Fintech Investments

Sizzle Or Fizzle: Walmart Pay Pays Off, Marketplace Lending Falls Off

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It’s a good time to be a retailing or tech giant — or a combination of both. Walmart says it’s found traction in mobile payments, Samsung grows profits … but smaller and once nimbler players in FinTech are hitting air pockets, cutting staff and valuations.

You gotta admit, the best sizzle of all is a short work week – especially in the summer. The second best could be reading this weekly feature.

Here goes.

SIZZLE

Walmart Pay
Walmart Pay released its six-month report card, with some pretty interesting stats: ubiquity at all 4,600+ stores, high usage, high repeat usage, rave reviews from their users and a growing crop of brand evangelists that, Walmart Pay execs say, have become an effective recruiting engine. Walmart Pay comes to market with a few built-in advantages: it leverages the Walmart.com app, which is used by 20M+ people roaming around their stores each month, it works on every sort of smartphone out there, and they control the POS in all of their stores, just like Starbucks does.

That doesn’t make it a slam dunk — after all, nothing in the mobile payments space is a sure thing — but at least Walmart Pay has taken some important steps to eliminate barriers at the jump. Now if we only knew the denominator and could do the math to see what those numbers really look like. When Walmart Pay released their numbers, they talked only of percentages. Next time, guys?

SMB Working Capital
Amex threw its hat into the online lending ring earlier this week when it announced that it will launch a program later this year that will extend lines of credit from as little as $1K to as much as $750K for qualified SMB borrowers. They manage their downside by having access to SMB performance, given their relationship with them on a number of levels, and debit repayments directly from their bank accounts and at terms that range from 30 to 90 days. Invoices are paid by the business via Amex within two business days.

PayPal has been in the game with a similar program and announced that it has extended more than $2B in capital to more than 90K SMBs – up from $1B and 60K merchants reported just nine months ago. Both PayPal and Amex are in the risk management business – that is what they do — which is why this model is a sizzle for both the companies that enable them, the SMBs that are the recipients of them, and the vendors who themselves see their cash flow improved, as a result.

Samsung
Woot, woot! It was high-fives all around Samsung yesterday as it posted its second-quarter operating profit that was nearly 18 percent higher than a year earlier and its best in two years. The workhorse? The Samsung Galaxy S7, which put the mobile division at the top of the heap for Samsung - again. Analysts are divided on whether this is a trend that Samsung can sustain given the competition at the high and low ends of the smartphone spectrum. But many seem to think that it can, given what is expected to be a rather hum-drum release of the iPhone 7 and rumored cool stuff that Samsung has up its sleeve when it unveils its new models later this summer. It’s true though, that device manufacturers of all stripes have their work cut out for them as consumers hang onto them longer - more than twice as long as they did just a few years back. But pumping out cool devices is getting harder, which is why the services that these devices support is what will put the real sizzle in theirs – and all other device manufacturers – step.

FIZZLE

Investor Confidence In Marketplace Lending
Avant is the latest marketplace lender to run into strong headwinds as they announced staff cuts – a lot of them – and lowered loan targets in the face of – repeat after us – investor reluctance to pony up the money they need to attract borrowers. See, the thing with marketplace lending is that the “lenders” are the people handing out the money, which are not the people originating the loans. The incentives don’t add up, and as it seems to be turning out, neither does the business model.

As we pointed out back in February, the rising tide that once floated all online lending boats – investors throwing money at this next new thing – has most of the online lenders running aground with no one willing to throw them a line and push those boats out to sea. What started out as a pivot away from P2P lending – another great new thing that never got off the ground – now needs a hard right turn into something else altogether. Like maybe a totally different business.

MSRP Pricing
Let’s face it, no one pays much attention to the sticker price of anything anymore since there is always room for making a deal. Once that consumer sees a toaster for $150 on Williams-Sonoma, the hunt it on to find it for $125 and with free shipping. Knowing those two data points – retail price and what that consumer paid — is like a little reward to that consumer that they saved $25.

So, Amazon’s decision earlier this week to eliminate MSRP on their site was met with <shock> and <horror>. How, said many, could they do that since people like knowing that they are saving $25 on that toaster? Easy, said the wolf to Little Red Robin Hood.

Amazon can change their prices on items a zillion times a day if they want to, and they probably even do. They see what’s selling and not selling as well as what everyone else in the world is selling items for and can adjust pricing up or down as their algorithms allow. And since all consumers do their price checking online anyway, Amazon also knows that by the time they get to Amazon they’re saving money – or saving shipping and saving friction since they have an Amazon account or are being shown a price that is already cheaper than what anyone else is selling for. Either way, Amazon wins. List prices – well what credibility that had, seems to be destined to fizzle.

Holiday Weekend Sales For Etsy
Ouch. Online marketplace for all things original and unique, Etsy, has had one big payments headache on its hands since July 1. A glitch caused by a “third-party payments processor” has made it impossible for people wanting to purchase said baubles from being able to do so. The problem is being worked on, but that doesn’t put that holiday spending genie back in the bottle. Customers are mad at merchants, merchants are mad at Etsy, Etsy is probably mad at that third party. General fizzle sticks all around on this one.

Sizzle or Fizzle? Zenefits' Valuation Cut

Live by the equity issuance, and possibly die by the equity issuance.

The news last week that online human resources and health benefits firm Zenefits cut the implied value of its last fund round to a $2 billion, down from $4.5 billion, by doling out bigger equity stakes to large institutional owners and other shareholders may be a one-off.

But it may also set a troubling precedent. 

Consider that Zenefits is doing this after laying off double-digit percentages of employees across two rounds of deep cuts.  Consider that the equity issuance comes as a way to be released, largely, from legal claims that may come in the wake of disclosure about internal and other business practices.  

Under the terms of the agreement, early backers are getting a bigger piece of the pie, and that would include some heavy hitters such as private equity firm TPG and the mutual fund, which get larger stakes. The downside comes for other holders, which include common holders and also some individual company founders, where dilution is taking place to the tune of 20 percent or more. 

So, more shares mean more money, should those shares increase in value. But there’s a catch, as those accepting the grants must sign away the right to sue. A cynical eye might raise an eyebrow above it, wondering what must be afoot if someone wants to make sure they will not be sued. Something deeper than what has thus far been revealed? 

In any event, this is an unusual case of using equity as a form of apology, of sorts. The firm has failed to deliver on its financial targets in the past, and the larger legal issue that has bedeviled the company centers on the fact that at least a few employees of the firm had been skirting regulations that required training, not to mention licenses, to sell health insurance.

By having a reset in valuation, it could be argued that the firm is offering payment of sorts for its own past behavior. It is also, perhaps, setting the bar lower for valuation to climb again. That would be, of course, a possibility that would be tested should Zenefits go tap markets again for funding, via debt or equity. The investors who put in $500 million in a Series C have gone from owning 11 percent of the company to owning 25 percent. They would not be an easy sell to commit more money. Other investors might be wary of coming on board only to be held captive to a possible agreement down the line, seeking indemnification should troubles continue. And using stock as currency with preconditions that lie beyond lockup or vesting periods may in the end set a unicorn precedent that others may want to explore when company-specific controversy arises, holding common holders hostage — and that is less than ideal. 

 

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