A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
Becoming a Bank Is Actually Pretty Hard
What happened: Five fintechs have recently withdrawn their U.S. banking-charter applications, with a startup run by a SoFi co-founder being the latest.
Why it matters: Investors are more interested in boring old banks than shiny new fintechs, a reversal of what life was like only a few years ago. To survive, those suddenly floundering fintechs have had the bright idea to just become banks themselves, a plan which might work if the financial regulatory apparatus wasn’t so difficult, costly, and time-consuming to maneuver through.
What’s next: Someone, somewhere will be the first to get a charter from the Biden administration. In the meantime, expect more dropouts. (By Paige Smith, Bloomberg)
BRICS Wants to Drop the Dollar Like, Well, A Sack of Something
What happened: The annual BRICS summit is underway and Brazil, Russia, India, China, and South Africa have one issue at the top of their agenda: stop trading in U.S. dollars.
Why it matters: Lots of financial crises have their roots in the mismatch between the dollar and local currencies. Trading in local currencies instead makes a lot of sense for most nations, especially developing nations. But this conference and all others is also a referendum on the growing competition between China and India, and whether they can put their suspicions aside for something they suspect would both benefit them.
What’s next: BRICS New Development Bank will keep offering membership as a carrot for loans denominated in local currency. Headline writers will still type “de-dollarization” without enough context to explain why this doesn’t matter much in the long run. (By Diego Mendoza, Semafor)
Even the Best Startups Have to Ramp Down
What happened: Fintech startup Ramp just raised another $300 million. The only problem: it did so at a valuation that’s a solid 30% lower than its previous fundraise.
Why it matters: Stripe, Klarna, and now Ramp. The fintech payments space is beset with markdowns, some of which come close to 50% of the company’s previous value. The good news, though, is that each company can still raise money.
What’s next: It’d be a shock if some of this new money isn’t used by fintech survivors to snap up parts of those companies that weren’t able to make it through the downturn. (By Mary Ann Azevedo, TechCrunch)
Every Big Private Equity Firm Is Just Handing Off Companies to Competitors
What happened: Bain Capital just ceded ownership of a German manufacturer to the lending arm of KKR, its biggest rival. It’s the latest in a string of hot-potatoes by private equity firms that are learning credit doesn’t pay in a downturn.
Why it matters: “Private equity-owned businesses are struggling partly because some of the debt used to finance buyouts was not hedged against interest rate rises. As rates have gone up, loan repayments have increased and companies have had to spend more money servicing their debt.”
What’s next: If there’s one thing we’ve learned it’s that the last thing private equity wants to do is actually own the company they’ve purchased. Look for more handoffs in the near future. (By Will Louch, The Financial Times)
The Only Way to Win Is to Survive, California Bank Edition
What happened: East West Bank is now the largest California-chartered bank in the nation. How did it get there? By not blowing up this spring.
Why it matters: “Despite being the country’s largest economy, California has fewer regional banks than Georgia, and total assets in California-chartered lenders stand at about the same level as those in Utah banks. While banking giant Wells Fargo & Co. is headquartered in San Francisco, it operates under a national charter, meaning state regulators have little oversight of the lender and the firm is less hyper-focused on local clients.”
What’s next: More tortoise behavior from immigrant-founded banks that don’t ever receive press coverage for the sweetheart mortgages they offer startup founders. (By Max Reyes, Bloomberg)