Issue #112: SEC Approves An ETH Spot ETF, CFPB Says BNPL = Credit Card, And Google Pay Drops Some New Features
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As always, it’s been a busy week for fintech, so without further ado, let's dive into the major happenings from last week.
⤷ US SEC approves exchange applications to list spot ether ETFs
🏃♂️ The Rundown: The SEC approved applications from Nasdaq, CBOE, and NYSE to list spot ETH ETFs, paving the way for potential trading later in the year.
Key companies like VanEck, ARK Investments/21Shares, and BlackRock aim to launch these ETFs following the SEC's approval of bitcoin ETFs in January. The approval surprised most in the industry, though further approval is needed before an ETH ETF lands on a main board in the US.
🥡 Takeaway: There’s something definitely in the air with crypto at the moment. Yes, the boring stuff related to meme coins ripping and general price rises has been a narrative for most of the year's first half.
However, the sudden change of heart by the SEC in relation to an ETH ETF, Donald Trump now being on the pro-crypto bandwagon, and the recent passing of the FIT21 Bill all seem to be signs that we might be in for a seachange when it comes to the regulatory landscape in the US.
More broadly, the cold winter that crypto has gone through seems to be thawing, and along with the uptick in corporate activity around stable coins (which I think is the way bigger story), we might be hitting a new inflection point for crypto.
⤷ CFPB says BNPL firms must comply with credit card consumer protection rules for billing disputes and refunds
🏃♂️ The Rundown: The US Consumer Financial Protection Bureau (CFPB) has designated buy now, pay later (BNPL) firms as credit card providers, mandating compliance with credit card consumer protection rules.
The ruling, following a three-year review, requires BNPL firms to facilitate billing disputes and refunds. CFPB Director Rohit Chopra emphasised the need for consumer protections in BNPL services to address issues like overextension and excessive debt accumulation. Stakeholders can comment on the ruling until August 1, 2024.
🥡 Takeaway: One of the initial insights — or maybe regulatory arbitrages, depending on your perspective — that BNPL players globally built their businesses on was providing short-term loans that, in many markets, escaped regulatory scrutiny under consumer credit laws. Providing the ability to “buy now and pay later” in a short time window and not charging “interest” meant most were not considered consumer credit and thus not regulated like credit cards or personal loans.
In most markets, regulators are taking a surgical approach to incorporating BNPL into consumer credit laws. For example, in Australia, the proposed amendment to the law will introduce the idea of “low-cost credit contracts’ (LLCs)” to designate financial arrangements like BNPL and EWA as services covered under the consumer credit laws. The UK is taking a similar approach.
The critical point is that the change is being made by the legislators, not regulators — who generally have a blunter set of tools at their disposal.
In many ways, I think the issue that BNPL players will have with the CFPB’s interpretation will likely have less to do with outcomes of being captured under subpart B of Regulation Z (as most already meet the requirements) and more to do with the optics of being in the same regulatory basket as credit cards. Take, for example, Klarna’s response — which, although thin on details, points out that “trying to regulate BNPL like a credit card is like comparing apples with oranges”. In other words, don’t call our product a credit card!
It’ll be interesting to see if the US follows what other markets are doing and actually updates regulations and sures up what feels like a stop-gap measure from the CFPB.
⤷ Google Pay will now display card perks, BNPL options and more
🏃♂️ The Rundown: Starting Wednesday last week, Google Pay users will experience several new features designed to enhance their payment experience. Key updates include displaying card benefits and perks before selection, facilitated through integrations with Android and Chrome. Initially supporting American Express and Capital One cards, this feature aims to help users choose the best card based on rewards.
Additionally, Google Pay will offer BNPL options through partners Affirm and Zip, expanding to more U.S. merchants and Android apps. With this update, users can also verify card details using biometric methods or a PIN, enhancing security and convenience.
🥡 Takeaway: In the last issue of FR, I discussed how wallets could (and should!) offer more smarts when it comes to payment options. Then, out of nowhere, Google Pay drops an update showing card perks at checkout — albeit with just two partners. Timing.
I assume they’re starting with Capital One and AmEx due to some partnership arrangement. As a side note, building a feature around loyalty/reward data is oddly challenging. Information about individual rewards programs is not easily accessible, programs randomly change, and there aren’t any data providers you can plug in that provide the data (e.g. there’s no Plaid for rewards programs that I’m aware of). This means you either roll your own scraping solution/do it manually, or partner with every card program to provide the data. The kicker, few have an incentive to do so.
I say all this to point out that this isn’t an easy feature to roll out across all the cards out there, so it’ll be interesting to see where this goes for Google. One would expect them to bring on more card programs progressively, but it’s equally likely they’ll kill the feature. Let’s see which way it goes.
⤷ BBVA partners OpenAI to deploy ChatGPT among its employees
🏃♂️ The Rundown: BBVA has partnered with OpenAI to deploy 3,000 ChatGPT Enterprise licenses among its employees in Spain, with plans to extend to other key countries.
The article notes that BBVA aims to enhance productivity, efficiency, and innovation across departments through the partnership. Ricardo Martín Manjón, BBVA's global head of data, highlights the partnership's potential to enhance customer support and employee creativity.
🥡 Takeaway: It continues to be AI announcement season in fintech. Every week, another financial services company announces something like “We also have an AI thing” or “We now use AI in our business, too” (this was from Klarna just last week).
As I’ve opined on in previous issues of FR, the two buckets of use case remain (i) more intelligent customer support bots and (ii) internal tooling (e.g. AI Clippy for X). The reality is we’re still really early when it comes to use cases in financial services.
The other notable thing is that all roads lead to OpenAI when it comes to the underlying intelligence (i.e., models). In most cases, an infrastructure provider will not be a competitor to your offering. But OpenAI isn’t your average cloud computing provider — and Sam Altman has said as much. Tl;dr: if you’re an OpenAI wrapper, they’ll “steamroll you.”
For all the marketing hype, this wave of AI companies might end up being cannibalised by OpenAI — especially those trying to sell an AI Clippy for X to incumbent financial services businesses. And no, just being the RAG layer isn’t going to be enough.
In other words, it might turn out that the answer to “What is your AI strategy?” in FS is just getting everyone a ChatGPT subscription, like what BBVA have done.
⤷ Mercado Pago enters talks with regulators for banking licence in Mexico
🏃♂️ The Rundown: Mercado Pago, the online payments arm of MercadoLibre, is in talks with Mexico's CNBV to secure a Multiple Banking Institution license.
Operating as an Electronic Payment Funds Institution for over two years, Mercado Pago aims to expand its financial services offerings to include debit/credit cards, remittances, insurance, and loans. With plans to become Mexico's largest digital bank, Mercado Pago has initiated discussions with regulators and plans to submit its MBI application in the coming months. The process is expected to take 12-24 months
🥡 Takeaway: One thing that I’m always fascinated by in growing fintech markets like Mexico is how the tech winners in other categories look to play in the segment — because, at some point, they always do.
For example, in many African markets, the telcos that spearheaded the initial wave of Internet activity quickly moved into financial services. While in Asia, we saw the rise of superapps as social networks and e-commerce 1.0 companies looked at new opportunities to expand their business.
As in other markets, Latam's e-commerce marketplace to financial services business pipeline is proving strong.
This is an interesting move from MercadoLibre as they shift from focusing mainly on payment through Mercado Pago to taking a larger slice of the financial services pie.
⤷ KKR leads Series C funding of $93m into Vitesse
🏃♂️ The Rundown: Vitesse, a UK-based fintech founded in 2013 by Paul Townsend and Phil McGriskin, has secured $93m in a Series C funding round led by KKR. The company offers a payments and treasury management platform tailored for insurance companies, facilitating international payments and providing banking services.
This funding follows previous rounds in 2020 and 2022, totalling $34.4m. Vitesse is focusing on expanding in the US market and has appointed Curt Hess to spearhead growth stateside. Additional investors in the Series C round include Hoxton Ventures, Octopus Ventures, and Hannover Digital Investments.
🥡 Takeaway: Payments have always been the wedge that drives most embedded fintech plays. Whether it’s Shopify dipping its toe in the fintech water by offering payments or MindBody doing payment processing for yoga studios, taking on the payment is usually the gateway drug for most forays into fintech.
However, doing the reverse works equally well. In other words, start with the high-margin play (payments) and build the workflow around it for the vertical. Classic examples include Flywire for universities, Instamed for healthcare, and Zego for real estate.
What makes these plays so interesting is that they are rarely about the payments part — which usually ends up being the most straightforward bit — and they’re mainly about the workflows around the payment. In fact, what many of these “Stripe for X” companies have in common is that the payment operations part of the transaction is incredibly idiosyncratic.
It’s interesting that, in a time when we’re seeing more payment operations companies pop up (i.e., Modern Treasury), the vertical payment play still works so well. It shows that most aren’t keen to get that close to the metal and want a nicely packaged solution for their industry.
⤷ Teal Announces $8M Seed Investment to Drive Next-Gen Accounting Products for Vertical SaaS
🏃♂️ The Rundown: Teal, a startup founded in 2023 by Ian Crosby, secured an $8m seed funding round led by Torch Capital. Teal aims to revolutionise accounting for Vertical SaaS businesses by providing infrastructure for companies to build their own accounting suites. The funds will help Teal offer APIs and tools for small businesses to access real-time insights and accounting services.
🥡 Takeaway: It’s great to see companies like Teal and Ember (which I discussed last week) try to bring the accounting ledger closer to where a business owner might want to interact with it —i.e., in their banking app or vertical SaaS offering like Shopify.
The thing I wonder about with embedded accounting is — who’s the actual customer? For the most part, the modern cloud-based accounting suites are way more accessible than their old desktop counterparts. In other words, it’s already relatively easy to access them. Beyond that, accountants are critical players in choosing an accounting suite, and when a selection is made, most SMBs are fully locked in. This means most SMB owners don’t just select an accounting suite because it’s embedded somewhere.
The embedded accounting play, in theory, sounds compelling. However, for the most part, it probably ends up being a convenient way for more complex graphing and tabulation of first-cut accounting figures for a business owner in, say, a bank account (which is still valuable!) — versus actually forming a fully-fledged accounting suite for a business owner to use in say their Shopify dashboard.
⤷ Robinhood CEO: Meme Stock Crisis, Future of Crypto, and AI Opportunities in Finance
On this episode of the Logan Bartlett show, he chats with Robinhood CEO Vlad Tenev about lessons he learned from the meme stock craze, what goes into building new products at Robinhood, what’s happening in the crypto world, and the future of financial trading in the U.S
Worth listening out for is the conversation around Robinhood’s Gold card launch and the thinking behind it. The episode is a great listen and well worth the almost 2 hours of your time.
⤷ When Your Biggest Competitor Crashes, with Mercury CEO Immad Akhund
I’ve featured a fair few interviews with Mercury’s CEO, Immad Akhund, in part because he always drops some great insights into how he built Mercury.
During this conversation he goes into a fair bit of detail on how they navigated the SBV crises and what they did to sure up trust in their offering. He also chats about how they think through product R&D and how they’ve expanded their offering overtime based on what customer want. As always, Akhund provides a great look behind the curtain at Mercury.
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