Inflation hits a high. CRA revamp in the works. White House orders government-wide crypto review. Fed seeks comment on tiered reviews for access to services. Zeta raises $30Mn. Marlette’s $250Mn Series E. More payments companies pull out of Russia. BNPL as “shadow” student loan debt. Visa, Mastercard prep fee hikes.

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Inflation Hits Four-Decade High

Inflation hit a four-decade high of 7.9% in February. With energy prices spiking amidst Russia’s invasion of Ukraine, the rate is likely to be even higher for March. The Fed is expected to raise rates by 0.25% when it meets next week.

CRA Revamp Expected as Soon as This Month

The Federal Reserve, FDIC, and OCC are expected to issue a proposal for updating the Community Reinvestment Act, potentially as soon as later this month. The move comes after years of inter-agency tension over updates to the 1970s-era rule. Updates are likely to include measures related to climate change and disaster recovery. Regulators are also reportedly considering how to address banks’ partnerships with non-bank lenders under an updated rule.

Once a formal proposal is issued, there will be a 60- or 90-day comment period. The Biden administration’s goal is to finalize a rule, to go into effect in 2025.

White House Orders Broad Review of Crypto

The Biden administration’s long-awaited Executive Order on crypto has finally been released. The order calls for a “whole-of-government” approach to studying and making policy recommendations governing digital assets, including crypto, stablecoins, and CBDCs.

The order highlights six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.

Bitcoin surged as much as 8% on the release of the Executive Order on hopes that improved regulatory clarity will foster growing consumer and institutional adoption.

Fed Seeks Comment on Tiered Access Plan for Fintechs

Last year, the Fed created guidelines for reviewing requests for access to Fed accounts and payment services from newly chartered fintechs. After a public consultation, the Fed has updated the proposal to create a tiered system for reviewing requests based on the level of risk an entity poses. Institutions with deposit insurance would undergo a streamlined approval process, while entities not overseen by a federal bank regulator would receive a stricter level of review.

Zeta Raises $30Mn, Teams with Mastercard

Zeta, a provider of cloud-based software for core banking, mobile banking, and processing credit transactions, announced it has raised an additional $30Mn. The additional funds brings the total amount the company has raised to $280Mn and values the company at $1.5Bn.

The company also announced a five-year partnership with Mastercard to help its clients launch credit cards more quickly and easily. Mastercard will provide fraud, risk, and loyalty functionality. The goal is to enable the creation and launch of new card programs in as little as one day.

Marlette’s $225 Mn Series E

Marlette had quite a 2021, originating $4.6Bn in loans under its Best Egg brand, which drove $300Mn in revenue and record GAAP profitability. Now, off the back of that strong performance, the company announced it has raised a $225Mn Series E, led by the Healthcare of Ontario Pension Plan (HOOPP).

Part of that funding will go towards continuing to scale Marlette’s nascent credit card business. Launched last June, also under the Best Egg brand, the company currently has over 23,000 cardholders.

Congrats to CEO Jeffrey Meiler and the entire Best Egg team on the news!

Payments, Crypto Firms Crack Down on Russia

With the Russian invasion of Ukraine in its second week, numerous payments firms are cracking down on Russia.

Visa and Mastercard suspended operations in Russia last Saturday. The pair also banned sanctioned Russian banks from using their networks. American Express and PayPal shortly followed suit, suspending operations in Russia and Belarus. Neobank Revolut ceased support for transfers to or from entities in Russia and Belarus on March 4th. 

Meanwhile, popular crypto exchange Coinbase said it won’t ban users or transactions in Russia, beyond those that are specifically under sanction. But the exchange did block some 25,000 addresses it said were linked to illicit Russian activity. 

BNPL as “Shadow” Student Loan Debt

A new report from the Student Borrower Protection Center highlights the growth in use of BNPL as a financing option at for-profit education institutions. The SBPC argues that the education companies present BNPL in ways that may be inaccurate or misleading.

The advocacy group’s report detailed unaccredited or loosely regulated schools offering courses in topics like animal healing, reiki, real estate, and technology. The SBPC describes use of BNPL to finance these courses as a form of “shadow” student loan debt, as the products don’t offer the same protections as private education loans. Regulators have put in place specific disclosure and co-branding rules for typical private student loans, with which BNPL offerings may not comply.

While the for-profit schools represent a very small proportion of BNPL companies’ volumes, the issue is likely to attract attention from regulators, and may play a role in the CFPB’s examination of the fast-growing sector.

Visa, Mastercard Prepare Fee Hikes

After being delayed due to the pandemic, Visa and Mastercard’s fee hikes are scheduled to kick in next month. The absolute amount U.S. merchants pay to accept cards has more than doubled since 2012 to $55.4 Bn in 2021.

The fee increase will apply to many online consumer card transactions, though merchants can avoid Visa’s rate hike by sharing certain transaction data and implementing Visa’s tokenization service, which provides better security by masking card numbers.

Merchants understandably aren’t thrilled. Interchange rates in the U.S. are already among the highest in the world. The Merchant Payments Coalition, a business advocacy group, sent a letter to the House Financial Services Committee, encouraging Congress to block the rate hike and to investigate the payments companies.

According to the MPC, “​​“The two giant card networks and their partner mega-banks routinely use their market power to stifle competition and charge merchants the highest swipe fees in the industrialized world.”

Image: Wall Street Journal

In The News:

Fed Approves M&T’s Acquisition of People’s United (American Banker, 3/4/2022) The approval wraps up the $7.6Bn deal, which was expected to close in 4Q21.

Stax Reaches Unicorn Status on $245 Million Equity Raise (Finextra, 3/8/2022) Stax is a U.S.-based payments software company that drives the payments ecosystem for over 22,000 businesses using an all-in-one payments API.

Santander Flags Accounting Flaws at U.S. Subprime Auto Loan Unit (American Banker, 3/4/2022) Cash flows from HFS loans were misclassified as investment activity rather than an operating activity.

Binance Jumps Into Payments Processing, Eyes Web3 (PYMNTS, 3/7/2022) Binance launched Bifinity, a new payments firm, to work with to provide fiat on-/off-ramps for users of crypto exchanges.

Why SoFi’s Tech + Bank Deals Could Disrupt Traditional Banking (The Financial Brand, 3/7/2022) SoFi’s recent acquisitions put it in a great position to become a full-fledged financial one-stop shop.

Santander Launches Loans Backed by Tokenized Commodities Such as Soy and Corn (CoinDesk, 3/7/2022) Santander partnered with Agrotoken, an agricultural commodities tokenization platform, to offer the loans., a Mortgage Lender and Early Pandemic Winner, Announces More Layoffs. (New York Times, 3/8/2022) plans to fire over a third of its ~9,000 person staff, just a few months after its controversial firing of 900 employees via a group zoom call.

Behind PayPal’s Evolution as a Charitable Platform (Tearsheet, 3/7/2022) PayPal raised $19.6Bn in 2021 for nonprofits and causes, a 10% increase from 2020.

Marqeta, Citi Commercial Cards Team to Allow Corporate Clients to Provision Cards Into Mobile Wallets (PYMNTS, 3/9/2022) The move will enable Citi to provision corporate plastic and virtual cards into mobile wallets.

Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem. (New York Times, 3/6/2022) Banks say that returning money to defrauded consumers is not their responsibility, since the federal law covering electronic transfers (Reg E) requires them to cover only “unauthorized” transactions.

Circle, Crypto And The Future Of Global Money (Forbes, 3/9/2022) Circle has bold ambitions to make cross-border payments “as absurd as the concept of a cross-border email or a cross-border browsing session”.

Lighter Fare: 

The U.S. has Plans to Patrol the Space Around the Moon (The Hill, 3/7/2022) The move comes as space traffic to the moon is expected to rapidly increase in the coming decades as NASA, China, Russia, and several commercial companies are working to launch expeditions.