The Fintech Update, 8/7 - 8/13
Hi! It’s Monday, August 14th, 2023.
The Rundown
PayPal announced the launch of its dollar-backed stablecoin PayPal USD (PYUSD) in partnership with blockchain infrastructure provider Paxos. It’s interesting timing given 1) the recent launch of FedNow and 2) ongoing US crypto regulatory headwinds. The first point is probably less relevant in informing us of PayPal’s strategic motives – real-time payment rails are not directly competitive with stablecoins, and generally serve different use cases. The second point is much more telling: the timing of the PYUSD launch could seem counterintuitive given the SEC’s recent spree of lawsuits against some of the biggest names in crypto. Our take? PayPal is taking advantage of the regulatory headwinds to offer a mainstream alternative and cozy up to policymakers. Rep. Patrick McHenry (R-NC), Chairman of the House Financial Services Committee, released a statement that the announcement “is a clear signal that stablecoins—if issued under a clear regulatory framework—hold promise as a pillar of our 21st century payments system.” We’d also bet that Paxos offered up some favorable economics to PayPal in an attempt to recover from its own kerfuffle with the SEC earlier this year. Lastly, it doesn’t hurt for PayPal to have some positive press on the back of stagnant Q2 earnings.
I dunno, maybe stop using WhatsApp for confidential work conversations? Wells Fargo bore the brunt of nearly $550 million in combined fines announced by the SEC and the Commodity Futures Trading Commission (CFTC) for failure to properly maintain electronic records of employee communications. The fines are related to the rampant use of unsecure messaging apps “like Signal, WhatsApp or . . . iMessage by Wall Street employees and managers,” a story we covered in February of this year, that now includes the country’s fourth-largest bank as well. According to the agreements, the SEC charged the bank and 10 other companies with “widespread and longstanding failures” related to their record-keeping practices, with fines totaling $289 million; and the CFTC fined the bank and three others a total of $260 million for similar record-keeping failures. “[We must] ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements,” said the SEC’s deputy director of enforcement, while a Wells Fargo spokesperson noted that the bank was “pleased to resolve this matter.”
ICYMI Federal regulators continue to turn up the heat on companies that make misleading statements about FDIC insurance, particularly those involving crypto wallets or other funds. On August 4, the FDIC sent a cease-and-desist letter to Georgia-based crypto firm Unbanked, Inc., noting that its website, promotional materials, and social media account falsely suggested that FDIC insurance coverage includes cryptocurrency and that Unbanked’s investors were therefore covered against potential losses up to $250k. Our take: Fintechs acting as custodians of customer wallets, crypto, and other funds should tread carefully when making claims about FDIC insurance of those funds. Although Unbanked has partnered with two FDIC-insured banks, the agency prohibits conflating such partnerships with deposit insurance coverage (especially for digital assets, which the FDIC explicitly says it does not cover). Regulators are increasingly scrutinizing fintech, and unforced errors like Unbanked’s make it even easier for them to justify that attention and tougher enforcement tactics.
The SEC is appealing a recent ruling by a federal judge that Ripple Labs’ token XRP is not a security when sold to retail investors.
Challenger bank Revolut will suspend “cryptocurrency-related services” for its US-based customers effective October 3, citing “the evolving regulatory environment and the uncertainties around the crypto market in the US.”
Embattled digital mortgage lender Better.com plans to go public via SPAC in the next two weeks, combining itself with Aurora Acquisition Corp. The company originally had planned to go public by SPAC in 2021 at a valuation of $7.7 billion, but numerous negative stories (layoffs, executive mismanagement, and tough macroeconomic trends) halted those plans.
The Reading Nook
Bloomberg covered the dog-eat-dog world of Latin American fintech, including rising default rates, soaring stock prices, market consolidation, rapid American VC investment, and the proliferation of stratospheric interest rates, often eclipsing 500%.
Selected fundings
Rightfoot, a password-less data connectivity startup for the financial services industry, raised $15 million in a Series A funding round led by Blue Lion Global.
Chargeflow, a startup building solutions to fight chargeback fraud, raised $11 million in seed funding.