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How MoneyLion Went Public? – Wealth Tech Digest #4

Key takeaways

✅ How MoneyLion Went Public?

Today’s episode with a fresh look at the recent drama between GameStop, Robinhood, and Wall Street. In a widely covered scandal, retail traders bid up the price of GameStop shares. The target of their wrath was Wall Street and the hedge funds that were shorting the stock. But in their effort to spite Wall Street, retail traders also unknowingly squeezed Robinhood. Robinhood is a commission-free investing service based in California that runs a popular mobile app. The volatility of this trading caused Robinhood’s clearinghouse to increase deposit requirements tenfold. Robinhood also blocked the trading of GameStop stock while it worked to raise additional capital. It’s a common misconception that money flows from Robinhood users to Robinhood. But in reality, users of Robinhood are the product, and the source of the money is actually Citadel Management. And Citadel doesn’t care who is trading.

Citadel cares about what is being traded because their end-game is to front-run those trades. Robinhood hit $271 million in revenue in the first half of 2020. And it did so by selling its order flow, which is more than twice that of Charles Schwab and 40 percent more than E-Trade. But most retail traders remain ignorant that they are the actual product on the Robinhood platform. Likewise, most retail traders do not have the knowledge to understand that their data was being sold in a way that could hurt them. It’s easy for many people to blame greedy hedge funds and institutional traders in this situation. But the reality is that Robinhood’s retail traders do not understand margin accounts or how the system truly functions. The reality, according to many experts, is that Robinhood is the real culprit here. Robinhood makes money by selling order flow, not by answering to the needs of its users. Therefore Robinhood will always place the needs and priorities of the companies paying for the order flow over the needs and priorities of its users. Many will argue that most retail investors don’t need to know about margin accounts, and that is true. But retail investors on Robinhood open these accounts without knowing what they’re getting into.

This is leading some experts to call for a “speed bump” certification for retail investors. Anyone trading options or opening margin accounts would be required to pass a certification test to prove that they understood the system. Some experts predict that addressing the problems inherent in these events will lead to a new batch of fintechs. These new firms will position themselves as ANTI-Robinhoods. They, unlike Robinhood, will be dedicated to improving the knowledge base of everyday retail investors. And this knowledge would help everyone avoid conflicts like those brought about by Robinhood’s recent debacle.

✅ Finch Capital: Can They Consolidate European FinTech?

Our next article today covers an update from Finch Capital, fintech market leaders in Europe and SouthEast Asia. Finch recently announced the closing of their third fintech venture fund after raising 150 Million Euros. Their plan is to acquire significant minority stakes in scale-up companies with 2 to 5 million euros in revenue. Since Finch began in 2013, they have made a total of 40 investments across Europe and Asia. These investments include a range of companies from fintech to insurtech, including companies like Trussle, Fourthline, Grab, and Twisto. They plan to use the new funds the same way – by backing 15 to 20 European startups. They are targeting liquidity in 3 to 5 years post-investment, and they are seeking 20 to 49 percent ownership of portfolio companies.

Radboud Vlarr, managing partner at Finch, says they have always been bullish when it comes to investing in financial technology. As the company moves forward, Vlarr says that they plan to double down on financial software.This time they are especially focused on companies that leverage AI as part of their fintech solution. Vlarr says, (quote) “We have seen the industry mature, giving rise to a rich but fragmented landscape of robust businesses with 2 to 5 million euro in revenues.” (end quote) These are the companies that Finch is working with now in order to build leading positions and consolidate the European market.

✅ Monzo: Set For Success With Another $68M?

Finally today we take a look at Monzo, one of the first online banks started in the UK in 2015. They are part of a new generation of banking and money management apps gaining popularity in Europe. Monzo has almost 5 million customers and a valuation of $1.6 billion dollars. It has been recognized for its excellent customer service, easy-to-use app, and money management features. Monzo recently announced an additional investment of $68 million dollars from a Series G funding round. This most recent investment comes from both existing shareholders and one new player – the Silicon Valley firm Octahedron Capital. Octahedron Capital is a new firm in the VC space, having just come into being in April of 2020.

Their other investments to date include the San Francisco AI startup Databricks, as well as Udaan, the Indian enterprise platform. Octahedron Capital joins a long list of investors in Monzo. Those already on board include Y Combinator, Accel, Stripe, and Thrive Capital, just to name a few. According to Monzo’s annual report, it lost $160 million dollars in the fiscal year 2020. But, this coincides with a revenue increase of $92.2 million for 2020 compared to $26.3 million in 2019. This is due in part to last year’s introduction of Monzo Plus and Monzo Premium accounts. In the 5 months since their introduction, Monzo has attracted more than 100,000 additional paid subscribers.

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