1. Overheard in New Orleans

2. Between the lines of NYCB's Signature buy

3. Payday lending alternative gets $250M valuation

4. BNPL for B2B payments

5. eToro's next steps

6. Hindenburg targets Block 

Situational awareness: Investors hammered European bank shares today, and Deutsche Bank was a top target, another pain point for the region's sector that is still digesting UBS' arranged acquisition of Credit Suisse. 

🎺 Before we get into this week’s digest, we wanted to share some M&A insights from the Big Easy ...

UBS's arranged acquisition of Credit Suisse

Fintech Deals

1 big thing: HMBradley's unreported funding

Illustration collage of a person's hand drawing a game play diagram on the screen, with cut out shapes and money in the background

2. The BFD: Hindenburg drops a bombshell 

Illustration of a crypto block sitting in the dark, with a red and blue light rotating over it.

3. Credit score

Illustration of a credit score meter with emoji faces showing sad, neutral, and happy emotions.

4. Deals!

5. It's personnel

6. One fun thing

Tweet making fun of Brex and Mercury one-upping each other on FDIC insurance coverage in their deposit product.

Good morning, fintech friends. It's Thursday; we're almost through the week.

@Ryan is enjoying a regular sleep schedule.

Thanks to Michael Flaherty and Rob Reinalda for today's edits.

And thanks to you for reading. Please tell your fintech friends about this newsletter. They can sign up here.

Flagstar's Signature buy excludes crypto

1 big thing: Between the lines of NYCB's Signature buy

Illustration of a close up hundred dollar bill disintegrating into nothing. 

2. The BFD: UBS buys Credit Suisse for $3.2B

Illustration of a Scrabble board with letter tiles spelling "credit."

5. One fun thing

f Credit Suisse is getting acquired for 2 billy there’s a strong chance you’re not the fintech unicorn people have told you that you were.

Situational awareness: The Federal Reserve — along with the European Central Bank, Bank of England, Bank of Canada, Bank of Japan, and Swiss National Bank— announced a joint action to make dollar swap lines more readily available, Axios' Neil Irwin writes.

@Ryan is recovering from a tough couple of weeks.

@Lucinda attended her first BBQ of this "spring."

Rain, an earned-wage access company, gets a $250M valuation

1 big thing: Payday lending alternative gets $250M valuation

Illustration of a shopping bag full of checks.

2. The BFD: BNPL for B2B payments  

Illustration of a hand making a thumbs up with hundred dollar bills sticking out of the sleeve

Illustration of positive and negative trend lines coming out of center point.

4. Deals of the day

“So, is the 'unrealized losses' you speak of in this room with us now?"

Situational awareness: Apple Pay is now available in South Korea. The question is whether Google will expand its payment business in that market.

@Ryan is looking forward to visiting friends in D.C. this weekend.

1 big thing: eToro's next steps

Illustration of the Wall St. bull statue, abstract shapes and money elements.

2. The BFD: Private bank auction 

Image of FIrst Citizens Bank logo and SVB's logo together.

Illustration of a credit card headed towards a goal post to score a touchdown.

Happy Wednesday, and Ramadan Mubarak to everyone celebrating the holiday.

Situational awareness: J.P. Morgan acquired Aumni, an investment analytics company backed by Moneta Ventures and the bank itself.

🥐 @Ryan is enjoying an almond croissant.

@Lucinda is now craving an almond croissant. 🤤

Shares of payments company Block dropped as much as 19% before the open on Thursday after famed short seller Hindenburg released a scathing report against the company.

Why it matters: Hindenburg most recently created a veritable hurricane in Indian stocks after going after billionaire Gautam Adani's conglomerate.

Driving the news: "The 'magic' behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics," Hindenburg's report says.

Hindenburg said it spent two years on the investigation. The short seller claims a significant amount of accounts it reviewed were fake, tied to fraud, or associated with another existing Block customer.

What they're saying: Block released a statement mid-day Thursday, saying the company plans to work with the SEC and explore legal action against Hindenburg Research "for the factually inaccurate and misleading report they shared about our Cash App business today."

What's happening: As of 2:00 pm, Block shares were down about 15%.

This story has been updated to include Block's response to Hindenburg's report and current market trading price.

Block shares drop after Hindenburg takes short position

The hedge fund claims false accounts at the fintech

Fintech

Illustration of a crypto block sitting in the dark, with a red light rotating over it.

Shares of payments company Block dropped as much as 19% before the open on Thursday after famed short seller Hindenburg released a <a class="gtmContentClick" data-vars-link-text="scathing report" data-vars-click-url="https://hindenburgresearch.com/block/" data-vars-content-id="4cb24c91-e7de-42c9-a376-ebc4540ef405" data-vars-headline="Block shares drop after Hindenburg takes short position" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://hindenburgresearch.com/block/" target="_blank">scathing report</a> against the company.Why it matters: Hindenburg most recently created a veritable hurricane in Indian stocks after going after billionaire <a class="gtmContentClick" data-vars-link-text="Gautam Adani&#x27;s conglomerate" data-vars-click-url="https://www.axios.com/2023/02/01/adani-short-seller-attack-adds-to-headwinds-for-indian-stocks" data-vars-content-id="4cb24c91-e7de-42c9-a376-ebc4540ef405" data-vars-headline="Block shares drop after Hindenburg takes short position" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/02/01/adani-short-seller-attack-adds-to-headwinds-for-indian-stocks" target="_self">Gautam Adani&#x27;s conglomerate</a>.Driving the news: &quot;The &#x27;magic&#x27; behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics,&quot; Hindenburg&#x27;s report says.<ul><li>Hindenburg said it spent two years on the investigation. The short seller claims a significant amount of accounts it reviewed were fake, tied to fraud, or associated with another existing Block customer.</li></ul>What they&#x27;re saying: Block released a <a class="gtmContentClick" data-vars-link-text="statement" data-vars-click-url="https://www.businesswire.com/news/home/20230323005636/en" data-vars-content-id="4cb24c91-e7de-42c9-a376-ebc4540ef405" data-vars-headline="Block shares drop after Hindenburg takes short position" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.businesswire.com/news/home/20230323005636/en" target="_blank">statement</a> mid-day Thursday, saying the company plans to work with the SEC and explore legal action against Hindenburg Research &quot;for the factually inaccurate and misleading report they shared about our Cash App business today.&quot;What&#x27;s happening: As of 2:00 pm, Block shares were down about 15%.This story has been updated to include Block&#x27;s response to Hindenburg&#x27;s report and current market trading price.

Roughly a year and a half ago, Bain Capital Ventures Partner Matt Harris thought financial services would go from centralized to decentralized by 2050. With the closure of Signature Bank, he's rethinking the timeline.

Why it matters: Signature was one of the few banks that services the crypto industry. Its closure isolates crypto from a significant tie to mainstream finance.

Driving the news: "I gave myself until 2050," Harris says of his prediction that the currently centralized financial system would become decentralized. "I would have said the movement would have picked up steam in the next 3 to 5 years. And now I think that's less likely. Or if it does pick up steam, it may well be in Singapore rather than in San Francisco."

Previously, Harris predicted in a Forbes essay that the world would be deeply in a DeFi revolution by 2050: Payments will be complete via stablecoins, insurance will be intermediated by protocols and lending pools will become more mainstream.

"Signature's [closure] is an enormous blow," he says. "Regulators have crippled the crypto industry's access to the fiat infrastructure in the United States."

Context: Regulators have grown increasingly wary of crypto in recent months and have cracked down on the industry following a string of high-profile collapses.

The big picture: It's not just Signature and Silvergate's closure that has Harris rethinking the timeline. But also government attitudes to the industry. 

"I think we're in a really pivotal and scary moment as it relates to crypto in the United States," he says. "I do hope that cooler heads prevail and and our government decides that this is an exciting, new, important industry that we'd rather be in than out."

Signature closure pushes out VC's crypto predictions

Bain Capital Ventures' Matt Harris weighs in.

Matt Harris, partner at Bain Capital Ventures, speaking about crypto with Axios Fintech Reporter Lucinda Shen.

Source: Axios Events. Screenshot of Axios' Lucinda Shen and Bain Capital's Matt Harris

Roughly a year and a half ago, Bain Capital Ventures Partner Matt Harris thought financial services would go from centralized to decentralized by 2050. With the closure of Signature Bank, he&#x27;s rethinking the timeline.Why it matters: Signature was one of the few banks that services the crypto industry. Its closure isolates crypto from a significant tie to mainstream finance.Driving the news: &quot;I gave myself <a class="gtmContentClick" data-vars-link-text="until 2050" data-vars-click-url="https://www.forbes.com/sites/matthewharris/2021/10/22/a-complete-revolution/?sh=55e236d6f3a1" data-vars-content-id="69c56dce-4767-4d84-80ed-dabc05156f26" data-vars-headline="Signature closure pushes out VC&#x27;s crypto predictions" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.forbes.com/sites/matthewharris/2021/10/22/a-complete-revolution/?sh=55e236d6f3a1" target="_blank">until 2050</a>,&quot; Harris says of his prediction that the currently centralized financial system would become decentralized. &quot;I would have said the movement would have picked up steam in the next 3 to 5 years. And now I think that&#x27;s less likely. Or if it does pick up steam, it may well be in Singapore rather than in San Francisco.&quot;<ul><li>Previously, Harris predicted in a <a class="gtmContentClick" data-vars-link-text="F" data-vars-click-url="https://www.forbes.com/sites/matthewharris/2021/10/22/a-complete-revolution/?sh=2ba13192f3a1" data-vars-content-id="69c56dce-4767-4d84-80ed-dabc05156f26" data-vars-headline="Signature closure pushes out VC&#x27;s crypto predictions" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.forbes.com/sites/matthewharris/2021/10/22/a-complete-revolution/?sh=2ba13192f3a1" target="_blank">F</a><a class="gtmContentClick" data-vars-link-text="orbes essay" data-vars-click-url="https://www.forbes.com/sites/matthewharris/2021/10/22/a-complete-revolution/?sh=2ba13192f3a1" data-vars-content-id="69c56dce-4767-4d84-80ed-dabc05156f26" data-vars-headline="Signature closure pushes out VC&#x27;s crypto predictions" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.forbes.com/sites/matthewharris/2021/10/22/a-complete-revolution/?sh=2ba13192f3a1" target="_blank">orbes essay</a> that the world would be deeply in a DeFi revolution by 2050: Payments will be complete via stablecoins, insurance will be intermediated by protocols and lending pools will become more mainstream.</li><li>&quot;Signature&#x27;s [closure] is an enormous blow,&quot; he says. &quot;Regulators have crippled the crypto industry&#x27;s access to the fiat infrastructure in the United States.&quot;</li></ul>Context: Regulators have grown increasingly wary of crypto in recent months and have cracked down on the industry following a string of high-profile collapses.The big picture: It&#x27;s not just Signature and Silvergate&#x27;s closure that has Harris rethinking the timeline. But also government attitudes to the industry. <ul><li>&quot;I think we&#x27;re in a really pivotal and scary moment as it relates to crypto in the United States,&quot; he says. &quot;I do hope that cooler heads prevail and and our government decides that this is an exciting, new, important industry that we&#x27;d rather be in than out.&quot;</li></ul>

HMBradley, a neobank focused on the mass affluent, suffered a brutal setback that shrank its deposit base from $565 million at its peak in 2021 to $200 million in December 2022. But the company still raised a previously unreported $38 million Series B funding round in 2021, CEO Zach Bruhnke tells Axios.

Discover Financial and Commerce Ventures led that round valuing the company at $180 million.

Why it matters: HMBradley's using that financing to help fuel a comeback after being sidelined in the last 16 months.

Background: Founded in 2018, HMBradley grew rapidly to house about $565 million in deposits across over 24,000 customers in 2021, says Bruhnke.

Its rapid expansion however alarmed bank partner, Hatch Bank, which pulled the brakes over concerns it would draw regulatory scrutiny in mid-2021. 

Without another partner lined up, HMBradley was forced to enter invite-only mode, cut products (including a mortgage line), and later laid off just under 10 staff members.

“We had to fire customers, we aggressively closed accounts for things like fraud.” Bruhnke says. “If a customer has all of our products, we kept catering to that. If they didn't, we aggressively pushed things down to where it didn't make sense for them [to stay with HMBradley]."

By December 2022, HMBradley had shrunk to about $200 million in deposits across about 10,000 customers. 

Driving the news: HMBradley found a new sponsor bank — NYCB— last year and was able to step out of that invite-only era officially this month. Since hitting rock bottom in December, its deposit and customer base figures have “almost doubled" as of this week, says Bruhnke.

Revenue, which was just under $4 million in 2022, is growing again and may reach $20 million by the end of 2023.

“When we left our old partner and moved over to NYCB, we simply started from scratch," says Brunhke.

One strategy for attracting customers: HMBradley offers high savings rates of between 2% to 4.2% — with customers who use multiple products earning back more. 

"We're likely to raise again within the next few months and have strong insider support," says Bruhnke.

Of note: HMBradley is an unusual neobank. Most in the U.S. earn revenue largely from interchange; filling the coffers the more a consumer swipes their card. 

In comparison, majority of HMBradley's revenue comes from its sponsor bank: The startup is paid a certain percentage based on its asset size, giving it incentive to encourage savings. 

Its user base also tends to be wealthier, with an average income of about $155,000 a year.

That makes its operations worth watching at a time when cries that "interchange is not enough" for a neobank to succeed, are rising.

The big picture: The company is re-launching at a challenging time — and Bruhnke knows it. Small to mid-sized banks are under a microscope after SVB's blowup. The health of the global economy is also unclear.

"As far as new products go, we've kind of halted. In fact there are two that are just sitting on the shelf," he says. "Launching new products in the middle of a down market is probably not the best thing."

The company, which continues to add new software features, now operates with a tight, 32-person team.

What we're watching: HMBradley may one day buy its own bank. In 2018, HMBradley got permission from the Board of Governors to buy 9.9% of South Carolina-based Optus Bank, with the option to eventually buy out the business.

The particular deal never came through, but Bruhnke is still interested in that path. 

"It's something that will very likely do at some point," he says. "In some ways, we probably should have done it from the beginning, because we might have been in a different position vs. using a bank partner."

Neobank HMBradley poised for second try

The fintech's CEO talks about his companies funding round, revenue, and deposits.

HMBradley, a neobank focused on the mass affluent, suffered a brutal setback that shrank its deposit base from $565 million at its peak in 2021 to $200 million in December 2022. But the company still raised a previously unreported $38 million Series B funding round in 2021, CEO Zach Bruhnke tells Axios.<ul><li>Discover Financial and Commerce Ventures led that round valuing the company at $180 million.</li></ul>Why it matters: HMBradley&#x27;s using that financing to help fuel a comeback after being sidelined in the last 16 months.Background: Founded in 2018, HMBradley grew rapidly to house about $565 million in deposits across over 24,000 customers in 2021, says Bruhnke.<ul><li>Its rapid expansion however alarmed bank partner, Hatch Bank, which pulled the brakes over concerns it would draw regulatory scrutiny in mid-2021. </li><li>Without another partner lined up, HMBradley was forced to enter invite-only mode, cut products (including a mortgage line), and later laid off just under 10 staff members.</li><li>“We had to fire customers, we aggressively closed accounts for things like fraud.” Bruhnke says. “If a customer has all of our products, we kept catering to that. If they didn&#x27;t, we aggressively pushed things down to where it didn&#x27;t make sense for them [to stay with HMBradley].&quot;</li><li>By December 2022, HMBradley had shrunk to about $200 million in deposits across about 10,000 customers. </li></ul>Driving the news: HMBradley found a new sponsor bank — NYCB— last year and was able to step out of that invite-only era officially this month. Since hitting rock bottom in December, its deposit and customer base figures have “almost doubled&quot; as of this week, says Bruhnke.<ul><li>Revenue, which was just under $4 million in 2022, is growing again and may reach $20 million by the end of 2023.</li><li>“When we left our old partner and moved over to NYCB, we simply started from scratch,&quot; says Brunhke.</li><li>One strategy for attracting customers: HMBradley offers high savings rates of between 2% to 4.2% — with customers who use multiple products earning back more. </li><li>&quot;We&#x27;re likely to raise again within the next few months and have strong insider support,&quot; says Bruhnke.</li></ul>Of note: HMBradley is an unusual neobank. Most in the U.S. earn revenue largely from interchange; filling the coffers the more a consumer swipes their card. <ul><li>In comparison, majority of HMBradley&#x27;s revenue comes from its sponsor bank: The startup is paid a certain percentage based on its asset size, giving it incentive to encourage savings. </li><li>Its user base also tends to be wealthier, with an average income of about $155,000 a year.</li></ul><ul><li>That makes its operations worth watching at a time when cries that &quot;interchange is <a class="gtmContentClick" data-vars-link-text="not enough" data-vars-click-url="https://www.axios.com/pro/fintech-deals/2022/05/20/index-ventures-mark-goldberg-sees-opportunity-in-consumer-fintech" data-vars-content-id="7b0d9748-98fa-4b20-bef3-3121ebaddde7" data-vars-headline="Neobank HMBradley poised for second try" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/fintech-deals/2022/05/20/index-ventures-mark-goldberg-sees-opportunity-in-consumer-fintech" target="_self">not enough</a>&quot; for a <a class="gtmContentClick" data-vars-link-text="neobank" data-vars-click-url="https://www.americanbanker.com/news/warning-signs-emerge-for-neobanks-doomed-to-not-survive" data-vars-content-id="7b0d9748-98fa-4b20-bef3-3121ebaddde7" data-vars-headline="Neobank HMBradley poised for second try" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.americanbanker.com/news/warning-signs-emerge-for-neobanks-doomed-to-not-survive" target="_blank">neobank</a> to <a class="gtmContentClick" data-vars-link-text="succeed, are rising." data-vars-click-url="https://www.bain.com/insights/as-funding-dries-up-can-neobanks-diversify-their-revenue-streams/" data-vars-content-id="7b0d9748-98fa-4b20-bef3-3121ebaddde7" data-vars-headline="Neobank HMBradley poised for second try" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.bain.com/insights/as-funding-dries-up-can-neobanks-diversify-their-revenue-streams/" target="_blank">succeed, are rising.</a></li></ul>The big picture: The company is re-launching at a challenging time — and Bruhnke knows it. Small to mid-sized banks are under a microscope after SVB&#x27;s blowup. The health of the global economy is also unclear.<ul><li>&quot;As far as new products go, we&#x27;ve kind of halted. In fact there are two that are just sitting on the shelf,&quot; he says. &quot;Launching new products in the middle of a down market is probably not the best thing.&quot;</li><li>The company, which continues to add new software features, now operates with a tight, 32-person team.</li></ul>What we&#x27;re watching: HMBradley may one day buy its own bank. In 2018, HMBradley got permission from the Board of Governors to buy 9.9% of South Carolina-based Optus Bank, with the option to eventually buy out the business.<ul><li>The particular deal never came through, but Bruhnke is still interested in that path. </li><li>&quot;It&#x27;s something that will very likely do at some point,&quot; he says. &quot;In some ways, we probably should have done it from the beginning, because we might have been in a different position vs. using a bank partner.&quot;</li></ul>

Rain, a Los Angeles-based earned-wage access company, announced it raised$66 million at a $250 million valuation. QED Investors and Invus Opportunities led the round.

Why it matters: Investor interest in earned wage access, billed as an alternative to predatory payday loans, has grown, along with regulatory scrutiny aimed at the product.

Of note: Other investors in the round included WndrCo, Tribe Capital, and Dreamers VC. Rain also raised $50 million in debt.

Context: Earned wage access companies have come under the microscope in the Biden administration.

Much of the debate centers on whether some products should be considered credit and therefore subject to more onerous rules.

California regulators, meanwhile, are expected to call on earned-wage access firms to register with the state and come under its consumer financial protection laws.

Other players in the space include Earnin, Wagestream, and Payactive. The neobank Chime notably made an offer to buy DailyPay for $2 billion last year, per the Information.

Details: Rain charges $3 per instant withdrawal and doesn't allow employees to withdraw over 50% of its gross earned wages per pay period.

When asked about the increased scrutiny, Rain CEO Alex Bradford responded: "Our product structure and fees are consistent with the CFPB's guidance."

Bottom line: Earned wage access is VC's chance to prove this isn't a repeat of their mistaken foray into payday lending. Payday lending, too, had an ostensibly noble cause: helping low-income workers get liquidity. High fees and punishing terms however made the category toxic.

The payday loans alternative has grown, as has regulatory scrutiny.

Rain, a Los Angeles-based earned-wage access company, <a class="gtmContentClick" data-vars-link-text="announced it raised" data-vars-click-url="https://www.businesswire.com/news/home/20230321005258/en/Rain-Instant-Pay-Closes-Historic-Funding" data-vars-content-id="8dc1b89c-f2b3-4c7d-a1f6-1b94501a7df0" data-vars-headline="Rain, an earned-wage access company, gets a $250M valuation" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.businesswire.com/news/home/20230321005258/en/Rain-Instant-Pay-Closes-Historic-Funding" target="_blank">announced it raised</a>$66 million at a $250 million valuation. QED Investors and Invus Opportunities led the round.Why it matters: Investor interest in earned wage access, billed as an alternative to predatory payday loans, has grown, along with regulatory scrutiny aimed at the product.

Flagstar Bank's acquisition of Signature Bank's assets yesterday did not include its crypto deposits, nor its famed real-time digital payments network, the FDIC confirmed to Axios.

Why it matters: Signature was among the few financial institutions that had worked with crypto assets, and it had become an especially important for exchanging digital coins with far more usable fiat currencies.

Driving the news: Flagstar Bank, a unit of New York Community Bancorp, assumed nearly all deposits and certain loans of Signature Bank, the FDIC announced.

It did not take over $4 billion in deposits from Signature's digital banking business. Nor did it take over Signature's real-time crypto payments platform, Signet.

Instead, both remain under receivership, the agency confirmed to Axios — meaning the FDIC is planning to return the crypto-related deposits.

Between the lines: Signature has seen aggressive outflows from its crypto business in recent months. At the end of last year, the bank claimed about $16.5 billion in deposits related to that industry.

The big question: Established crypto companies like Circle have found new bank partners (the stablecoin business switched to BNY Mellon). But will younger ones — which are harder to underwrite — get the same treatment?

Flagstar Bank&#x27;s acquisition of Signature Bank&#x27;s assets yesterday did not include its crypto deposits, nor its famed real-time digital payments network, the FDIC confirmed to Axios.Why it matters: Signature was among the few financial institutions that had worked with crypto assets, and it had become an especially important for exchanging digital coins with far more usable fiat currencies.

Lucinda Shen

Stories

Neobank HMBradley poised for second try

Block shares drop after Hindenburg takes short position

Rain, an earned-wage access company, gets a $250M valuation

Flagstar's Signature buy excludes crypto

Signature closure pushes out VC's crypto predictions

Newsletter editions

Fintech:🗞 Catch up quick

Fintech: HMBradley's hidden funding

Fintech: eToro intrigue

Fintech: Making it Rain

Fintech: Signature minus crypto