Apple’s Open Banking Acquisition; Goldman’s Crypto Trade; Fed Gets Hawkish
By Cole Gottlieb
March 27, 2022
Greetings,
The Fed is getting more hawkish. The CFPB is expanding its view of discrimination. Corporate expense management startups raise rounds. BNY Mellon pulls back from Russia. Goldman executes its first OTC crypto trade. Cross River and Cherry Technologies ink debt deal. Robinhood’s new debit card. Figure announces crypto mortgages. Apple acquires an open banking startup. Opy offers BNPL for auto repairs. Cross River expands crypto services.
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More Hawkish Rate Policy Possible
Fresh on the heels of the Fed’s 0.25% hike, Fed Chair Powell is striking a more hawkish tone. He’s made clear in recent comments the Fed is open to raising rates in 0.50% increments. Powell also expressed the Fed’s willingness to raise rates high enough to deliberately slow the economy, if warranted.
Meanwhile, some bankers are concerned that rate hikes alone may not be sufficient to tackle a challenging economic environment. While rising rates should boost net interest income, banks’ costs for labor, real estate, and energy are likely to rise with inflation.
CFPB Pushes to Expand Discrimination Authority
In a recent announcement, the CFPB made clear it will take an expansive view of discriminatory in financial services products. The agency said that discrimination on the basis race, age, or sex could constitute a UDAAP violation. In its announcement, the CFPB explicitly stated this expanded interpretation of its authority would extend beyond credit products to include payments, deposit accounts, checking accounts, prepaid cards, and debt collection, among others. The move suggests a coming increase in supervisory attention and potentially enforcement actions related to discrimination in products other than credit and lending.
Jeeves, Ramp Raise New Rounds
Corporate expense management is having a moment. Two startups in the space announced rounds last week. Both saw valuations jump substantially on the back of quickly rising revenue.
Ramp raised a fresh $200Mn in equity and $550Mn in debt for its expense management and charge card offerings. The startup saw its valuation balloon to $8.1Bn as its revenue increased ‘nearly 10x’ year over year.
Meanwhile, Jeeves, also in the corporate card and expense management space, announced its $180Mn Series C, with a focus on “global” startups. The company more than quadrupled its valuation, from $500Mn to $2.1Bn – in about six months.
With rapidly rising valuations, there’s no question the corporate expense management-and-card space is hot right now. The question is whether or not these businesses can execute, grow, and generate the revenue and margins to justify these valuations.
BNY Mellon Joins Others in Russia Pullback
Bank of New York Mellon is the latest U.S. bank to curtail activity in Russia, in response to its invasion of Ukraine and international sanctions. BNY Mellon said last week that it has ceased any new banking activity in the country and suspended investment management purchases of Russian securities. It will, however, continue doing business with “multinational” clients that depend on its custody and record keeping services.
The move will come at a cost. BNY Mellon said it would lose about $100Mn in revenue in the first quarter and $80-$100Mn in annual revenue going forward.
Goldman Sachs Executes First OTC Crypto Trade
Do big banks have crypto FOMO? Goldman Sachs is edging further into the space. Last week, the investment bank conducted its first over-the-counter trade with crypto merchant bank Galaxy Digital. Galaxy seems like a logical enough counterparty for Goldman – it was founded by former Goldman partner Michael Novogratz. Goldman traded a bitcoin-linked instrument known as a non-deliverable option with the firm.
As crypto gains increasing legitimacy and institutional acceptance, expect to see more traditional banks engage in the space. While plenty of uncertainty remains, the next 6-12 months should see improved regulatory clarity, stemming from the analysis and policy-making process the Biden administration’s crypto EO kicked off earlier this month.
Cross River & Cherry Technologies Finalize Credit Facility
Cross River Bank and Cherry Technologies have finalized terms of a $50Mn credit facility. Cherry Technologies will use the funding to enable medical practices to offer financing options to their patients. Cross River will also serve as a bank partner to Cherry to originate loans for its platform.
Robinhood’s New Debit Card
Last week, Robinhood announced a new debit card, the Robinhood Cash Card. The offering looks a lot like the cash management debit card the company originally launched in 2019, with one key difference. Users will have the option to automatically round-up transactions on the card to the nearest dollar and invest the extra into stocks or crypto.
The feature isn’t exactly unique. Banks have offered such “keep the change” savings mechanisms for years, though the funds typically went into humdrum savings accounts. Other fintechs like Acorns and Stash offer similar features, with the roundups going into equities. Robinhood’s incremental change is enabling users to direct the money into crypto.
Additionally, Robinhood will offer users a bonus of 10-100% of their weekly round-ups, based on a variable reward algorithm. Given the company’s checkered history with “gamification,” the technique, which could encourage users to spend more, could attract criticism from consumer advocates, legislators, and regulators.
Figure Announces Crypto-backed Mortgage
Mike Cagney-led Figure Technologies announced two crypto-mortgage products last week: Crypto Mortgage and Crypto Mortgage PLUS. Both products will enable users to borrow against bitcoin or ether crypto holdings to finance a home purchase.
According to Cagney’s post on LinkedIn, users will be able to borrow up to $20Mn for a 30-year mortgage. Users will be able to borrow up to 100% of the value of their crypto holdings. For example, if a user owns $500,000 worth of bitcoin, they would be able to use it to secure a $500,000 mortgage. Users can repay from their collateral or by making regular payments.
The “PLUS” option will allow users to borrow up to 50% of the value of their crypto, make a 20% downpayment, and fund the balance with a conventional mortgage.
Figure’s announcement is significant, as it represents the rapidly accelerating intersection of “crypto” and “fiat” worlds. Unlocking liquidity increases the utility of crypto. Instead of just “hodling” it, users can leverage their crypto assets into real world benefits, like buying a home. Developments like this should broadly support the value of crypto-assets.
Apple Acquires U.K.’s Credit Kudos
Apple is making another play in the financial services arena. Last week, it acquired Credit Kudos, a U.K. startup that uses open banking data to help lenders make better underwriting decisions. While an acquisition price was not disclosed, Apple is rumored to have paid about $150Mn for the company.
It’s not immediately clear what Apple’s plans are for the tech. Industry analysts suggest it could be used to bolster underwriting of the Apple Card, though we think that’s unlikely, given Apple’s bank partner, Goldman Sachs, would handle that. Other possibilities include helping to power Apple’s yet-to-launch BNPL offering or underwriting financing for Apple products.
Opy Adds Financing for Car Repairs
Opy, the U.S. brand of BNPL provider Openpay, has inked a deal with franchised auto dealers of Nissan, Volkswagen, and Honda. The partnerships will enable consumers to finance auto repairs up to $20,000 using Opy’s flat-fee, close-ended loans. Opy offers repayment terms up to 24 months.
It’s no surprise to see BNPL for car repairs. While the BNPL trend sometimes feels like it's getting a bit long in the tooth, especially in the face of potential regulation, we expect to see BNPL offered as a financing/payment mechanism for basically everything, until the market or regulators give BNPL providers a reason to pull back.
Cross River Expands Crypto Services
Cross River Bank announced it has expanded its crypto-related services, including a partnership with blockchain analytics firm Chainalysis. Cross River will utilize Chainalysis “KYT” (know your transaction) capability, along with real-time transaction monitoring, to help ensure compliance with relevant KYC/AML regulations.
“Crypto is going to be a part of our daily lives, and it’s our responsibility to help the world of financial services stay current with the new technologies,” mentioned Luca Cosentino, Head of Digital Property at Cross River. “Cross River is simplifying crypto and making it accessible to all. Our partnership with Chainalysis demonstrates our commitment to innovation while prioritizing compliance and maintaining consumer trust.”
In The News:
Libor Transition Progresses, but Hurdles Remain for Legacy Loans (American Banker, 3/20/2022) Roughly half of survey respondents say they are still facing challenges in preparing systems to transition older loans to non-Libor rates, an improvement from 82% last summer.
SEC Climate Disclosure Plan Presents Challenge for Banks (American Banker, 3/21/2022) The SEC voted to propose a rule that would require public companies to disclose climate-related risks and impact.
Fed Approves Citizens' Acquisition of New Jersey-Based Investors (American Banker, 3/22/2022) The approval comes as federal banking regulators are reviewing their merger approval processes.
Powell Says Digital Dollar Must Ensure Privacy, Identification (American Banker, 3/22/2022) Powell says a hypothetical digital dollar would need to ensure user privacy, need to be “identity verifiable”, be “intermediated” or widely embraced by the current banking system, and serve as a widely accepted means of payment.
Understanding the CFPB’s New UDAAP Guidance: Is Consumer Harm Lurking in Your Institution? (LendIt Fintech, 3/22/2022) The CFPB now has a tool to combat discrimination throughout the entire product life cycle of every consumer financial product and service.
Finally, the SMB Back Office Automation Platform, Raises $95 Million (PR Newswire, 3/21/2022) PeakSpan Capital led the Series A funding round.
Tomo Raises $40M Series A, Hits $640M Valuation (finLedger, 3/21/2022) The fintech startup focused on the purchase mortgage sector will use the new capital to continue investing in its software development, data science, and industry relations.
Blockchain.com Selects Fintech Stripe to Bring More Consumers into Crypto Economy (Crowdfund Insider, 3/18/2022) Stripe has already been used to build a new checkout flow to enable users to buy crypto with card payments.
Gen Z Payment Trends: How They Use Cash, P2P and BNPL (The Financial Brand, 3/22/2022) Gen Z embraces P2P options, such as Venmo and Cash App with 39% of them using them as a form of payment.
Why Some Challenger Banks are ‘Rebundling’ Products that Fintechs Stripped Away (American Banker, 3/22/2022) Have challenger banks like MoneyLion and SoFi become full-fledged alternatives to traditional banks?
Digital IDs Become More Critical as Online & Mobile Banking Dominate (The Financial Brand, 3/23/2022) Increased digital fraud undermines consumer trust, with 23% of U.S. consumers reporting that unauthorized accounts had been opened in their names in 2021.
Lighter Fare:
Study Claims an ‘Anti-Universe’ Where Time is Backwards May Exist Next to Ours (New York Post, 3/21/2022) The “backwards universe” could help to explain dark matter in our universe.