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Chicago’s M1 Finance, a consumer-focused fintech platform, reaches $1B under management

Eagle-eyed readers will recall that we mentioned M1 Finance earlier today in our look at a few trends in the fintech industry. We’re back with the firm this afternoon as it has a bit of news that’s worth discussing.

Chicago-based M1 Finance announced today that it has reached the $1 billion assets under management mark, or AUM. Reaching AUM thresholds provides useful milestones that we can use to track the progress of various players in the fintech and finservices worlds.

M1 is an interesting company, bringing together a number of products to form a single platform. Its hybrid nature makes comparing its AUM to other companies’ histories a bit dicey. Still, for reference, Wealthfront, a roboadvisor, announced that it started 2013 with AUM of $100 million, and closed that year with $538 million. By mid-2014, Wealthfront had $1 billion AUM. Today it has over $20 billion.

So, the numbers matter, and reaching thresholds can help us understand where a company is in its maturity cycle.

Let’s talk about M1 Finance’s AUM growth, its revenue growth and its product model. It’s a neat company with a history of efficient growth.

Growth, product

We’ll start with product, as how the company approaches its feature-set helps explain how the service is priced, which in turn helps us grok the company’s growth.

M1 is not a roboadvisor, or a simple neobank, or a lending product; it’s all three at once, providing effectively the digital equivalent of a full-service bank, admittedly in the form of an online experience instead of a brick-and-mortar outlet. M1 users can open investment accounts, checking accounts, get a debit card and borrow money against their investment portfolios; it’s a cohesive feature set.

And one that lets M1 price its products lower as a group than it could individually. During a call with M1’s CEO Brian Barnes about the company’s AUM milestone, the executive connected the company’s long-term vision to its ability to price aggressively. (All fintechs are expanding their platforms, it’s worth noting, meaning that, in time, nearly every fintech player will offer an array of services; Wealthfront, famous for its work in roboadvising, now also offers savings and borrowing capabilities.)

Barnes said that M1 has long wanted to “manage the bulk of [its users’] financial assets, not create a sort of low-friction acquisition hook” to bring in smaller-dollar accounts. This, in turn, means that M1 can have higher per-user sums on its books, which, it appears, helped the company reduce prices on a per-product basis.

Here’s Barnes connecting per-account totals to pricing:

Managing more of someone’s financial assets, and financial life, is going to be more economical. What it allows us to do is maintain lower margins per product, but have enough margin on the entire financial relationship that we can build a very sustainable durable, long-lasting business.

That’s neat! And folks with lots of money expect low fees, especially in the Robinhood-era, so the setup probably helps with attracting users.

Revenue

Summing so far, M1 runs a broad set of financial products, attracting more dollars-per-user than other companies, perhaps, which lets it charge, in its view, lower prices.

How low? Barnes told TechCrunch that his company is “building [its] business model to make 1% of assets we manage [into] top line. So every billion bucks on the platform will be 10 million dollars in recurring revenue. And it is a relatively linear relationship.” The CEO later extended the point, saying that when his firm has $10 billion in AUM, it will generate $100 million.

This means that as M1 scales, we’ll be able to know with reasonable confidence how much revenue it’s driving.

The company charges in the manner you’d expect, with incomes from loaning money, interchange and a SaaS-product called M1 Plus that lowers some fees and provides interest on checking accounts, costing $125 yearly.

Now that M1 is big enough to matter, it has to double, and then double again. We’ll know how well that’s going based on how quickly the company reaches the $2 billion mark.

Africa e-tailer Jumia reports first full-year results post NYSE IPO

Pan-African e-commerce company Jumia got into the black (by a small amount) on its gross profit vs. fulfillment expenses, expanded financial services and still posted losses.

The online sales company, with an operations center in China, also anticipates some negative impact on 2020 growth from the coronavirus outbreak, CEO Sacha Poigonnec said.

Those were highlights today for Jumia’s fourth-quarter and full-year results — 10 months after the company become the first vc-backed startup in Africa to go public on a major exchange.

The results

Jumia — with online goods and service verticals in 11 countries — posted 2019 revenue growth of 24% (€160 million) over 2018. The company increased its annual active customer base in the fourth-quarter by 54% (to 6.1 million) from 4.0 million for the same period last year.  

Jumia’s 2019 Gross Merchandise Value (GMV) — the total amount of goods sold over the period — contracted by 3% to €301 million in the fourth-quarter.

Poignonnec attributed the decline to “business mix re-balancing”, which entailed reducing expenditures on promotions. The company also saw a contraction in sales of phones and electronics, which impacted GMV.

The online retailer had a 49% increase in orders from 5.5 million in Q4 2018 to 8.3 million in Q4 2019.

Perhaps the brightest spot in Jumia’s 2019 performance was the company’s ability to reach a gross profit of €1.0 million after fulfillment expenses in Q4.

That obviously doesn’t get them to profitability over all the company’s other expenses, but fulfillment costs have been historically high for Jumia as an online-retailer in Africa.    

The overall pattern of growing revenues and customers YoY has been consistent for Jumia.

But so too have the company’s losses, which widened 34% in 2019 to €227.9 million, compared to €169.7 million. Negative EBITDA for Q4 increased 5% to €51.2 million from €48.6 over the same period in 2018.

CEO Sacha Poignonnec pointed to Jumia’s ability in Q4 to reach positive gross-profit over fulfillment expenses — one of the company’s largest costs — as a sign it could eventually get into the black overall. 

 “As we reach these milestones we’ll bring new milestones. This year we were profitable after fulfillment expenses and one day we’ll be profitable after marketing [expenses] and so on and so forth,” he said. 

What’s new

Jumia exited several countries in 2019 — suspending e-commerce operations in Tanzania, Cameroon, and Rwanda. “We believe those countries have…potential in the long-term but decided to allocate our resources to the countries that best support our long-term growth and path to profitability,” said Poignonnec. 

Jumia also saw lift in its JumiaPay digital finance product — and notably — is developing new financial services (including for SMEs) aided by its big financial investors, Mastercard and Axa. 

Jumia launched an Axa money market fund product in Nigeria in 2019 and some promotional programs on Mastercard’s network, as noted in page 10 of its investor presentation.

Total payment volume on JumiaPay increased 57% year-over-year to €45.6 million in 2019 and JumiaPay was used for 29% of Jumia e-commerce orders. 

This is significant, as the company has committed to generate more revenues from higher margin digital payment products and offer JumiaPay as a standalone service across Africa.

Since its founding in 2012, Jumia has been forced to adapt to slower digital payments integration in its core market Nigeria and allow cash-on-delivery payments, which are costly and more problematic than digital processing.

Poignonnec also acknowledged the company’s 2020 revenues could be negatively impacted by the coronavirus. “The recent…outbreak in China is likely to affect growth over the coming quarters, and here we are starting to face some challenges to fulfill our cross-border sales,” he said.

Share price

Surprisingly absent from Jumia’s earnings call (and the subsequent Q&A) was discussion of the company’s share price, which spiked then plummeted after its April 2019 NYSE listing. 

The online retailer gained investor confidence out of the gate, more than doubling its $14.50 opening share price post IPO.

That lasted until May, when Jumia’s stock came under attack from short-seller Andrew Left, whose firm Citron Research issued a report accusing the company of fraud — which sent the company’s share price plummeting — from $49 to $26

Then on its second-quarter earnings call in August, Jumia offered greater detail on the fraud perpetrated by some employees and agents of its JForce sales program. 

The company declared the matter closed, but Jumia’s stock price plummeted more after the August earnings call (and sales-fraud disclosure), and has lingered in single-digit value for several months.

That’s 50% below the company’s IPO opening in April and 80% below its high.

For the remainder of 2020, bringing back growth in GMV and more positive metrics, such as attining gross profit after fulfillment expenses, could revive investor confidence in Jumia and its share price.

It could also put the company in a better position to match competition — such as the Marketplace Africa e-commerce platform of MallforAfrica and DHL — and the possible entry in Africa of China’s Alibaba. 

Venmo prototypes a debit card for teenagers

Allowance is going digital. Venmo has been spotted prototyping a new feature that would allow adult users to create a debit card connected to their account for their teenage children. That could potentially let parents set spending notifications and limits while giving kids more flexibility in urgent situations than a few dollars stuffed in a pocket.

Delving into children’s banking could establish a new reason for adults to sign up for Venmo, get them saving more in Venmo debit accounts where the company can earn interest on the cash, and drive purchase frequency that racks up interchange fees for Venmo’s owner PayPal .

But Venmo is arriving late to the teen debit card market. Startups like Greenlight and Step let parents manage teen spending on dedicated debit cards. More companies like Kard and neo banking giant Revolut have announced plans to launch their own versions. And Venmo’s prototype uses very similar terminology to that of Current, a frontrunner in the children’s banking space with over 500,000 accounts that raised a $20 million Series B late last year.

The first signs of Venmo’s debit card were spotted by reverse engineering specialist Jane Manchun Wong who’s provided slews of accurate tips to TechCrunch in the past. Hidden in Venmo’s Android app is code revealing a “delegate card” feature, designed to let users create a debit card that’s connected to their account but has limited privileges.

A screenshot generated from hidden code in Venmo’s app, via Jane Manchun Wong

A set up screen Wong was able to generate from the code shows the option to “Enter your teen’s info”, because “We’ll use this to set up the debit card”. It asks parents to enter their child’s name, birthdate, and “What does your teen call you?” That’s almost identical to the “What does [your child’s name] call you?” set up screen for Current’s teen debit card.

When TechCrunch asked about the teen debit feature and when it might launch, a Venmo spokesperson gave a cagey response that implies it’s indeed internally testing the option, writing “Venmo is constantly working to identify ways to refine and enhance the user experience. We frequently test product offerings to understand the value it could have for our users, and I don’t have anything further to share right now.”

Typically, the tech company product development flow see them come up with ideas, mock them up, prototype them in their real apps as internal-only features, test them externally with small percentages of real users, and then launch them officially if feedback and data is positive throughout. It’s unclear when Venmo might launch teen debit cards, though the product could always be scrapped. It’d need to move fast to beat Revolut and Kard to market.

Current’s teen debit card

The launch would build upon the June 2018 launch of Venmo’s branded MasterCard debit card that’s monetized through interchange fees and interest on savings. It offers payment receipts with options to split charges with friends within Venmo, free withdrawls at MoneyPass ATMs, rewards, and in-app features for reseting your PIN or disabling a stolen card. Venmo also plans to launch a credit card issued by Synchrony this year.

Venmo might look to equip its teen debit card with popular features from competitors, like automatic weekly allowance deposits, notifications of all purchases, or the ability to block spending at certain merchants. It’s unclear if it will charge a fee like the $36 per year subscription for Current.

Current offers these features for parents who set up a teen debit card

Tech startups are increasingly pushing to offer a broad range of financial services where margins are high. It’s an easy way to earn cheap money at a time when unit economics are coming under scrutiny in the wake of the WeWork implosion. Investors are pinning their hopes on efficient financial services too, pouring $34 billion into fintech startups during 2019.

Venmo’s already become a popular way for younger people to split the bill for Uber rides or dinner. Bringing social banking to a teen demographic probably should have been its plan all along.