Happy Sunday,
More rate hikes possible. Numisma gets Fed master account. Relay raises $32.2Mn. Texting platform raises $110Mn. PayPal to launch ads business. Paze wallet rollout continues. Jelena McWilliams appointed Synapse bankruptcy trustee.
If you missed our Q1 Consumer Lending Review that dropped earlier this week, it’s available here.
New here? Subscribe here to get our newsletter each Sunday. For even more updates, follow us on LinkedIn (PeerIQ by Cross River).
Another Rate Hike Not Off the Table
Minneapolis Fed President Kashkari told a London audience that another rate hike isn’t off the table. He made similar remarks earlier in the week, saying the Fed should wait for additional evidence that inflation is cooling before beginning to cut rates. In other Fed news, the Cleveland Fed named Beth Hammack, a Goldman Sachs vet, as its next president. Hammack will assume the role in August, which will include voting on rate decisions beginning with the September FOMC meeting.
Image: Bureau of Labor Statistics
Numisma Gets Fed Master Account
In a first since the Fed revamped its process for granting master accounts, an uninsured “tier 3” applicant has been conditionally approved. Numisma Bank, a Connecticut-based de novo, is an insured institution focused on banknote distribution. The decision isn’t without controversy. Former Fed Vice Chair for Supervision Randal Quarles’ private equity firm, Cynosure Group, is a part-owner of the bank, leading some to question if it received preferential treatment. Since 2017, the Fed has received 27 applications from tier 3 institutions. Of those, three have been denied, eight withdrawn, and the rest remain pending.
Relay Raises $32.2Mn
SMB banking startup Relay announced it has raised a $32.2Mn Series B round. Relay combines bank account functionality, through partner bank Thread, with expense and money management features. In addition to earning revenue through interchange and deposits, Relay offers a premium subscription product for $30 per month. The company says revenue rose 3x in 2022 and a whopping 6x in 2023 and that it expects to hit $100Mn in annualized revenue this year. The round was led by Bain Capital Ventures, with participation from Garage, Industry Ventures, and Tapestry.
Solutions by Text Raises $110Mn
A company that enables users to pay their bills by text, which, until recently, has been bootstrapped, announced it has raised $110Mn to power its expansion. Solutions by Text, founded in 2008, took its first outside capital from Edison Partners in 2021. Compliance challenges unique to the financial services space have discouraged some companies from engaging with customers via text. But, the company says, it has invested considerable resources in getting the compliance piece right. Solutions by Text customers include US Bank, Best Egg, a top 15 auto lender, and regional banks, among others. The firm also partners with payment platform Nuvei to enable customers to initiate payments via text.
PayPal to Launch Ads Business
First JPMorgan Chase, now PayPal. The saying “data is the new oil” feels passé at this point, but at-scale firms across various sectors are increasingly building advertising businesses to monetize their first party data. For instance, Amazon and Uber have built material ads businesses, and Walmart recently acquired a TV manufacturer as part of its ads strategy. Now, PayPal is planning a similar initiative, even hiring Uber’s former head of its ad division. The offering would leverage user purchase and spending data from both PayPal and Venmo to enable advertisers to target and track the effectiveness of their ads.
Paze Rollout Continues
Paze, the digital wallet operated by bank consortium Early Warning, is aiming for a nationwide rollout by the holiday shopping season. Paze is already live in Arizona, Texas, and South Carolina, and is in the process of deploying across six New England states. According to EWS, around 80,000 merchants have been onboarded to accept the digital wallet. Paze aims to go beyond digital purchases, with bricks-and-mortar retailers like Texas chain Whataburger accepting Paze at checkout.
Former FDIC Chair Appointed Ch11 Trustee in Synapse Bankruptcy
In the latest developments in the Synapse bankruptcy, Synapse and Evolve filed dueling statements with the court. Synapse alleges there is a $50Mn shortfall that Evolve, ultimately, is responsible for. Evolve denies that it owes any money and argues that Synapse’s records do not match the actual flow of funds in Evolve accounts. Another Synapse bank, Lineage, made similar representations to the court. While secured creditors TriplePoint and SVB pushed the court to convert the case to a Chapter 7 liquidation, the judge opted to keep the case in Chapter 11 and appoint a trustee, former FDIC Chair Jelena McWilliams, to take over decision making for the estate from Synapse management. The impact on banking-as-a-service is likely to be widespread, with potential impacts on what operating models are viable, how regulators view the space, and even overall VC funding to fintechs.
In the News:
Fed’s Beige Book Points to Modest Growth in US Economy, Prices (Bloomberg, 5/29/2024) U.S. economy expanded at “slight or modest” pace.
US Mortgage Rates Rise for First Time in a Month, Denting Demand (Bloomberg, 5/29/2024) 30-year fixed rates ended the week of May 24 above 7%.
Klarna labels CFPB BNPL rule ‘baffling’ (Finextra, 5/24/2024) Klarna isn’t happy with the Bureau’s interpretative guidance.
SEC Widens Accessibility of Crypto Investing With Approval of ETFs for Ether (Wall Street Journal, 5/23/2024) In a surprise move, SEC approves Ether ETF
A Lender to Consumer Start-Ups Falters, Rattling Its Clients (New York Times, 5/24/2024) Ampla has tightened or frozen SMB customers credit lines.
Klarna: BNPL Fintech Uses Gen AI for US$10m Marketing Cuts (Klarna, 5/29/2024) The BNPL firm says it expects to save $10Mn from using AI.
Visa’s flexible credential: A boon for the Capital One-Discover deal? (American Banker, 5/23/2024) Decoupling cards from funding sources could spark fresh competition.
How Visa and Mastercard are bolstering non-card payments (American Banker, 5/28/2024) The networks are looking to move beyond cards.
Lighter Fare:
‘Virtually complete’ Stegosaurus fossil to be auctioned at Sotheby’s geek week (The Guardian, 5/29/2024) If you’re in the market, you may need as much as $6Mn for the dino skeleton.