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A ray of fintech sunshine?

Protocol Fintech

Fair greetings upon you, and welcome to Protocol Fintech. This Friday: signs of optimism among fintech investors, Jack Dorsey vs. the CCP and the CFPB’s coming crackdown on financial data.

Off the chain

International expansion is tough for fintech companies, given the variations in local regulations and customer habits. Block’s Square has only recently gotten started expanding internationally. I don’t think Jack Dorsey is envisioning China as a market anytime soon. “End the CCP,” he tweeted last week. It’s not clear how he plans to accomplish that, since he also believes that bitcoin will bring about world peace, and the Communist Party doesn’t seem keen on giving up its grip on power.

— Owen Thomas ( email | twitter )

A ray of fintech sunshine

If you work in fintech, you don’t need anyone to tell you the news has been full of doom and gloom the past few months. We’ve contributed our share, noting that venture capital funding has been down after a record year and layoffs are rampant. Regulation is dropping the hammer on lending , interchange and crypto trading . Rising interest rates, inflation and international conflict only make the future look more uncertain.

All those headwinds might make it seem like a bad time to be in fintech. But many investors and founders say the opposite — that this is a great time to be building in the field. We spoke to several about what’s giving them hope.

Fintech funding is far from dead. Sure, valuations have taken a hit, but deals are still being made — particularly for fintechs that have found a way to differentiate themselves from the pack.

  • There’s also a shocking amount of money ready to work in venture capital right now. As of June 30, American VC funds had already raised over $120 billion . There are so many new venture funds, one news outlet started compiling a list. It’s long.
  • Sure, VC funds take years to be deployed, but even investors admit they can’t just twiddle their thumbs and wait to invest forever. “VCs are sitting on record amounts of dry powder, which means they can only sit on the sidelines for so long before deploying back into the ecosystem,” Cambrian founder and solo general partner Rex Salisbury told Protocol.
  • Finix said it just closed an up round . (It’s telling that the startup felt it needed to clarify that point.) Farther , Forage and SecureSave are only a small sampling of other fintech companies that have successfully fundraised recently.

A slowdown might provide more opportunities for innovation. “Entrepreneurs are identifying market needs that connect to broader, more significant cultural gaps,” Mirza CEO Siran Cao told Protocol. Harder times could mean work that matters more.

  • One of the biggest hotbeds of innovation is in less flashy areas of fintech, like financial infrastructure and embedded finance. Fin Capital founder Logan Allin said his firm remained “bullish” on “boring fintech.”
  • Venture-backed fintech startups haven’t even captured 10% of industry revenue , according to PitchBook. That’s a lot of the financial services market left to conquer.

There’s more talent than ever before. The top 225 global fintech unicorns employ over 300,000 people, and 160,000 of them are in the United States, according to CFTE .

  • After years of scraping to find, say, a payments engineer who understood the complexities of interchange, recruiters can now tap a wide set of candidates with the specialized skill set needed to build a successful fintech: a solid understanding of finance and economics, tech smarts and experience navigating complex regulations.
  • Layoffs always feel terrible. But there’s a silver lining: A lot of talented technologists and business types now have more free time. From idle talent often comes exciting new projects — think of all the new companies created by laid-off employees in 2020 and 2021 , or the more sustainable tech growth that followed the dot-com crash.
  • This new cohort of idle entrepreneurs is better prepared than those in previous busts. “Unlike founders a decade ago, they have deep networks to recruit from to build out founding teams,” Salisbury said. Infrastructure is richer, too, with APIs not just for taking credit card payments but also issuing cards, onboarding customers, tapping into transaction data and complying with KYC regulations.

One more reason for optimism: This too shall pass. Recessions in American history are rarely prolonged — and it’s up for debate whether we’re even in one . Fintech investments are down on a relative basis, but maybe the inflated valuations of late 2021 are best left behind anyway. If founders and investors learned to cope with those, they could learn to make the most of the slowdown, too.

— Veronica Irwin ( email | twitter )


How cybercrime is going small time: Cybercrime is often thought of on a relatively large scale. Massive breaches lead to painful financial losses, bankrupting companies and causing untold embarrassment, splashed across the front pages of news websites worldwide.

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On the money

On Protocol: Marqeta shares dropped by a quarter after CEO Jason Gardner revealed plans to step down.

Robinhood will have to respond to a market-manipulation suit. A judge ruled that investors in GameStop, AMC and seven other stocks can proceed with a proposed class-action lawsuit alleging Robinhood's trading restrictions during last year's meme-stock rally artificially increased the stocks’ supply.

In other meme-stock news, the SEC is reportedly looking into Melvin Capital Management’s risk controls and investor disclosures after the hedge fund suffered big losses in the meme-stock rally last year.

The CFPB is putting greater scrutiny on the data-security practices of financial firms. An industry circular warns financial firms they risk violating the Consumer Financial Protection Act by failing to have proper safeguards against hacks.

People are getting more confident the Merge will happen, boosting ether. Ether's price hit a more than two-month high following a major test of the Ethereum blockchain’s upgrade to proof-of-stake.

BlackRock is dipping further into crypto markets. The asset manager will offer institutional clients a private trust with exposure to the spot bitcoin market. BlackRock last week announced plans for a partnership with Coinbase .

India froze $46 million in assets held by the local arm of Vauld. The struggling Singaporean crypto firm’s Flipvolt Technologies maintained “very lax KYC norms,” regulators said.

Flutterwave is facing a tough run-up to its IPO. Bloomberg reported it’s facing charges of financial impropriety and harassment in offices across Africa.


Who’s to blame for the 2021 boom in fintech valuations? Affirm engineering manager Francisco Javier Arceo thinks he knows. “[I]f you think about it, all of the fintech chaos was started by visa setting a price on plaid,” he tweeted .

The UN Conference on Trade and Development is the latest government body to turn cryptoskeptic. “The benefits that cryptocurrencies may bring to some individuals and financial institutions are overshadowed by the risks and costs they entail, particularly in developing countries,” the agency warned in one of several reports it issued Wednesday.

The chart

Bitcoin’s bounce-back is far from complete. But crypto’s most popular token has been edging higher after a dramatic fall. It reached an all-time high of around $68,000 in November 2021 before leading the crypto market retreat, which saw the crypto token fall to around $19,000 in June. The token has started rising again and was trading slightly above $24,000 this week.


How cybercrime is going small time: People have been swindled since before man created monetary systems. These aren’t new crimes; just new ways to commit them. But as cybercrime increasingly goes small-time, those on the front lines will need new and more effective ways to fight it.

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Thanks for reading — see you Monday!

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