Fintech Update, 1/30 - 2/5
Hi! It’s Monday, February 6, 2023.
The Rundown
The Biden Administration announced plans to regulate credit card late fees, part of a raft of new initiatives designed to “promote competition in consumer markets.” The Consumer Financial Protection Bureau (CFPB) will implement and enforce the new rules, which will cap late fees at $8 (according to officials, the current average is $31), with Director Rohit Chopra commenting that late fees “far exceeded” costs incurred by credit card companies and are “wrong.” According to CFPB estimates, card late fees currently cost consumers $12 billion per year and the new cap could produce as much as $9 billion in additional annual consumer savings. "The bottom line is these unfair fees add up. It's a basic question of fairness," Biden said. The new rule is expected to take effect in 2024.
Q: When is a downround treated favorably by the media? A: When it’s Stripe. Only a week after it was reported that the company is considering an IPO or direct listing by the end of the year, and only three weeks after cutting its internal valuation by 11% to $63 billion, payments giant Stripe is back in the news amid rumors that it plans to raise “as much as $3 billion from its existing investors . . . [and is] likely to value the company at between $55 billion and $60 billion.” The most recent headlines continue a tumultuous month of reporting on the company’s valuation and future plans – including the recent news that Stripe’s CFO Dhivya Suryadevara will step down in April – with the latest news taking on a virtuous tint as TechCrunch, Axios, and the New York Times all report that a goal of the new funding is to provide long-awaited liquidity for Stripe’s employees, particularly early ones. As noted in Axios’s coverage, “the potential round's purpose is to cover ‘double-trigger’ tax liabilities for both Stripe and Stripe employees[.] [It] isn't something Stripe necessarily needs to do . . . but it's the right thing to do.” Our take: All credit to Stripe for weathering a difficult set of macroeconomic trends and appearing to do so with more empathy and humility than many other tech companies at the moment, and we’re glad that Stripe is doing right by its employees at a time when most news for fintech employees is bad, bad, bad. Still, we’re not sure how much credit a company should get for pursuing a liquidity event only at the 11th hour (many employees’ stock grants reportedly will expire at the end of the year), when it has benefit for the company as well (Stripe also has tax liabilities it would mitigate with the raise), and when this framing de-emphasizes the deep discount at which the company would be valued compared to its $95 billion valuation in 2021. Is it a virtuous move or a practical one with employee-first framing? Does it matter? We say ‘no,’ but we’re also not rushing out to give Stripe too many plaudits. As highlighted in Jonathan Ching’s piece in the Reading Nook below, Stripe’s recent actions suggest that the company is taking very practical steps to align its multiples with those of the current market, and emphasizing the benefit to employees is a great way to dampen the blow of a 37% loss of value in the past two years.
Coinbase’s stock jumped by 24% after a Manhattan federal judge threw out a class-action suit against the crypto exchange alleging that it had failed to register as a New York state broker-dealer and engaged in the unregistered sale of securities. The move is a rare legal victory for crypto: following a recent SEC enforcement action against Genesis, another crypto exchange, chairman Gary Genlser noted “crypto lending platforms and other intermediaries need to comply with our time-tested securities laws.”
Marqeta agreed to acquire credit card management company Power Finance for $223 million in an all-cash deal. The acquisition will allow Marqeta customers to launch “a wide range” of credit products using Power’s “data science toolbox and its ability to embed experiences inside existing mobile and web applications.” As we wrote a few weeks ago, we expect M&A in fintech to continue and think it is a great market for larger, acquisitive companies to pick up great tech and talent.
A handful of high profile fintechs announced layoffs, including:
PayPal laid off 2,000 employees, some 7% of its workforce.
Upstart laid off 365 employees, some 20% of its workforce.
FIS laid off 2,600 employees, roughly 2% of the company.
The UK government outlined a proposal to regulate crypto by bringing it under the same regulatory regime as traditional financial services. The government invited feedback on the regulatory proposal, which is intended to position the country as a global hub for crypto.
Cash App launched a consumer savings account, Cash App Savings, allowing customers to “save with a separate balance, set savings goals and round up their purchases to add to their savings.”
Payments firm Checkout.com promoted COO Céline Dufétel’s to President and COO in charge of “all operational and go-to-market teams” as the firm continues its push into the US market.
The Reading Nook
NYCA Partners’ Jeremy Solomon wrote an excellent piece on the faults of today’s credit bureaus: “A Call for a Better Bureau” focuses on problems in credit data and modeling, and investigates whether and how to supplement conventional bureau data with alternative data sources.
Jonathan Ching published a terrific analysis of how Stripe makes money and how to place its changing valuation in context – both relative to its revenues and to valuations against peer companies. It’s well researched, well articulated, and insightful.
The Wall Street Journal published an article highlighting the fact that Americans who are short on cash are tapping into their 401(k) savings - “a record 2.8% of the five million people in 401(k) plans run by Vanguard Group tapped their retirement savings in 2022 to cope with hardships such as medical bills, eviction, or foreclosure.”
We’re devastated: Super Bowl LVII won’t be the crypto advertising bonanza that we saw last year.
Selected fundings
Raylo, a UK-based lease and reuse provider for electronics, raised $136 million in new funding.
UK neobank Zopa raised $93 million in new funding at a valuation that “cements & markedly enhances” its 🦄 status.
Payments infrastructure company Moov raised $45 million in a Series B funding round led by Commerce Ventures with "participation from a16z, BCV, Visa, and Sorenson."
BaaS provider Treasury Prime raised $40 million in Series C funding.
Debt capital management company Finley raised $17 million in Series A funding.
Business identity verification company TrueBiz raised $2.4 million in a seed funding round led by Flourish Ventures with participation from The Fintech Fund and YC