Fintech Update, 3/25 - 3/31
Before we get to this week’s update, we’re thrilled to announce the debut of the new Update Card, exclusively for our Super Terrific Extra Special subscription tier. Card benefits include a “buy-10-get-one-free” card to your least favorite coffee shop, a free download of the Resy app, and a year of Priority Pass lounge access. Rest of the market: consider yourselves warned.
It’s Monday, April 1, 2024 – happy April Fool’s! Let’s get to the good stuff.
The Rundown
After acquiring X1 Card for $95 million last June, Robinhood announced the launch of its Gold Card, a new credit card offering aimed at high earners and competitors like Chase Reserve. The card has no annual fee but is available only to Robinhood Gold users, which costs $5/month. The card offers 3% cash back on everything, 5% cash back on travel, and no international fees. Robinhood Gold members also get 5% APY on uninvested cash and a 3% IRA match. So what’s the catch? That’s the question many are asking, with some speculating that it’s a loss leader for Robinhood, which likely is planning to use the product as a wedge for new users and then aggressively cross-sell them into the wider Robinhood ecosystem. Our take? Pretty straightforward– this seems to be exactly what Robinhood is doing. Robinhood co-founder and CEO Vlad Tenev himself has commented that the company is going after two customer segments – (1) transactors who use the card and pay in full (i.e., Robinhood makes money on interchange and can upsell these users onto other Robinhood products); and (2) revolvers who use the debt (Robinhood makes money on interchange and interest). Between this and the fact that Robinhood explicitly encourages that Gold Card cash back “can be transferred to brokerage accounts, which can go toward making investments like stock purchases,” it’s clear that the company is betting on a new way to infuse cash into its ecosystem and then keep it there in various forms. That said, at least in the short term this may be a clearer win for Robinhood customers than for the company itself – 3% cash back, 5% APY, and 3% IRA match is a compelling and uncommon combination of incentives that should immediately make Robinhood a player in the competition for card spend and high-yield savings alongside the likes of Apple, Marcus, and LendingClub. (JC transferred his IRA accounts + high yield savings the other day!) Maybe the competition for consumer accounts is still alive in some segments? We’ll be watching this one closely.
In other Robinhood news, cofounder and Chief Creative Officer Baiju Bhatt resigned from the company to "pursue other entrepreneurial interests.”
Visa and Mastercard agreed to settle a decades-long antitrust case brought by US merchants, paying them $30 billion over five years and lowering interchange fees the network charges acquirers. The networks typically charge merchants ~2% of the cost of a transaction, but those fees can rise to ~4% for premium cards, which are the focus of the suit. The settlement deal, which is still subject to court appeal, would: (1) implement temporary caps that reduce interchange fees (by 4 basis points over three years and 7 basis fees on average over 5 years); and (2) allow merchants to charge more for certain premium cards and permit them to steer customers to cheaper payment options. Our take? Encouraging news, but the effect on merchants and consumers remains to be seen. Despite a large topline number, the reduced interchange fees in the settlement don’t meaningfully change economics for retailers. Meanwhile, potential surcharges on premium card acceptance could penalize consumers who use them (it’s unclear whether merchants would actually upcharge their most lucrative customers).
Closure at last in the SBF trial – Judge Lewis Kaplan of the Southern District of New York sentenced Sam Bankman-Fried, the now-notorious co-founder and former CEO of crypto exchange FTX, to 25 years in federal prison. Bankman-Fried was “found guilty on all seven counts related to fraud and money laundering” during his trial last year, leaving Judge Kaplan to decide on the proper sentencing. In handing down the punishment, the judge hewed closer to the 40-50 year sentence recommended by the Department of Justice than to the 5-6 year term suggested by SBF’s legal team, noting that “When not lying, he [Bankman-Fried] was evasive [and] hair splitting[.] I’ve been doing this job for close to 30 years. I’ve never seen a performance like that.”
In other FTX news, according to a Financial Times report, the exchange may repay customers up to 40% more than the initial value of their claims thanks to recent gains in cryptocurrency valuations: “FTX creditors will be paid out based on the dollar value of their deposits at the time of bankruptcy but many of the assets have quadrupled in value or more since FTX’s bankruptcy.” Bitcoin was valued around $16,000 when the FTX scandal came to light; and it is now trading around $70,000.
Tether is the most-used stablecoin in illicit crypto flows, and some 1.6% of its 2023 volume was tied to illicit activity, according to TRM Labs.
Visa announced that it will begin to use AI in three new applications focused on fraud and risk management, even if the transaction is not within its network.
Moody’s acquired Able, a fintech that helps banks use AI to collect borrower information faster and complete loan files faster, for an undisclosed price.
BaaS provider Synctera laid off 17 employees, some 15% of the company.
Selected fundings
Model risk management platform ValidMind raised $8.1 million in a seed funding round led by Point72 Ventures.