Fintech Update, 5/3 - 5/9
Hi! It’s Monday, May 10, 2021.
Leading Off
California’s Department of Financial Protection and Innovation reached a settlement with Chime related to legal violations related to the fintech’s use of the terms “bank” and “banking.” // In other news, the Digital Dollar Project announced it will launch five pilot programs to test potential use cases of a U.S. CBDC, the SEC’s Chief Gary Gensler expressed concern about the "inherent" conflicts of interest that exist in the payment-for-order flow business model and hinted at new rules, and fintech IPOs stayed hot, with Flywire, Expensify, and Remitly all progressing towards public offerings. // Plus, Twitter launched a tip jar feature, Bill.com announced its planned acquisition of Divvy for $2.5B, and Paystack expanded to South Africa. // All this + more below!
Heavy Hitters
California settles with Chime, tightens scrutiny of neobank names. California's Commissioner of Financial Protection and Innovation reached a settlement [full text] with the U.S.’s largest challenger bank after investigating it for possible legal violations related to its use of the “chimebank.com" URL and the words “bank” and “banking” on its website and in promotional materials. Chime, like many other fintech banking services, does not have a federal or state banking license, relying instead on the common strategy of white-labeling the financial products and services offered by an underlying bank partner. And, while most states have regulations preventing non-banks from holding themselves out to customers as banks, the California investigation represents one of the first – and most public – cases of a state strictly enforcing such regulations as a result of public-facing materials such as a website or marketing. As part of the settlement, Chime agreed to make more and clearer disclosures in such materials that it is “‘not a bank’ and that its services are being provided by The Bancorp Bank and Stride Bank.” We expect to see many other firms doing the same in the coming weeks, given the size and importance of the California market to all companies with national ambitions as well as the frequency with which many fintechs use “bank” or “banking” in their materials to highlight their services or distinguish themselves from traditional financial institutions.
Quick Takes
Digital Dollar Project to launch five CBDC pilots. The non-profit entity headed by former CFTC chair Christopher Giancarlo plans to test “five pilot programs over the next 12 months” related to the “functional, sociological, business uses, benefits and other facets” of a Central Bank Digital Currency (CBDC) in America. The firm will partner with Accenture to conduct the pilots, aimed at generating “real-world data” to inform the CBDC conversation in the U.S.
SEC chief Gensler hints at new rules. Speaking at the latest Congressional hearing investigating the Robinhood saga, Gensler expressed concern about “inherent” conflicts-in-interest related to the payment-for-order flow business model practiced by Robinhood and other brokerages. The newly-installed SEC chief stressed that such trading apps are “not free” and are “just zero-commission” with costs “below the surface.” Promising to “take a closer look” at the business practice, Gensler also pledged to look into market maker Citadel Securities and game-like features in trading apps.
More fintech IPOs! Another week, another set of fintechs progressing towards public offerings amid a continuing surge of interest and cash in the space:
Payments enablement and software company Flywire made its IPO filing public, showing a 38% surge in revenue in the latest quarter.
Expense management software provider Expensify submitted a draft registration statement to the SEC for an IPO.
Digital remittance company Remity hired investment banks to prepare for an IPO that could value the company at $5 billion.
Diem’s chief economist discusses its future. Christian Catalini, the embattled stablecoin project’s head economist said that Diem will develop a cross-border payments structure with its own stablecoin as a stand-in, with the intention of phasing it out as central banks launch their own digital currencies. Catalini called the Libra project’s original white paper “extremely naïve” and said Diem will be backed 1:1 by fiat currency, rather than being pegged to a basket of currencies – the original arrangement having drawn universal ire from global financial regulators.
Robinhood + Dogecoin: Much invest, many outage, wow. The trading app suffered its second Dogecoin-related outage in three weeks, amid surging trade volume of the Shiba Inu themed coin. [Relatedly, SNL asks, what is Dogecoin?]
Plaid and Railsbank strike partnership on payments API. The global financial identity verification platform partnered with the London-based banking-as-a-service platform to allow Railsbank customers “to instantly accept bank payments within their app or website” via Plaid’s Payment Initiation API.
FIS and NYDIG partner. Banktech provider FIS announced a partnership with crypto custodian NYDIG that will allow FIS’s clients to offer Bitcoin trading.
Pop Flies
The Economist’s special report this week dives into CBDCs and imagines a world without banks.
Twitter launched a “tip jar” feature that connects payment accounts (e.g., CashApp, Venmo) to twitter handles so that creators can collect cash when their tweets ~hit different~.
Enterprise bill payments platform Bill.com intends to acquire Utah-based corporate spend management provider Divvy for $2.5 billion.
Canadian payments processor Nuvei announced that it is acquiring crypto payments company Simplex for $250 million.
African payments firm Paystack, acquired by Stripe in October for $200 million, started up new operations in South Africa, furthering it and its parent’s expansion throughout the continent.
Sotheby’s will be accepting crypto for the first time at its May 12th auction of Banksy’s Love is in The Air.
Fundings!
Wealth management
Canadian wealthtech Wealthsimple raised $610 million in new funding at a $4 billion valuation.
Banking
Brazilian neobank alt.bank raised $5.5 million in Series A funding.
Payments
B2B payments company Boost raised $22 million in Series C funding.
Crypto
LatAm crypto exchange Bitso raised $250 million in Series C funding at a $2.2 billion valuation.
Corporate
Subscription management platform ReCharge raised $227 million in Series B funding at a $2.2 billion valuation.
Business management platform HoneyBook raised $155 million in Series D funding at a valuation of over $1 billion.
Infrastructure
Identity platform Persona raised $50 million in Series B funding.