Fintech Update, 1/16 - 1/22

Jan 23, 2023

Hi! It’s Monday, January 23, 2023.

Silvergate, which heavily promotes itself as “the leading bank for innovative businesses in fintech and cryptocurrency,” reported a $1 billion loss in Q4 2022, the second bit of bad news for the bank after recently announcing that customers “pulled out more than $8 billion in deposits in the last three months of 2022” amid fallout from FTX. Although the bank has stated that it held “no outstanding loans or investments in FTX,” shares in the bank have nevertheless lost almost 60% of their value since the exchange's collapse.

PayPal announced that it suffered a data breach in early December 2022 affecting nearly 35,000 user accounts, potentially exposing users’ "name, address, Social Security number, individual tax identification number, and/or date of birth." PayPal’s January 18 notice of security incident [full text] noted that the company has "no information suggesting that . . . personal information was misused . . . or that there are any unauthorized transactions on your account,” but is offering affected customers two years of free access to identity monitoring services provided by Equifax.

Embattled crypto lender Genesis filed for bankruptcy, becoming “the latest casualty in the industry contagion caused by the collapse of FTX.” The company listed over 100,000 creditors in its filing, with “aggregate liabilities ranging from $1.2 billion to $11 billion dollars.” According to a Genesis press release, only the company’s crypto lending business will halt operations; its “derivatives and spot trading business will continue unhindered, as will Genesis Global Trading.”

The Department of Justice arrested Anatoly Legkodymov, the CEO of crypto exchange Bitzlato, for processing over $700 million in “illicit funds” and violating money laundering rules. Bitzlato is allegedly deeply connected to the Hydra Market, a “darknet marketplace for drugs, money laundering and stolen financial information,” and was aware that it handled “dirty money.”

And the regulatory hits keep coming for crypto… The Securities and Exchange Commission (SEC) charged Nexo Capital with failure to register its “retail crypto asset lending product, the Earn Interest Product (EIP)” as a securities offering, settling with the firm for $45 million in federal and state penalties and the guarantee that Nexo will cease offering EIP to U.S. investors.

Unfortunately, fintech layoffs are becoming a weekly feature for TFU. As we’ve said before, we expect things will continue this way:
- Capital One cut "1,100 positions in its technology segment," approximately ~2% of total headcount (based on filings from September 2022).
- Clearco laid off 30% of its staff in its latest round of layoffs. After the latest cuts, “Clearco only has 140 staff, down from 500 just last year.”

British challenger bank Revolut launched a new “CultureLab” team in hopes of remediating an “aggressive” corporate culture amid its push for a full banking license in the UK. Revolut has often faced allegations of poor workplace culture (“a reputation for a toxic workplace environment”) that have in some cases led to investigations by British regulators.

Jamie Dimon said something negative about crypto for maybe the 1000th time. Not really news at this point buuuut we couldn’t help ourselves :)

The Reading Nook

The New York Times explored JPMorgan’s Frank acquisition as more unfavorable news continues to unfold about the firm: among its indiscretions, the fraudulent student financial aid fintech misappropriated the term FAFSA (“Free Application for Federal Student Aid”) and claimed to have helped students at more than 6,000 schools despite fewer than 6,000 institutions being eligible for financial aid.
The Economist explains why VCs are keeping some $300B worth of ‘powder’ dry.

Indian mobile payments app PhonePe raised $350 million in new funding led by General Atlantic, with room to raise “another $650 million as part of the round,” at a $12+ billion valuation.
BNPL company Tabby raised $58 million in new funding round led by Sequoia India and STV, with participation from PayPal Ventures, at a $660M valuation.
South Korean P2P lending platform PeopleFund raised $20 million in a Series C funding round extension led by Bain Capital.
Link, the company that lets merchants accept bank account payments, raised $20 million in a Series A funding round led by Valar.
Brazilian expense management software provider for enterprise companies Portão 3 raised $3.6 million in a seed funding round led by Better Tomorrow Ventures.
Zitti, payment and credit system for the food industry, raised $3.5 million in seed funding.