Fintech Update, 4/24 - 4/30
Hi! It’s Monday, May 1st, 2023.
The Rundown
The Federal Deposit Insurance Corporation (FDIC) issued a consent order to Cross River Bank, a frequent partner bank to tech companies. According to the order, the FDIC found that the bank “engaged in the unsafe or unsound banking practices related to its compliance with applicable fair lending laws and regulations by failing to establish and maintain internal controls, information systems, and prudent credit underwriting practices” [full text]. Although Cross River neither admitted nor denied the charges, it must now take a number of corrective actions described in the order, including increasing its third-party supervision and improving compliance controls. The bank is also required to receive approval from the FDIC prior to partnering with new third parties or offering new credit products. The bank commented that the order will not have “meaningful impact” on growth, and that many remedial measures “have been completed or will be completed in the coming months.” Our take? The warning signs are coming harder and faster for fintech partner banks. Cross River is one of the most well-known of these banks, and the FDIC’s requirements for new controls and third-party approvals are effectively speeding tickets for the bank’s fintech business. Cross River is a mature, well regarded bank and we feel confident the bank has already remediated many of the items identified by the FDIC’s exam, but consent orders are no joke and may cause partners to take a second look at the bank in the future. But above all, the FDIC’s order – like the OCC’s consent order against Blue Ridge Bank last year – reminds us that scrutiny of fintech and partner banks is increasing across the board. As we wrote before, expect these stories to keep coming.
First Republic Bank collapsed over the weekend, with the FDIC facilitating its sale on to JPMorgan on Sunday. First Republic held nearly $176B in deposits at the end of 2022, but saw outflows of $102B by the end of the first quarter in the wake of Silicon Valley Bank’s (SVB) collapse earlier this month. The bank engaged in significant short-term borrowing to cover the deposit flight, and was given $30B in deposits by large banks who are now bidding for it. But these interventions were not enough: when First Republic issued its quarterly report this week, revealing the full extent of deposit flight, the stock collapsed. The FDIC stepped in to place the bank under receivership on Saturday. A deal for First Republic would come less than two months after SVB and Signature’s failures, and the amount of government support offered in the deal will be closely watched. If the FDIC steps in a third time to fully insure all First Republic depositors, that would further call into question the US’s current $250K deposit insurance limit.
Coinbase filed a lawsuit against the SEC on Monday, which would force the regulator to publicly respond to an unanswered petition the crypto exchange drafted in July of last year. The petition asked whether the SEC would “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods.” Though the SEC is legally obligated to respond “within a reasonable time” according to a blogpost by chief legal officer Paul Grewal, the securities regulator left Coinbase on read. The lawsuit heightens tensions between Coinbase and the SEC, which threatened formal legal action against the crypto exchange through a Wells Notice last month.
European banking consortium The European Payments Initiative acquired two fintechs: Dutch payments company Currence Ideal, and Luxembourg-based account-to-account payments app Payconiq. The acquisitions signal a downshift in ambition for the initiative – its new goal of launching a digital wallet to facilitate instant payments between European countries, while interesting, isa far cry from its original goal of creating a global payments network to rival Visa and Mastercard. The acquisitions reflect the EPI’s regional focus.
Mastercard is claiming that the Justice Department is “conducting an antitrust investigation of its U.S. debit program and competition with other payment networks,” noting that it is cooperating with a civil investigative demand (CID) that it received from the DOJ's antitrust division. The DOJ did not comment on the story.
It’s a tough time to be a neobank in the UK (and most other places, too 😬)... Investors in British challenger banks Revolut and Atom marked down the value of their positions in the two companies by 46% and 31%, respectively.
Shopify launched a new bill pay tool enabling US-based merchants to manage expenses directly through the Shopify platform. The feature was launched in partnership with Israel-based B2B payments company Melio.
African KYC and identity verification provider Smile Identity acquired Ghanaian identity verification services provider Appruve. Terms of the deal were not disclosed but according to TechCrunch "the cash-and-stock deal was 'not more than $20 million,' with a large chunk as stock."
Klarna rolled out new features and updates designed to improve the shopping experience, including“a personal shopping assistant . . . a customized storefront for content creators; an AI-powered discovery shopping feed; and a resell functionality.”
Uber Freight partnered with AtoB, a transportation and fintech focused startup, to launch fuel cards and spend management software giving truckers “access [to] exclusive fuel discounts . . . free same-day payouts . . . and streamlined expense reporting and controls.”
Franklin Templeton launched a money market fund on the Polygon blockchain, the first US-registered mutual fund to use a public blockchain to process transactions.
Selected fundings
Savings app Super.com raised $85 million in new funding: $60 million in equity and $25 million in a credit facility.
Mexican spend management firm Clara raised $60 million in a new funding round led by GGV Capital.
Student debt repayment tool provider Summer raised $6 million in a Series A funding extension.
Ansa, which allows merchants to launch digital wallets through a white-label closed loop payments platform, raised $5.4 million in a seed funding round led by Bain Capital Ventures.
Plumery, a digital engagement platform that helps banks level up their user experiences, raised $4.5 million in seed funding co-led by Headline and Better Tomorrow Ventures.
European business identity platform Bits raised €4 million in a seed funding round led by Unusual Ventures.