved over the past few years, and it recently closed a $330 million Series G funding round that valued it at $8 billion.

    When talking about fintech IPOs, one cannot help but think of payments infrastructure provider Stripe, whose valuation has reached an astonishing $106.7 billion in private markets. Yet unlike some of its peers, Stripe has not mooted any timeline for its market debut. Its leadership is focused on long-term growth, prefers controlled expansion, and does not feel pressured by market hype. With that in mind, we would not bet on a Stripe IPO next year.

    In contrast, a Revolut IPO next year would be unsurprising as one of the next fintech IPOs. The UK fintech unicorn recently reached a massive $75 billion valuation following a secondary share sale. Its financials are solid, having reported a net profit of $1 billion for the financial year ending December 31, 2024, on revenue of $4 billion. This marks the company’s fourth consecutive year of profitability.

    However, there is one major caveat: Revolut still does not have a full UK banking license. If that issue gets resolved in the first half of next year, it would instill confidence in investors, making a fintech IPO in the second half of the year more likely. If not, then Revolut is unlikely to go public in 2026. 

    In any case, if 2026 is anything like 2025, it will be a busy year. 

  • Starling Bank mulls next big steps

    Starling Bank mulls next big steps

    Technology forward with a lean cost structure and known for being customer centric, Starling Bank is one of the most successful UK digital lenders. It has operated as a licensed bank in the U.K. since 2018 with shareholders that include Goldman Sachs, Fidelity Investments and the Qatar Investment Authority. 

    In the fiscal year ended March 31, 2025, Starling Bank posted a profit of US$301.9 million on revenue of US$963.4 million.While that is an enviable performance by the standard of most fintech startups, for Starling Bank it was a bit of a disappointment. The company’s net income fell 26% annually because of a Covid-era business loan fraud issue and a regulatory fine over financial crime failings. Revenue grew 5%, but that was a significant slowdown from the 50% expansion rate in Starling’s 2024 fiscal year.

    Never as audacious as competitors like Revolut and, to a lesser degree, Monzo, Starling still faces the reality of being an 11-year-old fintech startup long past the go-go days in private markets. Investors want Starling Bank to show them the exit ramp—and for this reason, the company has reportedly engaged investment banks, including Morgan Stanley and Rothschild, to explore options for a sale, targeting a potential valuation of up to £4 billion.

    Though Starling Bank is a UK company whose largest business is in its home market, we would not be surprised if it were to eschew the London Stock Exchange (LSE) and instead go public in the United States. To be sure, a New York Stock Exchange (NYSE) listing—which we consider the likeliest destination for the offering—would signal a change in direction from what former interim CEO John Mountain said in 2024. At the time, Mountain said that London was the “natural home” for Starling, and he even emphasized that the company was not “considering other markets” for its market debut.

    That was then. Now, Starling Bank is leaning towards a U.S. listing. The UK digital lender’s CFO, Declan Ferguson, told the Financial Times in July that while no decision had been made on where the bank would list, it was a U.S. IPO. “We continue to observe what is happening externally with our peers and also what is happening on the global stage in terms of the UK versus US [stock markets],” he said.

    One reason for Starling Bank to go public in the U.S. would be to achieve a higher valuation than it could on the LSE. The U.S. IPO market benefits from bigger size, greater investor sophistication regarding technology stocks, and higher valuation multiples. UK fintechs often feel they are valued more like traditional banks in London, whereas in the U.S., they might be valued as high-growth technology platforms.

    At the same time, the U.S. has a much larger financial services market than the UK that, despite its fragmented nature, offers Starling significant opportunities. Starling’s management reckons that its cloud-native technology platform (Engine) could be a key differentiator in the massive U.S. banking market, especially when it comes to its thousands of mid-tier and community banks.

    To that end, Starling is also likely to expand in the U.S. prior to its IPO and has reportedly looked at acquiring a U.S. bank. If the UK digital lender can acquire a traditional U.S. bank, it will avoid the regulatory morass that would be guaranteed if it independently applied for a U.S. banking license. Further, an acquisition would give Starling Bank instant infrastructure and deposits in the American market, as well as an immediate opportunity to deploy Engine.

    If the UK neobank finds an attractive M&A target, we expect it would move to make the deal in the first half of 2026 and help pave the way for an NYSE IPO, perhaps in the second half of the year.

  • Why Mizuho took a majority stake in India’s Avendus

    Why Mizuho took a majority stake in India’s Avendus

    Japan’s financial heavyweights like Mizuho, MUFG and Sumitomo Mitsui are increasingly looking for more promising banking opportunities overseas as growth in their home market is flat given a legacy of ultra-low interest rates, deflation, heavy corporate cash holdings stifling investment, and a shrinking population.

    India has emerged as a preferred market for Japanese financial firms. The subcontinent boasts strong economic fundamentals, a young and large population with rising incomes, rapid digital adoption, and a burgeoning fintech sector. At the same time, to attract needed capital and international financial expertise, Indian regulators have loosened some restrictions on foreign investment.

    It is against this backdrop that Japan’s Mizuho Securities—which is part of the third-largest banking group in Japan, Mizuho Financial Group—recently announced its intention to buy 61.6% to 78.3% of shares in KKR-backed Indian investment bank Avendus for up to 81 billion yen (US$523 million). KKR affiliate Redpoint Investments Pte Ltd. is selling the stake to Mizuho Securities. Ranu Vohra, co-founder and executive vice chairman of Avendus, will also be liquidating his stake as part of the deal.

    Following the closing of the deal, which is expected in July 2026, Gaurav Deepak and Kaushal Aggarwal will continue to lead Avendus. “Together, we look forward to bringing innovative capital solutions to the Indian ecosystem and leveraging our complementary strengths to create deeper financial and economic flows between India and Japan,” Deepak said in a statement.

    For his part, Aggarwal said, “With India entering a transformative economic phase, we see immense potential to scale with purpose, innovate across sectors, and build a platform that consistently delivers impact in India and beyond.”

    The successful tie-up comes after Mizuho’s efforts to buy a majority stake in Avendus previously hit a roadblock. In September, India’s Economic Times reported that talks hit a snag due to disagreements on valuation and the right exit option for the KKR portfolio company.

    Mizuho emerged as the frontrunner for KKR’s 63% stake in Avendus, which valued the firm at about $800 million, according to Bloomberg. Other bidders for Avendus included Nomura Holdings Inc. and Carlyle Group Inc.

    The Mizuho-Avendus tie-up is the second major investment the Japanese lender has made in an Indian entity since early 2024. The first involved Mizuho taking a 15% stake in the non-banking financial company Credit Saison (CS) India with an investment of US$145 million. CS India subsequently secured External Commercial Borrowing (ECB) funding of US$145 million from Mizuho. The equity stake marked Mizuho Bank’s strategic entry into the Indian market.

    The Avendus deal follows Sumitomo Mitsui Financial Group’s purchase in September of a 20% stake in Yes Bank for about 135 billion rupees (US$1.6 billion) from State Bank of India (SBI). This strategic investment provides capital for Yes Bank and an exit for SBI from its 2020 rescue role. SMBC aims to support Yes Bank’s growth and transformation, benefiting from global expertise, while Yes Bank gains a strategic partner. SBI’s stake decreased to around 10%, and other original investors also reduced their holdings, allowing SMBC to become the largest shareholder.

    The infusion of capital and global banking expertise is crucial for Yes Bank’s continued recovery and growth after its 2020 financial crisis, while offering SBI a profitable exit for its investment.

    Looking ahead, we expect that heavyweight Japanese banks will continue looking for Indian investment opportunities in 2026 and beyond. Overseas expansion has become essential for Japanese megabanks to achieve scale and higher returns unavailable domestically.

    Among emerging markets, India stands out for Japanese lenders. The subcontinent’s expanding middle class and policy emphasis on financial inclusion create sustained demand for credit across retail, MSME, and corporate segments that will make its financial sector attractive for Japan’s largest financial groups for years to come.

  • Paytech deals drive Europe’s Q3 fintech funding

    Paytech deals drive Europe’s Q3 fintech funding

    A recent Finch Capital report shows that paytech deals drove Europe’s fintech funding in the third quarter, which fell slightly from the April to June period. Overall, paytech startups raised €896 million the third quarter, up 117% from €413 million sequentially.  

    A key third quarter paytech deal was XBO Ventures’ US$25 million strategic investment in Rapyd’s Series F round, which raised US$500 million in March at a US$4.5 billion valuation. Acting as a bridge between the crypto economy and traditional finance, this investment grants XBO Ventures and its portfolio companies priority access to Rapyd’s extensive global fintech infrastructure. 

    Those portfolio companies and other digital asset firms can now fast-track their global scaling efforts by leveraging Rapyd’s existing infrastructure, which operates in over 100 countries and supports more than 1,200 payment methods. This reduces the need for them to build complex compliance and payment systems from scratch.

    The biggest-ticket paytech round of the third quarter was Fnality’s US$136 million Series C, a deal that is significant for bridging traditional wholesale finance with institutional tokenized assets using Distributed Ledger Technology (DLT). The massive capital injection is intended to speed up expansion of Fnality’s settlement network to other major currencies beyond the existing Sterling Fnality Payment System, which launched in the UK in December 2023, including the CAD, EUR, JPY, and USD. 

    The funding will advance solutions that provide real-time, on-ledger settlement using central bank-backed cash, which is a critical foundation for enabling 24/7 trading of digital bonds and other tokenized securities. It also also positions Fnality as a foundational element of a new global settlement layer that provides settlement interoperability for stablecoins and tokenized deposits.

    Of particular interest to us was the involvement of several heavyweight financial sector incumbents in Fnality’s Series C, including Bank of America and Citibank, which suggests growing acceptance of tokenized assets. In a news release, Deepak Mehra, Head of Digital Strategy, Citi Markets said,“Fnality’s work in wholesale payments aligns with Citi’s ongoing commitment to delivering innovative solutions for the digital asset landscape. Their regulated DLT-based approach offers a compelling pathway for more efficient and resilient financial market infrastructure.” 

    We’ve written about Klarna several times in recent weeks as its IPO was one of the biggest fintech payment stories of the third quarter. The company’s successful exit showed that investors remain confident in its buy now, pay later-first business model – with a few caveats. 

    But the arguably more interesting exit of the September quarter was Lloyd’s US$161 million acquisition of Curve, a strategic deal focused on accelerating the bank’s digital transformation and enhancing its mobile banking customer experience. The acquisition will allow Lloyds to integrate Curve’s digital wallet and payment orchestration technology directly into its existing platform, positioning the UK lender to better compete more effectively with native digital players like Revolut and Monzo while reducing reliance on third-party payment providers like Apple Pay.

    Lloyds’ decision to acquire Curve is a bold move, but likely a wise one as well. For a bank established before the American Revolution, it represents a strong step to tackle the real challenge posed by digital disruption that is becoming a feature rather than a bug. 

    That said, the road ahead will not be easy. Lloyds must figure out how to blend its culture with Curve’s, manage the tech transition, and ensure shareholders see the value in this investment. Plus, they need to demonstrate that Curve’s technology can actually scale profitably across their huge customer base. While some investors from Curve think the US$161 million price tag is too high, for Lloyds, it might just be a worthwhile investment to bolster their digital future.

  • Why is GXS Bank cutting 10% of its staff?

    Why is GXS Bank cutting 10% of its staff?

    One of the brightest ideas (or not) of Southeast Asia’s early 2020s tech bubble was centralizing every digital service imaginable in a single smartphone app, a barely veiled attempt to replicate the success that China’s dominant platform companies enjoyed with this business model. Unsurprisingly, the results have been inconclusive because China is a unique market and we are willing to bet that there will not be another Alipay or WeChat anywhere. 

    That’s a key reason that GXS Bank, the digital banking venture of Singapore-based erstwhile super app Grab (it doesn’t use that term so much anymore) and Singaporean telecoms giant Singtel faces a tough slog. How many people, ultimately, prefer to bank with the same company they use to book taxis and order pizza? Or their mobile phone service provider? Pure-play fintechs just seem more focused on, well, you know, financial services.

    There are other challenges that GXS Bank faces. Here are a few of them: high operating costs, low customer engagement (many accounts are inactive), intense competition from established banks with wider offerings, and the challenge of monetizing a saturated market in which most people already have bank accounts. GXS Bank faces pressure to scale, cut costs and move beyond basic savings to more profitable lending and investment products. Ultimately, GXS Bank must prove its viability against legacy banks that quickly match digital features.

    It is against that backdrop that the company recently slashed headcount by 10%. The decision to reduce headcount is part of the group’s transition from the early growth stages of building a bank to running the operations, GXS group chief executive Lai Pei-Si said in a note to staff. “The roles that are essential as we move forward and focus on running the bank may be different from our build phase,” said Lai.

    Lai said that after conducting a strategic review, GXS tried to “reshape” itself for a year and a half. She said that the digital lender has only backfilled vacated roles that it believes are essential for the group for the years ahead. It has also “regionalized” its core capabilities, such as data, product and technology, to “improve collaboration” and scale its product innovation across multiple markets. “However, the pace of organic reshaping has been slower than expected,” she said.

    A year ago, GXS Bank was still singing a triumphant tune. The company published a press release that emphasized it had 3 million customers across Southeast Asia, including Singapore (200,000 in the city-state), Malaysia and Indonesia. That sounds pretty good – until one considers that Indonesia has a population of 286 million and Malaysia 31.5 million. 2.8 million customers is less than 1% of the combined populations of those countries. 

    “We are well-positioned to grow our business and serve even more customers in the coming year. 2025 will be the year of significant scaling up for the digital banks in the GXS Group,” then Group CEO Muthukrishnan Ramaswami said. 

    Things have turned out a bit differently than that rosy prediction. Still, with Grab-Singtel’s deep pockets and Singaporean state backing, their digital banking ventures are in no danger of failing, even if Grab’s overall performance continues to disappoint investors. After all, this is a company whose stock price has fallen almost 60% since its Dec. 2021 market debut on the Nasdaq. 

    At some point, Grab will undoubtedly move from the red into the black, but will its digital banking subsidiaries live up to the hype surrounding them? In contrast to the Wall Street analysts cheerleading for Grab, we’re not so sure, especially when native digital competitors like Standard Chartered-backed Trust Bank seem to understand the banking business better.

  • Revolut’s Nordic expansion is about more than challenging Klarna

    Revolut’s Nordic expansion is about more than challenging Klarna

    UK fintech giant Revolut, riding high on a new and improved valuation of US$75 billion, is set to challenge buy now, pay later (BNPL) juggernaut Klarna on the Swedish company’s home turf—and immediate environs. Revolut announced on November 6 that it would open a branch in Stockholm in 2026. The Swedish capital is home to the headquarters of Klarna.

    While Klarna’s largest market by revenue is the United States, its footprint runs deep and wide in the Nordics. About 82% of Swedes use Klarna. On the merchant side, a Dec. 2024 study by e-commerce market intelligence firm ECDB found that about half (47.2%) of Swedish online stores offer Klarna Invoice, while about 39.2% do so in Norway. These are the highest merchant adoption rates among e-commerce merchants in any market where Klarna operates.

    Yet Revolut’s interest in Sweden and the Nordic countries is not just about throwing down the gauntlet to Klarna. The UK fintech has long had a presence in the Nordics, where it already has 2 million customers, half of whom are in Sweden, and intends to increase that number to 3 million by the end of 2026. Chief Growth Officer Antoine Le Nel has emphasized that Revolut is, as usual, thinking very big: It wants to take on incumbent Nordic banks that control most consumer deposits, not just Klarna.

    Revolut’s new Stockholm branch will operate under the UK firm’s European banking license from Lithuania, allowing it to function as a local bank. That means Swedish customers could soon receive salary payments and local transfers entirely through Revolut. The company is also preparing a local product push consisting of daily-interest savings accounts in Nordic currencies, commission-free ETF investing and Apple’s tap-to-pay feature for small businesses.

    It all sounds promising—except that UK regulators have some concerns that Revolut may be biting off more than it can chew—though they issued the company a provisional banking license in 2024. In mid-October, The Financial Times reported that regulators are unsure that Revolut can implement risk controls able to keep pace with its relentless international expansion.

    Nik Storonsky, Revolut’s CEO and co-founder, said in September that his top priority was to get a UK banking license, to transfer customers into the new bank, and to offer them credit products. He and other Revolut executives hope to obtain the final license this year, but that seems unlikely with less than two months to go in 2025.

    Having managed to grow its valuation from US$45 billion in August 2024 to an eye-popping US$75 billion in just over a year, Revolut is betting that it can have its cake and eat it too: continue its brisk international expansion – it also set up shop in Colombia in October – and before long, receive a full banking license in the UK that will allow it to go head-to-head with large incumbent lenders. Driving Revolut’s confidence are growth across its business lines and in profitability. In 2024, Revolut’s profits jumped 150% to US$1.4 billion, while revenue rose 75% annually to $4 billion. Cryptocurrency, wealth management and subscriptions are now all key growth engines for Revolut.

    In 2026, Revolut will look to follow in Klarna’s footsteps and carry out a successful IPO. The Swedish firm listed on the New York Stock Exchange (NYSE) in September, raising US$1.37 billion at a valuation of $15.1 billion.

    Ironically, following the successful IPO, Klarna chairman Michael Moritz reportedly told employees: “We are 10 years behind Revolut.” While Moritz did not elaborate, we can make an educated guess that he was referring to Revolut’s successful diversification from payments into full-service banking, insurance, investing, and digital assets. In contrast, Klarna remains heavily dependent on payments and especially BNPL. It is that strong, diversified product portfolio and Revolut’s indefatigable persistence that could eventually pose a significant challenge to Klarna in its home market of Sweden and the broader Nordic region.