Revolut Eyes Cut of Projected $88 Billion in Remittance Flows Into Mexico
Plus, it's on: The FTC issues a final rule banning worker noncompetes nationwide.
Number of the Week: $7.65 billion (explanation below)
Revolut Eyes Cut of Projected $88 Billion in Remittance Flows Into Mexico
Mexico is known for many things. Revolut hopes to become one of them.
The U.K.-based digital neobank, a self-described “global financial super app” with more than 40 million users globally, secured a Mexican banking license earlier this month from the National Banking and Securities Commission and is now investing $100 million in the Mexico market, reportedly to hire staff and maintain liquidity ratios. It has charged country lead Juan Miguel Guerra Dávila with building a team on the ground.
The attraction for Revolut is clear: The inbound remittance market in Mexico is expected to reach $71.26 billion in 2024 and is projected to hit $87.88 billion by 2028. After India, Mexico is the world’s second-largest recipient of remittances and receives the highest level of remittances in the Latin America region. While the company maintains that its banking license will allow it “to offer a wide range of financial products and services to users in Mexico,” Revolut’s fastest road into the market is via the U.S.-Mexico remittance corridor, the largest in the world.
Remittances now surpass almost all other sources of Mexico’s foreign income, including tourism, oil exports and most manufacturing exports. In 2022, remittances were equivalent to 4.5% of Mexico’s gross domestic product, up from 2.5% a decade ago. They also tend to be a stable source of income that helps reduce the government’s need for overseas borrowing in a crisis.
Revolut’s expansion into Mexico and, more specifically, its desire to capture some of the country’s remittance flows likely figured prominently in Schroders Capital Global Innovation Trust’s decision to revalue its stake in Revolut by 45%, up from £5.44 million (US$6.78 million) to £7.88 million (US$9.82 million). Schroders cited Revolut’s progress over the past year and its international expansion as factors that drove the reassessment of its stake. As a result, Revolut’s implied valuation is $25.7 billion, up from $17.7 billion last year, but off its $33 billion high in 2021 when Schroders’ stake was valued at £10.1 million (US$12.47 million).
Remittance flows into Mexico and the broader Latin America region have been growing because of increases in employment of migrants in U.S. sectors such as construction, food and beverage services, and health services, according to the World Bank’s Sonia Plaza, senior economist, Finance, Competitiveness and Innovation Global Practice.
In 2023, remittances to Mexico grew 7.6%, reaching $63 billion; 96% of remittances came from the United States, the majority from California and Texas. Of all transfers, 99% of the remittances to Mexico were by electronic transfers, 0.8% by cash or in kind, and 0.2% through money orders, according to BBVA research.
As its operations get underway in the country, Revolut will face longstanding competition from Remitly (expanded into Mexico in 2015), Wise (formerly TransferWise, entered in 2016) and Xoom (active in Mexico since 2012; acquired by PayPal for $890 million in 2015 and a sale of Xoom was being explored last year), among others.
In a twist of irony, Revolut has secured Lithuanian and Mexican banking licenses, but has yet to obtain its U.K. banking license from the Bank of England, which would allow it to offer mortgages, credit cards and other financial products to its U.K. customers. It applied for the banking license three years ago.
Revolut intends to increase global headcount by 40% in 2024, targeting additional roles for sales, customer support, and financial crime divisions.
Noted & Noteworthy
In a much-anticipated, though contentious move, the Federal Trade Commission (FTC) passed its final rule banning noncompete agreements nationwide. The commission maintains that the rule will “raise worker wages, lower health care costs, and boost innovation.”
In the fintech world, the rule could accelerate startup launches and the war for talent, particularly in key innovation hubs like New York. Behind California, New York is the second largest U.S. fintech hub, with more than 1,500 fintech startups at various stages of funding, including 35 unicorns. The potentially far-reaching impact of the rule stretches beyond the New York fintech scene. FTC Chair Lina Khan said in a statement that more than 8,500 new startups would be created each year once noncompetes are banned—a boon to all startup industries across the country. The top 10 states for venture capital investment include California, Massachusetts, Delaware, Wyoming, Vermont, New York, Washington, Colorado, Utah, and North Carolina (California and Massachusetts are tied), according to U.S. News & World Report’s Best States ranking.
Existing noncompetes for most workers will no longer be enforceable after the rule comes into effect, and employers are required to notify employees that their existing noncompetes are no longer legally binding. There is an important exception for senior executives, who account for less than 0.75% of workers: Their existing noncompetes will remain unchanged, but employers are prohibited from imposing new noncompetes on senior executives. The commission defines senior executives as those people who make at least $151,164 per year and who are in “policy-making” positions.
Setting aside the policy-making caveat, the senior executive exception could prove problematic for fintech executives in markets like New York, where the average annual pay for fintech jobs is $125,050, but the majority of salaries range between $96,207 and $165,083, with top earners making as much as $225,214 per year.
The rule will become law 120 days after it is published in the Federal Register, expected to occur in a few days, though legal challenges by business groups have already been filed. The U.S. Chamber of Commerce, which is suing the FTC over what it says is an “unlawful power grab,” said in a statement: “[T]he economy as a whole will suffer as start-ups and small businesses are unable to prevent dominant firms from hiring their best employees and gaining access to their confidential information.”
In the U.S., roughly 30 million workers are bound by noncompetes. The banning of noncompetes could increase wages by nearly $300 billion per year and lead to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years, according to the FTC.
In a recent feature published by FIN examining how noncompetes hinder fintech innovation, data suggests that eliminating them could lead to greater U.S. gross domestic product, particularly in service-producing industries that are projected to see the fastest growth in output. Three of the five fastest-growing industries in terms of total output are in the information sector, according to U.S. Bureau of Labor Statistics, highlighting the increasing impact of technology and digital infrastructure on the U.S. economy, including its intersection with other vital sectors such as finance and insurance.
John Lettieri, president and CEO of the Economic Innovation Group (EIG), a bipartisan research and data-driven public policy organization, said this in response to the FTC’s rule passage: “EIG welcomes the FTC’s action on this critical issue and agrees that a broad ban on noncompete agreements is the right solution. However, American workers and businesses deserve certainty that only legislation can provide. To that end, we urge the Biden Administration to work with Congress to pass the bipartisan Workforce Mobility Act and make a national noncompete ban the law of the land.” The Workforce Mobility Act is sponsored by Senators Chris Murphy (D-CT) and Todd Young (R-IN), Representative Scott Peters (D-CA) and former Representative Mike Gallagher (R-WI).
At present, noncompetes are governed at the state level; currently, four states ban noncompetes entirely, while 33 states plus Washington, D.C., restrict their use. The EIG introduced a new State Noncompete Law Tracker, which includes an interactive map of existing state laws and a searchable, sortable tracker of proposed reform bills in state legislatures broken into five categories: complete and near complete bans, income thresholds, healthcare industry bans, industry bans and other related bills.
MicroStrategy executive chairman Michael Saylor is getting the last laugh. Once a Bitcoin detractor, he’s now made billions between his personal holdings (17,000 Bitcoin) and that owned by MicroStrategy, more than 214,000 Bitcoin, which has massively driven up the value of his 12% in company stock. Aside from a $370 million stock-sale this year, Saylor’s total MicroStrategy shares and his personal Bitcoin were worth approximately $3.49 billion on paper as of last week, according to Fortune. Coinbase CEO Brian Armstrong, who closely follows Saylor’s moves, is no doubt paying attention.
Seen and Heard…
Terraform Labs and co-founder Do Kwon face a huge penalty for their role in the $40 billion collapse of the Terra ecosystem. The U.S. Securities and Exchange Commission (SEC) has asked for $5.3 billion in fines—$4.74 billion in disgorgement and prejudgment interest, as well as $520 million in civil penalties—to be imposed by a New York court. The penalty would be bigger than that given to crypto exchange Binance and its former CEO Changpeng Zhao. …And speaking of Changpeng Zhao, U.S. prosecutors have asked that he serve three years in prison—twice the maximum 18 months recommended under federal guidelines—after pleading guilty to violating money laundering laws. …Figure Technology (aka Figure) has a new chief executive officer and member of its board of directors. Effective immediately, Michael Tannenbaum takes over leadership of the fintech, which offers home equity lines of credit (HELOC) to consumers and provides banks, credit unions and lenders with a private label HELOC platform to serve their customers. Figure cofounder and former CEO Mike Cagney is now its executive chairman. Tannenbaum has been around the fintech block a couple of times, most recently holding three different roles—COO, CFO and chief business officer—at Brex, the AI-driven corporate spend platform, and previously as chief revenue officer of SoFi, the personal finance platform. …Cryptocurrency exchange Kraken is acquiring TradeStation Crypto to expand its U.S. regulatory licensing, as first reported by CoinDesk. TradeStation Crypto is the cryptocurrency arm of online brokerage TradeStation. The acquisition by Kraken is in line with its U.S. expansion plans, and the sale by Florida-based TradeStation was expected after the SEC charged the company with failing to register a crypto lending product as an investment contract. In February, the SEC fined TradeStation $1.5 million to settle the charges; the company also agreed to pay an additional $1.5 million in fines to resolve similar charges brought by state regulators. Earlier in the year, TradeStation announced that it would voluntarily shut down its U.S. crypto offerings. TradeStation’s penalty is peanuts compared to $100 million that now-bankrupt BlockFi paid the SEC two years ago for failing to register and sales of its crypto lending products.
FINvestments
🦈 Number of the Week: New York-based Ramp, a corporate spend management platform, has raised $150 million in Series D-2 funding. The round was co-led by Khosla Ventures and Founders Fund, with additional new investor participation by Sequoia Capital, Greylock, and 8VC. The funding increases its valuation to $7.65 billion, up from $5.8 billion after the company raised a down round of $300 million in August that cut its valuation by 28%.
🦈 Paris-based decentralized finance startup Usual Labs, whose permissionless stablecoin USD0 is pegged to the U.S. dollar and will pay holders a yield based on the appreciation of real-world assets, has raised $7 million and committed $75 million in total value locked for the stablecoin’s second-quarter launch on the Ethereum Mainnet. The funding round was co-led by IOSG Ventures and Kraken Ventures, along with participation by 12 other venture firms.
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