Fed Chair Powell commits to fighting inflation. California lawmakers ask FDIC to shutdown “rent-a-bank” schemes. Congress reacts to stablecoin collapse. Fed rate hikes change banks’ deposit calculus. BaaS startup Unit raises $100Mn. BNPL in brief. Robinhood to launch self-custody for crypto, NFTs. Plaid launches new capabilities.
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Fed Reiterates Commitment to Stable Prices
Fed Chairman Powell reiterated the central bank’s dedication to getting inflation under control. Last week, he said the Fed would take the steps necessary, even if that means an increase in unemployment.
Meanwhile, the Fed’s plans to begin shrinking its balance sheet may cause issues in other areas of the banking system. Banks have preferred higher reserve balances as a buffer against stress in recent years. As the Fed begins reducing assets, it’s unclear exactly how much of their Fed reserves banks will be willing to part with and what the impact will be.
At least U.S. retail sales were up in April. Consumers spent 0.9% more than the month prior. Though, because the metric isn’t adjusted for inflation, consumers are likely getting less per dollar spent.
California Lawmakers Ask FDIC to Crackdown on “Rent a Bank”
Democratic lawmakers have sent a letter asking the FDIC to crackdown on fintech-bank partnerships that originate loans in excess of the state’s 36% usury cap on loans between $2,500 and $10,000. While California lawmakers implemented the cap in 2019, companies that work with banks in other states have continued to originate loans at APRs as high as 160%.
OppFi, one such company, proactively sued California’s banking commissioner, seeking a declaration that its partnership model is permitted. California’s banking commissioner countersued and is seeking penalties of at least $100Mn, arguing that the bank partnership model OppFi employs is an “overt attempt to evade the state interest rate cap.”
Congress Focuses on Stablecoins in Wake of Terra Disaster
The fallout from the Terra collapse continues to reverberate. Treasury Secretary Yellen characterized the risks from stablecoins as “growing rapidly,” but that they did not yet present a systemic risk. Meanwhile in Congress, legislators from both parties are reviving legislation aimed at regulating the sector. Legislative approaches differ. While some proposed bills specifically address “algorithmic” stablecoins, like Terra, others focus only on fully reserved stablecoins. With an evenly divided Senate and in an election season, it is likely to be difficult to get any legislation across the finish line.
Unit Raises $100Mn, Becomes Unicorn
Banking-as-a-Service startup Unit has raised a $100Mn Series C. The round values the company at a cool $1.2Bn, making it a “unicorn.” BaaS companies like Unit have proven a popular alternative to striking direct relationships with banks. BaaS companies provide a middleware on top of one or multiple bank partners, providing a simpler and faster tech integration for startups looking to offer banking services. According to the company, Unit has seen its transaction volume grow by 7x in the past six months.
Congrats to CEO Itai Damti and the entire Unit team on the milestone!
Fast Fed Hikes Change Banks’ Deposit Calculus
The Fed has embarked on an aggressive rate hiking cycle. While that should help cool record inflation, it is complicating banks’ plans when it comes to pricing deposits. The prevailing theory had been that, despite rising rates, banks could continue offering depositors lower rates, owing to the glut of deposits. Now, with the Fed’s quick pace of hikes, that may not be the case. Expectations have reset about when banks will need to begin raising deposit rates, which will reduce net interest margins.
BNPL in Brief: Afterpay in Person, Agoda & Visa Partner, Zilch’s US Launch
Square is leaning into its acquisition of BNPL service Afterpay. The company is looking to boost the number of in-person shoppers using BNPL. The company announced that shoppers can now use Afterpay for in-person purchases at Square sellers via an Afterpay virtual card.
Meanwhile, Singapore-based travel site Agoda announced it has teamed up with Visa to offer installment payments at checkout. To take advantage of the service, users enter their credit card as normal at checkout. An option to split the transaction into installments will automatically appear for eligible cardholders.
BNPL “2.0” is coming to America. Zilch, a UK-based BNPL, announced it has launched in the U.S. Zilch is used directly by consumers (rather than via merchant integration), has no fees or late charges, and offers 2% cashback. Zilch is partnering with Cross River for its US product. Regarding the launch, Cross River Founder, President and CEO Gilles Gade said, “Cross River’s technology unlocks opportunities for partners across the entirety of the fintech ecosystem, and a partner like Zilch is helping to foster financial inclusion and access to responsible credit.”
Robinhood to Let Users Custody Their Own Crypto, NFTs
Not your keys, not your crypto, or so the saying goes. It seems Robinhood has taken that to heart. The company, best known for its no-fee stock trading, is launching a standalone app that will let users self-custody their crypto and NFTs.
The company is betting big on crypto and Web3, and it needs a win. Its shares have dropped 88% from their high and are down more than 70% from their IPO price. Still, with crypto prices swooning and interest in even “blue chip” NFTs, like those from the Bored Ape Yacht Club, cooling, Robinhood’s timing isn’t ideal.
Plaid Expands into Identity Verification, Fraud Prevention, Account Funding
First, Stripe launched an open banking product. Now, it looks like Plaid is expanding into areas where Stripe has long operated, like payments and fraud prevention.
Last week at its Plaid Forum event, the company announced several new capabilities. New functionality includes Core Exchange, which will enable banks, fintechs, and other data partners to securely share data via Plaid. Identity verification, necessary to comply with KYC/AML onboarding requirements, comes via the integration of Plaid’s recent acquisition of Cognito. The most interesting addition is new tools to facilitate the funding of newly opened accounts. Plaid also announced an ACH risk analytics tool, to help companies speed up ACH transfers by mitigating ACH return risks.
In the News:
FDIC, CFPB Target Crypto Firms that Make False Claims of Deposit Insurance (American Banker, 5/17/2022) The FDIC and CFPB passed rules outlining their authority to prohibit individuals and organizations from making misrepresentations about deposit insurance.
CFPB Ramps Up Enforcement Hiring (American Banker, 5/12/2022) The CFPB plans to hire 20 additional enforcement attorneys, following the expansion of its authority to oversee nonbanks and fintechs.
The Banker’s Guide to the Metaverse (The Financial Brand, 5/16/2022) Financial institutions cannot ignore the massive resources being spent by tech giants.
Neobanks’ Growth Comes at a Cost: What it Means for Traditional Banks (The Financial Brand, 5/16/2022) In 2017, there were only about 100 digital-only neobanks; today, that number is over 250.
How Affirm Hopes to Ward off the Growing BNPL Competition (American Banker, 5/16/2022) Affirm has been an early adopter of FIserv’s POS technology that places BNPL offers into the checkout flows of thousands of merchants.
Non-Dilutive Capital a Growing Fintech Option (Lendit Fintech, 5/16/2022) VC has accepted fintech is here to stay, with ~20% of VC money devoted to the space.
Revolut CEO Nik Storonsky to Launch New VC Fund that will “Disrupt” the Venture World (altfi, 5/17/2022) Storonsky wants to use alternative data, tech, AI, and systematic strategies to identify companies to invest in.
Amount White Paper: Banks Building BNPL with Fintech Partnerships (Lendit Fintech, 5/17/2022) For most financial institutions that partner with fintechs, fraud and risk are their top concerns in digital banking.
Klarna to Report Credit Scores Starting in June (Lendit Fintech, 5/17/2022) Klarna will start reporting data on customers’ usage to credit bureaus in the U.K. with Experian and TransUnion.
Coinbase Backtracks on its Hiring Plans, Citing Crypto Market Turmoil (Tech Crunch, 5/17/2022) The crypto exchange had originally planned to triple its headcount in 2022.
Stunning Time-Lapse Videos Show the Super Flower Blood Moon in Bloom (Space.com, 5/17/2022) In case you missed it, catch footage of the longest lunar eclipse in 33 years.