Fintech

This fintech was launched weeks after Synapse went bust. Its CEO wasn’t deterred.

Published

9 months ago

21 July, 2024

This fintech was launched weeks after Synapse went bust. Its CEO wasn’t deterred.

Bill Harris (left) is the founder and CEO of Evergreen Money. “If I took every bank account in the country and put 5 percent in them,” he said, “that would be another $103 billion in people’s money.”

Tony Avelar/Bloomberg

The messy collapse of middleware vendor Synapse Financial is impacting consumers who have been unable to access their deposited funds in some fintechs. It is also having an impact banks specializing in fintech partnerships and were facing increased regulatory scrutiny even before the Synapse fiasco.

But new fintech initiatives continue to emerge. Last month, Liquid Treasuries, a consumer fintech product that combines aspects of checking, savings, and investing accounts, launched, aimed at wealthy Americans.

The product is the latest creation of Bill Harris, the former CEO of Intuit and PayPal who has since become a serial entrepreneur. In a recent interview, Harris seemed undaunted by the rapidly evolving landscape of fintechs that rely on bank partnerships.

“There is more regulatory scrutiny. There should be more regulatory scrutiny,” said Harris, founder and CEO of Evergreen moneythe digital wealth advisor that began offering Liquid Treasuries on June 25.

The launch of the Evergreen Money product is timed to take advantage of high interest rates in the United States. It allows consumers to invest their money in relatively high-yielding U.S. Treasury bonds while maintaining the instant access to their funds that checking accounts provide.

“People have a lot of money sitting in checking accounts that aren’t earning anything,” Harris said. “The problem isn’t that complicated.”

He added: “If we took every bank account in the country and put 5 percent in them, there would be another $103 billion in earnings in people’s pockets.”

What’s more complicated than the problem Harris is trying to address is the mechanism Evergreen Money and its partners have devised to unlock additional earnings for consumers.

The Evergreen Money account comes with a debit card issued by Coastal Community Bank in Everett, Washington. Customers also have access to ATMs, the ability to make wire transfers and payments on the automated clearing house network, or ACH, and the ability to set up direct deposits of their paychecks.

Harris advises consumers to use Liquid Treasuries as a substitute for their checking accounts, to get 5.31% returns, as of the end of June, on as much wealth as possible. “It’s as easy as a checking account,” he said. “It’s as accessible as a checking account.”

Here’s the tricky part: Most of Coastal’s client funds won’t be held in savings accounts insured by the Federal Deposit Insurance Corp. Instead, the money will largely be invested in Treasury bills held in brokerage accounts insured by the Securities Investor Protection Corp.

These brokerage accounts are held at Jiko Securities, another key partner for Evergreen Money. Jiko, which has its own banking division, has created technology designed to bank Treasury bonds.

The idea is to automatically transfer customer deposits into Treasury bonds and create an environment where the money can also be transferred back, Harris said. When a customer makes a purchase with a debit card, funds from a settlement account are used to provide immediate access to the customer’s money, he said.

Consumers can buy Treasury bonds directly from the U.S. government, but Harris said the process is quite complicated and that Liquid Treasuries makes it easier to own Treasuries.

Some high-yield savings accounts offer similar returns to those available from Liquid Treasuries, but residents of some states can achieve significant tax savings by investing in Treasury bonds. The interest paid on Treasury bonds is exempt from state and local taxes, which is helpful in states like California, where the top tax rate is more than 13%.

Evergreen Money Advisors is a registered investment advisor, and the startup makes money by charging a fee based on the size of the assets the client has under management. The minimum investment is $10,000, and clients pay a monthly fee of 0.03%.

In light of the Synapse failure, the operational aspects of bank-fintech partnerships are receiving increased attention, and the Liquid Treasuries product is operationally complex, said Jonah Crane, partner at consulting firm Klaros Group.

As a middleware vendor, Synapse stood between fintechs and banks, and its collapse left tens of millions of dollars in unaccounted-for customer funds. The funds Synapse held were not FDIC insured. Last month, Regulators hit former Synapse partner Evolve Bank & Trust with cease-and-desist order for issues that included deficiencies in consumer protection.

Crane, whose interests include banking as a service and integrated finance, predicted that following the failure of Synapse, fintechs will have a harder time finding partner banks, as those with the best reputations will be in high demand.

“It’s not hard to see how you could get into a real gridlock if everyone is trying to join one of those banks,” he said. “The banks are getting pretty picky.”

Evergreen Money probably had an edge over many fintechs in this regard. As the founding CEO of the financial app One, which was eventually acquired by WalmartHarris had previously worked with Coastal Community Bank.

In an interview, Coastal CEO Eric Sprink praised Harris, whose previous ventures include Personal Capital, a digital wealth management firm. acquired by Empower Retirement in 2020and money Nirvana, a digital credit card for low-income consumers That Harris closed shortly after its launch in 2022.

“He’s just a mad genius,” Sprink said. “He’s a really smart guy.”

Sprink agrees with Harris that increased regulatory scrutiny of the banking-as-a-service industry is a positive development. “I think it’s healthy,” he said. “Ultimately, I think a shakeup like this will really make things better.”

Other observers, including Jason Henrichs, founder and CEO of Alloy Labs, said that Synapse’s collapse did not appear to have made much of an impression on the general public, even amid mainstream Press coverage in the last weeks.

Greater public attention to the Synapse situation could prove detrimental to many consumer-facing fintechs, even those that operate responsibly and do not run the risks that a middleware vendor might incur.

Henrichs is not an impartial observer of Bill Harris’s latest initiative. He said Harris is a longtime mentor of his and that Coastal Community Bank is a member of Alloy Labs, which runs a community-banking alliance where member banks can collaborate.

Coastal is also one of the organizers of Alloy Labs’ Center for Excellence, which has been working to set standards for the banking-as-a-service industry, according to Henrichs. “They said, ‘Either we mature the industry, or bad things are going to happen,’” he said.

Now that bad things have happened (struggling consumers are filing lawsuits in Synapse’s bankruptcy case), Henrichs thinks some consumers will think twice about doing business with fintechs. But so far, he said, the impact appears to have been minimal.

“What will it take?” Henrichs wondered. “Is it: Jon Stewart has to report before people pay attention?”

Source

Related Topics:Financial technology interest rates Regulation and compliance

Up Next

How Union Budget 2024 Can Strengthen India’s Fintech Superpower – Budget 2024 News

Don't Miss

2024 Budget: Fintechs Seek Banking Partnerships

FinCrypt Staff

We are the editorial team of FinCrypt, where seriousness meets clarity in cryptocurrency analysis. With a robust team of finance and blockchain technology experts, we are dedicated to meticulously exploring complex crypto markets with detailed assessments and an unbiased approach. Our mission is to democratize access to knowledge of emerging financial technologies, ensuring they are understandable and accessible to all. In every article on FinCrypt, we strive to provide content that not only educates, but also empowers our readers, facilitating their integration into the financial digital age.

Click to comment

Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

SUBSCRIBE TO THE NEWSLETTER

And get exclusive articles on the stock markets

Source

Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

Source

Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”