Fintech Update, 5/13 - 6/3

Hi! It’s Monday, June 3, 2024

Hey all! Hope you had a happy and healthy Memorial Day weekend and a great week following. We’ve been off for a few weeks and we’re excited to be back in your inboxes with a three-week mega-update! Let’s get to the good stuff…

The Rundown

• The Consumer Financial Protection Bureau (CFPB) issued a new rule “confirm[ing] that Buy Now, Pay Later [BNPL] lenders are credit card providers” under Regulation Z. The decision was a while in the making – the Bureau first issued a data collection order to five large BNPL providers in 2021 and later issued several market reports on the BNPL industry – and hinges on a broad interpretation of the definition of a credit card to include “not just physical cards, but also nonphysical credit devices, like account numbers and virtual credit cards.” As a result of the new rule, BNPL providers will “need to comply with various credit card requirements of Regulation Z” including investigating and resolving disputes, refunding cost of credit for returned products, and providing credit card-style monthly billing statements. Unsurprisingly, the CFPB’s action was met with mixed responses from industry players: Affirm generally welcomed the guidance as a furtherance of “consistent industry standards . . . to provide greater choice and transparency for consumers,” while Swedish rival Klarna called the rule "baffling.”

• Now over to our reporter on the scene…  🙂 We (Kieran) attended the Visa Payments Forum a couple weeks ago, which featured some major product announcements. From the jump, we saw how much Visa is investing in tap-tap-tapping tech, whether for accepting payments, adding cards to wallets, paying friends, or choosing a card at the point of sale. While many of these capabilities were already available at individual providers (e.g., Monzo users can add cards to a digital wallet with a tap, and Square supports payment acceptance via phone tap), Visa is bringing them to the network level. But why? Here’s our take… (1) physical cards are on the way out (duh); (2) Visa is pushing aggressively into bank-to-bank payments; and (3) the network wants to become the global standard for payment authentication:

1. Goodbye physical cards and individual credentials. Visa will, “in the near future”, offer a single, flexible credential that allows transactions to be funded from different sources, e.g. debit, credit, prepaid, or BNPL. “One Card to Rule Them All.”   

2. Hello bank-to-bank payments. When you have near-duopolistic, global control over card payments, and cash is on the decline, you need to find new areas of growth. $30T in annual bank-to-bank transfers is a good place to start. Visa is launching US domestic account-to-account transfers through its acquisition of Tink (as we covered a few updates ago). Visa is also applying its fraud prevention services to these bank-to-bank payments for the first time.

3. One identity to rule them all… Visa’s new Payment Passkeys will offer a single, universal payment identity based on biometric authentication through a customer’s device, reducing the need for OTPs and authenticator apps in the checkout experience.

• Meanwhile, over in BaaS land, the Synapse-Evolve drama keeps getting messier… The latest in the evolving (no pun intended?) saga, which we covered a few weeks ago, is the recent decision by U.S. Bankruptcy Court to appoint a trustee to manage Synapse’s bankruptcy and wind-down proceedings. The trustee, former FDIC Chair Jelena McWilliams, will have the responsibility of sorting out the tangled web of ‘he-said-she-said’, finger-pointing, and poorly managed financial records that has plagued Synapse, its bank partner Evolve Bank & Trust, and many of their customers since the story initially broke. (In an emergency motion to convert Synapse’s Chapter 11 bankruptcy proceedings into Chapter 7 liquidation on May 15, the U.S. Trustee cited “gross mismanagement” of the company’s finances as the reason.) Synapse, which initially filed for Chapter 11 bankruptcy, planned for its assets to be acquired by TabaPay prior to the acquisition falling through in early May.

• The CFPB is suing peer-to- peer lending company SoLo Funds over allegations of deceptive lending practices. The CFPB claims that SoLo Funds used "digital dark patterns" to mislead borrowers by hiding interest and fees under the guise of voluntary tips and donations. CFPB also alleges that SoLo Funds misrepresented loan costs, interfered with consumer understanding of fees, collected on loans that were void or exceeded state usury caps, and made false threats regarding credit reporting. This lawsuit follows previous settlements with state regulators in California, Connecticut, and the District of Columbia over similar issues.

• Teen-focused banking app Copper became the latest casualty of the ongoing Synapse bankruptcy, after it was “forced to abruptly terminate its bank deposit accounts and debit card services,” leaving some users unable to use their cards or access their deposits. Copper joins Yotta (among others) as high-profile fintech companies facing significant and sudden challenges from the Synapse bankruptcy.

• German neobank N26 will no longer have to limit itself to 50,000 new customers per month after the country’s financial regulator (BaFin) lifted the cap it had imposed on the company over two years ago.

The Reading Nook

• Alex Johnson wrote a great piece on the evolution of spend management, The Empire Strikes Back. 

Selected fundings 

• UK challenger bank Monzo raised $190 million in new funding, just two months after raising $425 million.   

• Payments and treasury management platform for insurers Vitesse raised $93 million in a Series C funding round led by KKR. 

• FintechOS, a company offering a low-code platform to simply and accelerate the launching, servicing, and expansion of financial services and products, raised $60 million in a “Series B+ funding round.

• Real estate insurance company Honeycomb Insurance raised $36 million in Series B funding.

• SMB banking provider Relay raised $32.2 million in a Series B funding round led by Bain Capital Ventures. 

• PayHOA, a company offering software for HOAs, raised $27.5 million in a Series A funding round.

• Mobile bank for migrants Majority raised $12.5 million in equity financing and $7.5 million in debt financing.

• Forward, the company building payments solutions for vertical SaaS, raised $16 million in seed funding.  

• Footprint, the company that helps companies handle key steps in the customer onboarding process such as identity verification, security, authentication, and fraud detection, raised $13 million in a Series A funding round led by QED. 

• Kudos, the smart wallet that helps users identify the best credit cards to optimize their rewards raised $10 million in a Series A funding round led by QED.  

• Embedded accounting startups Teal and Layer announced new funding rounds: 

  • Teal raised $8 million in a seed funding round led by Torch Capital. 

  • Embedded accounting startup Layer raised $2.3 million in a pre-seed funding round led by Better Tomorrow Ventures.