Fintech Update, 7/10 - 7/16
Hi! It’s Monday, July 17th, 2023.
The Rundown
SEC says Ripple is not a security in all cases: On June 13th, a federal judge in the Southern District of New York handed Ripple a substantial (though partial) legal victory when she ruled that XRP is not a security when it is offered to retail investors in on-exchange trades without disclosures or due diligence. This was not a total victory for Ripple, however, because the judge also found that Ripple had violated securities law when it sold XRP to institutional investors, like sophisticated hedge funds. While the matter is far from settled, Bittrex, Binance, and Coinbase all have pending cases that are likely to be impacted by this ruling. Matt Levine was so excited about this breaking development that he skipped his day off and wrote up a great piece that explains the strangeness of this decision in greater depth. Our take: This is a fascinating ruling that attempts to split the baby by saying that the “totality of the circumstances” surrounding the transaction is what makes an investment a security, and not the financial instrument itself. It is unlikely that this will be the last word in this legal battle, as other companies continue to litigate similar claims brought by the SEC.
Speaking of litigation…the SEC, CFTC, and FTC sued the now-defunct crypto lending firm Celsius Network and its CEO Alex Mashinsky with multiple counts of fraud. In an indictment filed Tuesday [full text], the SEC among other accusations alleged that Celsius and Mashinsky “misled customers about…the success and profitability of Celsius” and “orchestrated a scheme to inflate the price of Celsius' s proprietary token, CEL.” To add insult to injury, the FTC released a statement last Thursday claiming that Mashinsky and other Celsius executives “falsely [promised] that deposits would be safe and always available.” These charges join a long list of recent lawsuits connected to US regulators’ crackdown on crypto (including Coinbase, Binance, and FTX, to name a few). Mashinsky was arrested on Thursday in connection to the charges and pleaded not guilty on all counts. Because, why take accountability for your actions?
On July 10th, Toast, a widely used point-of-sale vendor used by more than 85,000 restaurants, unilaterally added a 99-cent “processing fee” to online orders of $10 or more, leaving customers and retailers fuming online. The fee is being charged to consumers directly, rather than the restaurants that have contracted with Toast. Toast began testing the new 99-cent fee on restaurant customers in various locations around the country after it partnered with Google back in February. Our take: Toast is managing to sour its relationships with retailers, customers, and government regulators all in one move! Apparently Toast has not been keeping up with developing regulatory expectations around so-called “junk fees” and feels like this would be an easy target for federal regulators down the road.
Coinbase Wallet announced the launch of a secure messaging service, enabling users to communicate directly without leaving the app. The feature will allow any Coinbase Wallet holder to send and receive encrypted messages across Ethereum addresses.
Revolut lost $20M after fraudsters exploited a flaw in their payments system. The vulnerability took months to identify, and was corrected in early 2022 when a US partner bank notified Revolut of the issue. This latest incident comes amid a string of bad news (execs leaving, questionable revenue reporting) as the neobank awaits regulatory approval for a banking license in the UK. That looks increasingly unlikely.
Investment platform Public expanded to the UK, its first international market outside of the US. The Robinhood competitor will enable retail investors in the UK to “trade more than 5,000 US stocks and access additional services such as data and research.” Public said it plans to grow its UK product offerings and also expand into other European markets over time.
VC funding for fintech is down 49% year-over-year, according to a new S&P report. Private valuations, however, are on the rise, as are recently-public fintech stocks (which PitchBook says are outperforming the broader market).
Bank of America agreed to pay $250M in fines after the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC) charged the bank with unfairly charging customers multiple fees for insufficient funds and overdraft ("junk fees").
The Reading Nook
The American Banker published the results of a study, conducted by professional services firm Arizent, to uncover trends in technology spending among America’s large, regional, and community banks and credit unions. Among the key takeaways: the “most active tech priorities” for banks in 2023 are “enhanced security, fraud mitigation and customer onboarding.”
According to new research from The Clearing House and PYMNTS, insurance companies are increasingly turning to fintech partnerships as a means of accessing real-time payments: over two-thirds of surveyed firms “plan to increase the use of real-time payments” and 81% “are considering . . . FinTechs to innovate and enhance their real-time payments offerings.”
Selected fundings
Financial management platform for freelancers Collective raised $50 million in new funding from Gradient Ventures, Innovius Capital, The General Partnership, General Catalyst, QED, Expa and Better Tomorrow Ventures.
German BaaS provider Solaris raised $41.8 million in new funding.
Silo, the company that offers inventory management, ledger accounting, and financing for food supply chain businesses, raised $32 million in a Series C funding round.
Financial planning software provider for businesses Jirav raised $20 million in a Series B funding round.
Revenue based financing provider for B2B SaaS companies “operating in the South Asia-U.S. corridor” Efficient Capital Labs raised $7 million in new funding from QED.
CapStack, the company building an integrated operating system for banks, raised $6 million in new funding.