Fintech Update, 12/14 - 12/20
Hi! It’s Monday December 21, 2020.
Leading Off
We’ll be off next week, but keep an eye on your inboxes for a special edition Big Idea coming up this week. Meanwhile, the final Update of 2020 is a busy one – new regulations, fundings, IPOs and SPACs… last week had everything. Let’s get into it!
Robinhood ended a rocky 2020 with more bad news, facing a lawsuit from Massachusetts securities regulators and getting fined $65M by the SEC for allegedly misleading customers. On the other hand, crypto businesses closed the year in style, with Coinbase filing for an IPO and Paxos raising a fresh $142M round. Finally, the FDIC issued two final rules regarding brokered deposits and ILCs, both of which could have big implications for fintech firms in 2021 and beyond. // In other news, Affirm partnered with HomeAdvisor on installment loans for home improvement projects; Fifth Third bank is working with Blend on a digital mortgage lending platform; Fiserv acquired Ondot; Upstart priced its upcoming IPO at $20 per share; and GoCardless raised $95M in Series F funding. // All this + more below!
Heavy Hitters
Robinhood ends the year on a sour note. 2020 has been an eventful year for the digital brokerage, including several massive funding rounds, the promise of an IPO, immense scrutiny for serious outages during high volume trading windows, scrapped plans for an expansion into the UK, and calls for reform after the tragic suicide of a user who thought he’d lost hundreds of thousands of dollars. Add to that tumult some recent legal actions, and 2020 won’t end how Robinhood would have liked. Last week:
Massachusetts securities regulators filed a complaint against the firm, alleging it aggressively marketed to inexperienced investors and failed to implement controls to protect them”; and
Oof. Let’s dig in. At the core of most of Robinhood’s issues is “payment for order flow,” the compensation a brokerage receives for directing orders to different parties for trade execution. This compensation is both Robinhood’s primary source of revenue and the cause for the SEC’s fine. Double oof. The SEC claims that Robinhood chose to send its customer orders to whichever Wall Street firm paid it the biggest fees at the time, rather than the ones that offered customers the best trading prices – a practice that was not disclosed and resulted in $34 million in losses to customers. The list of concerns about Robinhood’s practices seems to grow larger every day, and the potential fallout from these latest negative stories is something to keep an eye on into 2021.
Meanwhile, crypto is closing the year strong. With Bitcoin’s price surging over 200% this year to record highs of $23K this week, crypto enthusiasts are shouting that cryptocurrency is finally maturing into a real, stable asset class. And, they may have a point. Big gains amid the continuing uncertainty of the pandemic have coincided with announcements from major market players that lend greater legitimacy to crypto as a business, including:
Popular crypto exchange Coinbase filed for an IPO this week, the first crypto company to do so.
Paxos announced it raised $142 million, only a week after announcing that it would file for a national bank charter.
Germany’s financial regulators have allowed certain electronic-only securities, paving the way for crypto securities to be added to a blockchain-based register.
JPMorgan suggested that $600B could move into bitcoin in the coming years, as insurance companies and pension funds look to crypto funds as investment vehicles.
Meanwhile, even regulators are getting in on the crypto wave (as we recently wrote!) with the OCC’s Brian Brooks even proposing a “country coin” that world governments could use to reward people for pursuing higher education. It will be fascinating to see what happens to crypto firms as they grow larger and attract more regulatory scrutiny, but cryptomania seems likely to continue well into 2021 at least.
FDIC makes moves, finalizes two new rules. The Federal Deposit Insurance Corporation (FDIC) approved two final rules affecting fintech firms:
(1) The FDIC approved a final rule updating its regulations on brokered deposits, which previously had been broad enough to potentially apply to certain fintechs holding customer funds in a consumer savings account at a partner bank. The FDIC’s update clarifies the applicability of the rule, highlighting that it does not apply to firms that:
“partner exclusively with a single bank deposit platform”;
“simply facilitate consumers’ deposits into a bank via a more convenient interface and never take possession of the consumers’ funds”; or
“accept deposits as part of a suite of services focused on consumer lending.”
Acting Comptroller of the Currency Brian Brooks also issued a statement in support of the new rule, for which he voted.
(2) The FDIC also approved a new rule concerning Industrial Loan Companies (ILCs), establishing an updated framework and improving transparency for ILC charter applicants. The new rule has been met by some controversy by critics who argue its new provisions regarding parent company holdings (under the new rule, “the parent of a covered industrial bank approved for deposit insurance serves as the source of strength for the industrial bank”) could allow big tech companies to establish and backstop their own banks. As noted in a Chicago Tribune article on the new rule, “bankers, in an unusual alliance with Democratic lawmakers and consumer groups, have called for a halt in approving new charters” over concerns about “the prospect of competition against massive companies that could leverage their huge customer bases.”
Quick Takes
Affirm gets into home improvement lending with new partnership. The buy-now-pay-later firm is working with online home services firm HomeAdvisor to offer installment loans for home improvements. Affirm chief commercial officer Silvija Martincevic noted that the partnership will offer greater “flexibility and transparency” when paying for home projects, “without any concern of hidden or late fees.”
Is Buy Now Pay Later a good thing? A new article in The Atlantic takes a deeper look at the pros and cons of the BNPL business model, which often is marketed to consumers in their early to mid-20s who may be at higher risk of falling into the cycle of debt.
Fifth Third partners with Blend to digitize mortgage lending. The Cincinnati-based bank announced a strategic partnership with the digital lending firm to enhance its online mortgage process and “offer a simple, seamless online home financing experience.” Fifth Third already has already launched the new application in 11 states, noting higher customer satisfaction scores and lower average funding times.
OCC’s top economist publishes paper on chartering stablecoin banks. The working paper [full text], authored by Chief Economist and Senior Deputy Comptroller for Economics Charles Calomiris and presented to the Cato Institute, discusses the implications of granting bank charters to stablecoin issuers.
GoDaddy agrees to acquire Poynt. The internet domain registrar agreed to acquire the payments platform for about $365 million in a bid to accelerate its “strategy to provide a complete suite of commerce and payment services.”
Fiserv acquires Ondot. The payments infrastructure company acquired the digital card services platform for an undisclosed amount. Fiserv targeted Ondot to help drive cardholder engagement, expand its digital capabilities, and help its clients accelerate digital customer acquisition.
Revolut rolls out new, mid-tier plan. The London-based neobank added a new subscription plan called Revolut Plus, a £2.99/month package aimed at competing with competitors’ similar plans like N26 Smart and Monzo Plus. Revolut’s new plan offers some “advanced features” without as strong a focus on travel.
BlockFi opens waitlist for Bitcoin rewards credit card. The digital assets company announced its newest product, the Bitcoin Rewards Credit Card, which lets users earn bitcoin back with every purchase. The waitlist is officially available to clients with funded BlockFi accounts.
Pop Flies
Online lender Upstart priced its IPO at $20 per share with a $180 million target, which would give the firm a $1.45 billion market capitalization.
Google is partnering with Fidel API to offer cash back rewards for its users as rewards.
IBM acquired Expertus Technologies, a Canadian fintech that facilitates cloud digital payments.
Discussions between FIS and Global Payments about a potential merger fell through.
E-commerce lender Katapult plans to go public by merging with SPAC FinServ Acquisition Corp.
Fundings!
Investing-focused social network Public raised $65 million in Series C funding.
Austin-based fintech Self Financial raised $40 million in Series D funding.
British BNPL provider Zilch raised $30 million in Series B funding.
Canadian fintech Neo Financial raised $50 million in Series A funding and debt financing.
French fintech Lydia raised $86 million in additional Series B funding.
Corporate card and expense management platform Ramp raised $30 million in Series A funding.
Payment platform GoCardless raised $95 million in Series F funding at a $970 million valuation.
Data security platform Very Good Security raised $60 million in Series C funding.