The Fintech Update, 10/2 - 10/15
Hi! It’s Monday, October 16th, 2023.
The Rundown
PayPal has been hit with a class action lawsuit alleging that its anti-steering rules stifle competition with lower-cost payment platforms such as Stripe and Shopify, and artificially maintain high transaction fees. The lawsuit alleged PayPal's contracts bar merchants from using price incentives to steer consumers to potentially more cost-effective payment options. The plaintiffs’ attorneys compared PayPal’s anti-steering rules to those that Visa and Mastercard used to impose before they were sued by the Department of Justice in 2010. More than 400 million consumers have PayPal accounts, including 75% of all Americans and PayPal processes 41 million transactions daily. Our take: We’ll be interested to see if federal prosecutors are working on a similar case but have not yet announced their intentions - this seems like an awfully big fish to have remained under the Department of Justice Antitrust Division’s radar.
Banking-as-a-Service startup Synapse laid off 40% of its staff (86 employees) amid a $13M payment dispute with its bank partner Evolve and news that its largest client, Mercury, will be integrating directly with Evolve. The a16z-backed company had already laid off 18% of its staff in June.
The Consumer Financial Protection Bureau (CFPB) continues its crusade to eliminate “junk fees” by highlighting $140 million it returned to consumers hit with these fees in banking, auto loans, and remittances products. While Supervisory Highlights never lists company names, all add-on products discussed are currently or could be offered by fintechs, which fall under the Bureau’s authority to prevent unfair, deceptive, or abusive acts or practices (UDAAP). Industry advocates have argued that reducing fee income is likely to raise interest rates, and the jury is still out on which option more directly conveys the true price of a financial product. Our take: Fintech companies should be proactively auditing their fee structures and make changes as needed to prevent being a future subject of CFPB’s Supervisory Highlights.
Employee financial wellness fintech Origin acquired estate planning startup MyAdvocate. The deal can allow Origin to offer estate planning services as an employee benefit (two thirds of Americans don’t have such a plan in place).
The Reading Nook
BaaS-ing The Buck: Who Has Fairness Obligations In The Banking-As-A-Service Ecosystem? Kareem Saleh, founder and CEO of fairness-as-a-service company FairplayAI, wrote in Forbes about how regulators are cracking down on potentially unfair or discriminatory outcomes caused by anyone in the banking process—including non-bank fintechs, lead generators, and middleware providers, and even extending to non-credit-related business practices.
TechCrunch explored why we’re seeing so many seed-stage fintech deals, and what’s to come in the next 18 months.
Selected fundings
Visa announced a new $100 million generative AI ventures initiative to invest in companies developing generative AI technologies and applications that will impact the future of commerce and payments. This initiative will be led by Visa Ventures, the global corporate investment arm of Visa.
Canadian performance financing provider Clearco raised $60 million in Series D funding along with a facility providing up to $100 million in financing capacity.
Logistics payment platform Loop raised $35 million in a Series B funding round led by JP Morgan and Index Ventures.
Stitch, the South African fintech company working to provide API access to financial accounts across Africa, raised $25 million in a Series A extension led by Ribbit Capital.
Embedded payments company Rainforest raised $8.5 million in a seed funding round led by Accel.
AI-focused fintech startup Vectari closed on a $1.7 million pre-seed funding round, which it plans to use to expedite research, development, and sales for its two initial product offerings (complaint management and Spanish-language engagement).