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SEC Bears Down on Coinbase, Binance; Banks’ CRE Exposure; A Neobank for Retirees

By Cole Gottlieb

June 11, 2023

Happy Sunday,

Wage growth slows. Worries continue over banks’ commercial real estate exposure. Minnesota passes payday loan cap. SEC bears down on Coinbase, Binance. Big banks could see capital requirements jump 20%. Lawmakers try again to rein in credit card processing costs. OpenFin announces Series D. Online banks winning war for deposits. A neobank for retirees.

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Wage Growth Decelerates

Wage growth has been decelerating for over a year now. Advertised wages in May were up 5.3% vs. the year prior, down from a peak of 9.3% in January 2022. At the current rate of deceleration, wage growth could return to pre-pandemic levels by early 2024.

Image: Bloomberg

Meanwhile, the potential fallout from stress in the commercial real estate sector remains top of mind. About $1.5T worth of CRE mortgages will come due in the next two years. This comes against a backdrop of elevated vacancy rates, which push down property values, and rising interest rates. Small and regional banks have outsized exposure to CRE lending, with some 70% of bank-held commercial mortgages held by smaller lenders.

Finally, bank execs are warning that both loan growth and net interest income are likely to remain under pressure this year. Banks point to softening demand, especially for mortgages, but are also tightening underwriting criteria as well.

Minnesota Passes Payday Rate Caps

Minnesota has passed a new measure introducing stricter rate caps on small loans. The bill prohibits payday lenders in the state from charging rates that exceed 50% APR. For payday loans between 36%-50% APR, it will also require lenders to evaluate borrowers’ ability to repay the loans. The ability to repay analysis must take into account borrowers’ income, outstanding debts, and living expenses. The new requirements will come into effect at the beginning of next year.

SEC Ratchets Up Pressure With Legal Actions Against Coinbase, Binance

Regulatory actions against crypto exchanges in the U.S. are beginning to pile up. Last week saw the SEC make allegations against both Coinbase and Binance, two of the largest cryptocurrency exchanges.

The SEC alleges that Coinbase violated rules that require it to register as an exchange. The complaint also argues that the company facilitates trading in at least 13 assets that are securities and thus should have been registered with regulators. SEC Chair Gary Gensler has advocated for breaking up crypto exchanges into discrete entities that handle order execution, brokerage, and clearing functions.

Of the two, Binance generated the more sensational headlines, with a choice quote from Binance’s then-Chief Compliance Officer saying, “we are operating as a fking unlicensed securities exchange in the USA bro.”

The SEC’s complaint included 13 counts, among them accusations that Binance created a “web of deception” through the creation and operation of numerous entities that are ultimately controlled by and its CEO, Chengpeng Zhao. Binance allegedly mislead investors, mishandled and comingled funds, and facilitated wash trading, according to the SEC. The complaint also alleges Binance offered unregistered securities, including popular cryptos like Solana and Cardano, as well as Binance’s stablecoin, BUSD.

Meanwhile, House Republicans have put forth a bill that would give crypto exchanges a path to registering with the SEC. The proposal, put forward by the chairs of the House Financial Services and Agriculture committees, would create a framework for defining certain cryptos as commodities, so long as they prove decentralization, that no specific entity is steering the project, and no single holder controls over 20% of assets. The bill has not yet drawn any Democratic support.

Big Banks Could See Capital Requirements Jump

Big banks could see their capital requirements jump substantially. Banking regulators may propose changes that would require larger banks to boost their capital by about 20%, WSJ is reporting. The exact hike would depend on a bank’s mix of business, with banks that have trading operations likely to see larger hikes. Regulators could release proposals publicly sometime later this month.

Lawmakers Try Again on Credit Card Routing Bill

Some in Congress are trying again to rein in network fees charged by Visa and Mastercard. A bill, largely identical to one introduced last year, would mandate that merchants have the right to route credit card payments on separate, unaffiliated networks. Advocates argue such a requirement would boost competition and result in lower processing costs for merchants. The bill has some bipartisan support in the Senate, with cosponsors that include Senators Dick Durbin (D-IL), Peter Welch (D-VT), Roger Marshall (R-KS), and J.D. Vance (R-OH).

Image: Wall Street Journal

OpenFin Announces Series D

OpenFin, a web-based OS for financial services applications, announced it has raised a $35Mn Series D. The round was led by Bank of America, with participation from ING Ventures and Pivot Investment. OpenFin aims to solve the so-called “toggle tax,” or the time users spend switching between different applications and windows. Instead, OpenFin offers a unified, single search interface that all of a user’s apps can connect to. The company currently boasts 3,800 clients across 60+ countries.

Online-Only Banks Scooping Up Deposits

Online banks are winning the war for deposits. During the course of this spring’s banking crisis, deposits fled regional banks, especially smaller ones perceived to be under stress, like PacWest and Western Alliance, but others, including U.S. Bank, Truist, and Citizens, also saw deposit outflows. Meanwhile, online-only banks like Goldman’s Marcus, Discover, Synchrony, and Amex saw deposits rise. Online-only banks typically offer higher rates to attract deposits. Ally, for instance, paid an average of 3.2% on deposits in the first quarter.

A Neobank For Retirees?

It’s not the most auspicious time to be launching a new neobank app, but that’s not stopping Charlie. The company aims to help retirees and those soon to retire to better plan and manage their finances. Key features include the ability to withdraw their social security up to four weeks early with no fees, U.S.-based customer service, transaction monitoring and fraud prevention, and a 3% interest rate on balances. Charlie partners with Sutton as its banking partner.

In the News:
World Economy Set for Weak Inflation-Plagued Recovery, OECD Warns (Bloomberg, 6/7/2023) The OECD forecasts a 2.7% expansion of world output this year, and only 2.9% growth in 2024, below the 3.4% average in the seven years before the pandemic.

The SEC Comes for Crypto (Bloomberg, 6/6/2023) Matt Levine breaks down the SEC’s actions against Binance and Coinbase.

Agencies Issue Final Guidance on Third-Party Risk Management (Office of the Comptroller of the Currency, 6/6/2023) Federal bank regulatory agencies today issued final joint guidance designed to help banking organizations manage risks associated with third-party relationships, including relationships with fintech companies.

CFPB Warns Banks that Poorly Deployed Chatbots Could Harm Consumers (American Banker, 6/6/2023) Chatbots have drawn concerns that they provide wrong answers and disinformation without verifying sources.

The Overdraft Landscape is in Transition (Fintech Nexus, 6/2/2023) Fintechs have altered the overdraft system.

Transparency ‘Critical’ to Earned Wage Access Space (Fintech Nexus, 6/5/2023) In an open letter to the DFPI sent in mid-May 2023, the AFC requested additional clarity on a credit license exemption to create standards as to which EWA companies could be structured.

Bank and Payment Data Fintech Ribbit Acquires Regtech ValidiFI (Fintech Futures, 6/5/2023) ValidiFI provides fraud, compliance and risk mitigation solutions.

VC Firm Sequoia Capital to Divide Into 3 Independent Companies (PYMNTS, 6/6/2023) Sequoia China will become HongShan, Sequoia India/Southeast Asia will become Peak XV Partners and the U.S./Europe business will remain Sequoia Capital.

Best Places to Work in Fintech 2023 (American Banker, 6/5/2023) Check out the best places to work in fintech (including Cross River!).

Lighter Fare:

These Chefs and Restaurants are the 2023 James Beard Award Winners (CNN, 6/6/2023) For the foodies out there.