Colombian point-of-sale lender ADDI nabs $12.5 million from Andreessen Horowitz

Andreessen Horowitz <3 Latin American startups.

Latin America is the only region outside of the U.S. where the venture firm is routinely investing capital and it has just made another commitment, doubling down on its early stage support for the point-of-sale lending startup, ADDI.

ADDI picked up $12.5 million in new financing in April of this year as the company looks to expand its lending services online.

For an American audience, the closest corollary to what ADDI is up to is likely Affirm, the point-of-sale lender that’s raised a ton of cash and come in for some (valid) criticism for its basic business model.

Like Affirm, ADDI lets its borrowers apply for credit at the moment of purchase. The company likens its service to the layaway and credit plans that already exist in Colombia — but involve pretty onerous requirements to use. Company co-founder Santiago Suarez and Andreessen Horowitz general partner Angela Strange both commented on how, in some cases, Colombian shoppers have to have three people vouch for a borrower before a store will issue credit or agree to a layaway plan.

The difference between an ADDI loan — or any loan — and layaway is that an installment payment plan doesn’t charge interest (and even with the fees that installment plans do charge, they are often still cheaper than taking out a loan).

But financial products are coming for consumers in Latin America whether those buyers like it or not — and for the most part, it seems they do like it.

Historically, only the wealthiest clientele in Latin America received anything resembling the kinds of financial products that are more widely available in the United States, according to Strange. And the investment in ADDI is just part of her firm’s thesis in trying to make more services more broadly available in a region where a technological transformation is creating unprecedented opportunities for challengers.

That assessment is what drew Santiago Suarez back to Latin America only two years ago. A former executive at Lending Club who previously had worked as the head of New Product Development and Emerging Services at J.P. Morgan, Suarez saw the tremendous growth happening in Latin America and returned to Colombia to see if he could bring some much needed services to his home country.

Suarez partnered with his childhood friend, Elmer Ortega, who was working as the chief technology officer of the local hedge fund where he had previously been employed as a derivatives trader before learning how to code.

Together the two men, who had known each other since they were five-years-old, set out to transform how credit was offered in retail shops. It’s an industry that Suarez had known well since his parents had owned stores.

“In the U.S. there are all of these gaps that fintech companies are filling,” says Suarez. “But the gapes in Latin America are bigger.”

Suarez and Ortega incorporated the company in September 2018, around the same time they raised $2.3 million from the regional investment firm, Monashees, Andreessen, and Village Global . They then raised another $1.5 million in an internal round of financing before closing the most recent funding.

The company offers loans at annual percentage rates ranging from19.99% to 28.90%. The company started with a digital solution for brick and mortar retailers because 90% of retail in Colombia still happens offline. 

Although it’s in its early days, the company has already originated 10,000 borrowers and typically loans out roughly $500 since it launched on February 22, according to Suarez. He declined to comment on the company’s default rate on loans.

Now with 40 employees on staff, the company is looking to bring its lending tool to more e-commerce and physical retailers, according to Suarez. And despite the threat of cyclical political turmoil, Suarez says there’s no better time to be investing in Colombia. 

“It’s the most stable country outside of Chile… Way more stable than Brazil, way more stable than Argentina and way more stable than Mexico,” Suarez says. “What we’re looking at is more than cyclical instability… those things go beyond that.. Nubank was able to build a multibillion business in the worst political and economic crisis in Brazil’s history. I think Colombia is an incredibly attractive space with a deep talent pool.”

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Fintech platform Synapse raises $33M to build ‘the AWS of banking’

Synapse, a San Francisco-based startup that operates a platform enabling banks and fintech companies to easily develop financial services, has closed a $33 million Series B to develop new products and go after international expansion.

The investment was led by Andreessen Horowitz with participation from existing backers Trinity Ventures and Core Innovation Capital . Synapse — which recently rebranded (slightly) from ‘SynapseFi’ — announced a $17 million Series A back in September 2018 so this deal takes it to $50 million raised to date.

The startup was founded in 2014 by Bryan Keltner and India-born CEO Sankaet Pathak, who came to the U.S. to study but grew frustrated at the difficulty of opening a bank account without U.S. social security history. Inspired by his struggles, Synapse, which operated under the radar prior to that Series A deal, is focused on democratizing financial services.

Its approach to doing that is a platform-based one that makes it easy for banks and other financial companies to work with developers. The current system for working with financial institutions is frankly a mess; it involves a myriad of different standards, interfaces, code bases and other compatibility issues that cause confusion and consume time. Through developer- and bank-facing APIs, Synapse aims to make it easier for companies to connect with banks, and, in turn, for banks to automate and extend their back-end operations.

Pathak previously told us the philosophy is a “Lego brick” approach to building services. Its modules and services include payment, deposit, lending, ID verification/KYC, card issuance and investment services.

“We want to make it super easy for developers to build and scale financial products and we want to do that across the spectrum of financial products,” he told TechCrunch in an interview this week.

Synapse CEO Sankaet Pathak

“We don’t think Bank Of America, Chase and Wells Fargo will be front and center” of new fintech, he added. “We want to make it really easy for internet companies to distribute financial services.”

The product development strategy is to add “pretty much anything that we think would be an accelerant to democratizing financial services for everyone,” he explained. “We want to make these tools and features available for developers.”

Interestingly, the company has a public product roadmap — the newest version is here.

The concept of an ‘operating system for banking’ is one that resonates with the kind of investment thesis associated with A16z, and Pathak said the firm was “number one” on his list of target VCs.

With more than half of that Series A round still in the bank, Pathak explained that the Series B is less about money and more around finding “a partner who can help us on the next phase, which is very focused on expansion.”

As part of the deal, Angela Strange A16z’s fintech and enterprise-focused general partner — has joined the startup’s board. Strange, whose portfolio includes Branch, described Synapse as “the AWS of banking” for its potential to let anyone build a fintech company, paralleling the way Amazon’s cloud services let anyone, anywhere develop and deploy a web service.

Having already found a product market fit in the U.S. — where its tech reaches nearly three million end users, with five million API requests daily — Synapse is looking overseas. The first focuses are Canada and Europe, which it plans to launch in before the end of the year with initial services including payments and deposits/debit card issuance. Subsequently, the plan is to add lending and investment products next year.

Members of the Synapse team

Further down the line, Pathak said he is eager to break into Asia and, potentially, markets in Latin America and Africa, although expansions aren’t likely until 2020 at the earliest. Once things pick up, though, the startup is aiming to enter two “key” markets per year alongside one “underserved” one.

“We’ve been preparing for [global expansion] for a while,” he said, pointing out that the startup has built key tech in-house, including computer vision capabilities.

“Our goal is to be in every country that’s not at war or under sanction from the U.S,” Pathak added.

At home, the company is looking to add a raft of new services for customers. That includes improvements and new features for card issuance, brokerage accounts, new areas for its loans product, more detailed KYC and identification and a chatbot platform.

Outside of product, the company is pushing to make its platform a self-service one to remove friction for developers who want to use Synapse services, and there are plans to launch a seed investment program that’ll help Synapse developer partners connect with investors. Interesting, the latter platform could see Synapse join investment rounds by offering credit for its services.

More generally on financial matters, the Synapse CEO said the company reached $12 million ARR last year. This year, he is aiming to double that number through growth that, he maintains, is sustainable.

“If we stop hiring, we could break even and be profitable in three to four months,” said Pathak. “I like to keep the burn like that… it stabilizes us as a company.”

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7.7 million LabCorp records stolen in same hack affecting Quest

LabCorp is the latest laboratory testing giant this week to confirm it’s affected by the same third-party data breach.

The Burlington, North Carolina-based medical giant said 7.7 million patients had their personal and financial data stolen by hackers, which hit the payment pages of the American Medical Collection Agency, a third-party vendor that processes payments for LabCorp and other companies.

The admission comes a day after Quest Diagnostics around 11.9 million patients had their data stolen.

In a filing with the Securities and Exchange Commission, LabCorp said the stolen data includes a patient’s name, date of birth, address, phone number, date of service, provider, and balance information.

“AMCA’s affected system also included credit card or bank account information that was provided by the consumer to AMCA,” said the filing. Some 200,000 patients will receive more detailed notices that their financial information was taken.

But LabCorp said no medical data or lab and diagnostic results data was taken.

Like the Quest breach, LabCorp’s data incident dated back to August 1, 2018 until March 30, 2019.

The total number of patients affected by the AMCA payments page breach stands at just shy of 20 million. Given the company provides payment and bill collection services to a broad range of businesses, we may see similar notices dropping in the near future.

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Easy Transfer processes billions of dollars in tuition for overseas Chinese students

For a founder building a consumer-facing business, overseas Chinese students might just be one of the most coveted targets: they’re young, well educated and have access to the ‘bank’ of mom and dad.

This is a large addressable audience since millions of Chinese families send their children out West to study every year. It doesn’t come cheap. Tuition and living costs can easily add up to $50,000 annually at a top-tier university in the United States, which is still many Chinese people’s favored destination despite heightened tensions between the two countries.

The notion that all overseas Chinese students are rich isn’t always true, as more mid-income parents are willing to compromise their living standards for what they perceive as a “better” education their children can obtain overseas. But, all told, living and studying abroad still costs a lot more than it does back home. At the prestigious Peking University, for example, tuition costs usually amount to no more than $1,000 each year.

One startup from China has carved out a way to capture these potentially heavy spenders. Easy Transfer, which was co-founded in 2013 by then 19-year-old Tony Gao, lives up to its name by taking the hassle out of processing tuition payments for Chinese students studying abroad. The IDG-backed startup crossed an impressive $776 million in transaction volume in 2018, the same year that it broke even, Gao told TechCrunch in a recent interview.

Easy Transfer

Tony Gao, co-founder and president of Easy Transfer / Photo: Easy Transfer 

Simplifying a complicated process

Traditionally, overseas students pay their tuitions through wire transfers, third-party payments processors or credit cards. The last option is attached to high fees, so most go through the first two. Wire transfers, however, can also be a dread. Many students and their parents — as well as the tiny bank in their neighborhood — have little experience sending tuition fees overseas, not to mention parsing China’s regulations around foreign exchange and filling out pages of banking forms in English.

Gao stumbled upon that cumbersome procedure when he asked his mother to pay for his first year at the University of Southern California. The hassle and trouble that simple request caused ultimately prompted him to come up with an alternative solution: his own startup.

“We want to create a cross-border tuition paying service that offers both convenience and low costs,” the now 25-year-old Chinese founder explained.

Easy Transfer competes against a plethora of third-party payments companies like Western Union and PeerTransfer to move tuition fees across the globe, but it tries to set itself apart from its American peers with localization. What it’s capitalizing on is essentially information asymmetry: Parents log on to Easy Transfer and choose on its website a list of schools, upon which they can make a bank transfer or pay with a UnionPay debit card. The company will then take care of the paperwork and deal with China’s foreign exchange authority.

Easy Transfer recently introduced its own credit cards in collaboration with two Chinese banks. / Photo: Easy Transfer 

Since sending large sums of money across the world is stressful, Easy Transfer also operates a team of 70 in-house service staff who are charged with answering customer requests and questions. To find new users, it throws networking events for incoming students and their parents, and recruits voluntary ‘college ambassadors’ to market the service. More importantly, Gao believes the client network he’s grown over the years — 1,900 schools in 27 countries — gives him bargaining power with the 80 partner banks.

Overseas tuition payments “are not a small amount for any Chinese bank’s cross-border business. Large transfers are much more lucrative than small ones, so banks are willing to work with us and give us preferential rates,” asserted Gao. “Banks are also keen to find high-net-worth Chinese customers through our service.”

Gao projected that his company’s total transactions this year will reach $2.6 billion through more than 100,000 payments. Easy Transfer takes a fee from customers for every transaction and it also shares their bank partners’ internal differences in exchange rates. Last year, it widened its revenue stream by introducing its own credit cards in collaboration with two Chinese banks. That’s a scheme that Gao hopes can give overseas students a starting credit score to help them more easily get loans and other financial services upon returning to China.

This move also means Easy Transfer potentially has access to its 200,000 relatively wealthy registered users even after they graduate and begin to work. The credit cards are just the starting point, as the startup could also turn its tuition-paying user base into customers for a range of other overseas services, such as apartment rentals and cell phone plans.

Curiously, President Donald Trump’s increasing hostility against Chinese students as part of the trade war — which has already led to tighter visa controls for students in high-tech fields — hasn’t yet led to a sharp decline in business in Easy Transfer’s largest market, the U.S. However, transaction volumes from the United Kingdom, Australia and Canada have surged in recent months, according to Gao, and that may be linked to the current political climate.

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Tencent replaces hit mobile game PUBG with a Chinese government-friendly alternative

China’s new rules on video games, introduced last month, are having an effect on the country’s gamers. Today, Tencent replaced hugely popular battle royale shooter game PUBG with a more government-friendly alternative that seems primed to pull in significant revenue.

The company introduced ‘Game for Peace’ in a Weibo post at the same time as PUBG — which stands for Player Unknown Battlegrounds — was delisted from China. The title had been in wide testing but without revenue, and now it seems Tencent gave up on securing a license to monetize the title.

In its place, Game for Peace is very much the type of game that will pass the demands of China’s game censorship body. Last month, the country’s State Administration of Press and Publication released a series of demands for new titles, including bans on corpses and blood, references of imperial history and gambling. The new Tencent title bears a striking resemblance to PUBG but there are no dead bodies, while it plays up to a nationalist theme with a focus on China’s air force — or, per the Weibo message, “the blue sky warriors that guard our country’s airspace” — and their battle against terrorists.

Game for Peace was developed by Krafton, the Korea-based publisher formerly known as BlueHole which made PUBG. Beyond visual similarities, Reuters reported that the games are twinned since some player found that their progress and achievements on PUBG had transferred over to the new game.

Tencent representatives declined to comment on the new game or the end of PUBG’s ‘beta testing’ period in China when contacted by TechCrunch. But a company rep apparently told Reuters that “they are very different genres of games.”

Tencent’s new ‘Game for Peace’ title is almost exactly the same as its popular PUBG game, which it is replacing [Image via Weibo]

Fortnite may have grabbed the attention for its explosive growth — we previously reported that the game helped publisher Epic Games bank a profit of $3 billion last year — but PUBG has more quietly become a fixture among mobile gamers, particularly in Asia.

At the end of last year, Krafton told The Verge that it was past 200 million registered gamers, with 30 million players each day. According to app analytics company Sensor Tower, PUBG grossed more than $65 million from mobile players in March thanks to 83 percent growth which saw it even beat Fortnite. There is also a desktop version.

PUBG made more money than Fortnite on mobile in March 2019, according to data from Sensor Tower

That is really the point of Tencent’s switcheroo: to make money.

The company suffered at the hands of China’s gaming license freeze last year, and a regulatory-compliant title like Game for Peace has a good shot at getting the green light for monetization — through the sale of virtual items and seasonal memberships.

Indeed, analysts at China Renaissance believe the new title could rake in as much as $1.5 billion in annual revenue, according to the Reuters report. That’s a lot to get excited about and resuscitating gaming will be an important part of Tencent’s strategy this year — which has already seen it restructure its business to focus emerging units like cloud computing, and pledge to use its technology to “do good.”

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