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Lineage’s Consent Order; NayaOne Raises $4.7Mn; Apple Pay Later to Furnish to Experian

By Cole Gottlieb

March 3, 2024

Happy Sunday,

When the Fed finally starts lowering rates, it won’t be the “elevator” down you’re used to. Democratic legislators seek to block Capital One/Discover acquisition. NayaOne raises $4.7Mn. Cross River launches investment bank. Lineage hit with consent order, and Green Dot reveals one is coming. Treasury Prime pivots, lays off half of company. Apple Pay Later to start furnishing credit data. Klarna’s losses narrow.

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Rate Lowering, when it Comes, Will be Slow

Yes, we’re back to talking about rate cuts. The Fed is emphasizing investors should have patience, as, whenever the Fed does begin lowering rates, it is likely to be a slow process. Officials pointed to the soft landing achieved in the mid-1990s, when the central bank cut rates and held them steady for three meetings before cutting again. With most economic indicators showing healthy performance, and unemployment remaining very low, at 3.7%, the Fed has the luxury of taking its time, at least for now.

Image: Bloomberg

Dem. Legislators Put Capital One-Discover Deal on Blast

Senator Elizabeth Warren (D-MA), an often outspoken critic of the financial services industry, has lined up 11 progressive members of Congress to join her in writing to Capital One’s regulator, the OCC, and the Federal Reserve, urging the agencies to block the proposed acquisition. The lawmakers argue in the letter, addressed to Acting Comptroller Hsu and Vice Chair for Supervision Barr, that the acquisition would result in further consolidation in the banking industry and harm consumers, including pointing out the recent study from the CFPB indicating that larger card issuers charge significantly higher interest rates than smaller ones. The same survey found that larger issuers charge significantly higher fees than small banks. The lawmakers also highlighted both Capital One’s and Discover’s regulatory records, including a 2012 CFPB action ordering Capital One to refund $140Mn to consumers and Discover’s recent consent order with the FDIC. The OCC and the Fed, together with the Department of Justice, will review Capital One’s proposed acquisition of Discover.

NayaOne “Sandbox” Raises $4.7Mn

Fintech “sandbox-as-a-service” startup NayaOne has raised $4.7Mn in capital. The funding was led by EJF Capital, with participation from Carthona Capital and the corporate venture arm of Valley Bank. Valley Bank is an early adopter of NayaOne’s platform, which enables banks to quickly and easily test fintechs’ capabilities in a vetted marketplace. Given the complexity of even getting to a proof-of-concept with many banks, the potential to accelerate that process would be a boon, both to fintechs navigating the often-lengthy process of selling to banks, as well as for banks themselves.

Cross River Launches Fintech-Focused Investment Bank

Big news from Cross River Bank: it’s launching an investment banking practice focused on fintechs. The new business unit will focus on advising clients on mergers and acquisitions, capital markets transactions, and other corporate finance matters. The practice will be led by Benjamin Samuels and Henry Pinnell as Co-Heads of Investment Banking. “We are proud to launch our investment banking division of our broker dealer with two well-respected professionals in the industry, combining decades of experience in both the fintech industry and capital markets,” said Gilles Gade, Founder and CEO of Cross River. “Ben and Henry are tasked with enhancing even further our product offering to our fintech partners and beyond, enabling us to solve the distinct needs of each and every client.”

BaaS Reckoning Continues with Lineage, Green Dot Orders, Treasury Prime Layoffs

The fallout in the banking-as-a-service space hasn’t slowed down over the last couple of weeks. A consent order Lineage Bank entered into with its regulator, the FDIC, at the end of January was recently publicly released, as first reported by Fintech Business Weekly. The order covers a wide range of issues and imposes substantial requirements and controls on the bank, including heightened capital requirements and caps on how quickly it can grow assets or liabilities without the FDIC’s sign off. Lineage’s consent order follows three years of extremely rapid growth, funded in part by banking-as-a-service deposits sourced through its relationships with Synctera and Synapse. Now, Lineage’s board must step up its oversight of the bank and its fintech programs, with the FDIC order specifying that relatively granular data points, like FBO account usage and transaction volumes, should be surfaced to the board at a regular cadence. The consent order also calls on Lineage to manage and reduce funding concentrations and liquidity risks, including those posed by its fintech partnerships.

In separate news, Green Dot, which also operates in the BaaS space, revealed in its quarterly earnings last week that it received a proposed consent order from its regulator, the Federal Reserve Board, which it is continuing to negotiate. Details in Green Dot’s 8-K are slim but indicate the order stems from consumer compliance and anti-money laundering issues. Green Dot took a $20Mn charge in Q4’23 against an anticipated future penalty, though warned the fine could reach as high as $50Mn. 

Meanwhile, banking-as-a-service platform Treasury Prime announced a strategic pivot. To date, the company has focused on selling to fintechs and “matching” them with a partner in Treasury Prime’s network. But, given increasingly clear regulatory pressure on banks to have direct oversight of their fintech programs, the company will refocus on selling software solutions to banks. In line with the strategy shift, Treasury Prime also laid off about half its staff, according to reporting from Fintech Business Weekly’s Jason Mikula that was later confirmed by Banking Dive.

Apple Pay Later to Begin Furnishing Credit Data

Apple’s BNPL offering, Apple Pay Later, will begin furnishing data on consumers’ use of the plans to Experian. The move will make Apple the first major BNPL provider to furnish loan and repayment data directly to a CRA. According to Experian, the tradelines will not yet be used in calculating users’ credit scores, though that could change in the future.

Klarna Touts AI Assistant, Narrowing Loses

Klarna, in the midst of readying itself for an IPO, has been in the news a lot lately. Its annual report, released last week, showed increasing revenues and a narrowing loss for the BNPL provider. During 2023, Klarna notched its first profitable month and quarter for the first time in four years. The report also demonstrates Klarna’s strong growth in the U.S. It now has 37Mn users in the U.S., an increase of 5Mn from the year prior.

The company is also touting its investment in tech, specifically, in generative AI. It claims a customer service chatbot it built on top of OpenAI’s popular ChatGPT tech already handles two-thirds of customer service chats, doing the work of 700 employees The automated bots can handle a range of tasks that include cancellations, refunds, and disputes.

In the News:

Federal Reserve denies The Narrow Bank's master account application (American Banker, 2/26/2024) After six years of deliberations, the Fed denied TNB’s application.

Chime to pay California regulator $2.5M over customer service flaws (Banking Dive, 2/28/2024) The DFPI says that Chime made “mistakes” in how it handled some customer complaints.

CFPB may take legal action against Block (Payments Dive, 2/23/2024) The CFPB has accused Block of “slow walking” responses to CIDs and may now take legal action.

Omnichannel payment processing platform Helcim raises $20m (Finextra, 2/26/2024) Helcim will use the funds to continue development of its payment and business management solutions.

LoanDepot says about 17M customers had personal data and Social Security numbers stolen during cyberattack (Techcrunch, 2/26/2024) The data was compromised in a cyberattack last month.

Brazil’s Nubank reports record net income, over 90M clients in Latam (Fintech Nexus, 2/27/2024) Nubank notched a nearly six-fold increase in net income vs. the year prior.

Bitcoin Scales $60,000 as ETF Demand Puts Record High in Sight (Bloomberg, 2/28/2024) Bitcoin may reach a record high, thanks to increased demand from recently approved bitcoin ETFs.

Stripe Valuation Jumps to $65 Billion in Employee Share-Sale Deal (Wall Street Journal, 2/28/2024) A tender offer that will let employees cash out shares value the company at $65Bn.

A closer look at FinWise Bank and Earnest’s alliance to expand student loan financing (2/28/2024) FinWise and private student lender Earnest are teaming up.

Lighter Fare:

20 of the coolest travel adventures for 2024 (NatGeo, 1/30/2024) If you need travel-inspo for 2024, this post is for you.