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Tech Weekly: Investment boom in rapid grocery, and FCA gives breathing space for UK crypto firms
Today Nasson talks to Lily Russell-Jones and Charlie Conchie about this week’s most important stories in crypto and fintech.
Lily explains the FCA’s decision to extend its deadline for crypto firms seeking regulatory approval; and Charlie goes through the latest valuations and funding rounds for rapid grocery delivery firms, and outlines whether their high-spend model is viable in the long-term.
Lily’s FCA deadline extension article, and Emily Hawkins and Charlie’s rapid grocery bubble article.
Episode transcript (auto-generated)
Host 0:07 Hello and welcome to Tech weekly, a podcast by City A.M. where we go through some of the most important stories in the worlds of tech, crypto, FinTech and beyond. If you’ve ever wondered how rapid grocery firms such as Getir and Gorillas operate whilst offering such substantial discounts for everyday products, then you’re not alone. Their rise to prominence over the last year has suddenly been something to watch. Some are worried the bubble might burst and questioning whether their operating model is indeed viable. I’ll be chatting to Charlie about a new funding round for the firm’s their lopsided financial margins and how they’re playing the long game. But first I’ll be talking to Lily about last week’s story regarding the FCA and its controversial deadline for crypto firms seeking regulatory approval in the UK. So Lily, what’s been going on this week in crypto?
Lily Russell-Jones 1:01 So again this week, a big story has been regulation. The UK financial watchdog the FCA u-turned on a deadline for crypto firms to secure full regulatory approval. So firms on the FCA temporary crypto register, were told they would need to wind down operations if they were unable to secure approval by the 31st of March. But as the deadline approaches week 12 of the UK Top crypto service providers, including the FinTech, Reveley, crypto custodian, copper and blockchain.com, we’re still sitting on the temporary list. So the day before the deadline hit the FCA said that firms on the temporary register could continue to trade while they appeal the regulator’s decision or seek a permit offshore. There’s been a bit of backlash to the regulator’s approach from the UK as crypto industry, which is warning that firms are going to be pushed offshore, which is bad for consumers. Host 1:50 Will those firms have to stop operating in the UK then? Lily Russell-Jones 1:54 So a number of the firms on that temporary register withdrew their applications preemptively and is seeking approval from regulators elsewhere in Europe. So crypto wallet provider Wirex plans to continue serving its 250,000 UK customers from a Croatian entity global block is going to seek approval in Lithuania and b2c to also withdrew its application ahead of the deadline. As for the larger firms, we know that Capo which is a crypto custodian which is advised by the UK is former chancellor Philip Hammond. It sets up a Swiss entity which should be allowed to continue operating in the UK. Host 2:28 And how come those firms were able to operate without approval from the FCA? Lily Russell-Jones 2:33 Well, in a way, offshoring is a bit of a loophole because the FCA allows digital asset firms to continue operating in the UK if they’re recognised by equivalent regulators. So regulators which seem to have the same standards as the UK, so I think that covers quite a lot of the regulators in Europe. This is one of the things that Ian Taylor, who’s the executive director of crypto UK, which is an industry body has pushed back against this week. So he said, there’ll be no consumer oversight if a UK citizen buys products from an online business domiciled in Malta, for example, as they would still be able to sell their services into the UK, and consumers will have no recourse from the regulator, because the firm is going to be outside of UK jurisdiction, which is bad for British consumer protection. He also pointed out that 1000s of jobs could be lost in Britain, if the firm’s are forced to migrate elsewhere, even though the digital asset service providers may be able to continue operating. So that’s been something that there’s been a bit of controversy around. Host 3:33 Has the FCA commented on its position? Lily Russell-Jones 3:36 Yeah, absolutely. So around 80% of applications to the FCA from crypto firms have been withdrawn or rejected so far. I asked the FCA about why that is and a spokesperson defended the regulator’s approach and said that many firms are failing to meet the minimum standards necessary to ensure that Britain’s financial system isn’t open to abuse by people money laundering, who potentially using digital assets to do so. When I spoke to NSA spokesperson they said while we have registered 33 firms, we’ve seen too many financial crime red flags missed by the crypto asset businesses seeking registration. Worse, we’ve seen examples where firms do not have the controls necessary to raise red flags in the first place. So quite damning commentary there from the FCA. I think it’s worth noting that crypto is still a fairly new industry, and the regulator doesn’t have oversight of the digital assets themselves. So we’re expecting some clarity on regulation from the Treasury later this month. I think it will be really helpful for the industry and regulators to get a steer from lawmakers on what oversight of the space is expected to look like. Host 4:39 Thanks Lily, and now, Charlie, what’s caught your attention this week? Charlie Conchie 4:44 So this week, we have been looking at the boom in the rapid grocery market, which I think everyone in London in any big city really will have become very accustomed to seeing over the past couple of years. It is one of those industries that has really sort of benefited from the pandemic base in terms of cost to demand and the amount of cash that is flowing into the sector of our investors. So apps like gorillas get here and go puff have become a sort of go to for a lot of people who are looking to maybe avoid shops through the pandemic and they are an incredibly fast and convenient way of, of getting groceries in. So just as a sort of recap on how the business models where they are at based primarily so shoppers go on to an app, place an order of groceries and and the firm’s themselves operate via dark stores, which sounds quite an alluring concept, but essentially is just a warehouse of groceries where drivers often in bright colours and on low pedal driver, collect the order and deliver it at outrageously fast times. So they’re sort of a favourite for things like emergency booze on the part he wants to continue for a few more hours and midnight nappy. So it’s really sort of pure convenience stuff. And in in terms of the big news this week, so at the start of the week, it was reported that gorillas which is a Berlin headquartered firm, which has a presence in UK, France, Germany and the Netherlands was on the hunt for a new $500 million funding injection. So that followed, as well a another funding round from its Turkish rival get here, which are known for its kind of purple and yellow coats and mopeds. They raised 768 million at a $12 billion valuation. I think the remarkable thing about that figure is that that makes it now on paper are more valuable companies in Sainsbury’s. So, really a space where the cash is pouring in from investors. Host 6:36 So firms are making a lot of money out of this then Right? Charlie Conchie 6:39 No, none of these firms is yet profitable. And they don’t look like they will be anytime soon. So this is still is really a market in its infancy. And all of these firms are really ploughing the cash they get from investors into big aggressive customer acquisition. So typically, we’ll have kind of big discounts for new new joiners offer really sort of tasty deals to get the customers in the context of the industry is interesting at the moment. So you are paying a bit of a premium for the speed with which you can get these groceries delivered. So, you know, if you were to do it via just an online shop via one of the big supermarkets, it would be a cheaper way of doing your shopping. And I think we’ve been speaking with analysts recently when the kind of cost of living does start to rise. And we you know, context for all business stories at the moment is that soaring inflation, that is going to start maybe dampening the demand for some of these, these apps where you are paying that bit more for your groceries. And that potentially is when these valuations might start to look a little bit flimsy. When you think Sainsbury’s, for instance 10 to 16 million pound profit last year, and these apps are still some years off from doing that. So I think as the demand is tested over the coming months, we could also see those valuations start to start to look a little bit empty, perhaps Host 8:01 What does the future hold for these firms then? Charlie Conchie 8:04 So a few of these firms are likely to be looking at moves on to the public markets eventually, as they do try and sort of ramp up that growth. I think when we look at what that customer growth trajectory might be, there was an interesting comment from the US firm gopath Recently, which is expanding into the UK at the moment, they said the penetration of online shopping is still only around 10% in the UK. And I think you could look at that as either huge growth potential or a hefty portion of UK shoppers who do just prefer to pop to the shop. So it’s going to be interesting to see whether the investors keep paying in the cash in the meantime, to find out which of those is the case. I think when they do start to look towards moves on to the public markets, there will be a slight shift in the business models, these massive valuation will have to be justified with actual sales, potential sales growth underneath that. So it’s going to be an interesting few years, as you know, this huge customer sort of push that all these firms are going on will have to then be translated into customer loyalty. So it’s going to be a certainly an interesting space to watch over the next few years for these rapid delivery apps. Host 9:13 Lots to come then. That’s it for this episode. Special thanks to Lily and Charlie, and thank you very much for listening. We’ll see you next week.