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A Neobank for SaaS Startups; Central Payments Raises $30Mn; Affirm Ready for Recession

By Cole Gottlieb

August 21, 2022

Happy Sunday!

Consumer spending was flat, but shoppers are cutting back on non-essential purchases. The Fed finalized master account guidance. A neobank for SaaS companies? Central Payments lands $30Mn. Affirm CEO says its underwriting is ready for a recession. PNC drops NSFs. WebBank partners with Amex. Ranqx launches in U.S.

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Consumer Spending Flat

Consumer spending was flat in July vs. June. Overall spending stayed the same, despite falling gas prices, as consumers shifted funds to other purchases. Still, consumers are getting less for that spend, as figures are not adjusted for inflation.

Image: Wall Street Journal

And those rising prices are starting to bite. Surveys show that three out of five consumers have cut back on non-essential grocery spend. Consumers are skipping expensive restaurant meals to save money by eating at home. Some 70% also reported cutting back on non-essential retail spend.

Fed Finalizes Master Account Guidance

After a fairly contentious process, the Fed has finalized new guidelines for reviewing applications for Fed master accounts. The accounts enable institutions to directly access Fed payment systems, which form the backbone for moving trillions of dollars a day. Currently, most non-bank and crypto firms need a bank partner to access these systems.

The final version of the guidance is substantially similar to what has been under discussion since last May. The guidelines create a three tiered approach.

Entities that hold federal deposit insurance will receive the least scrutiny when seeking a Fed account. The second tier would include eligible institutions that are not insured but are subject to federal prudential oversight and holding companies subject to Federal Reserve oversight. The tier receiving the most scrutiny includes institutions that are not insured nor subject to prudential supervision by a federal regulator.

“Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review,” the Fed said in its press release.

Still, despite finalizing the guidelines, there is more work to be done for them to be implemented. Fed Governor Michelle Bowman warned this does not mean existing applications will be decided on an accelerated timeline.

Arc Lands $20Mn for Neobank for SaaS Companies

Neobanks are dead – long live neobanks?

Arc, a neobank for SaaS companies, announced it has landed $20Mn in Series A funding. The YC-backed company emerged from stealth just seven months ago. Its initial product, Arc Advance, offered revenue-based financing, akin to CapChase or Pipe.

Now, Arc is seeking to stand out from its competitors by launching additional banking services for its customers. In June, the company launched Arc Treasury. Treasury leverages Stripe to offer basic banking services, including deposit account, checking, and card issuance.

Still, both revenue-based financing and banking services targeting startups are crowded categories. In addition to those listed above, others like Brex, Ramp, and Rho offer overlapping sets of features and are targeting a similar set of customers.

Central Payments Lands $30Mn

Banking-as-a-Service provider Central Payments has scored $30Mn in funding and is being spun off from parent Central Bank of Kansas City. The funding round was led by Castle Creek Capital with participation from Launchpad Capital. Central Payments plans to use the funding to continue investing in its product, technology, and staffing.

As part of the spinoff, Central Payments will establish its own board of directors. Its existing management team will continue in their current capacity.

Affirm CEO Says Next Recession Will Prove Underwriting Mettle

Non-bank lenders and BNPL providers have seen their valuations get hammered in the current market correction. And that includes publicly traded Affirm, which has seen its market cap shrink to just over $10Bn. Investors are worried about the rising cost of funds, competition, and how borrowers may perform during a downturn.

Affirm’s founder and CEO Max Levchin seems to be saying, bring it on. He argues the company’s credit underwriting will set it apart from others. Affirm underwrites based on traditional credit data as well as where a user is shopping and what they’re buying. Some BNPL providers, particularly those offering split-pay financing for smaller transactions, don’t use traditional credit reports in their underwriting.

PNC Drops NSFs Fees

It’s been a slow but steady drum beat: small and big banks alike paring back on checking account service fees. Initially, PNC took a half-step by eliminating NSFs for customers that used its “Virtual Wallet” tool to manage their accounts. Now, as of August 6th, the bank has eliminated NSFs on all accounts. Still, the bank has no plans to do away with overdraft fees, arguing that having the option to overdraft, even if it incurs a fee, gives customers more choices in how they manage their finances.

WebBank Partners with Amex to Issue Cards

Popular fintech partner bank has now teamed up with American Express. WebBank already works with non-banks to issue cards on Visa and Mastercard networks. The agreement is notable, as the American Express network rarely works with external issuers in the United States, though that is beginning to change. A few months back, Amex struck a similar deal with fintech-focused issuer i2c.

As of yet, there’s been no news of which fintechs may take advantage of the deal to issue Amex-badged credit cards.

SMB Lending Platform Ranqx Launches in U.S.

New Zealand-based small business loan platform Ranqx is coming to America. The company offers a loan decision, origination, and monitoring platform to banks and credit unions. Ranqx’s platform is used by lenders throughout the APAC region. It partnered with Visa on its launch in the American market.

In the News:

Federal Reserve Issues Guidance for Banks Considering Crypto Activities (Reuters, 8/16/2022) The Fed emphasized that firms must notify them beforehand and make sure that their actions are legally permitted.

CDFIs are Starting to Flex their Post-Pandemic Clout (American Banker, 8/15/2022) Recently Sen. Mark Warner (D-VA) announced the launch of a new bipartisan caucus for CDFIs.

Crypto Is Taking a Few Small Banks on a Wild Ride (Wall Street Journal, 8/15/2022) Silvergate Capital, Signature Bank and Customers Bancorp have gained billions of dollars in deposits from crypto companies.

ReceiptHero Joins Visa Fintech Partner Connect (Finextra, 8/15/2022) ReceiptHero is a receipt platform that serves merchants and issuers with real-time digital receipts.

What Would A Bank Account From Apple Look Like? (Forbes, 8/16/2022) Speculating what Apple could do to expand its banking suite.

Social Investment Platform eToro to Acquire Fintech Startup Gatsby for $50M (Tech Crunch, 8/17/2022) Gatsby is a commission-free options and stock-trading app aimed at young traders.

Reaching the Invisibles (American Banker, 8/16/2022) BNPL data, on-time rent and utility payments can help consumers build credit, potentially increasing access and decreasing costs to consumers.

Mastercard Expands Engage and Start Path (Fintech Nexus, 8/15/2022) Mastercard adds 9 fintech companies to its new open banking Engage partner network and 7 new companies to its Start Path climate-conscious startup incubator.

What's the Next Market for Buy Now/Pay Later Lending? (American Banker, 8/17/2022) BNPL lenders may look to the B2B sector, offering SMBs new ways to manage cash flows.

Lighter Fare:

Samples of Asteroid Returned to Earth Reveal Possible Source of Water and Building Blocks of Life (SciTechDaily, 8/16/2022) Extremely pristine samples from the outer Solar System reveals clues as to how the inner Solar System, including Earth, acquired its water and organic-rich components.