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Fintech stories to watch in 2021



Happy new year from FintechFT!

While many firms will be hoping the new year marks the start of a calmer period after a rollercoaster 2020, beneficiaries of the tumult are trying to consolidate their gains. Here are some of the key fintech stories FT reporters will be watching as we head into 2021.

Asian regulators crack down on online lending

There has been an explosion in online lending across Asia in recent years, but 2021 could be the year the proliferation of fintechs — some of which already have soaring non-performing loan rates — may be brought to heel by regulators. 

The digital lending boom started in China with companies such as Ant Group, which used its data on small and medium-sized businesses and individuals to lend to those who did not have bank accounts. The trend expanded to China’s neighbours, including India and Indonesia, where millions of previously underbanked or unbanked people were adopting smartphones. 

But the unbridled growth has increasingly drawn regulator scrutiny. Beijing has already cracked down, and last Friday Indonesian authorities announced steps to rein in payments systems. India is unlikely to be far behind. — Mercedes Ruehl in Singapore

Ant’s rollercoaster continues

Regulators and entrepreneurs in China’s heady fintech arena have long clashed. Crypto was targeted. Peer-to-peer lenders were snuffed out. Jack Ma’s Ant Group tried to avoid the same fate by transforming itself into a platform for others’ financial offerings.

With one candid speech critiquing the Chinese state, however, Mr Ma’s buoyant 2020 turned into a nightmare. Authorities pulled Ant’s $37bn IPO at the last minute and prepared stringent new rules to restrict its business. 

“Ant knew financial services was sensitive so they tried to pivot to being a ‘techfin’ company rather than a ‘fintech’ company — they even changed their name,” said Kou Xiangtao, head of fintech think-tank ShowFin. “But regulators didn’t see it that way, [to them] they’re still in financial services.”

New rules will dent Ant’s lending business, which doles out one-tenth of Chinese consumer loans. A new “financial holding company” categorisation will bring Ant and other fintech empires like that of Tencent directly under the nose of a single regulator for the first time, indicating a tough year ahead. — Ryan McMorrow in Beijing

How far can the buy now, pay later boom go?

“Buy now pay later” was already booming at the start of 2020, but it was turbocharged when the coronavirus pandemic pushed more shoppers online than ever before. Led by Klarna in Europe, Affirm in the US and Afterpay in Australia, BNPL has brought old school point-of-sale credit products into the digital world.

Affirm will try to convince investors the trend is here to stay as it follows in the footsteps of Afterpay and smaller rival Laybuy by preparing for an initial public offering. As the sector gains more prominence, however, critics will be watching for any signs that firms are mistreating their young customers.

“The popularity of BNPL brings responsibility and scrutiny,” says Laybuy co-founder Gary Rohloff. “It is for us and the industry as a whole to demonstrate high standards of transparency.” — Nicholas Megaw in London

Will Europe’s digital banks reach sustainability?

The recent experience of Europe’s digital banks should be a warning to any over-enthusiastic BNPL evangelists about how quickly fortunes can change in fintech. After a 2019 marked by rapid growth and investor ebullience, neobanks were hit hard by the coronavirus pandemic. 

Falling revenues forced a newfound focus on cutting costs and reaching profitability. Revolut and Starling became the first major players to declare they had broken even around the end of last year, but keeping it up over the long term will be a bigger challenge, particularly if they hope to revive international expansion plans when the virus recedes. — Nicholas Megaw in London

VCs hope to gain from IPO wave

Affirm is not the only high profile US start-up heading toward IPO. Cryptocurrency exchange Coinbase and no-fee broker Robinhood are also expected to go public soon, while online lender SoFi has struck a deal to list via a blank cheque company. 

Depending on their reception, the listings could validate a generation of consumer fintech groups that blossomed in the wake of the financial crisis or throw cold water on the boom.

Venture funding for fintech companies dipped slightly in 2020, according to CB Insights data, though the number of “mega-rounds” of more than $100m hit new highs. Expect more of the same in 2021, as investors remain bullish on companies such as Stripe that underpin the rise of “embedded finance” — integrating finance into other products so practically any company becomes a potential financial services provider — Miles Kruppa in San Francisco

Quick Fire Q&A

Company name: Habito

When founded: April 2016

Where based: Aldgate East, London

CEO: Daniel Hegarty

What do you sell, and who do you sell it to: Habito is a homebuying and financing company. Our brokerage has submitted more than £5bn of mortgages for first-time buyers, remortgages, movers, and landlords.

How did you get started: By revolutionising mortgage advice. Our in-house brokers offer free, fully qualified mortgage advice via live chat, seven days a week.

Amount of money raised so far: £63m

Valuation at latest fundraising: N/A 

Major shareholders: Augmentum Fintech, Atomico, Mosaic Ventures, Ribbit Capital, Regah Ventures, SBI Group and

There are lots of fintechs out there — what makes you so special: Our service, designed to make mortgages easier, and our new lending products and homebuying services which truly meet homebuyer’s needs.

Further Fintech Fascination

A bumper news round-up this week, including the best features you might have missed over the holidays.

Sunlit uplands: Brexit sparked concerns about the UK’s future as a fintech hub given firms’ reliance on access to the European single market and the fact that its workers come from across the continent. The FT has the scoop on what the government’s upcoming fintech review will recommend to help the industry cope with Brexit.

TransferWise turns 10: TransferWise will celebrate the 10th anniversary of its opening this month. Executives are feeling confident as the group gears up for its second decade, but it faces rising competition as it looks for further growth. Read more in this FT interview with Kristo Käärmann and Matt Briers.

Fresh questions about working culture at Revolut: Revolut has been working hard to move on from allegations about a poor working culture and complaints about frozen accounts. Former employees at its Polish branch, however, have drawn renewed attention to both issues, complaining about a pay dispute that contributed to a backlog of compliance checks. Read the full story from the FT here. 

Mambu No. 6: A little bit of good news for Germany’s Mambu, which completed its sixth fundraising round this week at a $2bn valuation. Mambu, which develops back-end technology for banks, raised €110m in a deal led by US fund TCV. Sifted has more. 

Payments firms caught up in US-China tensions: The Trump administration fired a series of parting shots at China last week, including a move to ban transactions with apps such as Ant Group’s Alipay. As the Wall Street Journal points out, however, the ban doesn’t kick in until next month, leaving President-elect Joe Biden with a potentially tricky decision to make about whether to enforce it.

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Copper hits record high with demand expected to rise sharply




Copper prices hit a record high on Friday in the latest leg of a broad rally across commodity markets sparked by the reopening of major economies and booming demand for minerals needed for the green energy transition.

Copper, used in everything from electric vehicles to washing machines, rose as much as 1.2 per cent to $10,232 a tonne, surpassing its previous peak set in 2011 at the height of a previous commodities boom.

The price has more than doubled from its pandemic lows in March last year due to voracious demand from China, the biggest consumer of the metal, and also investors looking to bet on a big uptick in the global economy and protect their portfolios against potential for rising inflation.

Government stimulus packages and the shift towards electrification to meet the goals of the Paris agreement on climate change are expected to fuel further demand for the metal, which analysts and industry executives believe could hit $15,000 a tonne by 2025.

“Capacity utilisation rates of our customers are the highest in a decade and that’s before stimulus money both in Europe and the US has started to flow,” said Kostas Bintas, head of copper trading at Trafigura, one of the world’s biggest independent commodity traders. “That will be significant.”

The US and Europe were becoming significant factors in the consumption of copper for the first time in decades, he added. “Before, it’s effectively been a China-only story. That is changing fast.”

Concerns about the long-term supply of copper due to lack of investment by large miners has also pushed up prices. There are only a few large projects in a development, while most of the world’s easily produced copper has already been mined.

“The current pipeline of projects likely to start producing in the next few years represents only 2.3 per cent of forecast mine supply,” said Daniel Haynes, analyst at banking group ANZ. “This is well down on previous cycles, including 2010-13 when it reached 12 per cent.”

The upward march of other raw materials is showing no signs of abating. Steelmaking ingredient iron ore traded above $200 a tonne for the first time as China returned to work after the Labour Day holidays in early May. 

In spite of production cuts in Tangshan and Handan, two key steelmaking cities in China, analysts expect output to remain solid over the next couple of quarters. 

“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise with steel supply being restricted,” said Erik Hedborg, a principal analyst at CRU Group.

“Iron ore producers are enjoying exceptionally high margins as around two-thirds of seaborne supply only require prices of $50 a tonne to break even.”

Elsewhere, tin on Thursday rose above $30,000 a tonne for the first time in a decade before easing. Tin is used to make solder — the substance that binds circuit boards and wiring — and is benefiting from strong demand from the electronics industry, which has been lifted by growing numbers of stay-at-home workers.

US wood prices continued to race higher ahead of the peak in the US homebuilding season in the summer with lumber futures rising to a record high above $1,600 per 1,000 board feet length, up from $330 this time last year.

Agricultural commodities also continued to rally as a result of a particularly dry season in Brazil, concerns about drought in the US and Chinese demand. Strong increases in food prices have started to affect global consumers. Corn rose to a more than eight-year high of $7.68 this week, while coffee has risen almost 10 per cent since the start of month, hitting a four-year high of $1.54 a pound this week.

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Wall Street stocks waver as investors await US jobs data




Wall Street stock markets wavered, with tech losses dragging down some indices, but remained close to record highs ahead of US jobs data on Friday that could pile pressure on the Federal Reserve to rethink its ultra-supportive monetary policies.

The S&P 500 was up 0.2 per cent in the afternoon in New York, hovering slightly below its all-time high achieved late last month. The peak was reached following a long rally supported by the Fed and other central banks unleashing trillions of dollars into financial markets in pandemic emergency spending programmes.

The technology-heavy Nasdaq Composite, however, which is stacked with growth companies sensitive to changing interest rate expectations, was down 0.5 per cent by the afternoon in New York, the fifth straight losing session for the index.

The divergence of the two indices followed patterns from earlier this year, when investors sold out of growth companies over fears of rising rates and poured into more cyclical plays. That trade has been more muted recently but could be coming back, said Nick Frelinghuysen, a portfolio manager at Chilton Trust.

“It’s been a bit more ambiguous . . . in terms of what regime is leading this market higher, is it quality and growth or is it value and cyclicals?” Frelinghuysen said. “We’re in a little bit of a wait-and-see mode right now.”

The 10-year Treasury yield, which rose rapidly earlier this year amid inflation fears, declined 0.05 percentage points to 1.56 per cent on Thursday.

In Europe, the Stoxx 600 closed down 0.2 per cent, hovering just below its record high reached in mid-April.

With the US economy close to recovering losses incurred during coronavirus shutdowns, economists expect the US government to report on Friday that the nation’s employers created 1m new jobs in April. Investors will scrutinise the non-farm payrolls report for clues about possible next moves by the Fed, which has said it will continue with its $120bn a month of bond purchases until the labour market recovers.

Up to 1.5m jobs would “not be enough for the Fed to shift”, analysts at Standard Chartered said. “Between 1.5m and 2m, there is likely to be uncertainty on Fed perceptions.”

Central bankers worldwide had a strong “communications challenge” around the eventual withdrawal of emergency monetary support measures, said Roger Lee, head of UK equity strategy at Investec.

“If it is orderly, then you can expect a gentle continuation of this year’s stock market rotation” from lockdown beneficiaries such as technology shares into economically sensitive businesses such as oil producers and banks, Lee said. “If it is disorderly, it will be a case of ‘sell what you can’.”

On Thursday the Bank of England upgraded its growth forecasts for the UK economy but stopped short of following Canada in scaling back its asset purchases.

The BoE maintained the size of its quantitative easing programme at £895bn, while also keeping its main interest rate on hold at a record low of 0.1 per cent. The British central bank added that while its asset purchases “could now be slowed somewhat” after it became the dominant buyer of UK government debt last year, “this operational decision should not be interpreted as a change in the stance of monetary policy”.

Sterling slipped 0.1 per cent against the dollar to $1.389.

The dollar, as measured against a basket of trading partners’ currencies, weakened 0.4 per cent. The euro gained 0.4 per cent to $1.206.

Brent crude fell 1.1 per cent to $68.17 a barrel.

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Gensler raises concern about market influence of Citadel Securities




Gary Gensler, new chair of the Securities and Exchange Commission, has expressed concern about the prominent role Citadel Securities and other big trading firms are playing in US equity markets, warning that “healthy competition” could be at risk.

In testimony released ahead of his appearance before the House financial services committee on Thursday, Gensler said he had directed his staff to look into whether policies were needed to deal with the small number of market makers that are taking a growing share of retail trading volume.

“One firm, Citadel Securities, has publicly stated that it executes about 47 per cent of all retail volume. In January, two firms executed more volume than all but one exchange, Nasdaq,” Gensler said.

“History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration,” he said. “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Gensler is scheduled to appear at the third hearing into the explosive trading in GameStop and other so-called meme stocks in January.

Trading volumes in the US surged that month as retail investors flocked into markets, prompting brokers such as Robinhood to introduce trading restrictions that angered investors and drew the attention of lawmakers.

The market activity galvanised policymakers in Washington and investors. Lawmakers have focused much of their attention on “payment for order flow”, in which brokers such as Robinhood are paid to route orders to market makers like Citadel Securities and Virtu.

That practice has been a boon for brokers. It generated nearly $1bn for Robinhood, Charles Schwab and ETrade in the first quarter, according to Piper Sandler.

Gensler noted that other countries, including the UK and Canada, do not allow payment for order flow.

“Higher volumes of trades generate more payments for order flow,” he said. “This brings to mind a number of questions: do broker-dealers have inherent conflicts of interest? If so, are customers getting best execution in the context of that conflict?”

Gensler also said he had directed his staff to consider recommendations for greater disclosure on total return swaps, the derivatives used by the family office Archegos. The vehicle, run by the trader Bill Hwang, collapsed in March after several concentrated bets moved against the group, and banks have sustained more than $10bn of losses as a result.

Market watchdogs have expressed concerns that regulators had little or no view of the huge trades being made by Archegos.

“Whenever there are major market events, it’s a good idea to consider what risks they might have placed on the entire financial system, even when the system holds,” Gensler said.

“Issues of concentration, whether among market makers or brokers at the clearinghouse, may increase potential system-wide risks, should any single incumbent with significant size or market share fail.”

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