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Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Andrew Harrer/Bloomberg via Getty Images

A crypto wonk is running the SEC

Gary Gensler at a 2013 hearing.​

Hello and welcome to Protocol | Fintech! This Friday: Gary Gensler is confirmed as new SEC head, a new chip targets high-frequency trading, and Goldman rakes in investment banking fees.

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The Big Story

Crypto chief

The confirmation of Gary Gensler as the new head of the Securities and Exchange Commission is mixed news for financial startups.

Gensler knows fintech and Wall Street. He's a former Goldman Sachs executive who went on to work in the Clinton and Obama administrations. Most recently, as a professor at the MIT Sloan School of Management, he closely studied how new technologies, including blockchain and cryptocurrency, were dramatically changing finance.

He's also known for strong views on how to make sure those changes aren't hurting consumers and the financial system.

"Warning shot to the Street and fintech." That's how Bill Pearce, professor and chief marketing officer of the University of California, Berkeley's Haas School of Business, described Gensler's appointment. It signals "a new day at the SEC," he said.

  • Regulation took a back seat during the Trump years. Gensler is widely expected to send a signal that "greater government oversight is both required and warranted" in the Biden administration.
  • There are those, of course, who worry about the SEC going too far under Gensler (including the Republican senators who voted against confirming him). But his background makes him "extremely qualified" even though "one might agree or disagree with him politically," Rob Siegel, a Silicon Valley investor and lecturer at Stanford's Graduate School of Business, told Protocol.
  • Gensler is best known for his work during the Obama administration when, as head of the Commodity Futures Trading Commission, he helped reform the market for credit default swaps in the wake of the 2008-2009 financial crash.
  • That crisis accelerated the rise of fintech. Gensler has spent the last few years trying to understand how data, blockchain, cloud computing and other technologies are changing the financial services industry.
  • Want a direct view into Gensler's thinking? Watch some of his free online courses on fintech and blockchain, with titles like "Blockchain and Money" and "Fintech: Shaping the Financial World."

Crypto is getting a savvy watchdog at a critical moment. It's worth noting that Gensler was confirmed as SEC boss the day Coinbase went public, considered a big deal in blockchain and crypto.

  • Gensler is taking over a key agency at a time "crypto has gone mainstream and institutional market participants are coming off the sidelines in a way they never have before," Jonah Crane, a partner at Klaros Group, told Protocol.
  • Gensler understands blockchain's potential role in improving the financial services industry, Crane said. (They actually co-wrote a paper on the topic.)
  • But the new SEC chairman, Crane stressed, also "will have zero patience" for proposals or approaches "that would water down important investor protections" in crypto.
  • Still, Gensler understands that blockchain is an evolving technology — and its trajectory is still undefined. "We're still in early years with this whole thing," Gensler said two years ago. "Where we'll be in 2025 or 2030 is yet to be known."

Gensler is the rare creature who speaks the same language as Wall Street, Silicon Valley and D.C. Gensler's deep expertise when it comes to big technological trends in finance will be his key strength, said Michele Alt, another Klaros Group partner. Yes, fintechs and Wall Street should brace for more regulation. But when it comes to the coming deliberations and debates over complex issues such as blockchain and crypto, the new SEC boss can "ensure that both regulator and regulated entities are speaking the same language."

— Ben Pimentel


A MESSAGE FROM BROADRIDGE

The future is positively digital. Ready? Consumers, investors and shareholders are savvier than ever. Everyone needs to create more engaging experiences that keep pace with today's new expectations. See how you can stay ahead with next-gen technologies that deliver on what matters most.

Learn more

From Protocol | Fintech

Must read: Coinbase COO Emilie Choi on the crypto company's future after its impressive trading debut.

Riding the wave: Investors see the Coinbase direct listing as a turning point for the crypto industry.

Overheard

  • "PayPal really wants to use cryptocurrency as a funding source for everyday transactions. The endgame, though, is a more noble vision of this inclusive economy, and things will be done much differently than today."Dan Schulman, CEO of PayPal.
  • "So now we have these nonfungible tokens, which are essentially collectibles in the crypto world: These are not visible items by design."IRS Commissioner Charles Rettig, on the challenges of collecting taxes on NFTs.
  • "To validate someone's digital identity, literally hundreds of data elements are evaluated to assess whether an individual is a bot, an imposter or the person they claim to be. And all this data is collected, analyzed, and acted on in milliseconds."Eric Haller, Experian executive vice president and general manager of identity, fraud and DataLabs.

3 Questions With...

Stephanie Balint, interim U.S. general manager, N26

What fintech trend are you most excited about?

What I'm most excited about is seeing how all the challenger banks can continue to evolve and seeing who is ultimately going to be, not the winner, but like maybe the top two or three. I think there's a lot of great companies out there, a lot of great products. But at the end of the day, you have to get to scale to be able to keep going.

What fintech trend do you most worry about?

I have to admit that I've struggled in the past to understand cryptocurrencies' fundamental value drivers, so I'm curious to see how this evolves now that they're beginning to live up to the hype.

What was your biggest professional blunder and what did you learn from it?

It was at my prior role at a food company, a super-small, early-stage farmers' market delivery service serving the New York and Long Island area. I think the business model made a lot of sense. The product was great. But we didn't invest enough early on in customer acquisition. We really thought that we could just rely purely on organic growth from word-of-mouth praise from our customers. Unfortunately, that meant we didn't really pursue channels to acquire customers. Then we missed our window of opportunity. Amazon bought Whole Foods and it's really hard to compete. You have to really strike while the iron is hot.

Need to Know

  • Even staffs up. The earned-wage access startup, which says it has provided $2.5 billion in pay advances to date, added Preston Clark as chief revenue officer and Samantha Goldman as chief marketing officer.
  • A chip could save traders microseconds. South Korea's Rebellions is building high-frequency trading chips.

Deal Flow

  • Alkami went public. The banking software provider raised $180 million in its IPO and is now worth $3.4 billion.
  • Zeta is talking to SoftBank. The startup, which works with banks on fintech products, is discussing a deal that would value the startup at over $1 billion, per TechCrunch.
  • Signifyd got another $205 million. The ecommerce fraud protection startup, led by former PayPal head of risk in emerging markets Rajesh Ramanand, was valued at $1.3 billion.
  • Socure raised $100 million. The identity-verification startup, which has banks, card issuers and startups like Varo, Public, Chime and Stash as customers, was valued at $1.3 billion in a deal led by Accel.

Data Point

$3.8 billion

Investment banking fees brought in by Goldman Sachs in the first quarter of 2021, up 73%. The WSJ says it's a sign of a continued "divergence between Wall Street and Main Street."

A MESSAGE FROM BROADRIDGE

The future is positively digital. Ready? Consumers, investors and shareholders are savvier than ever. Everyone needs to create more engaging experiences that keep pace with today's new expectations. See how you can stay ahead with next-gen technologies that deliver on what matters most.

Learn more

Thanks for reading — see you Tuesday.

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