Fintech Update, 6/26 - 7/9
Hi! It’s Monday, July 10th, 2023.
The Rundown
Goldman is reportedly “looking for a way out” of its partnership with Apple, and is in talks with Amex to take over its Apple Card deal and recently-announced savings account product. The Wall Street Journal noted that a deal isn’t guaranteed nor close, but the report is the latest in a series of pullbacks in the investment bank’s consumer banking operations. Goldman has lost billions related to Apple Card, its acquisition of fintech lender Greensky (it’s expected to take a major writedown), and its own retail offering, Marcus. Dropping Apple, though, is the biggest escalation yet in Goldman’s shift away from retail banking. In April, we saw the Apple Savings announcement as a deepening of the partnership and a move towards white-labeled consumer financial products instead of Goldman’s own offerings. Now, it appears the bank, which has not traditionally offered retail banking products, just can’t get them right. Does this change the calculus for Apple? Definitely not: we’re still betting the tech giant’s further investments in financial services will be successful, and financial giants like Amex will still see tremendous upside in the distribution channel afforded by the world’s highest-profile tech company.
China’s regulatory crackdown on fintech seems to be coming to an end: regulators announced large fines for the country’s digital payments giants Ant Group (~$1B) and Tencent (~$410M), and announced that most of the fintechs’ “prominent problems . . . have been corrected.” The regulatory crackdown started in late 2020 when authorities called off Ant’s blockbuster IPO. Since then, the company has seen major restructuring, founder Jack Ma has apparently given up control (after disappearing for some time), and its products have been subjected to traditional financial services regulation.
Square launched credit cards, new loan options, and early deposit access for sellers in the U.S. The Square Credit Card, currently in beta, offers a credit limit based on sales and runs on Amex.
Revolut launched a robo-advisor in the U.S. that allows customers to invest in one of five portfolios based on their risk tolerance.
Fraud prevention provider Sardine launched a consortium to curtail payment fraud that brings together established financial institutions and fintechs to share data. Visa, Chesapeake Bank, Alloy, and Blockchain.com are among the founding members.
The Consumer Financial Protection Bureau (CFPB), in cooperation with the Department of Health and Human Services and Department of Treasury, released a request for information to investigate the methods and impact of financing medical care with credit cards and loans. The Bureau’s investigation builds on its earlier research into the space, with specific interest in companies’ practices related to marketing, applications, approval, customer support, and billing, among others. Our take: The RFI is interesting for its connection of fintech and medical care. But our interest goes a level deeper: the companies spurring the RFI (including Prosper, Synchrony, and Well Fargo) hit the Bureau’s radar due to consumer complaints. The CFPB regularly uses such complaints to identify exam or enforcement targets, and can be an early warning that regulatory action is on the way. In addition, several of the fintech companies listed in the report recently raised substantial funding, which only makes them more attractive targets. Fintechs operating in the medical space should consider themselves warned and ensure that their regulatory compliance house is in order. .
In its annual Fair Lending report to Congress [full text], the CFPB highlighted its ongoing efforts to address the risk of consumer harm from emerging technologies, including complex credit modeling algorithms, artificial intelligence, sophisticated digital marketing, and chatbots. As regulators make investments to catch up to industry innovations, fintech firms using these tools should ensure that they are prepared for increasingly sophisticated questions and scrutiny.
It’s been a busy couple weeks for fintech M&A!
Visa announced an all-cash acquisition of Brazilian fintech Pismo for $1B in the largest disclosed startup exit so far this year. The transaction positions Visa to offer core banking and issuer processing capabilities across debit and credit cards through cloud-native APIs. It also enables Visa to offer connectivity to real-time payment rails in the region, like PIX in Brazil. The acquisition is a positive signal for M&A activity in Latin America, which witnessed a pullback in valuation levels following their peak in 2021. Though the revenue multiple of the deal was not disclosed, Ethan Choi (Partner at Accel) confirmed that “Pismo wasn’t on the block…the sales price was a very strategic multiple.”
Identity startup Socure entered the M&A scene with its $70M acquisition of ID verification company Berbix. The transaction will expand Socure’s existing document verification offering to include Berbix’s fake ID detection engine. This will unlock a range of new addressable markets and use cases for Socure, including telehealth and high-risk financial services.
Ramp announced the acquisition of AI-powered customer support startup Cohere.io. Cohere’s technology, which ingests historical customer support data via natural language processing to automate the resolution of similar questions in the future, will be leveraged by Ramp for multiple cases following the acquisition, even outside of customer support. For instance, Cohere’s technology will power Ramp’s new price intelligence feature to extract details from contracts, invoices and receipts.
The F.B.I. searched the home of Jesse Powell, founder of the crypto exchange Kraken, as part of a criminal investigation into claims that he hacked and cyber-stalked a nonprofit that he founded. A spokesperson for Kraken said the investigation has nothing to do with the company.
The Reading Nook
This week, we have a double feature from Forbes’ Ron Shevlin!
First, Shevlin broke down the Motley Fool claim that “54% of Americans rely on ChatGPT for financial product recommendations,” arguing that survey responses indicated use of the tool, not reliance on it. Shevlin headlines his article with a clear takeaway: “Don’t ask ChatGPT for financial product recommendations.” Good advice.
Next, Shevlin touts a new report from his advisory firm, Cornerstone Advisors, to claim that “The Checking Account War Is Over (And The Fintechs Have Won).” Per Shevlin’s research, “digital banks and fintechs” are responsible for 47% of new checking accounts opened in 2023 (so far) and this growth has come at the direct expense of large banks. We’re taking this with a pinch of salt and a skeptical eye, since consumers are increasingly opening accounts at multiple banks and the accounts alone is not the best way to assess a bank’s success at serving customers (instead, we’d suggest active accounts, average deposits per account, or some other metric that accounts for use) – but it’s good food for thought!
Selected fundings
London-based startup TreasurySpring raised $29M to expand its investment platform aimed at businesses with excess cash reserves.
Identity provider Unit21 announced a $45M Series C led by Tiger Global.