Fintech Update, 10/26 - 11/1
Hi! It’s Monday November 2, 2020.
Leading Off
Wow, what a week! We’ve got more Heavy Hitters than usual, and all of them big: The Department of Justice is investigating Visa’s acquisition of Plaid and reportedly will soon decide whether to block the deal. SoFi’s application for a national bank charter received preliminary, conditional approval from the OCC (separately, SoFi also announced a new credit card). Crypto custodian Avanti received approval from the Wyoming State Banking Board to become a special purpose depository institution. And Goldman Sachs got into the BaaS game, announcing a suite of new APIs that will allow clients to embed banking services into their products. // In other news, the OCC issued its “true lender” rule; Credit Karma held talks with Square regarding a potential sale of its tax prep business; Coinbase launched a crypto debit card; and NerdWallet acquired Fundera. // All this + more below!
Heavy Hitters
Visa’s Plaid acquisition is facing DOJ antitrust scrutiny. The global payments giant’s $5.3 billion deal to acquire the financial data transfer platform, announced in January, is being investigated by the Department of Justice (DOJ), which may block the deal on competition grounds. The Plaid acquisition promises to give Visa greater access and insight into the data flowing between approximately 200 million bank accounts and the nearly 2,600 fintech services connected by its APIs. The DOJ’s investigation, which has been underway for the most of the year, reflects growing regulatory concern regarding the effective duopoly in the global payments provider marketplace and the potential for harm caused by giving payments firms greater access to consumer payment data: The DOJ reportedly also is looking into Mastercard’s $1 billion bid for financial data aggregator Finicity and Intuit’s $7 billion acquisition of Credit Karma.
SoFi granted preliminary approval for a national bank charter... Only three months after it filed a formal application with the Office of the Comptroller of the Currency (OCC), online personal finance firm SoFi received preliminary, conditional approval to become a national bank. While this is only one regulatory hurdle in the quest to become a nationally regulated bank – SoFi’s application still needs to be approved by the Federal Reserve and the FDIC – it’s a a *huge* one. A national bank charter would allow SoFi to engage in all banking activities, including taking and holding deposits and making loans without relying on a bank partner, and would make it only the second fintech to successfully receive a de novo charter from the OCC. SoFi has come a long way from its beginnings as a student loan refinancer, rolling out several new products over the years, including cash management and stock trading accounts. The company believes that a bank charter would help it into a new phase of development by allowing for “enhanced value and more products and services.”
..and launches a credit card. Speaking of “more products and services,” on the same day that the OCC gave SoFi its initial okay, SoFi launched its first-ever credit card. Among other features, the card will provide users with 2% unlimited cash back when redeemed into SoFi Money or SoFi Invest accounts, or used to pay down SoFi Student Loans or SoFi Personal Loans. SoFi’s newest product is an excellent example of a product strategy we covered in an update a few weeks ago about how firms are working to lower customer acquisition costs by cross-selling new products to existing customers. SoFi’s new card was specifically designed to provide incentives for users to utilize several SoFi products, bolstering the cross-sell strategy and advantages that come with expanding product offerings.
Avanti approved for SPDI bank charter. A little over a month after Kraken became the first crypto exchange to be granted a bank charter in the U.S., via Wyoming’s new Special Purpose Depository Institution (SPDI) charter, the Wyoming State Banking Board unanimously approved Avanti Financial’s application for the same. The Avanti Financial Group established Avanti Bank & Trust earlier in the year, with the banking entity designed as a “compliant bridge between digital assets and the U.S. dollar payments system, and as a custodian of digital assets.” In the future, Avanti also plans to issue the Avit, a digital currency pegged to the U.S. Dollar. Avanti Bank still must fulfill other regulatory requirements before opening its doors, including raising more capital, the approval was a significant step toward legitimacy for the organization and its business model.
Goldman is slapping da BaaS. Goldman Sachs released a new application program interface (API) dashboard designed to allow clients to embed financial products and services into their own offerings. The bank’s new initiative is the latest announcement in the growing Banking-as-a-Service (“BaaS”) space, which is built around reducing the time and frictions associated with offering financial products – whether through partnering with banks or acquiring a banking charter. The “Goldman Sachs Developer'' case is different, however, because it represented one of the first efforts by a large bank to build its own developer tools and help client embed fintech into their services; in general, the space is marked by early- and mid-stage companies like Unit, Treasury Prime, and Synapse. Goldman’s global head of transaction banking, Hari Moorthy, described the new offering as “the financial cloud for corporates. The possibilities of what we could do here are practically limitless.”
Quick Takes
OCC issues true lender rule. The OCC issued a rule governing relationships between sponsor banks and fintechs that offer lending lending products, confirming the national bank or federal savings association as the “true lender” for legal and regulatory compliance purposes.
Credit Karma in talks to sell tax business to Square.The personal finance firm is looking to shed its tax preparation business amid DOJ concerns that combining it with acquirer Intuit’s TurboTax would inhibit competition in the space. Terms of the deal with Square are currently unknown.
Coinbase launches crypto debit card. The crypto exchange firm announced that U.S. users can join the waitlist for the Coinbase Card, a Visa debit card that allows crypto tokens to be used for payments online and in-store as well as for ATM cash withdrawals.
Upgrade adds rewards to credit card. The fintech lender added rewards to its product offerings, announcing that Upgrade card users will earn 1.5% cash back on all purchases made on their Upgrade Card and that users will receive rewards when making monthly balance payments.
JPM Coin is now live. JPMorgan’s stablecoin is now operational a year and a half after it was first announced. The coin is being used by a large technology company to facilitate international payments, and the bank has stood up a 100-person business unit called “Onyx” to manage its blockchain efforts.
NerdWallet acquires Fundera. The consumer financial guidance provider acquired Fundera, the counterpart for small and medium-sized businesses in the U.S., continuing to diversify and grow its business by expanding to the SMB market.
PayPal to invest $50M in minority-led VC. The payments firm said it will invest $50 million in eight early-stage, Black and Latinx-led venture capital funds as part of their commitment to invest $530 million to support black businesses, strengthen minority communities, and fight economic inequality.
Visa to acquire YellowPepper. The payments giant will purchase the LatAm- and Caribbean-focused payments tech firm, following Visa’s earlier “strategic partnership and investment” in May 2018. YellowPepper builds APIs to “enable issuers, processors and governments to quickly and securely access multiple payment rails for many payment flows through one single connection.”
Treasury Prime expands API platform to commercial users. The BaaS firm, along with its partner bank Radius Bank, launched its Commercial API Banking Platform and related sandbox environment. “We see a huge opportunity . . . to [assist] businesses, startups and developers who are building applications and [need] this type of banking service,” said John Relyea, Radius’s Senior Vice President of Commercial API.
Pop Flies
Ant Group reported that it has received $3 trillion in retail investor bids to participate in its IPO.
Self-driving money app Astra released financial money routing APIs and developer program that will allow any program to add money movement and financial automation to their product.
UBS announced that it is planning to invest $200 million in fintech startups as part of its new innovation venture capital fund UBS Next.
Stripe launched Stripe Climate, a new tool that can set up automatic contributions to Stripe’s investments in carbon reduction companies as a percentage of each transaction.
Fundings!
Jiko, the newest bank that turns customer deposits into Treasury bills, raised $40 million in Series A funding.
Digital trading tech provider DriveWealth raised $56.7 million in Series C funding.
Payment and data security technology provider Bluefin raised $25 million in growth funding.
Wise raised $12 million in Series A funding to provide embedded banking services to businesses.
ClarityAI raised $15 million in funding to empower investors to manage the societal impact of their portfolios.