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Online banks are leading the interest-rate charge

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: cashing in on rising savings rates, Marqeta’s push into banking tech, and Rostin Behnam’s disagreement with Gary Gensler.

Off the chain

Last week, we noted that Klarna’s Twitter bio was out of step with CEO Sebastian Siemiatkowski’s protestations that his company was “not BNPL.” Well, guess what? Klarna now says, “We make shopping smoooth.” Not so “smoooth” that we didn’t pick up on the update, though. Protocol gets results!

— Owen Thomas (email | twitter)

Cashing in on higher rates

Online banks are once again racing for savers’ cash. Over the course of the Federal Reserve’s seven-month campaign of rate hikes, a common complaint from lawmakers and consumers alike is that rates are going up for borrowing — mortgages, credit cards, personal loans — but not savings accounts.

That has changed quickly. Online banks led the charge in the second half of this year.

  • The typical annual percentage yield on high-yield online savings accounts cracked 2% this month for the first time since 2019, according to an index kept by Rates have quadrupled since May.
  • The increases stand in contrast to standard savings accounts at brick-and-mortar banks. The average rate on all savings accounts has barely budged, at 0.16%, according to Bankrate. Some of the largest banks are offering only 0.01%.
  • At Ally Bank there is an offer for a 2.35% APY for a high-yield online savings account, plus a 1% cash bonus up to $500 for new accounts. Just five months ago, that same account paid 0.75% APY on deposits. Ally, a 20th-century General Motors lender turned 21st-century online bank, explained last week to analysts that it needs to keep up.

The thing is, most banks don’t want deposits they can’t productively lend. And both online banks and traditional banks alike were awash with deposits during the pandemic as spending slowed and government stimulus padded bank accounts. Those same factors caused lending to decrease, leaving banks with excess deposits.

  • That trend has changed course in the second half of this year, with loan demand growing and deposits decreasing. That has caused analysts to keep a close eye on rising deposit costs for banks. It is a balancing act. Increases in interest paid for deposits could cut into a bank’s net interest margin.
  • Online-only players are moving more quickly than traditional banks. Goldman's Marcus savings account is at 2.35% and LendingClub is listing 3.12%. DepositAccounts identified roughly 10 online savings accounts offering rates at 3% or above.
  • Apple is getting in the game, too, teaming up with Goldman to enter the market, promising a high-yield savings account for its Apple Card members, though the company has yet to advertise an APY.

Banking customers and their deposits tend to be pretty sticky, however. A January survey by Bankrate found the average American has held onto the same savings account for nearly 17 years, with convenience among the top reasons why.

  • Ron Shevlin, chief research officer for Cornerstone Advisors, a banking research firm, said there is a group of customers who actively manage their savings account and are willing to move the funds — what he called hot deposits. But a larger group of U.S. banking customers don’t look to maximize returns on their deposits. People most often need some sort of trigger to leave their bank, he added — something like a bad customer service experience or an account-opening deal too good to pass up.

But even a small group of customers shifting to an online bank can make a difference for that company, Shevlin added. Time will tell if the current gap in rates between online banks and brick-and-mortar is enough to convince customers to make the switch. That will be worth watching as LendingClub and SoFi — both fintech lenders-turned-chartered online banks — report earnings in the next two weeks.

— Ryan Deffenbaugh (email | twitter)

A version of this story first appeared on Read it here.


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On the money

On Protocol: Square sells access to your inbox, and no one seems to know if the law cares.

Fintech is losing its share of the venture capital market. Fintech investments made up 22% of the venture market in the third quarter of 2021. In the same period this year, that figure fell to 17%.

Also on Protocol: Marqeta is rolling out seven new tools to help businesses offer banking services, a significant expansion beyond its core business of issuing cards.

Amazon is adding Venmo to its checkout. The PayPal-owned payment service will begin rolling out in the Amazon app and on starting today.

Mortgages sold to Fannie Mae and Freddie Mac need to use more than FICO. The Federal Housing Finance Agency will require lenders that use credit scores for mortgage underwriting to use scores from both Fair Isaac Corp. and its competitor VantageScore Solutions.

Also, also on Protocol:Chainalysis’ Michael Gronager talks about knowing your crypto customers.

PayPal wants a smoother log-in process.The payments giant said it’s added passkeys as a log-in method, allowing iPhone, iPad, and Mac users to sign in without a password.


CFTC chairman Rostin Behnam seems to be getting more outspoken about his disagreements with his counterpart at the SEC. “Ether, I’ve suggested that it’s a commodity, ” he said at Rutgers Law School’s Regulating Financial Innovation symposium Monday. “Chairman [Gary] Gensler thinks otherwise — or at least hasn’t certainly declared one or the other.” Gensler has drawn attention recently to Ethereum’s shift to staking and its securities-like yield.

Deal flow

New York rent-to-own company Landis raised $40 million in a series B round. GV led with participation from Sequoia Capital, Operator Partners, Second Century Ventures, Signia Ventures, and Team Builder Ventures. The company aims to help renters transition to homeownership.

Fabric Systems, a startup that aims to make bitcoin mining more green with energy-efficient hardware, received $13 million in seed funding. Metaplanet,, and 8090 Partners invested in the round.

Paytrix raised $5.6 million in a pre-seed growth round led by Hambro Perks. Bain Capital Ventures, Fin Capital, Better Tomorrow Ventures, and the Fintech Fund joined Hambro Perks in the round. Paytrix is an embedded payments company that helps synthesize different payments channels.

Small business banking company NorthOne raised $67 million in a series B round. Battery Ventures, Don Griffith, Drew Brees, Ferst Capital Partners, Redpoint Ventures, and several other firms participated in the round, which the company told TechCrunch was an “up round.”

TomoCredit raised a $7 million seed round with participation from South Korean consumer bank subsidiary KB Investment Inc., Barclays, Knollwood Investment Advisory, Ulu Ventures, Strong Ventures, and Passport Capital. The company provides a credit card designed to help users build credit.

Bookkeep raised $6.6 million in a seed round led by Fin Capital. TTV Capital, Argonautic Ventures, Lerer Hippeau, Haymaker Ventures, and several other firms invested in the accounting automation startup.


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