The Fintech Update, 8/14 - 8/20
Hi! It’s Monday, August 21st, 2023.
The Rundown
Farmington State Bank, known as Moonstone Bank, is liquidating as a result of a Cease and Desist Order issued in July by the Federal Reserve Board (FRB). Farmington State Bank was a small Washington state-chartered bank that primarily made agricultural loans in a lentil-farming community, with one branch and deposits of around $10 million for a decade. That was, before Sam Bankman-Fried's Alameda Research trading firm (sister company of failed crypto exchange FTX) bought an $11.5 million stake in Farmington in March 2022, which more than doubled the bank's entire net worth. The Fed’s enforcement action, which did not cite FTX or Alameda by name, noted that Farmington violated commitments to state and federal regulators by engaging in digital asset activity and helping third parties issue stablecoins. Our take: Moonstone’s liquidation should chill new efforts by crypto firms to "charter strip" small banks (buy a bank and change its business plan). The practice has become more common (looking at you SoFi and Lending Club) as new bank charters are difficult to obtain for novel business models (Varo Bank being a notable exception), as Custodia has recently learned.
Plaid formed partnerships with payroll-data providers Pinwheel and Atomic Financial for direct deposit switching services, increasing the reach of Plaid’s income-verification service. The partnerships come one year after the firm launched its Plaid Income service to help lenders verify prospective borrowers' cash flow, and Pinwheel and Atomic promise to help Plaid improve the accuracy of its service, battle income-data fraud, and streamline the direct deposit switching process. Also notable: The announcement closely follows the Consumer Financial Protection Bureau’s June announcement that it will propose an open-banking rule aimed at making it easier for consumers to switch financial services providers. Our take: Plaid is working to stay ahead of anticipating federal rulemaking to maintain its competitive advantage as market expectations continue to shift.
The Department of Justice is investigating Visa – again! – for allegedly using anticompetitive practices in how it charges clients for debit card tokenization (the technology allowing for virtual cards and the use of cards in digital wallets).
Singapore became one of the first countries to finalize stablecoin regulation, requiring that reserves backing the digital currencies must be equal to or larger than the value in circulation, and must be held in low-risk, highly-liquid assets.
Coinbase received approval from the National Futures Association, a self-regulatory organization designated by the Commodity Futures Trading Commission (CFTC), to offer cryptocurrency futures trading to its US retail customers – becoming the “first crypto-native platform to directly offer traditional spot crypto trading alongside leveraged crypto futures.”
Mastercard acquired a minority stake in the $5.2B fintech business of MTN, Africa’s largest cell phone provider. The deal will be structured as a commercial partnership leveraging payments and remittances using Mastercard’s technical infrastructure.
The UK launched a £1B investment vehicle to back growth-stage fintechs. The fund is backed by the likes of Mastercard, Barclays, and the London Stock Exchange, and seeks to address issues related to fintech companies achieving scale and pursuing public listings.
After reporting worse than expected sales numbers and a profit drop in the first half of 2023, Adyen’s stock price nose dived, falling nearly 39%.
The Reading Nook
Jillian Williams at Cowboy Ventures wrote a great piece - Fintech, AI, and the Challenges with Compliance, Fraud, and Risk - exploring how compliance in financial services is a massive and growing category.
Selected fundings
DynamoFL, a startup that allows enterprises to train their artificial intelligence (AI) models without collecting user data, raised $15.1 million in a Series A funding round co-led by Canapi Ventures and Nexus Venture Partners.
Finofo, a Canadian fintech building an OS for treasury and accounts payable management, raised $1.25 million in a pre-seed funding round led by Motivate Venture Capital.