PayPal Partners With Fiserv; C&R Acquires SpringFour; Revolut Leans Into Business Accounts

Labor market appears to soften. FBO rulemaking coming. BNPL providers adapt to Maryland’s crackdown. Hsu advocates for “agile” supervision. Flex raises a seed round. C&R acquires SpringFour. PayPal partners with Fiserv. Revolut doubles down on business accounts. Custodia layoffs.

Keep an eye out for our Q2 Consumer Lending Review, to be published this week.

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Softening U.S. Labor Market

Evidence of softening in the U.S. labor market continues to mount. Job openings in July fell to the lowest level since the start of 2021, and layoffs rose. The Labor Department’s JOLTS data indicated available positions decreased to 7.67Mn, below economists’ estimate for the metric. Fed policy makers have indicated their focus is shifting from inflation, where they’ve made progress, to their other mandate, employment. Meanwhile, the Fed’s Beige Book report revealed flat or declining economic activity across the country. While employers reported relatively few layoffs, some are cutting employees’ shifts, reducing hours or choosing to leave open positions unfilled.

FDIC Chair Gruenberg Indicates FBO Rulemaking May Be Coming

In the wake of the Synapse failure, Bloomberg reported that the FDIC is expected to release a proposed rule that would require banks to maintain ledgers of FBO (for benefit of) accounts opened by third-party fintechs. Requiring banks to maintain these ledgers would aim to ensure that banks have accurate information on how much end-user money they’re holding. Banks would be required to reconcile data daily and have access to the third-party ledger. One of the major issues stemming from the Synapse failure is reconciliation, with its partner banks Evolve and Lineage both needing significant time to validate their balances against Synapse’s ledger. The proposal would attempt to prevent similar problems with distributing funds to end users in the event of future company failures.

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BNPL Providers Adapt to Maryland’s Crackdown

BNPL providers Zip and Four are changing their product strategy in Maryland in response to the state’s posture toward the products. Maryland’s regulations are complicated and, depending on product structure, may treat BNPL plans as credit and require companies to be licensed as consumer lenders in the state. Earlier this year, Maryland fined Four for violations of state lending law. Zip chose to stop operating in Maryland as it lacks the proper licensing to do so, the company’s group CEO said on a recent earnings call. Four has acquired a lending license in the state. Other BNPL providers like Affirm, Klarna, and Afterpay also operate in Maryland. Affirm and Afterpay hold the necessary licenses to do so, while Klarna told Payments Dive it doesn’t need a license in the state as it does not charge late fees.

Hsu Advocates for “Agile” Supervision

Acting Comptroller Hsu argued for a more “agile” approach to bank supervision in remarks he gave in Frankfurt, Germany last week. Hsu warned against falling into a “check the box” approach of supervision, arguing in favor of focusing on the most pressing issues, both at individual banks and for the banking system writ large. Effective risk-based supervision requires flexibility to adapt to an evolving environment, Hsu argued. The acting Comptroller pointed to continuing consolidation in the American banking system, especially for the largest banks, heightened cyber risk, as more of banking migrates online, and the role and risks of technology providers and intermediaries, like CrowdStrike and Synapse, which he named specifically in his remarks. Hsu also used the occasion to argue for the designation of domestic, as opposed to global, systemically important banks, saying a domestic SIB categorization “could provide helpful transparency and rigor for those banks that need it as it would clarify the stakes involved of weakly supervising and regulating such institutions.”

Flex Raises $3.2Mn Seed Round

Flex, a payment processor focused on enabling merchants to accept FSA/HSA transactions, announced it has raised a $3.2Mn seed round. Y Combinator, SV Angel, Precursor, Liquid 2 Ventures, and others participated in the round. Flex’s platform, which it’s positioning as “Stripe for FSA/HSA payments,” simplifies accepting qualified transactions online, which has historically been challenging because of the need to validate each item’s eligibility. The complexity has favored large merchants, like Walmart and Amazon, who have the budget and sophistication to build their own systems. Flex levels the playing field, enabling smaller ecommerce merchants to take advantage of the billions in tax-preferred FSA and HSA dollars Americans spend each year.

SpringFour Acquired by C&R

Financial wellness platform SpringFour announced it has been acquired by C&R Software, which provides collections and debt recovery software to banks and other merchants. SpringFour partners with banks, credit unions, non-bank lenders, and non-profits to enable them to deliver financial resources and education to their users. The acquisition widens the capabilities C&R can offer while opening new distribution for SpringFour to C&R’s existing client base.

PayPal Partners with Fiserv on Fastlane

PayPal is working with Fiserv to enable its clients to offer a guest checkout service, dubbed Fastlane, that should simplify ecommerce payments and boost conversion rates. The Fastlane capability lets users shop and pay without having to enter payment credentials, shipping details, or passwords. The partnership will also enable Fiserv clients to access Venmo, the popular PayPal-owned peer-to-peer payment service. The companies said that the feature will go live sometime next year.

Revolut Doubles Down on Business Accounts

Revolut is redoubling its efforts to cater to business users. The company has onboarded about 250,000 business customers since it launched the service in 2017 and is currently adding about 20,000 a month, the company said. Revolut currently offers business accounts in 40 markets and is preparing to add Singapore to that list. Revolut’s offering goes beyond just a basic checking account and includes out-of-the-box integrations with accounting platforms like Xero and QuickBooks, which streamline managing and paying bills. The head of Revolut Business, James Gibon, told Finextra, “In the last year, we’ve made huge strides forward in our mission to be the number one finance automation system for businesses. With the support of a significant and growing number of customers behind us, we’re aggressively doubling down on B2B and are ready to revolutionize business accounts for even more businesses around the world.”

Custodia Cuts Headcount Amid Master Account Fight

Custodia, a Wyoming-chartered special depository institution focused on digital currency, has laid off about 25% of its staff, or nine employees, Fox Business reported last week. The bank has been engaged in a protracted struggle with the Federal Reserve over its quest for a master account, which, to date, the Fed has declined to grant. Custodia founder and CEO Caitlin Long told Banking Dive that Custodia was “right-sizing so we can maintain operations while preserving capital” as it continues to litigate the master account issue. Without its own Fed master account, Custodia is reliant on other bank partners, decreasing its flexibility and increasing its costs. CEO Long blamed what she describes as “Chokepoint 2.0,” a widely-held belief among some in crypto that the Biden administration is seeking to block digital currency firms’ access to the banking system.