The Fintech Update, 11/6 - 11/12
Hi! It’s Monday, November 13th, 2023.
The Rundown
The Consumer Financial Protection Bureau (CFPB) made headlines last week with a proposed rule that will bring about 17 large fintechs under the Bureau’s supervision, which together handle $13 billion in transactions a year and hold an 88 percent share of the market in the United States. While fintechs have been subject to the CFPB’s enforcement authority for some time, this new rule would drastically expand the Bureau’s powers to closely scrutinize large digital wallet and payment fintechs like Apple, PayPal, Meta, Amazon, CashApp, Venmo, and Google Pay. The important distinction between supervisory authority and enforcement authority is that supervisory authority confers the right of the CFPB to examine fintechs in the normal course of business. This can include requesting highly sensitive business records, some documentation otherwise protected by attorney-client privilege, transaction-level data, detailed customer data, and even employee emails. While this may sound extreme, this is actually leveling the playing field to hold fintechs to the same rules and standards that large banks are held accountable to - and which bankers will tell you cost them a staggering amount of money. Our take: While fintechs often build competitive advantages over traditional banks in numerous ways - things like better user interfaces, improved customer distribution and delivery, and more intuitive digital platforms that reduce the costs to consumers by foregoing physical branch locations - some fintechs have benefitted from regulatory arbitrage that has allowed them to reduce costs by avoiding costly financial regulation, until now. This rule is designed to level the playing field and is likely to result in higher operating costs for these fintechs, thereby lowering the competitive advantage of fintechs that have relied on outpricing banks through regulatory arbitrage rather than improving the product or customer experience.
Adyen and Plaid announced they are partnering to offer pay-by-bank capabilities in the US in early 2024. Through Plaid-facilitated offering, Adyen’s business customers will be able to accept payments directly from shopper’s bank accounts, a considerably cheaper form of payment acceptance compared to cards. Pay-by-bank adoption has been slow in the US, especially compared to Europe, but this partnership aims to accelerate uptake.
Bill.com [never actually] considered purchasing Melio. In a confusing week for the financial operations provider, Bloomberg reported that Bill was in “advanced talks to acquire'' its smaller rival, Melio, in a $1.95B cash-and-stock deal. Bill pushed back on the “market rumor,” saying “it is not pursuing any such acquisition at this time.”
Plaid announced that it stood up a new legal entity that will operate as a consumer reporting agency. The entity will help Plaid get further into Credit and Lending as it will build solutions for customers who want ready-made risk insights from cash flow data.
Klarna is reportedly taking steps towards an eventual IPO on the heels of a very positive third quarter, which saw the Swedish BNPL giant reach profitability on an operating basis, its first operating profit since 2019.
Goldman’s breakup with consumer lending continues…the bank announced that it is offloading its General Motors consumer credit card, leaving GM in search of a new issuer.
The Reading Nook
Get up to speed on regulatory expectations around credit underwriting for non-citizen immigrant communities, including those with DACA status in this legal podcast covering some of the historical background and current areas of risk and litigation. For fintechs operating in California, the Unruh Civil Rights Act already prohibits discrimination on the basis of immigration status and has resulted in several massive fines for companies not in compliance.
a16z explores the implications of CFPB's Personal Financial Data Rights proposal for fintech companies. The ruling would require financial data providers (defined as companies that offer checking accounts, prepaid cards, credit cards, and digital wallets) to make transaction data available for consumers to share with other providers. The article explains that the proposal could remove the friction for customers when switching providers and enable fintech companies to more easily onboard new users.
Selected fundings
Payments as a Service provider Volante Technologies raised $66 million in new funding.
Fractional real estate investment platform mogul club raised $3.6 million in seed funding.