We kicked off a busy month with May 9, 2024 by FS Vector, a fintech event held in New York City at The Evelyn and attended by over 100 of our fintech friends and partners. We held thoughtful conversations and catch-ups over cocktails, wine, and fresh-shucked oysters. This is the first in a series of similar events we’ll be holding across multiple cities, so if you missed this one, be on the lookout in upcoming newsletters for details on future events.

In addition to our event, we grew our team with the addition of Christopher Trepel, PhD, as Chief Data Scientist, and Justin Muscolino to lead and oversee our training offerings, including Headmaster™. Chris’s extensive experience in analytics, credit, data science, and consumer behavior, combined with his work across the financial services, technology, and fintech sectors, uniquely positions our new Data Analytics practice. Justin brings extensive experience from building a compliance training company focused on U.S. and international regulations for banks and financial firms. 

Bryan Mulcahey spoke at the UBS 7th Annual Private Company FinTech Conference and Networking Event in Napa, CA on Emerging Trends in BaaS with panelists Soups Ranjan (CEO, Sardine) and Peter Hazlehurst (CEO, Synctera). Bryan also participated in a fireside chat on BaaS at the Maine Bankers Association Senior Leaders and Director’s Forum with Bangor Savings Bank President and CEO, Bob Montgomery Rice.

On the regulatory front, regulators issued a new interagency guide for community banks that directly builds on the broader 2023 interagency guidance on third-party risk management. While the 2023 guidance laid out an overarching lifecycle framework and principles, the new guide encourages community banks to consider each stage of the fintech partnership lifecycle when implementing robust risk management practices for third-party relationships.

As companies eagerly embrace artificial intelligence, ​integrating its capabilities into their operations, they have to be aware of the risks of potential errors and mistakes, take this entertaining tracker for example. In an American Banker piece on community banks’ AI governance, Jasper Sneff Nanni advised that while AI risks fall under existing risk programs, the AI popularity surge means employees may overlook certain exposures. He recommended banks utilize enterprise AI tools with transparent data policies, highlighting the need for proactive governance as AI capabilities are adopted.

The Consumer Financial Protection Bureau (CFPB), has issued an interpretive rule that Buy Now, Pay Later (BNPL) lenders are credit card providers under Reg Z and subject to similar rules. Consumers can now dispute charges and get refunds for returned products purchased with BNPL loans. Additionally, BNPL providers will also be required to provide regular billing statements, just like traditional credit card cards. Despite the likely surprise of the conclusion that BNPL products are credit cards (under TILA) given that the BNPL is clearly outside the common understanding of the term credit cards, many but not all BNPL companies were already in compliance and this action will bring consistent industry standards to the ever-growing BNPL market. In terms of reaction, the industry and even companies themselves had mixed reactions. For example, Klarna CEO Sebastian Siemiatkowski expressed general support of the move in a CNBC interview and at the same time Klarna criticized the comparison to credit cards as “baffling.”

Speaking of cards, Visa announced One Card to Rule Them All, a new technology that lets issuers give their clients the ability to access different funding sources on a single existing payment card. Ultimately, this is just the beginning of the evolution of the 16-digit credential.

In crypto news, less than six months after approving Bitcoin ETFs, the SEC approved a rule change allowing creation of Ether ETFs. While the SEC order approves applications from exchanges to list eight Ether funds, individual funds approval and launch dates are still pending. U.S. Ether ETFS are also unlikely to participate in Ethereum’s staking opportunities, a feature that lets investors earn interest on their holding. The SEC’s legal action against staking-as-a-service offerings casts a shadow over stakings’ inclusion in Ether ETFs. Despite these drawbacks, the SEC approval’s signal a potential softening stance on crypto and are likely to create a “supply shock” to the price of Ether. 

As we foreshadowed in the previous newsletter, we finally saw the first incumbent unveil their embedded platform with FIS launching Atelio. FIS debuted the platform with three launch clients: KeyBank, College Ave, and RoyalPay Inc. On the other hand, venture backed Synapse saw its proposed $9.7 million acquisition by TabaPay fall apart amid allegations of mismanagement and unpaid debts. Jelena McWilliaml, former Chair of the FDIC was appointed as the Chapter 11 trustee, signaling the heightened importance being placed on protecting consumers caught in Synapse’s bankruptcy fallout. While the full effect on the greater ecosystem is yet to be seen, we expect this to give regulators another reason to restrict the growth of each partner bank, thus constraining the availability of bank partnerships and increasing the fintechs overall costs of the lauded partnerships. Trevor Tanifum was quoted in the TWIF Article Synapse wasn’t your typical BaaS.

Meanwhile, Chime revealed several key metrics ahead of its planned IPO that provided insight into the scale and performance of its business, including: 7 million active customers, most with direct deposit set up, $1.5 billion annualized revenue run-rate as of 2023, with over $1 billion in gross profit, $8 billion in monthly customer transactions across its accounts, 1.5 million monthly customer inquiries indicating high user engagement, and a current $8 billion valuation, down from $25 billion in 2021. A few days later, the CFPB fined Chime $3.25 million for failing to issue timely refunds to customers who closed their accounts, and will return at least $1.3 million to customers.

Financial giants such as Visa, Mastercard, Citi, and JPMorgan are exploring the potential of using shared ledger technology to enable multi-asset transactions and settlements involving tokenized versions of commercial bank money, central bank wholesale cash. The Regulated Settlement Network (RSN) proof-of-concept (PoC) project is managed by the Securities Industry and Financial Markets Association (SIFMA). While tokenization of real-world assets on blockchains could unlock efficiencies, it has yet to take off due to the lack of an interoperable infrastructure across public and private sectors. 

By comparison, international challenger banks are also posting impressive numbers. Brazilian Nubank became the first digital banking platform outside of Asia to surpass 100 million customers, hot on the heels of a stellar Q1 2024 recording $379 million in net income, a 167% increase compared to Q1 2023. Across the Atlantic Ocean, London-based Monzo prepares for its U.S. expansion by raising another £150 million ($190 million) just two months after raising £340 million ($425 million). Monzo is currently valued at £4.1 billion ($5.2 billion). On the other hand, Revolut is aiming to coordinate the proposed stock offering later this year, restricted to company employees worth US$500m of stock, allowing employees to cash in.