FIN: The Fast Forward on Fintech

Outside the often-tone-deaf echo chambers of Wall Street and Silicon Valley and New York’s tech scenes, there are real-world problems being confronted daily by people who don’t give a damn about the stock market, artificial intelligence or the latest crypto obsession. They’re too busy worrying about how to pay rent, buy food and gas, and manage healthcare costs while working hourly wage jobs that barely cover their monthly financial obligations, never mind an emergency. For many of these workers, the only constant in their lives is the never-ending struggle to make it to payday. Hence the surging appeal of earned wage access (EWA), also known as on-demand pay, which gives hourly and low-wage wage workers early access to pay when they need it instead of having to wait until their normal pay periods. EWA providers like DailyPay, Inc., Clair, Payactiv, EarnIn, Dave and others offer no-fee, low-fee and subscription products through employer-partnered, embedded or direct-to-consumer models that are intended to give workers living paycheck-to-paycheck more flexibility over when they get paid. An estimated 10 million workers used earned wage products to access more than $31.9 billion in pay through employer-partnered and direct-to-consumer transactions, according to the Consumer Financial Protection Bureau’s most recent data. Its proposed interpretive rule seeks to apply the Truth in Lending Act and Regulation Z to EWA products by defining them as credit and regulating them as loans. In conjunction with its proposed rule, the CFPB also published a report on the earned wage product market. The most troubling of its findings is the jump in repeat usage and the increase in the percentage of workers using earned wage products monthly. The CFPB’s findings prompted DailyPay Founder and former CEO Jason Lee, now head of Chime Enterprise, to respond in a post on LinkedIn, in part saying: "This isn't how this should work. And when I created the product, I never intended this to be the case. Over time, one should observe transaction volume going DOWN and periods of time between transactions going UP. …To me, this is a clear indicator that we need technology innovation in earned wage access to urgently to reverse this trend." Clair CEO Nico Simko added this comment to Lee's post: “We’ve been obsessing over that exact metric since day one at Clair—after 24 months on our card program, the average active employee who transacts at least monthly with us (savings, paying bills, spend on card, etc.) decreases their monthly reliance on wage advances by more than 2x. …It’s possible, just an incredibly hard product design challenge.” Holly Sraeel's latest story examines the alarming increase in the frequency of earned wage access and how the CFPB's rule might force evolution and innovation in the industry to counter the potential for elevated risks to users who are already financially vulnerable. #earnedwageaccess #cfpb #ondemandpay #ewa

In an abrupt announcement on LinkedIn last week, Tally CEO Jason Brown said the startup—once a consumer-facing credit card debt payoff app that made a Hail Mary pivot to a business-to-business (B2B) model earlier this year—was shutting down. Tally’s troubles were a long time in the making, despite an initial product/market fit that looked more than promising for the fintech and investors that included Sway Ventures, Kleiner Perkins, Andreessen Horowitz and Cowboy Ventures, among others. The original app was developed to help consumers pay off higher-interest credit card debt by consolidating their outstanding balances into a Tally dashboard and having the startup use its lower-interest lines of credit to make payments directly on their behalf. Customers would then repay Tally in monthly payments. (Tally’s loan funding came from Banking-as-a-Service provider Cross River Bank.) By going all-in on B2B, Tally faced long odds. If getting traction with a direct-to-consumer app was hard, then making a radical leap from B2C to B2B—seemingly overnight—would prove even harder, if not next to impossible. Holly Sraeel looks at the factors that made Tally's consumer-facing app unsustainable, prompting a last-ditch effort to instead make its technology available to large, publicly traded financial institutions. #fintechapps #debtmanagement #venturecapital #creditcards #B2B

Fintech players, venture capitalists and market watchers are set for what’s sure to be an unpredictable second half of 2024, with all eyes trained on the U.S. presidential election and the chaotic happenings, weird speeches and surging sentiment leading up to it. Talk about timing: Polymarket, a prediction market platform, retained journalist and statistician Nate Silver, founder of FiveThirtyEight and publisher of the Substack newsletter Silver Bulletin, as an adviser. Silver was handed a humdinger of a probability to analyze when President Biden stepped aside on July 21 and endorsed Vice President Kamala Harris as the Democrats’ presidential nominee. She has since raked in $130 million for her campaign and secured the endorsement of the majority of delegates needed to win the nomination. Polymarket bettors outside the U.S. have placed more than $406 million on the election outcome, with Trump favored to beat Harris 57% versus 40%. Beyond the implications of the election in November, there are positive signs ahead for the markets. The Federal Reserve Board is expected to cut interest rates multiple times before year end. U.S. economic growth is picking up, with cooling inflation, a relatively steady labor market (though it’s expected to slow going forward) and increased gross domestic product in the second quarter. As the fintech industry takes on the second half, Holly Sraeel examines some data cuts that capture H1 2024 and also set the stage for what could play out over the balance of the year and through 2030, including: 𝗩𝗲𝗻𝘁𝘂𝗿𝗲 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗶𝗻 𝗳𝗶𝗻𝘁𝗲𝗰𝗵 𝗴𝗹𝗼𝗯𝗮𝗹𝗹𝘆—with data snapshots by country, funding stage and, within the U.S., by state—dropped 18% in H1 ‘24 over H2 ‘23. 𝗧𝗵𝗲 𝘀𝘁𝗮𝘁𝗲 𝗼𝗳 𝘃𝗲𝗻𝘁𝘂𝗿𝗲 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗴𝗹𝗼𝗯𝗮𝗹𝗹𝘆 𝗳𝗼𝗿 𝗳𝗲𝗺𝗮𝗹𝗲-𝗳𝗼𝘂𝗻𝗱𝗲𝗱 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝗶𝘀 𝗯𝗮𝗰𝗸𝘀𝗹𝗶𝗱𝗶𝗻𝗴, down 11% in H1 ‘24 for all sectors. The results for female fintech founders—by country, stage and fintech sector over five quarters, including 2023 and Q1 2024—are equally paltry. 𝗚𝗹𝗼𝗯𝗮𝗹 𝗳𝗶𝗻𝘁𝗲𝗰𝗵 𝘀𝘁𝗮𝗿𝘁𝘂𝗽 𝗴𝗿𝗼𝘄𝘁𝗵 𝗮𝗻𝗱 𝗳𝗶𝗻𝘁𝗲𝗰𝗵 𝗮𝗽𝗽/𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺 𝘂𝘀𝗮𝗴𝗲 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲𝗱 through early 2024 and are projected to rise through 2028 (Spoiler: Digital payments are still the biggest driver of fintech usage.) Watch the embedded finance space: It could be a $320B market by 2030. 𝗢𝘃𝗲𝗿-𝘁𝗵𝗲-𝗰𝗼𝘂𝗻𝘁𝗲𝗿 𝗶𝗻𝘀𝘁𝗶𝘁𝘂𝘁𝗶𝗼𝗻𝗮𝗹 𝗰𝗿𝘆𝗽𝘁𝗼 𝗺𝗮𝗿𝗸𝗲𝘁’𝘀 𝘀𝗽𝗼𝘁 𝘁𝗿𝗮𝗱𝗶𝗻𝗴 𝘃𝗼𝗹𝘂𝗺𝗲 𝘀𝗽𝗶𝗸𝗲𝗱, while altcoin spot transaction growth was uneven for H1 2024 (The former surged even before spot Ether exchange-traded funds began trading on July 23). 𝗘𝗻𝗳𝗼𝗿𝗰𝗲𝗺𝗲𝗻𝘁 𝗮𝗰𝘁𝗶𝗼𝗻𝘀 𝗼𝘃𝗲𝗿 𝗯𝗮𝗻𝗸-𝗳𝗶𝗻𝘁𝗲𝗰𝗵 𝗽𝗮𝗿𝘁𝗻𝗲𝗿𝘀𝗵𝗶𝗽𝘀 𝗮𝗿𝗲 𝗰𝗹𝗶𝗺𝗯𝗶𝗻𝗴, with federal and state regulatory agencies expected to step up their scrutiny in H2 ‘24. #venturecapital #femalefounders #crypto #fintech #embeddedfinance

Now that Revolut, the world’s second most-valuable fintech after Stripe, has finally secured its U.K. banking license, the focus shifts to what's happening behind the scenes that could inform when the London-based company goes public—and where. In the latest FIN: The Fast Forward on Fintech, Holly Sraeel looks at the telling signs that suggest Revolut's initial public offering is likely closer than previously thought and makes a wager on which side of the Atlantic it will choose to list. #fintech #banking #regulation #IPO #superapp

The backslide for female founders raising venture capital continues. Funding for women-founded companies, including all-female and mixed-gender founding teams across all sectors, totaled $15.5 billion, just 17% of the $93 billion in H1 2024—down from $24.8 billion of $87.7 billion raised in H1 2023. Within the fintech sector specifically, female-led startups raised $1.2 billion across 151 funding rounds, or 2.9% of the total $41.58 billion invested spanning 2023 and Q1 2024 combined, according to new data in Anthemis Group’s latest “Female Founders in Fintech” report. Not surprisingly, a majority of fintech funding activity during the five-quarter period occurred at the early stages, with Pre-Seed, Seed and Series A deals accounting for 73.5% of the deal count. Of the $1.2 billion raised by women-led fintech businesses, $147 million across 37 rounds was raised by founding teams with only women, but the vast majority—$1.059 billion, or 87.8%—was raised by mixed-gender teams in fintech businesses. Only 36 companies were solely founded by women. Holly Sraeel digs into the details with Anthemis CEO Amy Nauiokas and Investment Principal Bukie Adebo Umeano on why funding for female-founded fintech companies—by country, stage and fintech sector—is still so paltry, and what needs to happen in the VC world to establish gender parity within investment portfolios. #fintech #venturecapital #femalefounders #genderequity #startups

The widening fallout from Synapse’s collapse and subsequent bankruptcy—and every bank and fintech partner swept up in it—continues to raise serious operational questions, cause lingering angst for customers still unable to access their money, and yet is utterly devoid of soul searching on the part of executives responsible for what transpired. Synapse, a Banking-as-a-Service (BaaS) provider backed by prominent venture capitalists, worked with as many as 100 bank and fintech partners—including Evolve Bank & Trust, Lineage Bank, Mercury, Dave, Yotta, Juno and Yieldstreet—serving as the intermediary between bank partners providing deposit accounts, loans and payment products and the fintechs that embed them into their customer apps. As the enormity of U.S. bankruptcy trustee Jelena McWilliams’ findings became public, what was also glaringly obvious: Some of the companies involved were so busy pointing fingers at each other that they failed to acknowledge that customers—all of whom were unwittingly tied to Synapse and its bank partners through their usage of fintech apps—have become collateral damage. That must change. Given the pace of financial innovation and the size of most BaaS banks—60% of BaaS banks have assets under $5 billion, while about 30% have assets under $1 billion, according to CCG Catalyst —the principles-based interagency guidance from the Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency seems inadequate to prevent another Synapse-like event. The resolution of the Synapse bankruptcy will likely be precedent-setting, potentially dictating changes to the BaaS model to ensure greater stability and reliability, sharpening enforcement of existing bank regulations and forcing new and deeper straight-line federal regulatory oversight—via national charters—of BaaS providers and fintechs. Holly Sraeel considers the complexities of the Synapse bankruptcy and what it means for the regulation of sponsor banks, BaaS providers and fintechs in the future.

Apple shutting down Pay Later is an even bigger deal than you think. It’s huge. Whenever Apple launches a new service that’s intended to disrupt a market already dominated by disruptors, the world expects Apple to do what it does best: use breathtakingly simple technology and lean into a fiercely devoted customer base to elbow its way in and carve out sizable market share. Think Apple Music (Spotify, Amazon Music, Pandora), Apple TV+ (Netflix, Prime Video & Amazon MGM Studios, Disney+ TV), Apple Pay (PayPal, Venmo, Zelle®, Cash App), and Apple Card (Citi Double Cash, Capital One Venture Rewards, Chase Freedom Flex). So when Apple launched its Pay Later service in March 2023, buy now, pay later (BNPL) providers including PayPal, Afterpay, Klarna, Affirm, Sezzle and Zip Co predictably girded for battle with the tech giant. From the start, Apple had an immense launchpad for the Pay Later service—millions and millions of iPhone and iPad users and customer loyalty that is just bananas. The swift adoption of Apple Pay made the move into a Pay Later service seem logical. Just 15 months after its debut, and in spite of its early gains in the BNPL market, Apple shut down its Pay Later service—somewhat stunning given that Apple rarely fails at anything. The tech giant’s sudden exit from the #BNPL market is not what you think—it's so much bigger. My latest for FIN: The Fast Forward on Fintech dives into the recent Apple Pay moves by Apple and why it's on course to be the driving force within the payments ecosystem.

Robinhood’s $200 million all-cash deal to buy Luxembourg-based cryptocurrency exchange Bitstamp underscores the trading platform’s ambition to push further into crypto, with the dual objective of attracting more institutional clients and trading a wider number of tokens in more markets globally. But the acquisition’s overall significance and eventual impact could be far larger than what appears at first blush. After the deal closes, expected in the first half of 2025, it could mark the start of a chapter that catapults Robinhood into crypto’s big leagues—competing against Binance, Coinbase, OKX and others—and finally enables it to get out from underneath the at-times egregious operational missteps that have plagued the trading platform before and since going public in July 2021, even with a Wells notice from the U.S. Securities and Exchange Commission currently hanging over its head. Plus, more from Holly Sraeel on the Synapse bankruptcy proceedings and its former CEO's new venture (with fabricated fundraising claims), the Affirm-Apple Pay buy now, pay later deal coming later this year, and Revolut’s UK banking ambitions.

The Synapse bankruptcy proceeding has taken a terrible turn—and customers have $85 million worth of reasons to be angry. Former Federal Deposit Insurance Corporation (FDIC) Chair and bankruptcy trustee Jelena McWilliams found that the Banking-as-a-Service (BaaS) provider’s partner banks hold about $180 million in customer demand deposit and For Benefit Of (FBO) accounts, but there's a large shortfall. The customers are actually owed $265 million—$85 million more than is on hand. The source of the overall shortfall, including whether end user funds and negative balance accounts were moved among partner banks, is not known. Even worse, no money exists to pay for a forensic accountant to trace the money movements between Synapse’s partner banks/fintechs and customer accounts. While some demand deposit account customers have regained access to their accounts, FBO accountholders are in for a longer haul to recover their funds, with the very real possibility that they might not be made whole for a long time—if at all. As the bankruptcy drags on, Sankaet Pathak, founder and ex-CEO of Synapse, is apparently not letting his company’s colossal failure get in the way of his startup ambitions and fundraising initiatives. Pathak has reportedly founded a new venture, Foundation Robotics Labs, and received a $10 million commitment from Tribe Capital while seeking to raise another $1 million in its seed round. Here's a detailed look at how the Synapse disaster got started and the potential implications for the future of BaaS partnerships.

Earned wage access (EWA) providers and states are divided on whether the products should be classified as loans and, therefore, subject to state consumer lending laws to control fees and create greater transparency. The current patchwork of state regulations—four have passed EWA laws, each with varying requirements—isn’t helping. In an Opinion Guest Essay for FIN: The Fast Forward on Fintech, Nico Simko, cofounder and CEO of Clair, makes the case for why clear regulations would establish standards and guidelines, providing a framework for EWA innovators to operate while also ensuring consumer protection.