Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
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Visa wants in on the NFT craze. So do scammers.

Mad Dog Jones’ SHIFT//

Hello and welcome to Protocol | Fintech! This Tuesday: A mixed bag for NFTs, Cathie Wood on starting Ark Invest and the high price of free stocks.

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The Big Story

NFTs — the good, the bad and the ugly

NFTs continue to take the art world by storm, but the blockchain-based digital creations are getting mixed reviews on the business side of things.

The industry got a huge and somewhat surprising endorsement when Visa announced that it just bought one.

But the 63-year-old payments company's purchase of CryptoPunk #7610 for $150,000 was quickly overshadowed by reports of dubious practices and outright scams in the NFT world.

"We're jumping in feet first." That's Visa's game plan with NFTs, Cuy Sheffield, the company's head of crypto, said as the CryptoPunk purchase was announced.

  • NFTs are hot and getting hotter. Sure, many people still don't get it, but they accounted for $1 billion in transactions in August alone, up from less than $100 million in 2020, Sheffield said.
  • Underlying the art form are new and still-evolving technologies. Many companies, including Visa, are still trying to figure NFTs out — how they're stored, sold and transferred. "We need a firsthand understanding of the infrastructure requirements," he said.
  • Buying a CryptoPunk "symbolizes the excitement and opportunity of this particular cultural moment," he added. Put another way: "Visa spending $150,000 for a wave of free PR is one of the cheapest stunts in history," digital marketer Adam Singer tweeted.

But what if it's fake? That's certainly possible, though one hopes Visa did its due diligence. NFTs "have a dark side," with scammers and hackers becoming increasingly active, a Wall Street Journal report said.

  • Criminals are creating and selling phony digital artworks, such as the Banksy impostor who sold $900,000 worth of faux NFTs, according to the Journal.
  • Fraudsters have also been setting up fake marketplaces, where they steal credit-card information or use phishing schemes to hack cryptocurrency accounts, the report said.
  • In some cases, the fraud involves token creators. A Nansen report pointed to dubious "profit-seeking practices," such as "wash trading," where people buy and sell the same asset to make it appear that there's strong demand for the item.

Corporate approbation and fiscal manipulation come hand in hand. Legitimate operators like Visa and digital fraudsters are pursuing NFTs for the same reason: There's a lot of heat in the space right now. If NFTs weren't worth enough to draw scammers, would anyone else be interested?"

— Benjamin Pimentel

A MESSAGE FROM CHECKOUT.COM

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Despite the low-hanging fruit this opportunity presents, our research shows 60% of ecommerce merchants globally do not feel they receive enough payment insight to allow them to innovate their models. So how can businesses turn their ships around before it's too late?

Learn more

From Protocol | Fintech

Klarna losses jump. Credit losses also spiked as the Swedish "buy now, pay later" firm expanded to new markets.

Overheard

  • "I feel like these projects have been put in opposition with the banking industry, but that's not the way I see it. If there's a better payment structure and less cost to settle transactions, everyone can benefit." David Marcus, Facebook's head of financial services, on his company's Novi digital wallet and the Diem stablecoin it's designed to support.
  • "Catalyst has become aware that Robinhood has been giving away shares of Catalyst's common stock at no charge as part of its promotional program. Catalyst believes that there are likely numerous companies facing this same issue, and that the costs of distributing materials to small stockholders under these circumstances is onerous and unreasonable." —Catalyst CEO Patrick McEnany in a June letter to the SEC.
  • "Most of my friends told me I was nuts, and yet I wasn't listening to them. I knew that I needed to follow God's will for me. That was the only way I was going to be happy."Cathie Wood, on starting Ark Invest.

3 Questions With...

Stephen Mathai-Davis, CEO, Q.ai

What fintech company (besides your own) have you been most impressed with this past year?

I love what both Rally and Masterworks are doing in the private investments market. Rally is making investing "fun" by letting folks invest in differentiated alternative investments like antique cars, collectible toys and even the original Mario Bros! Masterworks is now making it easier for the average person to invest in Art (an uncorrelated asset class btw!). Both companies are working on really cool ideas that could really shake up the way people can invest in the future. I am definitely rooting for them.

What fintech trend is most troubling for you?

Free stock giveaways to get people to engage on fintech apps. In my opinion, this form of incentive really engenders the wrong thinking and approach to investing especially since many of these stocks are penny stocks. There are risks associated with investing and this form of gamification really desensitizes people to those risks.

What's been your biggest professional blunder and how did it help you?

Why did it take me so long to move over to fintech?! I started my career in traditional investment management with stops along the way at both conventional asset management companies and hedge funds. Going into my 30s, I had the singular focus to launch my own hedge fund, while still also managing monies for other hedge fund managers. Somewhere along the way, I realized I felt like something was missing and that I wanted to do something more "meaningful." That feeling led me to found Q.ai.

Need to Know

  • U.S. Bank is backing two fintech VCs. The bank is a limited partner in Fin Venture Capital and Commerce Ventures.
  • AfterPay is introducing ads. The pay-per-click ads will appear on its app. Square has agreed to acquire AfterPay.
  • Fiserv's Carat adds PayPal and Venmo payouts. The move adds the option for businesses to send money to PayPal and Venmo accounts, which could help gig-economy companies.
  • There's bias in mortgage-approval algorithms. Racial minorities with similar financial characteristics were denied loans at much higher rates than white applicants, the Markup found.

Making Moves

  • Coinbase's new CMO hails from Facebook. Kate Rouch was previously global head of brand and product marketing for Facebook's various brands.

Deal Flow

  • Nubank is seeking a $55 billion valuation. The Brazilian neoback is planning a much anticipated U.S. IPO.
  • Ramp raised $300 million at a $3.9 billion valuation. The corporate card company just raised $115 million five months ago.
  • Roofstock bought Great Jones. The marketplace for investment properties acquired the property management company to use as part of its platform.
  • National Bank of Canada invested $103 million into Flinks. The Montreal-based financial data and API company plans to expand across North America.

A MESSAGE FROM CHECKOUT.COM

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Despite the low-hanging fruit this opportunity presents, our research shows 60% of ecommerce merchants globally do not feel they receive enough payment insight to allow them to innovate their models. So how can businesses turn their ships around before it's too late?

Learn more

Data Point

$150 billion


That's the record amount of U.S. Treasuries bought by banks in the second quarter as consumers borrow less.

Thanks for reading — see you Tuesday.

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