Advisory Insights

August 2024

  • The Storyline

Regulatory Roundup

The CFPB proposes to regulate many earned wage access (EWA) products as consumer loans under the Truth in Lending Act (TILA). This would require EWA providers to disclose fees and charges. EWA companies and industry groups oppose the proposed rule, arguing their products are not loans. The CFPB will accept comments on the proposal until August 30, and legal challenges are expected. Some states are also considering stricter EWA regulations, while others have passed laws supporting the industry.

The FDIC issued Thread Bank with a consent order mandating operational reforms to its third-party risk management and business oversight procedures, specifically calling out the bank’s banking-as-a-service business. This is the latest enforcement action against a bank engaging in banking-as-a-service. In a cyberattack confirmed last month, Evolve confirmed the incident affected at least 7.6 million people. 

Revolut finally obtained a UK banking license from the Prudential Regulation Authority (PRA) after a three-year application process. This allows Revolut to expand its services in its largest market, where it has approximately 9 million customers. Revolut reported strong financial results for 2023, with pre-tax profits of £344 million and revenues of £1.8 billion. Coinciding with this news, Revolut reportedly is near a deal that could value the company at $45 billion, potentially setting the stage for a future IPO.

Banking Bulletin

Chase will no longer allow customers to use Chase cards for third-party buy-now-pay-later plans like Klarna and AfterPay. This move will likely promote Chase’s BNPL offering, Chase Pay Over Time. According to a Nilson Report, Chase holds the largest credit card market share by outstanding balances, cards in circulation, and purchase volume.  

Fifth Third Bank’s Newline platform is partnering with Stripe to expand embedded financial services. Newline will power Stripe Treasury, enabling Stripe’s software platforms to offer embedded financial accounts to their customers. Fifth Third launched Newline after acquiring Rize Money, Inc. in May 2023, enhancing Fifth Third’s capabilities in offering API-driven payment, card, and deposit products to enterprises. Additionally, Stripe acquired startup Lemon Squeezy, which acts as the merchant of record for online subscription businesses, to handle their tax compliance burden and subscription payments.

Acquisitions and Funding

In HR tech news, Chime acquired Salt Labs, an HR employee rewards platform helping frontline employees earn rewards for the hours they work. Chime gains immediate access to Salt Labs’ enterprise client relationships, forming a new business unit called Chime Enterprise. Jason Lee, founder of Salt Labs previously co-founded DailyPay, an EWA platform.

Global HR company Deel made its third acquisition of 2024, acquiring Hofy, a London-based device management startup. This deal will establish the foundation for an IT-focused Deel product called Deel IT. This follows Deel’s earlier acquisitions this year of German performance management company Zavvy and Africa-based payroll giant PaySpace.

Robinhood has acquired AI research platform Pluto Capital, best known for its AI-driven personalized investment advice and real-time analytics. This move highlights the growing trend of incorporating AI into fintech, following closely on the heels of Nubank’s acquisition of Hyperplane last month. In addition to bolstering its AI capabilities, Robinhood expanded its cryptocurrency offerings. The company recently completed a $200 million deal for Bitstamp, and armed with the licenses from this acquisition, Robinhood is now considering offering cryptocurrency futures in both the U.S. and Europe.

Meanwhile, Sequoia Capital is offering to buy up to $861 million of Stripe shares from investors in its legacy funds at a $70 billion valuation. This move provides liquidity for limited partners as Stripe delays going public, while demonstrating Sequoia’s continued faith in the company’s future. The $70 billion valuation is higher than the $50 billion valuation that Stripe received last year, but lower than the $95 billion valuation that Stripe got in 2021.

Crypto Corner

Circle becomes first stablecoin issuer to secure regulatory approval under the EU’s Markets in Crypto-Assets (MiCA) regulations. The MiCA legislation is the first comprehensive legal framework in the EU that governs crypto operations. Circle is best known for its USDC stablecoin, which has become the second-largest stablecoin worldwide, behind Tether.

Dakota, a new crypto banking service founded by tech industry veterans, launched to offer businesses transparent lending and financial services through DeFi protocols. Dakota aims to provide a more transparent and secure alternative to centralized crypto lenders. 

  • Network Spotlight
Meet one of the interesting companies in our network. We sat down with JC Bahr-de Stefano, Investor at Better Tomorrow Ventures. 
Tell us a little about yourself and your company.

Better Tomorrow Ventures is a early-stage, fintech-focused fund that leads rounds in pre-seed and seed-stage fintech companies globally. We also run a fintech focused pre-seed investing program called The Mint! We believe that fintech companies have unique needs and face unique challenges in building and distributing their products and that is why they need specialized investors in their corner and resources at their disposal. Everyone on our team has spent time starting their own fintech company or operating within one, in addition to working in financial services. 

Give us an overview of your firm’s investment focus area and thesis?

We invest in all things fintech but we take a broad view of what fintech is. We end up investing in marketplaces and vertical software companies, which we believe benefit from integrating financial services and products into their offerings. We also invest at the intersection of fintech and other industries, such as supply chain, agriculture, and logistics. We are not thesis driven, but rather guided by our belief that there is still room to improve every single aspect of how financial services works.

What is a piece of advice to fintech startups given the current market conditions?

Building with speed and urgency doesn’t = disregarding or circumventing rules and regulations.

How can people get a hold of you?

Feel free to reach out at jc@btv.vc

One Personal Question: What did your grandparents do for a living?

My mom’s dad was a lawyer and her mom worked in hospitality sales. My dad’s dad worked at his local post office and my dad’s mom worked in electronics factories.

  • Product Launches

Check out our selection of interesting new product launches!

  • Plaid introduced a new solution to help data providers comply with the upcoming U.S. open banking rule, Section 1033. This solution includes Core Exchange, Permissions Manager, and App Directory, designed to simplify API connectivity, manage consumer data sharing authorizations, and enhance compliance.

  • Goldman Sachs is rolling out its first generative AI tool for code generation to thousands of developers across the company, using a centralized internal platform that integrates various AI models. This approach, while initially slower, has allowed for better control, safety, and regulatory compliance, with the company now seeing increased efficiency in AI application development and a 20% boost in developer productivity.

  • Galileo introduced wire transfer capabilities for FinTechs, connecting them to Fedwire through Community Federal Savings Bank. This new offering enables faster and more secure money movement, catering to various use cases from personal transactions to large-scale business operations. 

  • Kasheesh launched a Multi Use Card that allows users to split payments across multiple credit, debit, and gift cards for online purchases. The new card builds on Kasheesh’s previous single-use card technology, providing a reusable option for recurring purchases with enhanced security features.

  • U.S. Bank has launched U.S. Bank Advanced Receivables, an accounts receivable platform developed with Billtrust. This platform helps suppliers speed up cash flow, reduce costs through automation, and improve payment experiences by integrating U.S. Bank’s payment and risk management with Billtrust’s AR technology.

  • Aeropay has launched Aerosync, a proprietary bank aggregator covering 12,000+ banks nationwide. It aims to increase customer conversions, lower risk, and offer more flexibility than existing aggregators. Aerosync provides customizable branding, improved data accuracy, and enhanced security features. 

  • FIS has launched an SMB Digital Lending solution with Lendio, streamlining small business loan processes for financial institutions. This new offering expands FIS’ digital banking capabilities, aiming to make funding more accessible for small and medium-sized businesses.

  • Acorns launched Acorns Later, offering streamlined IRA accounts with automated investing features and potential rewards to simplify retirement saving.

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