Lessons from JPMorgan's fallout with the fintech Viva Wallet

Nick Paleologos/Bloomberg

JPMorgan Chase's relationship with the Greek fintech Viva Wallet has devolved into a court battle — and a reminder of how contested the relationships between fintechs and banks can get.

JPMorgan owns 48.5% of Viva Wallet under the terms of a 2022 deal, with Viva majority investor WeRealize owing the rest. Viva Wallet's founder, Haris Karonis, is suing JPMorgan, claiming the bank is suppressing Viva Wallet's growth by blocking Viva's expansion to the U.S., according to the Financial Times, which based its reporting on legal documents. Karonis also claims JPMorgan is hindering Viva by competing directly with the fintech in parts of Europe. And JPMorgan earlier sued WRL, Karonis' holding company, claiming WRL is limiting the bank's contractual rights as an investor in Viva, the FT reported, citing "people briefed" on the dispute.

The clash comes at a time when both companies are battling interest rates, inflation and an overall slowdown in the fintech sector. Those factors could place financial pressure on other bank-fintech partnerships if interests between the parties conflict and the companies are chasing markets that aren't growing as quickly as they were a few years ago.

"JPMorgan competes with Viva in other European countries," said Aaron McPherson, principal at AFM Consulting, noting that the deal made Viva dependent on a company whose business competes with its own. "Perhaps it is a cautionary tale for other founders."

What's the value?

A key part of the dispute is Viva's valuation. Under the deal, JPMorgan can take full control of Viva in June 2025 if the fintech's valuation is below 5 billion euros, or about $5.3 billion. WRL claims the conditions of the "buy option" create incentives for JPMorgan to limit Viva's growth. JPMorgan contends Karonis won't accept that fintech valuations have fallen due to higher interest rates.

"To be able to take control of the company without further investment if its valuation did not grow to 5 billion euros is quite a deal," McPherson said.

Other terms of JPMorgan's stake in Viva were not disclosed, though at the time of the deal in January 2022, Nasdaq's news site reported JPMorgan's investment was $1.15 billion and Viva's valuation was $2 billion. The FT reports JPMorgan's assessors value Viva at about $1.2 billion, while Viva's assessors peg the company's valuation at more than $3 billion. Viva was founded in 2000 and sells payment products in 24 countries. It has a banking license in the European Union through a 2020 acquisition of Praxia, a Greek digital bank.

For Viva Wallet, the JPMorgan dispute exemplifies the risk of working with an investor that has similar products, said Richard Crone, a payment consultant, adding that in this case the investment comes with an unusual valuation cliff that gives the investor the right to take over the company.

"This is the classic risk for a startup accepting 'strategic money' from an existing market participant that their services will ultimately displace," Crone said. "That is why it is best to get tier 1 venture capital firms where there are no exclusives or protection for legacy business units."

When JPMorgan first made its investment in Viva Wallet, the bank viewed the fintech as providing a way to help sign up merchants across Europe, a complicated task that can differ from one nation to another across the EU. Other potential benefits are a path for JPMorgan to offer short-term credit backed by future payment flows, competing with Block and PayPal — which offer similar short-term loans that can usually be funded faster than traditional small-business loans from a bank.

In an interview with American Banker shortly after the deal was reached, Max Neukirchen, the New York-based global head of payments in solutions for JPMorgan said: "Viva brings in payment capabilities, but also the value-adds that go with payments."

Viva Wallet's competitive differentiator is its integrated cross-border services in the EU, where Chase Merchant Services hopes to grow. That motivated the original investment, Crone said, adding that the Viva Wallet investment was also a response to PayPal's acquisition of European payments companyiZettle in 2018 and extending the iZettle suite into the U.S.

But the JPMorgan-Viva Wallet deal hit rough patches. In late 2023, two JPMorgan-appointed Viva board members resigned, reportedly when the JPMorgan members felt they were not independent of Viva.

Payments

JPMorgan sees Viva Wallet investment as building block in Europe

January 26, 2022 2:48 PM

"For the merchants that Viva Wallet serves around the globe, the biggest cross-border move they can make is into the U.S.," Crone said. "That is what sets up the conflict. JPMorgan doesn't necessarily want to enable a competitor or erode merchant attention away from the value proposition that Chase Merchant Services is trying to recreate."

JPMorgan and Viva acknowledged the legal dispute, but did not provide other details for this story.

"JPMorgan has initiated legal action against WeRealize.com Ltd., the majority shareholder in Viva Wallet. This is due to actions taken by WeRealize to limit or circumvent our contractual and legal rights as an investor in Viva. This action was filed after exhausting all other options. Despite this dispute, we believe in Viva Wallet, its people, our strategic investment in the company and our wider business in Greece," said a JPMorgan spokesperson in an email.

In statement on Viva's website, the fintech indirectly called attention to Karonis' being the party that filed the suit, saying: "In the context of the legal process underway between the shareholders, Viva Wallet notes that the company is not involved in any legal process with any of its shareholders and continues following its growth path dynamically and consistently. … Viva Wallet plans to continue growing in Europe and expand to the U.S. as part of the agreed strategy."

Complicated relationships

The Viva Wallet case follows another legal dispute involving JPMorgan and a fintech. In 2022, JPMorgan sued the founder of Frank, a college-financing website, alleging that the site lied about its number of users to get a better price from JPMorgan, which acquired Frank for $175 million. Frank's founder, Charlie Javice, faces criminal charges in the case, as does Olivier Amar, another Frank founder. A court this week ruled that JPMorgan does not have to compensate Javice for her countersuit against the bank.

Other bank-fintech deals that fell apart as the tech market slowed include UBS' $1.4 billion agreement to buy the wealth management firm Wealthfront and Patriot National Bancorp's deal to buy the neobank American Challenger Development Corp.

Banks enter into fintech partnerships for a number of reasons, according to Aaron Press, research director of worldwide payment strategies for IDC. These include filling technical gaps in their offerings, expanding geographically, testing the waters in a new market, or creating a relationship in advance of a potential acquisition.

"The deal between JPMC and Viva appears to have elements of all of the above," Press said, adding that points of conflict can arise from what are seen as competitive pressures.

One party may be concerned that the partner had the potential to cannibalize revenue, even where a revenue-sharing agreement is in place, according to Press. Other risks include conflicts between internal development teams and the external partner.

Deals like JPMorgan-Viva, which are closer to a joint venture, carry these and other risks, Press said. "The two parties may disagree about strategy, investment levels or product direction," he said.