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Brex, Revolut, the Digital Yuan and More (Future of Finance | Week in Review)

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
Future of finance

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.

1. What Silicon Valley Bank Troubles Have Done to Silicon Valley

What happened: Brex’s co-CEO says his company was the beneficiary of Silicon Valley and First Republic banks failures. But the story isn’t that simple. “We did get a good amount of flow share from the early-stage side, but the majority of the money went to the big banks.”

Why it’s important: The trickle-down to fintech is going to be painful. “Overall it’s net negative for the industry. If customers trust only big banks and regulators don’t trust regional banks, who are a lot of the fintech sponsors, that makes it really hard for fintechs to operate.”

What’s next: Despite setbacks, expect those fintechs that do survive to get more ambitious. “Another thing that I think is super interesting is the globalization of fintech. If you look at the most valuable fintechs in the world — PayPal, Stripe, Visa, Mastercard — they’re all global in nature.” (By Reed Albergotti, Semafor)

2. Short-Selling Is Back and Banks Are the Target

What happened: Hedge funds beat major stock indexes last year for the first time since 2008. Their ability to sell short was a major reason why.

Why it’s important: Short selling bank stocks has been controversial since the global financial crisis, when the SEC momentarily banned it. The worry is that investors incentivized to see a bank stock go down could spook deposit holders, causing more runs and more possibly unnecessary damage.

What’s next: Tighter monetary policy has meant inflows to short-positioned hedge funds for the first time in more than seven years. Year-to-date that means $9 billion and counting, a pittance compared to the $160 billion in outflows that left the industry between 2016 to 2021. (By Matt Wirz and Ben Foldy, The Wall Street Journal)

3. UK’s Regulators Slowly Killing Revolut, Says CEO

What happened: It generally takes one year for new companies to get a UK banking license. Revolut, which already has nearly 6 million customers in the Kingdom, has waited more than two.

Why it’s important: UK regulators have previously faced criticism for slow approvals. But in the case of Revolut, delays have actually led to material costs, like the loss of several top executives on the company’s UK banking team.

What’s next: The approval process has “almost halted”. That’s bad news for the company, which is also awaiting similar approvals in the U.S., Canada, and Australia, all of whom seem to be waiting for the UK to move first. (By Crstina Criddle, The Financial Times)

4. The Long Silhouette of Shadow Banks Gets Longer

What happened: Three huge regional banks went kaput. But the need for business lending didn’t die with them. Enter the shadow banks: huge investment firms that don’t take deposits but still have a lot of cash. 

Why it’s important: Some think this is just supply meeting demand. After all, “the private credit industry has increased sixfold since 2013, to $850 billion, according to the financial data provider Preqin.” Others, though, are worried that increased lending among non-regulated entities comes with greater risk.

What might happen next: Even though entities like the I.M.F. have called for more scrutiny, regulation looks unlikely. That opacity could come with consequences. “The more shadow banks lend to each other, the more interconnected they become, augmenting the risk of a cascading effect that could ripple into the broader economy.” (By Lauren Hirsch, The New York Times)

5. The Empty Numbers Behind China’s Digital Yuan

What happened: China aims to disrupt the American dollar. The digital yuan is its weapon of choice. But adoption is almost non-existent, despite the hype.

Why it’s important: The rise in digital payments in China is actually a market success story. Alipay, PayPal, and American Express, among many others, have gained customer loyalty and hundreds of millions of daily users. A push for a widely-used digital currency may expose the limits of central planning.
What might happen next: The self-contained financial ecosystem a digital currency would require offers more risk. There may come a time when Chinese policymakers decide the risks are worth taking. However, until then – and unless Beijing returns to the path of financial liberalization it set out on in the early 2010s – the digital yuan will have limited cross-border growth prospects.” (By Zennon Kapron, Forbes)

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