- The Storyline
The FS Vector team had a busy start of summer, successfully co-hosting multiple events from discussing AI in Financial Services with Aprio at their new office in the Empire State Building to a blockchain-themed fireside chat with AON talking about Annelise Osbourne’s new book “From Hoodies to Suits” in New York City. With summer in full swing, let’s jump into the stories that are shaping the industry.
The CFPB finalized a rule defining qualifications for industry standard-setting bodies related to the upcoming Personal Financial Data Rights Rule. This aims to promote open banking by ensuring fair, transparent, and inclusive standard-setting processes. The rule sparked discussions about the potential role of the Financial Data Exchange (FDX) as the recognized standard-setting organization, while the CFPB also reserved the right to participate in standard-setting activities.
The FDIC released a consumer bulletin on the risks associated with banking with third-party apps, emphasizing that nonbank companies are not FDIC-insured. Synapse’s partner bank, Evolve Bank, has been issued a cease and desist order by the Federal Reserve. The consent order limits the bank’s fintech partnership activities, with any new partnerships requiring regulatory approval. Compounding these regulatory challenges, Evolve confirmed a cyberattack by the Russian-linked hacker group LockBit 3.0, resulting in customer data being posted on the dark web. In response to the breach, Evolve stated that the incident is contained and they are actively cooperating with law enforcement authorities to investigate the situation.
Meanwhile, Connecticut is attracting fintechs with a novel “innovation bank charter,” offering regulation without requiring federally insured deposits. This initiative aims to boost economic growth and establish the state as a fintech hub. Several other states, including Wyoming, Nebraska, Georgia, and Vermont, have similarly novel charters or other regulatory innovations that expand the go-to-market options beyond bank partnership and state licensing. FS Vector Partner, Emily Goodman covered this topic on the fintech panel she moderated at last month’s CT Tech Week, noting “at our firm we’ve seen a tremendous uptick recently in interest on these novel state bank charters. There is excitement from the fintech industry as well as support from the state banking regulators. The strategic go-to-market analysis for fintechs now includes state charter route, in addition to bank partnership and state licensing.”
Entrepreneur Greg Kidd finalized his investment in Vast Bank for $53 million. Vast Bank was the first U.S. banking institution to let customers buy, sell, and hold cryptocurrencies. It entered a consent order with the OCC back in November 2023 and subsequently exited the cryptocurrency market in February.
On the acquisition front, Robinhood is acquiring cryptocurrency exchange Bitstamp for $200 million, its largest deal to date. This move expands Robinhood’s digital asset offerings, which drove its first-quarter profits with crypto trading volume up 224% from year ago. Robinhood is positioned to compete with major crypto exchanges like Binance and Coinbase. Bitstamp holds over 50 licenses and registrations globally.
In tech news, only a year after launching its buy now, pay later service, Apple is ending Apple Pay Later, which allowed consumers to split purchases into four payments. Apple is no longer offering new loans, but existing loans are not affected. Instead, Apple is partnering with Affirm to offer loans when customers check out with Apple Pay. In another announcement during its Worldwide Developers Conference (WWDC), Apple unveiled Tap to Cash in its upcoming iOS 18 update, allowing users to pay by tapping together two iPhones.
- Network Spotlight
Tell us a little about yourself and your firm.
I’m a Partner in Paul Hastings’ Fintech & Payments practice where I focus on regulatory work associated with money movement. Paul Hastings is a large international law firm with a variety of practices, but we are particularly well known for our Fintech expertise. We represent bank and non-bank financial institutions and financial technology companies at all stages of growth in product development, financial services licensing, commercial contract negotiation and drafting, drafting of user documentation, investigations and enforcement, compliance and everything in between.
I’ve been a part of Paul Hastings’ San Francisco office for nearly 13 years. Born and raised in Philadelphia (go Eagles), I headed out west after law school and never looked back.
As a Partner in the Global Fintech & Payments practice, what are the key areas your team focuses on within the evolving fintech landscape?
In general, clients come to us with thorny regulatory issues that require legal creativity. We help them develop legal strategies to mitigate regulatory risk. My practice spans both payments and credit. We do extensive work in negotiating and helping to stand up bank-Fintech partnerships, advising on money transmission- and payments-related risks, licensing and compliance, and building liquidity products, including traditional credit products, earned wage access, merchant cash advances and factoring products.
What do you see as a key trend or challenge that fintech companies are grappling with in the current regulatory environment?
Third-party risk management (“TPRM”) continues to be a major trend in Fintech. Partnering with a bank to offer deposit or credit products is becoming increasingly difficult as banks exert more stringent oversight over Fintech partners. We’ve seen a number of recent enforcement actions against banks focused on TPRM and there are likely more to come. We expect banks to continue to enhance their due diligence processes for Fintechs both at onboarding and throughout their partnerships. In turn, Fintechs should expect more questions about their legal posturing (we’re seeing this already) and will need to build out more robust compliance programs.
Disclaimer: The views expressed are for informational purposes only and do not constitute legal advice. Readers should consult with their own legal counsel for legal advice.
How can people get a hold of you?
You can reach me at mollyswartz@paulhastings.com
One Personal Question: What did your grandparents do for a living?
My paternal grandmother was a high school teacher, my paternal grandfather was an optometrist. My maternal grandmother was a secretary and my maternal grandfather was a social worker. I can’t imagine that any of them would have thought that they’d have a granddaughter focused on Fintech law!
- Product Launches
Check out our selection of interesting new product launches!
Plaid launched Consumer Report, a tool that offers lenders insights from consumer bank data for cash flow underwriting. It helps lenders reconsider declined applicants and offer better rates, potentially boosting originations by 5-15%. Plaid first announced their cash flow underwriting initiative a year ago.
Plaid also launched Layer, a new platform designed to revolutionize onboarding for financial services. By combining identity verification and bank account linking into a single, secure experience, Layer reduces onboarding time by nearly 90%. In many instances, users can simply use their phone number and confirm their information already stored within Plaid.
Capital One, Adyen, and Stripe join forces to fight fraud. Capital One’s Direct Data Share (DDS) solution collaborates with fintech partners to prevent fraud, enabling $1 billion in previously declined transactions. The open source real-time data-sharing system reduces fraud and false declines, benefiting all parties. Its long-term impact depends on wider adoption in the financial industry.
Brex introduced new digital banking products for startups, including fee-free checking, improved treasury and vault features. This expansion aims to provide a comprehensive financial solution, combining various services into one integrated platform. Brex also announced a partnership with Stripe Atlas, offering immediate business account access for Stripe Atlas-incorporated companies. Lastly, Brex abandoned its co-CEO model, which it had had since its inception in 2017.
Figure launched Figure Connect, a blockchain-based marketplace for private credit loans. It connects buyers and sellers, offering standardized terms and faster settlements. This platform aims to create a more liquid and efficient market for private loans, leveraging blockchain technology.
Deel launched an AI-powered HR assistant that combines its extensive knowledge base with ChatGPT. This tool offers quick access to global HR information, compliance checks, and workforce data analysis. It generates instant reports, answers employment questions, and aids in hiring decisions.
- Nubank has been busy since becoming the first digital banking platform outside of Asia to surpass 100 million customers. Nubank partnered with Lightspark to integrate the Bitcoin Lightning Network into its platform. This collaboration aims to provide Nubank’s customers with faster, cheaper, and more secure Bitcoin and fiat transactions. On the AI front, Nubank has acquired data intelligence company Hyperplane. Hyperplane’s data intelligence platform enables banks to use their first-party data to create personalized customer experiences. Lastly, Nubank also recently launched an eSIM service for travelers, following in the footsteps of neobanks expanding into mobile services, as seen with Revolut and Zolve.
- FS Vector Calendar
Catch our team at the following event!
Event FS Vector is attending
Fraud Fighters Powered by Unit21 | July 17 | Virtual