A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
Crypto’s New Favorite Bank Would Prefer You Don’t Refer to It That Way
What happened: When Silvergate and Signature, two of the crypto industry’s favorite banks, collapsed earlier this spring, customers had to go somewhere. And they did, turning to a small Pennsylvania bank called, well, Customers. Why the 81st largest bank in America? Because like crypto it provides 24/7 access to funds and therefore trades.
Why it matters: Crypto needs banking but banking doesn’t necessarily want to be associated with crypto, in part because of regulation risk and in part because some believe it was the attention on long-dated bond exposure that helped sink crypto’s previous favorites. Customers has even gone out of its way to stop mentioning its crypto business on earnings calls.
What’s next: If past is prologue, a whole ecosystem of sell-side analysts who previously took a hard look at Silvergate and Signature will turn their sights on Customers, if they haven’t already. (By Quegi Yang, Bloomberg)
The Fintech Funding Crunch: Every Number Down Bad
What happened: Total dollars. Deal volume. Funding rounds. Pick a metric in the fintech world and it’s down, often by a startling degree.
Why it matters: It sounds bad and it might be…if you’re in early stages. Counterintuitively, as the amount of money available to new companies is dwindling, the valuations of more established start-ups has actually risen. There seems to be a have, have-not breakdown, depending on when companies raised funds.
What’s next: More M&A. Lower valuations means more desirable price tags for those already established, near-to-profitability companies that are coming out of the slump in a better place than their fledgling competition. (By Christine Hall, TechCrunch)
Hong Kong Still Doesn’t Want to Bank Crypto
What happened: Two major Hong Kong banks have privately said no to any sort of relationship with crypto companies. That includes the relatively extreme step of not even allowing crypto exchange clients to open up accounts.
Why it matters: Crypto broadly feels like a man without a country. In the US, a lack of regulatory clarity makes it difficult to operate an exchange, yet banks are more than willing to take deposits and process trades. In Hong Kong the situation is reversed, with the government actively courting crypto companies but banks refusing to deal with their customers. Whichever global financial hub figures things out first stands to gain.
What’s next: Someone has to blink. If Hong Kong banks go first, that could mean a lot of exchange activity moves there. If Coinbase prevails against the SEC, the flow may reverse. (By Elaine Yu, The Wall Street Journal)
Fintech Giants Take Second Look at Credit Quality
What happened: Fintechs can’t sell their asset-backed securities to banks anymore after a number of the largest loosened credit requirements. That’s led to nearly all of them tightening standards again.
Why it matters: UpStart, Affirm, and One Main now all lend to debtors with significantly higher credit scores than in the past year or two. Making their paper more attractive may come at a price, though, as it squeezes out the near-prime or subprime customers who make up a large portion of people who use companies like Affirm.
What’s next: A continued effort to balance credit quality and TAM. (By Hannah Lang, Reuters)
The Fintech Acquisition Spree Is Coming
What happened: A prominent fintech CEO says that the relationship between banks and the upstarts that once sought to uproot them has evolved to become more symbiotic. That portends a near-future of continued partnerships and, eventually, a mess of new acquisitions.
Why it matters: Banks were meant to fear fintechs ability to produce consumer-friendly products or technologically-proficient backends. Instead, both sides have gotten what they’ve wanted: scale for the startups and a pool of available talent and features that the stalwarts can nurture over time, possibly for the sake of integration down the road.
What’s next: Just like any revolution, all the cool kids will eventually be co-opted. Not because they sold out, but because it’ll just make sense to sell. (By Pymnts)