Hello Fintech Friends,

There is an old English curse that goes “may you live in interesting times.” Say what you will about this year - it has certainly been interesting. Or, as Index Ventures’ Mark Goldberg put it, “last year was the party; this year is the hangover.”

Markets and history are both astonishingly cyclical. Despite the insistence with every upswing that This Time is Different, if you zoom out, there is a distinct and noticeable pattern.

As hard as it is to believe now, fintech – relative to the larger tech ecosystem – was a little-loved and little-understood blackwater for years until it came into the spotlight around early 2020 (I attribute this to the Visa/Plaid acquisition attempt as one of the main catalysts). When it did, the floodgates opened and for two years it felt like every fintech startup was raising a mega-round, growing torridly month over month, and paying up for talent.

As an investor in 2020 and 2021, I saw multiple pitches from pre-product, pre-team founders raising at $100 million valuations for their first rounds. (I did not invest.) Who is to say what the ‘right’ valuation, or months of runway, or gross margin, or path to profitability really is? There is no Platonic ideal. In boom times, the bar is lower, and – when the bust inevitably happens – the bar gets higher.

Unfortunately, the very real human impact of that shifting bar is that peoples’ livelihoods hang in the balance. If a company overhires, or takes on too much debt, or raises at a valuation it can’t sustain, people almost inevitably end up losing their jobs and their nest eggs when the music stops.

But fortunately, time is on our side. Just as it’s natural at the height of the bubble to say “this will last forever,” it’s natural at the nadir (now) to think “things will never be good again.” But they will. Every time the tide goes out, it inevitably comes back in.

To put that in more concrete terms: now is when good companies are made. Now is when high-quality talent gets freed up from the default of high-paying FAANG jobs and flows to early-stage founders. Now is when founders become resilient, become more strategic with their resources, and zero in on product-market fit. Now is when investors become more judicious and tighten their risk apertures, bringing up their long-term returns.

I can speak to this from experience: the early days of building Funding Circle and Petal (each of which I joined pre pre-seed) were frustrating and laced with challenges. But challenges begot creativity, and by sticking at it for long enough, we eventually got it right and overcame those challenges. Having the resourcefulness just to stay alive is the #1 determinant of eventual success.

If you work in fintech, this year has probably been trying, frustrating, disheartening, and yes, interesting. It’s natural when the industry gets challenged to want to quit. But my one piece of advice is stick it out.

I am confident that the painful state of the current fintech market will bring much-needed focus and tenacity to the space. The next year is when decade-defining products will be built. I’ll put my money where my mouth is: I plan to spend 2023 doubling down on fintech - as an investor, as a mentor, and as a community builder. I hope you’ll join me.

Our team will be taking the last couple weeks of the year off to recharge. When we come back, we’ll be here with more fintech news, more podcasts, a bigger community, even better events, more investments, and most importantly: more fintech!

Let’s come back in 2023 and build together.

Happy holidays,

Nik & the TWIF team

Left to right: Michael, Alex, Amanda, Nik, Helen, Cristina, Michelle. Bottom: Sophie & Analisa. Not pictured: Christine, Osborne, Dennis, Che, Desmond, Julie, Mohammad, and Ning.

Please enjoy another week of fintech and banking news below.

Sponsored Content

Take a moment of silence for companies using credit cards and giving away up to $30,000 for each $1 million they make. 🙏🙏🙏

Card processing interchange fees can reach as high as 3%, but account-to-account transfers can cost pennies. Get access to faster payments and a massive reduction in fees by implementing a modern API in less than 20 days.

Want to sponsor a newsletter? See our sponsorship information here.

📖 Read of the Week

Cowboy Ventures’ Jillian Williams has a great piece this week, The Fable and Challenges of Credit Cards in the US, evaluating the claim that younger generations are averse to credit cards.

The finding is that, as consumers age, they become more likely to take on products like credit cards. Yet, with a deteriorating economy, the importance of products to help consumers deal with indebtedness goes up. Credit origination always spikes late in a business cycle (due to FICO grade inflation, old bankruptcies falling off credit reports at 7 years, etc.) When the inevitable credit crunch happens, many of these consumers end up defaulting, wiping out these portfolios (and the fintech issuers) as a result. Consumer credit is an industry where long-term, supra-cyclical planning (ie: not overleveraging your customers) is a need-to-have, not a nice-to-have, when it comes to staying alive.

Relatedly, I enjoyed Credit cards as a legacy system, Patrick McKenzie’s writeup on the design decisions that made credit cards as they are today, the quirks that creates in our modern (online) economy, and how they might be designed differently if built from scratch in today’s world. Among other insights, there was this nugget, “The organizations most frequently targeted by card testing [fraudsters] are charities. This is partially because most charities do not have strong anti-fraud protections; who would try to defraud a charity by giving it a donation?”

PSA: Our Job Board

Many fintech companies are dealing with difficult situations at the moment - as Tolstoy would say, each difficult in their own way. One common impact of the current market stress is that layoffs have been rolling through the industry.

We are trying to do everything we can to help people moving between jobs find their next role. If you’re looking for your next company to join, come check out our job board. If your company is hiring for new roles, come post them with us! And if you want employers to find your (anonymized) résumé, join our Talent Collective.

🏦 Financial Services & Banking

🚀 Product Launches

The UK’s NatWest introduced confirmation of payee functionality to its open banking payments product.

📰 Other News

The US Federal Reserve set the top of its target rate range at 4.5% - the highest in 15 years.

Goldman will cut hundreds of jobs as it scales back its retail banking ambitions, cutting its unsecured consumer loans entirely.

Smaller community banks and credit unions may have to drop Zelle as a payment method due to the high rate of scams using the real-time payment product and their reimbursement costs to banks. Meanwhile, UK retailers are demanding government intervention to lower card fees as card use grows.

Deutsche Bank signed a multi-year agreement with NVIDIA to accelerate the use of AI in financial services. The Bank of Italy is working with Algorand to build out a digital sureties / guarantees platform. JP Morgan partnered with fintech Trovata on enhanced corporate cash management.

The Bank of England is seeking applications for a sample wallet for a central bank digital currency. The UK’s Chancellor of the Exchequer announced a long set of reforms targeted at making the country’s financial services sector more competitive in areas like sustainable finance, effective use of capital, and credit.

Mastercard added new startups to its Start Path Open Banking program, including Currensea, Level, Kaoshi, Railz, and Percents.

The US’ SEC is passing a wide swathe of rules aimed at making retail investing cheaper.

Where are banks investing? Santander is growing its tech team, Bank of Ireland is investing in branches, Barclays is putting £500 million to work in climate startups, and Visa is building a European sustainability solutions team.

Japanese banks Mizuho and SoftBank will shut down their joint venture money-losing AI credit-scoring service.

Danske Bank was fined $2 billion for its money laundering controls, which makes Santander Bank’s £107.7 million fine look light.

💻 Fintech

🚀 Product Launches

Amazon launched a short-form video feed like TikTok, with a payment integration, to catalyze more social shopping in the US.

Dutch payments processor Adyen launched its unified commerce solution - which gives businesses control of transactions across different sales channels - in Japan.

Starbucks launched its NFT rewards platform, Odyssey, on polygon for select beta testers.

Open banking analytics platform Prism Data* launched a new version of its CashScore credit scoring model.

UnionPay partnered with Euronet’s epay service to launch QR code payments in Europe, while Matera, the designer of Brazil’s PIX payment system, is launching QR code payment solutions in the US.

LatAm crypto exchange Bitso partnered with remittance provider Félix Pago to launch crypto-based WhatsApp remittances from the US to Mexico.

📰 Other News

FTX founder Sam Bankman-Fried was arrested in the Bahamas, detained without bail due to flight risk, and charged with orchestrating one of the biggest financial frauds in US history. Japanese regulation of crypto exchanges may have saved customers from any risk of loss in the FTX collapse, but its demise has rattled the industry - such that Grayscale’s bitcoin trust is trading at a 50% discount to its assets (while its DeFi Fund begins trading) and Binance’s proof-of-reserves audit is raising red flags. Meanwhile, the US Senate held a hearing on FTX’s collapse and its harm to retail investors, and it emerged that the (now resigned) CEO of The Block took millions of undisclosed loans from Alameda to buy secret vacation properties.

In more fintech-y news, the US Senate introduced a bill to close the shadow banking loophole for large companies seeking banking charters, known as industrial loan companies, from the FDIC. The ILC exemption is what allows companies like Square (Block) and Kabbage to offer banking services.

PayPal and Metamask partnered to allow users to buy crypto via PayPal. Meanwhile, Coinbase is encouraging users to switch from (unaudited) USDT to (audited) USDC.

Walmart plans to launch its own buy-now-pay-later loans through its startup, One.

Apex and Unifimoney partnered on digital investment solutions for credit unions and community banks.

UK neobank Starling plans to add 1,000 new jobs in its Manchester office.

It was revealed that the CFPB is investigating US crypto provider Nexo, which has paused US services.