Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Jack Cohen/Unsplash

What do a big bank and a neobank have in common? Angry customers.

Wells Fargo

Hello and welcome to Protocol | Fintech! This Tuesday: customer woes at Wells Fargo and Chime, praise for Stripe, and why J.P. Morgan shuttered Finn.

(Was this email forwarded to you? Sign up here to get it in your inbox every week.)

The Big Story

Banking blunders

Two high-profile bank fumbles made it clear: Handling customers' money is hard, and missteps can exact a high reputational cost.

Wells Fargo, already struggling with some of the least satisfied customers according to J.D. Power, said it was shutting down all personal lines of credit, a popular short-term loan option. Meanwhile, some customers of online bank Chime were shocked to discover that they no longer had access to their accounts.

The customer service blunders underscore a reality in banking's ongoing transformation: While the industry's old guard is increasingly feeling pressure from the rise of fintech, challenger banks can grapple with their own issues.

Banking that goes behind your back? "Banking that has your back" is how Chime portrays itself, a consumer-friendly bank that, unlike many traditional institutions, doesn't charge overdraft fees and requires no minimum balance. But some Chime customers found out to their surprise that they also had no access to their money.

  • The bank has seen more than 900 complaints filed with the Consumer Financial Protection Bureau since April 15, 2020. A big chunk of them were related to accounts that were closed against the customer's will, according to ProPublica.
  • The ProPublica report featured a Chime customer who switched to the challenger bank after getting tired of paying fees at a traditional bank -- only to have Chime suddenly cut her access to her new account.
  • Chime said that was a mistake and apologized in a statement. But Chime also said "majority of these complaints did in fact involve fraud and/or violations of our terms." That wasn't enough for the Chime customer, who vowed never to go back.

Another strike against Wells Fargo. The banking giant stunned customers by announcing it will stop offering personal revolving credit lines, eliminating a product that made it easier for customers to manage their credit card debt and avoid overdraft fees.

  • Wells Fargo was trying to "simplify our product offerings," a company statement said: "We realize change can be inconvenient, especially when customer credit may be impacted." The bank warned clients in a letter that the change "may have an impact on your credit score."
  • The bank's many critics panned the move, led by Sen. Elizabeth Warren, who tweeted that "not a single Wells Fargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence."
  • Warren, who famously grilled then-Wells Fargo CEO John Stumpf during a Senate hearing in 2016, was referring to the stunning scandal that rocked the banking industry a few years ago. Wells Fargo had to pay $3 billion to settle criminal charges and civil action after its employees opened millions of accounts for customers without their knowledge.

The old world is dying. And the new world struggles to be born, as a famous Italian Marxist once said. As Chime's misstep made clear, fintech doesn't necessarily mean flawless.

— Ben Pimentel

A MESSAGE FROM CHECKOUT.COM

Let's take Europe's online retail sector as an example. Checkout.com recently surveyed over 550 senior executives at top ecommerce retail organizations and found that 59% aren't getting a transparent breakdown of the costs of payments. A further 67% are not receiving any fraud or chargeback analysis.

Learn more

From Protocol | Fintech

Square's big crypto move. The payments company plans to introduce its own crypto hardware wallet to make bitcoin custody more accessible.

Crypto asset management is a thing. Professional money managers weren't ready to take on the bitcoin challenge a few years ago, but now talent is flowing from Wall Street to the crypto frontier.

Overheard

  • "I will never trade again. I'm traumatized."Anand Singhal on a freeze in Binance trading during a plunge in crypto prices.
  • "The most powerful financial regulator is [Treasury Secretary] Janet Yellen. I would look to her for guidance as to what the regulatory agencies are going to do."Jaret Seiberg, managing director at Cowen Washington Research Group, on what agencies will do without permanent leaders.
  • "The story with Finn is that we learned a lot and frankly, took most of those features and embedded them in the Chase mobile app … And having a separate app for a lot of those features didn't make sense, because at the end of the day, we were going to want to embed them in the core app. And so supporting two apps just wasn't the right strategy." —JPMorgan Chase Chief Product Officer Allison Beer on why it shut down its startup bank, Finn.

Need to Know

  • This week: Big banks JPMorgan, Goldman, BofA, Citi, Wells Fargo and Morgan Stanley report earnings. Look for lower-than-expected pandemic credit losses to boost profits.
  • Klarna is buying social shopping service Hero. The Swedish "buy now, pay later" company is spending about $160 million for Hero, which connects online shoppers with retail workers via text, video and chat.
  • Crypto exchanges are going the regulated route. Coinbase, Kraken and Gemini are trying to stay on regulators' good side in a bid to unseat Binance, Bloomberg reports.
  • BNY Mellon is buying Milestone Group for fund-management tech. The companies previously announced a partnership last year.

Making Moves

  • SZA is selling NFTs with American Express. The NFTs of the singer's moments are only available to cardholders.
  • Christian Widhalm, formerly chief revenue officer at LendKey, is now Bloom Credit CEO. Co-founder and former CEO Matt Harris is now executive chairman.
  • Citigroup hired Carol Grunberg for its treasury and trade solutions division. The bank's new head of strategic partnerships and innovation was previously at Northwestern Mutual.
  • Fidelity Digital Assets plans to increase its headcount by 70%. The crypto unit of Fidelity will hire 100 workers.

Deal Flow

  • Better has acquired U.K.'s Trussle. The digital mortgage lender is expanding overseas by buying the digital mortgage and insurance broker.
  • Pleo raised $150 million. The Danish corporate card startup is now worth $1.7 billion.
  • U.K.'s Tide got $100 million for its business banking software. The series C was led by Apax Digital.

3 Questions With...

Brad Paterson, CEO, Splitit

What fintech trend is most troubling for you?

As an industry, we are yet to find a way to create meaningful financial opportunities for those who need it the most. The pandemic was a significant stressor from both a health and economic perspective for most people, yet it hit hardest among low-income communities. People were facing the loss of income and home while struggling to put food on the table. While many governments stepped in to help, the resources were often a little too late. Without access to credit, people made the drastic decision to turn to high-cost loans to make ends meet. People are now finding themselves in a deeper hole trying to repay these loans at outrageous rates. Technology has helped create more debt and ways to get into debt, but we haven't cracked the code on giving access to funds to the people who need it the most and doing it in a manageable and transparent way.

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

I continually keep my eye on Stripe. They are relentlessly focused and are solving big problems for their customers. They are not looking to just solve the immediate issues with the focus on short-term results; they are focused on solving issues five or 10 years down the line. The team is impressive, the core product superb and they solve significant needs in the marketplace.

What fintech sector or company is most underrated and overrated right now?

The B2B payments sector is incredibly underrated right now. The B2B sector has been traditionally slow to embrace digital payments and processes, but the pandemic created more urgency around its adoption. Improving cash flow remains the No. 1 priority for small business owners. We see a growing appetite for payment platforms serving B2B transactions and believe that the key is to streamline cash flow. Flexible, low-risk payment terms will be critical, meaning blockchain will play a role and no doubt installment payment platforms.

A MESSAGE FROM CHECKOUT.COM

Let's take Europe's online retail sector as an example. Checkout.com recently surveyed over 550 senior executives at top ecommerce retail organizations and found that 59% aren't getting a transparent breakdown of the costs of payments. A further 67% are not receiving any fraud or chargeback analysis.

Learn more

Data Point

40%

That's the approximate drop of trading volume at major crypto exchanges from May to June, as lower prices and China's crackdown weighed on transactions.

Thanks for reading — see you Friday!

Recent Issues