Employment picture mixed as inflation concerns continue. Teen banking startup Copper raises $9Mn. U.S. Bank to offer crypto custody services. Trustly partners with Cross River to power Instant Payouts. Banks push back on Apple Pay fees. Google axes plans for banking product Plex. Upgrade to add BNPL features. Stablecoin regulation seems imminent, but issuers aren’t worried.

Join Cross River Bank on November 3, 2021, at the American Fintech Council Policy Summit. The online event will bring together thought leaders from the private and public sectors to advance constructive dialogue between the industry, advocacy community, and regulatory agencies.

The Summit seeks to create an opportunity for responsible industry participants to share insights, propose standards, and provide regulators and policymakers with consensus viewpoints on the regulation of financial technology companies.

Topics to be covered include: Navigating State Regulatory Structure, Federal Fintech Agenda, Serving the Underserved, Balancing Innovation and Consumer Protection, and more. The AFC Policy Summit will include participants who are industry leaders, policymakers, academics, lawyers, consumer advocates, and regulatory agencies, amongst others.

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Employment Picture Mixed; Inflation Concerns Continue

Initial claims for unemployment dropped to 326,000 last week, the first such drop in four weeks. ADP was estimating private payrolls increased by 568,000 in September. However, Friday’s jobs report showed that, in fact, the U.S. added just 194,000 jobs last month, the smallest monthly increase this year.

The inflation story is shifting. Some pandemic-related price pressures, driven by supply chain disruptions and a surge in consumer spending, are beginning to dissipate. But alternate inflation measures, which exclude certain price increases, point to underlying, building pricing pressures, with alternate gauges still running ahead of the Fed’s 2% target. Some Fed officials are concerned surging inflation may change expectations where businesses and consumers come to expect future price increases.

While progress has been uneven, the economy continues to improve and hiring has held up well, despite the surge in COVID cases brought by the delta variant. With cases receding, employment and the broader economy are well-positioned to resume stronger growth.

Image: Bloomberg

Biden Admin May Seek to Regulate Stablecoins as Banks, but Issuers Say They’re Not Afraid

US dollar stablecoins, a type of cryptocurrency purportedly fixed in value to the US dollar, have quickly grown in importance in the broader crypto ecosystem. Estimates peg the value of USD-linked stablecoins from the five largest issuers at over $110Bn.

The rapid growth hasn’t gone without notice from regulators. Of particular concern are the types of assets issuers hold against the stablecoins they’ve created — and verification that those assets actually exist. Regulators are aiming to prevent a stablecoin equivalent of a bank-run, where coin holders rush to convert back to standard US dollars, but an issuer lacks sufficient assets or liquidity to fulfill redemptions. Such a situation not only could mean losses for stablecoin holders, but could also wreak havoc in traditional markets, if an issuer were forced to quickly liquidate USD-denominated assets.

Reports suggest the Biden administration’s preferred approach is to apply bank-like regulations to stablecoin issuers. For their part, major stablecoin issuers like Circle, Paxos, and Gemini aren’t afraid, and say they would welcome clear regulation.

Applications for stablecoins go beyond their common use as a sort of reserve currency for crypto trades. They’re being taken seriously as a new type of internet-native payment rail, with projects in the works or under consideration from companies as varied as Visa, MasterCard, Facebook, and PayPal. Payment processors also see the potential, with industry behemoth Stripe preparing for the growing use of crypto in payments by hiring crypto engineering talent.

As use cases for crypto and stablecoins proliferate, it’s likely any participant in the payments ecosystem, including wallets, merchant acquirers, and payment networks, is developing a crypto strategy.

U.S. Bank to Partner with NYDIG to Offer Crypto Custody Services

U.S. Bank, one of the country’s largest 10 banks by assets, has announced a cryptocurrency custody service for fund managers. U.S. Bank is partnering with sub-custodian NYDIG to bring the offering to market.

The custody service will enable investment managers to store private keys associated with cryptoassets, including bitcoin, bitcoin cash and litecoin, and plans to add support for additional assets over time. While asset managers conceivably could custody their own cryptoassets, working with a third party with a long track record in providing custody services gives funds’ clients additional confidence.

Custodying crypto has attracted interest from numerous traditional players in the custody space, including Bank of New York Mellon, State Street, and Northern Trust.

In some ways, the use of a third-party custodian represents the kind of intermediation that crypto was looking to disrupt. Still, increased institutional adoption may be contingent on replicating some of the structures that exist in the traditional financial ecosystem.

Trustly Partners with Cross River on Instant Payouts

Sweden-based fintech Trustly announced its expansion of its US product offerings with Instant Payouts. Trustly is partnering with Cross River Bank to power the functionality, which is made possible through Cross River’s early participation in The Clearing House’s real-time payment (RTP) network.

The Instant Payout offering will enable businesses like insurance companies, sportsbooks, marketplace providers, and trading companies to disburse payments to their end customers instantly.

Business and consumers increasingly are coming to expect the kinds of quick, seamless payments made possible by technologies like The Clearing House’s RTP. This is a trend that is only likely to accelerate as infrastructure players like Trustly make it possible for businesses to quickly embed such functionality in their products and processes.

Openpay Partners with Cross River for US Expansion

Australia-based Openpay announced it has partnered with Cross River Bank to bring its “Buy Now, Pay Smarter” platform to the US under the name “Opy”. Unlike split pay offerings focused on smaller ticket sizes with short repayment timeframes, Opy will provide financing up to $20,000 for terms as long as 24 months. Beyond the traditional consumer retail and ecommerce segments, Opy focuses on verticals associated with crucial life needs, like automotive, healthcare, home improvement, and education.

Card Issuers Push Back on Apple Pay Fees

Banks, eager not to miss the boat on mobile payments, were initially on board with giving Apple 0.15% of each transaction made with a card through Apple Pay. Now, with Apple becoming more of a direct competitor after launching its own credit card with Goldman Sachs, some banks have reportedly been working with Visa to reduce the scope of transactions that would incur these fees.

Under the change banks are advocating for, for recurring transactions such as subscriptions, banks would pay the 0.15% only on the first payment, rather than every charge, as is currently the case.

While this specific change would only apply to subscription payments on Visa cards, it may be a sign that some banks and card issuers are increasingly viewing Apple as a competitive threat.

Google Drops Plex, Focuses on Selling to Banks

Nearly two years after announcing plans to offer consumers bank accounts within Google’s wallet, Google Pay, the company has shelved the plan. The offering, called Plex, would have allowed users to open an account through partner banks as varied as Citibank, State Employees FCU, BankMobile, GreenDot, and Coastal Community, among others.

The change of plans comes amidst turnover on the Google Pay team stemming from what has been widely viewed as a less-than-successful rebuild of the core Google Pay product. New leadership has reportedly decided to re-focus efforts on “digital enablement” (selling solutions to banks) instead of offering a product that some bankers viewed as competitive.

Google’s decision to abandon its Plex project may suggest fears of big tech muscling in on consumer banking have been overblown. Big tech companies like Google, Amazon, and Apple have generally chosen to partner with or sell to banks, rather than compete with them head-to-head.

Upgrade Latest to Get Into BNPL Race

Renaud LaPlanche’s Upgrade is the latest to announce a product tapping into the consumer appeal of buy now, pay later. The company plans to enhance its Upgrade Card product with a feature enabling users to finance purchases for up to four months without accruing any interest.

Rather than rely on a merchant integration, like BNPL stalwarts Affirm or Klarna, users can pay at any merchant, in-store or online, with their Upgrade Card. Multiple purchases are batched into an invoice that customers repay over a 4-month period.

The consumer credit space is undeniably shifting, with BNPL an increasingly common financing choice. Upgrade’s decision to add this functionality was no doubt an easy one, given consumers’ growing affinity for the feature.

Looking for the latest on fintech lending originations volume and performance, including the buy now, pay later sector? Reach out to to learn about the data and analytics we have on the sector.

Banking for Teens Startup Copper Raises $9Mn

If the first crop of “challenger banks” focused on broad demographic segments not historically well served by established banks, the newest group of challengers are more focused on building banking products tailored for narrower audiences. One of the hottest such segments is banking products for teens, which includes companies like Greenlight, Step, and Copper.

Copper, which describes itself as a digital banking service for teens, announced it has raised an additional $9Mn, led by PSL Ventures, an arm of Pioneer Square Labs. Two-year old Copper boasts over 350,000 users on its platform and says it has been growing by as much as 70% month-over-month.

With the development of a robust set of vendors, it is faster and cheaper than ever to launch a banking product. The logical result is the ability to build a successful business around a more niche, customized audience and product offering.

In The News:

The Postal Service’s Tiny Check-Cashing Test Sparks a Big Reaction (American Banker, 10/04/2021) Controversy in D.C. as the Postal Service launches its pilot program to accept business and payroll checks of $500 or less for a flat $5.95 fee.

How Card Issuers Inadvertently Fueled the Buy Now/Pay Later Boom (American Banker, 10/01/2021) By tightening credit offered to new customers at the beginning of the pandemic, card issuers drove consumers to alternative financing.

Investors Bet on Tech Behind Buy Now/Pay Later, Open Banking (American Banker, 10/04/2021) Investors poured over $12.4Bn into e-commerce software in the first half of the year, already significantly eclipsing the amount invested in all of 2020.

UK App-Only Bank Monzo Withdraws U.S. Banking License Application (CNBC, 10/04/2021) Following talks with the OCC, the digital challenger bank withdraws its U.S. application.

USDC Stablecoin Backer Circle Internet Subpoenaed By U.S. SEC (Bloomberg, 10/05/2021) Recent filing reveals Circle received a subpoena from the SEC in July.

Fed Vice Chair Traded into Stocks on Eve of Powell Pandemic Statement (Reuters, 10/02/2021) In the wake of two Federal Reserve officials retiring after scrutiny of their trading patterns, Vice Chair Richard Clarida is discovered to have moved millions from a bond fund into stock funds one day before Powell issued a statement indicating potential policy action due to COVID.

Lighter Fare:

Jeff Bezos’ Blue Origin is Launching William Shatner on October Tourist Spaceflight (CNBC, 10/4/2021) Beam me up, Scotty – Canadian actor Shatner, who played Captain Kirk in the original Star Trek TV show, is set to become the oldest person to fly to space, at 90.