Issue #85: Goldman Sachs Regrets The Apple Card, The CFPB Proposes A s1033 Uplift, And Australia Outlines A Licensing Regime for Crypto Exchanges
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It’s been another busy week for fintech, so without further ado, let's delve into the major happenings from last week.
📣 The News Grab Bag
CFPB Proposes Rule to Jumpstart Competition and Accelerate Shift to Open Banking
The CFPB has proposed a rule that would accelerate the shift towards open banking, allowing consumers to have control over data related to their financial lives and providing new protections against companies misusing their data. The proposed Personal Financial Data Rights rule would activate a law passed by Congress over a decade ago and would require financial institutions to share a person's data at their direction with other companies offering better products.
In their press release, the CFPB notes that this would allow people to access competing products and services without worrying that their data might be collected, used, or retained to serve commercial interests over their own.
🥡 Takeaway: The long-awaited proposed enhancements to s1033 of the CFPA finally dropped last week (you can find the consultation paper HERE). They provided a glimpse into how the US proposes moving to a more comprehensive regulatory-driven open banking regime.
While the new regime is still a long way from coming into effect, it’s interesting to think through the impact a more inclusive industry standard will have on the market dynamics of the open banking segment. More specifically, will this commodify the market for open banking data, or will it spawn more unique product offerings from the current players? Drawing parallels with Australia, the EU, and the UK, it's conceivable that we might witness further consolidation and heightened activity surrounding PIS (which is contemplated under the enhanced s1033 proposal).
On a broader note, while the US skates to where the open banking puck has already been, the rest of the world has realised that in an interconnected world of data, open banking really should mean open data. Countries like Canada are, from day 1, looking to enact a similar consumer data rights regime that sets the groundwork for an economy-wide open data regime (starting with banking) — similar to the one pioneered in Australia.
Australia outlines licensing program for crypto exchanges
The Australian government has released a proposal paper outlining plans to regulate domestic cryptocurrency exchanges by requiring them to hold an Australian financial services license. The move aims to enhance consumer protection, promote industry innovation, and provide operational clarity for exchanges.
The proposal includes specific obligations for crypto platforms, such as minimum standards for token holding, custody software protocols, and transactional integrity. The proposed regime is currently in a consultation phase, with draft legislation planned for further consultation next year. If the legislation is enacted, there will be a twelve-month transitional period before implementation.
🥡 Takeaway: On the face of it, the proposed regulatory framework looks like a well-balanced blend of consumer-centric and innovation-friendly approaches. By aligning crypto with existing financial laws, Australia is carving a path towards a more regulated and transparent digital asset landscape — which is great news for exchanges and consumers alike. Hopefully, this sets a precedent for other countries to follow.
Airwallex has signed an agreement to acquire MexPago, a payment service provider based in Mexico (subject to regulatory approvals). The acquisition will enable the company to expand its financial infrastructure into Latin America and support businesses to grow and operate across borders.
Airwallex offers solutions for businesses to manage payments, treasury, and spend management and has partnerships with Alpaca and Public to support payments and foreign exchange needs for global investors acquiring US stocks.
The article notes that Airwallex has seen more than 460% YoY revenue growth in Latin America — highlighting the demand for financial products in the market that allow companies to operate cross-border.
🥡 Takeaway: One of the major challenges for any cross-border money movement business is finding reliable pay-in and pay-out partners in the markets they operate in. In a tighter funding market, it’s surprising that the well-funded haven’t aimed to tackle this challenge by snapping up local players who have mastered the flow-of-funds challenge in their respective markets. This move by the Airwallex team is a shrewd play, and I think we’re likely to see more M&A activity around localised payment players.
Goldman Sachs regrets Apple Card, and is trying to escape the deal
Goldman Sachs is reportedly facing pressure to exit the consumer-lending space, and the Apple partnership is seen as a distraction from its core business. Goldman Sachs reported a 33% drop in third-quarter profits, the bank’s eighth consecutive quarter of falling earnings last week, which has put a ton of pressure on its consumer banking forays.
According to reports, some senior executives want to get out of the consumer lending space, and Apple's financial products could be offloaded onto another bank. However, the high-yield Apple savings accounts launched a few months ago remain popular, attracting billions of deposits that Goldman might not be able to afford to part with.
🥡 Takeaway: The Apple Card, once the centrepiece of Goldman Sachs' foray into consumer fintech, now seems to be a giant liability to the company. As noted in the article, a top exec's expletive-laced remark says it all: "We should never have done this f****** thing" — unsurprising given what it’s costing the bank. More specifically, the article notes that each new Apple Card user costs Goldman a whopping $350, making the fiscal dent hard to ignore. In 2022, a staggering loss of $1.2b was chalked up, chiefly due to the Apple Card venture. If (or maybe more accurately, when) Goldman Sachs drops Apple, it’ll be interesting to see who picks them up as a partner.
Payments fintech Modulr agrees with regulator to stop onboarding new customers
According to the article, the UK Financial Conduct Authority (FCA) has imposed restrictions on Modulr, a UK-based fintech, preventing the onboarding of new "partner" clients due to regulatory concerns. It goes on to note that Modulr is working with the FCA on its "systems and processes" and has agreed to pause onboarding certain new customer segments until 2024.
The company cited new UK regulations coming into force in 2023 and 2024, including the UK consumer duty and changes to push payment fraud reimbursement, as the reasons for the pause.
🥡 Takeaway: BaaS providers globally are really having a tough time at the moment. As the article notes, whether it’s the fire sale of Railsr, BaFin in Germany halting new partnership onboarding for Solarisbank earlier this year, or the recent challenges that Evolve and Synapse have had publicly aired, I think it’s fair to say that we’re seeing how hard it is to operate a BaaS business.
This scenario presents a stark contrast to the sustained, robust funding landscape for BaaS startups. Considering the regulatory hurdles most are grappling with and the absence of any significant returns for investors, I wonder whether we might see waning interest in this segment as the year unfolds.
Notable Funding Announcements
Last week was a busy one for fintech financing, with 48 funding rounds completed and companies collectively securing $710m in investment.
Series F News: Employment Hero raises $263 million to take its mission global
Last week, Employment Hero announced that they’d raised $263m (AUD) in a round led by TCV to expand globally and invest in delivering employment solutions to SMEs worldwide. According to the press release announcing the raise, the company will also use the funds to develop further AI capabilities to become a fully autonomous solution for SMEs to manage employment.
Employment Hero processes $85b in wages annually for 300,000 SMEs in Australia, New Zealand, Singapore, Malaysia, and the UK. It also serves as an employer of record for companies' globally distributed workforces. Employment Hero also has a "super app" called Swag, which includes a digital wallet, debit card, cashback offers, and online discounts.
🥡 Takeaway: There is no shortage of competition in the segments that Employment Hero operates in. Whether it’s companies like Rippling, HiBob, Gusto or Deel, this space is crowded. Like many others in this segment, Employment Hero has tried to differentiate in this crowded market with an employee wallet offering called ‘Swag’ (like Gusto in the US, with its wallet product). The super app, as they refer to it in the press release, aims to provide a way for employees to interact with their employer, save, spend and advance their careers through surfacing internal opportunities.
Ulimtaley, the convergence on serving both the employer and employee (and thus generating revenue from both constituencies) is a tall order, and it’ll be interesting to see if anyone can pull it off at scale.
Nova Credit, a data analytics company, last week announced that they’d closed a $45m Series C funding round to expand its product offerings and scale its cash flow underwriting and verification solution, Cash Atlas.
According to the press release announcing the round, the company has experienced significant growth since its Series B funding round in 2020 — partnering with major companies and expanding internationally as it continues to grow its footprint. Nova Credit has focused on leveraging open finance data to enable lenders to understand their customers better and reach new-to-credit populations.
🥡 Takeaway: Traditional credit reporting falls short when it comes to underwriting for over 60m individuals who are new to credit, new to country, or have thin credit files — it turns out that localised solutions in a global world aren’t cutting it for many.
Bridging the information gap and creating a global credit bureau solution (or credit passport, as Nova calls its offering) has turned out to be a massive opportunity in plain sight. As the press release notes, since its Series B funding in 2020, Nova Credit has seen a tenfold revenue surge and formed partnerships with numerous firms like HSBC, Verizon, Scotiabank, Earnest, and Yardi. Moreover, the company has broadened its international footprint, extending its services to newly targeted regions in Canada, the UK, the UAE, and Singapore.
🎧 Resources & Recommendations
Patrick Collison & John Collison - A Business State of Mind [Podcast]
On this episode of Invest Like The Best, Patrick and John Collison, co-founders of Stripe, discuss the strategy and culture that attracts ambition, their progress in increasing the GDP of the internet, studying old companies for insights, the challenges ahead for Stripe in expanding their payment services and reflecting on kindness and gratitude.
Fair warning: this podcast with the Collision brothers doesn’t have much to do with fintech and delves more into their company-building approach — nonetheless, it’s still a great listen.
Focal Fintech: 25 Startups to Watch [List]
Primary (a VC fund out of NYC) compiled a list of 25 NYC-based fintech startups to watch, categorised into seven themes. These themes include reimagining banking and lending infrastructure, tackling the tax return, accessible wealth management and financial planning, better tools for small businesses, unlocking new data sources, building systems for better decision-making, and streamlining financial visibility. It’s an excellent list for those looking for a quick sense of which companies they should be keeping an eye on in the NYC fintech ecosystem.
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