US Congress "Eliminates Barriers to Innovation"
US Congress "Eliminates Barriers to Innovation"
Apple Lets Couples Damage Credit Together, Affirm Acquires, Venmo Adds Crypto
Hello all, Jason here.
This week will be the second King’s Day celebration since I moved to the Netherlands — a holiday honoring King Willem-Alexander’s birthday that’s normally marked by flea markets, parties, boat parades and, of course, the color orange. I imagine festivities will be more subdued (or clandestine, at least) this year, owing to the continuing pandemic.
Also this week is the LendIt Fintech conference, and it’s not too late to get tickets. And as a loyal reader, you get 15% off — just use code MPFBW at checkout.
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US House of Reps OKs Pot Banking, Crypto Working Group
While trillion dollar coronavirus relief and infrastructure bills nab most of the headlines these days, the Democratically-controlled Congress is keeping busy, advancing a number of banking- and fintech-related measures.
HR 1996: Secure and Fair Enforcement Banking Act
While federal law continues to classify marijuana as a “Schedule I” controlled substance — the same category as heroin, peyote, and LSD — 36 states have authorized marijuana for medical use and 17 have legalized the substance for adult recreational use.
These conflicting laws put banks and financial services providers in an awkward position, with most all refusing to serve cannabis-related businesses — think payment processing, business bank accounts, credit and loans, etc.
According to Reuters, the “SAFE Banking Act” bill:
“…clarifies that proceeds from legitimate cannabis businesses would not be considered illegal and directs federal regulators to craft rules for how they would supervise such banking activity.”
The bill passed overwhelmingly in the House 321-101, but faces a less certain outcome in the narrowly divided Senate. Senate Majority Leader Chuck Schumer has indicated he would like to see the banking measure pass as part of a broader bill legalizing marijuana for adult use — even if not supported by President Joe Biden.
HR 1602: Eliminate Barriers to Innovation Act
You have to love the optimistic titles they give these bills… Last week, the House of Representatives introduced the measure, which requires the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) to create a working group to draft a report that analyzes the legal and regulatory framework governing digital assets. To date, the SEC and CFTC have taken the lead in regulating crypto-related instruments.
Apple To Let Users “Co-Own” Apple Card
In addition to announcing a number of new iPads, iMacs, and AirTags last week, Apple also announced some interesting updates to the Apple Card credit card, offered with banking partner Goldman Sachs.
While an interesting set of features, this seems largely in response to allegations of gender bias that surfaced against Apple and Goldman Sachs after the card’s launch in 2019; the NYDFS investigated and found no evidence of illegal discrimination.
The updated feature set, dubbed Apple Card Family, will allow users to share the card’s functionality, credit limit, debt obligation, and credit reporting.
The release states (emphasis added):
“Apple today announced Apple Card Family, an innovative new way for people to share their Apple Card, track purchases, manage spending, and build credit together with their Family Sharing group.”
The most interesting part of the product announcement is the notion of two card “co-owners” jointly building credit “equally.” Apple’s VP of Apple Pay, Jennifer Bailey, is quoted in the release saying (emphasis added):
“There’s been a lack of transparency and consumer understanding in the way credit scores are calculated when there are two users of the same credit card, since the primary account holder receives the benefit of building a strong credit history while the other does not,” said Jennifer Bailey, Apple’s vice president of Apple Pay. “Apple Card Family lets people build their credit history together equally.”
I’d note that Bailey’s characterization presupposes an on-time payment history and low utilization — something that will not be the case for all users. Not only can you “build a strong credit history” together — with the new Apple Card features, you can damage your credit history together too.
The framing in the announcement suggests the feature goes beyond the traditional credit card “authorized user” to something more akin to a co-signer or joint liability structure. Additional details support this conclusion (emphasis added):
“Apple Card can be shared with any eligible customer who is 18 years or older as a co-owner, providing the opportunity for both to build credit history together, get the flexibility of a combined limit, provide transparency into each other’s spending, share the responsibility of making payments, and deliver the convenience of a single monthly bill to pay.”
How this feature works in practice may hinge on the word “eligible” above. Does the card co-owner need to be independently underwritten and approved before he or she can ‘combine’ and co-own another Apple Card? Once the feature is actually live, I imagine T&Cs will provide greater insight into how this will actually work.
Consumer credit risk experts with whom I spoke were skeptical about how impactful this type of joint reporting would be on an individual’s credit score. Sources argued a single revolving tradeline is unlikely to make a big impact on a user’s credit score.
Even if ‘co-owning’ does boost a user’s credit score, line assignment (credit limit) has more to do with an individual’s ability to pay (income vs. debt obligations) — which Apple Card joint reporting wouldn’t help and could actually hurt, if it results in a higher end of month balance being reported to the credit bureaus.
Affirm Acquires Returnly
Affirm, a buy now, pay later player historically focused on financing larger transactions with 0% and interest-bearing loans offered at the point of sale, announced plans to acquire Returnly for a total value of $300 million. Returnly simplifies the return process for merchants and consumers by offering instant store credit even before an item is returned to the merchant.
My read on this acquisition is that it is designed to help Affirm build out its “pay in 4” option (“split pay”) and, potentially, will tie into Affirm’s yet-to-be-released card product.
The “pay in 4” model is more commonly used for smaller transactions — think H&M, not Peloton — a space where Affirm faces heavy competition from Quadpay, Sezzle, Klarna and the emerging 800 lb. gorilla — Paypal, owing to its existing broad merchant footprint.
A common use case for BNPL in these smaller transactions is a sort of “try before you buy” — allowing consumers to order a product and receive it before fully paying for it, something used for purchases like clothing and shoes, for example.
Affirm’s Returnly acquisition suggests they will add product features leaning in to this consumer behavior.
Venmo Adds Crypto
In an utterly unsurprising move, Venmo has added the ability for its users to buy, hold, and sell cryptocurrencies within its app in denominations as little as $1. Venmo is a latecomer, as parent Paypal added the same functionality in late 2020, and arch rival Cash App, owned by Square, has offered crypto functionality since 2018.
Venmo partnered with Paxos Trust Company to launch its crypto functionality. It will support four popular cryptocurrencies at launch: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. For frame of reference, recently IPO’d exchange Coinbase offers over 25 cryptocurrencies on its platform.
Former Acting Comptroller Brian Brooks Joins Binance.US
The former acting Comptroller of the Currency, Brian Brooks, will join crypto exchange Binance.US as its CEO. Binance runs the world’s largest exchange by volume, according to data from CryptoCompare. Prior to his role at the OCC, Brooks was the chief legal officer of Coinbase, another popular exchange.
During his tenure at the OCC, Brooks was known for a friendly stance towards cryptocurrencies and toward fintech and innovation/competition in the financial space in general.
According to the Wall Street Journal:
“Under his watch, the OCC released guidance clarifying that banks could provide cryptocurrency custody services and use stablecoins to facilitate payment activities, moves that helped make it easier for traditional financial institutions to get into crypto.”
Brooks also oversaw moves to codify the OCC’s “true lender” rule and to move forward with a non-depository “fintech charter” — attempts that face uncertainty stemming from numerous lawsuits and Congressional review.
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FT Partners Q1 Fintech Insights
FT Partners Q1 Fintech Insights report is out. As always, it is crammed full of relevant stats and analysis on the state of financing and M&A activity in the sector.
As you can see below, Q1 2021 was a huge quarter for fundraising activity, up 2.5x vs. the year prior — driven by monster, late-stage rounds for firms like Klarna, Stripe, Loanpal, and that emergency $3.4 billion Robinhood needed to raise as a result of the jump in its clearinghouse deposit requirements stemming from a burst of trading activity in “meme stocks” (or stonks, if you prefer) like GameStop and AMC.
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