Tech
VCs expect a surge in startups offering lower rate mortgages, other loans now that the Feds cut rates
When the U.S. Feds cut interest rates by half a percentage point last week, it was a dash of good news for venture capitalists backing one particularly beleaguered class of startups: fintechs, especially those that rely on loans for cash flow to operate their businesses.
These companies include corporate credit card providers like Ramp or Coast, which gives cards to fleet owners. The card companies make money on interchange rates, or transaction fees charged to the merchants. “But they have to front the money by getting a loan,” said Sheel Mohnot, co-founder and general partner at Better Tomorrow Ventures, a fintech-focused firm.
“The terms of that loan just got better.”
Affirm, a buy now, pay later (BNPL) company founded by famed PayPal mafia member Max Levchin, is a good case study. While Affirm is no longer a startup — having gone public in 2021 — when interest expenses rose, its stock price tanked, dropping from around $162 in October to hovering at under $50 a share since February 2022.
BNPLs pay merchants the full amount up front; then they allow that customer to pay for the item over a couple of payments, often interest-free. Many BNPLs generate revenue primarily by charging merchants a fee for each transaction processed on their platform, not interest on the purchase. Their business model didn’t allow them to pass on the dramatically higher costs they incurred.
“BNPLs were making money hand over fist when interest rates were zero,” Mohnot said.
Affirm competes with a host of BNPL startups. Klarna, for instance, is a player that’s been expected to IPO for years but still isn’t ready in 2024, its CEO told CNBC last month. Some BNPL startups didn’t survive at all, like ZestMoney, which shut down in December. Meanwhile, other lending fintechs also shuttered because of high interest rates like business-building credit card Fundid.
Counterintuitive as it may seem, lower rates are also good for fintechs that offer loans. Car loan refinancing company Caribou, for instance, falls into this bucket, predicts Chuckie Reddy, partner and head of growth investments at QED Investors. Caribou offers one- to two-year loans.
“Their whole business is predicated on being able to take you from a higher rate to a lower rate,” he said. Now that Caribou’s funding costs are lower, they should be able to reduce what they charge borrowers.
GoodLeap, a provider of solar panel loans, and Kiavi, a lender specializing in loans for “fix-and-flip” home investors, are other short-term lenders expected to benefit. Just like Caribou, they can potentially pass on some of their interest savings to customers, leading to a surge in loan origination volume, said Rudy Yang, fintech analyst at PitchBook.
And no sector should be helped by lower interest rates as much as fintech startups taking on the mortgage loan industry. However, it could be some time before this recently beat-up space sees a resurgence. While the cut the Feds made was a biggie, interest rates are still high compared to the long ZIRP (zero interest rate policy) era that preceded it, when Fed rates were at near zero. The new Fed rates are in the 4.5% to 5% range now. So the loans available to consumers will still be a few percentage points higher than the base Fed rate.
Should the Feds continue to cut rates, as many investors hope they will, then a lot of people who bought homes during the high-rate time will be looking for better deals.
“The refinancing wave is going to be massive, but not tomorrow or over the next few months,” said Kamran Ansari, a venture partner at VC firm Headline. “It may not be worth it to refinance for half a percent, but if rates decrease by a percent or one and a half percent, then you will start to see a flood of refinances from everybody who was forced to bite the bullet on a mortgage at the higher rates over the last couple of years.”
Ansari anticipates a significant rebound for mortgage fintechs like Rocket Mortage and Better.com, following a sluggish performance in recent years.
After that, VC investor dollars will almost certainly flow. Ansari also predicted a surge in new mortgage tech startups if interest rates become more appealing.
“Anytime you see a space that’s gone dormant for four or five years, there are probably opportunities for reinvention and updated algorithms, and now you can do AI-centric underwriting,” he said.
Tech
Sam Altman’s biometric startup World raises $52.5M via crypto sale
World, the online verification startup co-founded by OpenAI’s Sam Altman, has raised $52.5 million through a crypto token sale to strategic investors.
Participating investors joined a 12-month lockup sale of World’s token, WLD. Lockup periods prevent asset buyers from selling or trading their tokens for a set period of time. The yearlong lockup demonstrates investors’ “long-term commitment to World’s continued growth and utility,” the company said Friday in a press release.
The money will go to the World Foundation, an exempted limited guarantee foundation based in the Cayman Islands, created to steward the expansion of World’s network.
The sale’s lead buyer is Pantera Capital, a venture capital firm focused on digital assets. Other companies involved in the sale included Eightco Holdings, Bain Capital Crypto, Susquehanna Crypto, and Selini Capital, among others.
The World project is operated by Tools for Humanity (TFH), a startup based in San Francisco and led by CEO and co-founder Alex Blania. Altman is the company’s other co-founder.
World is an unusual business that revolves around online verification and sells access to what it calls “proof of human” tools. The idea is that, as bots and AI generate much of the content online, it will become increasingly important to know who is really human and who isn’t. World’s mission is to popularize its World ID, an anonymous digital marker that verifies whether a human — not a bot or an AI agent — is behind a particular account.
To get a verified World ID (the highest level of verification within World’s system), users must have their eyes scanned by an Orb, a metallic ball that converts a user’s iris into a distinct cryptographic identifier. World’s Orbs are located at its offices and have also been deployed at partner stores around the world.
The project began as a more overtly crypto-based experiment under the name “Worldcoin” — the same name of the crypto asset involved in the recent sale. Users can trade or hold the token through World’s app, which also serves as a custodial wallet. The company later rebranded to World amidst a broader backlash against the crypto industry.
In April, the project launched a new version of its app and announced partnerships with companies, including Tinder, Zoom, and Docusign. Yet, despite its global ambitions, World has struggled to scale its business or convince consumers to care much about its mission. In June, TFH conducted a round of layoffs.
Correction July 24: An earlier version of this story incorrectly stated that World has a partnership with Ticketmaster. It does not. We regret the error.
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Tech
OpenAI’s own model went rogue before Kimi had Wall Street sweating
Chinese AI lab Moonshot’s open model Kimi went viral this week for reasons that had less to do with the model itself and more to do with how the U.S. AI industry reacted to it. Meanwhile, an unreleased OpenAI model wandered outside its test environment and ended up connected to a real security breach at Hugging Face — a reminder that “China risk” isn’t the only kind of AI risk worth worrying about.
On this episode of TechCrunch’s Equity podcast, hosts Kirsten Korosec, Anthony Ha, and Sean O’Kane dig into why Kimi K3 set off a fresh round of AI panic, the industry’s response to an OpenAI staffer’s “regulatory FUD” post, and what that OpenAI breach means for AI security more broadly.
Subscribe to Equity on YouTube, Apple Podcasts, Overcast, Spotify and all the casts. You also can follow Equity on X and Threads, at @EquityPod.
Tech
India’s move against Jack Dorsey’s Bitchat sparks legal debate
An apparent Indian government effort to remove GitHub repositories for Jack Dorsey’s offline Bluetooth-powered messaging app Bitchat has raised questions about the legal basis for targeting open source software because of how it works.
The issue with Bitchat came to light after Dorsey posted on X on Friday what he said was a notice from India’s Ministry of Home Affairs directing GitHub to restrict access to three Bitchat repositories within three hours. The notice argues that the app’s anonymous, decentralized architecture could facilitate unlawful activity and allow users to communicate during internet shutdowns while making lawful interception more difficult.
The move comes as Indian authorities tighten internet restrictions after weeks of student-led protests in New Delhi over alleged examination paper leaks.
The demonstrations, known as the “cockroach” movement, have drawn thousands of young people demanding the resignation of Indian Education Minister Dharmendra Pradhan, with authorities also imposing restrictions on marches toward the parliament. Local media reported that some protesters downloaded offline messaging apps, including Bitchat and Briar, after internet services were suspended.
The order represents a new approach for the Indian government, which, before 2021, typically relied on Section 69A of the IT Act and the 2009 Blocking Rules when it wanted content removed nationwide, according to Mishi Choudhary, founder of SFLC.in, an Indian digital rights legal advocacy group.
She told TechCrunch that the document resembled the format of recent government takedown notices, but the legal provisions it cites do not clearly authorize authorities to seek the removal of an entire software project because of how it works rather than any specific illegal content.
Unlike many government takedown requests, the document Dorsey shared does not identify specific posts, messages, or repositories containing unlawful material. Instead, it argues that Bitchat’s ability to function during internet shutdowns and without central servers could facilitate unlawful activity.
The notice, dated July 23 and apparently issued by the Indian Cybercrime Coordination Centre (I4C), which operates under India’s Home Ministry, said Bitchat enables users to communicate “even during network restrictions” and “internet shutdowns,” making it possible to “circumvent lawful restrictions” while hampering “lawful interception, attribution, and traceability.”
In recent days, Bitchat has seen a sharp rise in popularity in India. Market intelligence provider Sensor Tower shared data with TechCrunch that showed that India accounted for about 85% of the app’s global downloads between July 17 and July 23, compared with about 1% over the previous 30 days. Bitchat was downloaded more than 91,000 times in India over the past five days, after downloads jumped thirty-two-fold on July 19 from the previous day. The app’s daily active users in India also reached more than 330,000 on Thursday, the highest level recorded for the app in the country.
Request raises questions about open source software
The Internet Freedom Foundation (IFF), a New Delhi-based digital rights advocacy group, questioned the effectiveness of the apparent takedown request.
“The order also fails on its own terms as deleting a repository does not delete the application from any phone that carries it, and the mesh keeps functioning without servers. What the takedown actually prevents is scrutiny of the underlying code,” the group said on X.
Raman Chima, global program director at the Association for Progressive Communications, a global digital rights network, told TechCrunch the apparent notice went beyond targeting the messaging service itself by seeking to remove its open source code from GitHub.
“They’re [the Indian government] not just targeting the designated service provider, but they’re trying to say that open source development of this type of product … should not occur,” he said.
GitHub did not confirm whether it had received the document. The repositories remained accessible from India on Friday. Asked about the apparent notice, the company shared a link to its public repository of government takedown requests, which did not contain any recent requests related to Bitchat.
Namrata Maheshwari, Asia Pacific policy manager and encryption policy lead at digital rights group Access Now, told TechCrunch that blocking an offline messaging platform during internet restrictions risked turning shutdowns into “a communication blackout” that violated fundamental rights. Protesters in any democracy have the right to communicate privately and coordinate peacefully, she said.
“When we receive a complete government takedown request, we notify the affected account owners and give them an opportunity to appeal,” Rose Coogan, the company’s principal online safety counsel, said in a statement emailed to TechCrunch. “We share every government takedown request we take action on publicly.”
India’s Home Ministry did not respond to a request for comment.
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