The trouble with neobanks
Illustration: Christopher T. Fong/Protocol

The trouble with neobanks

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Good morning! Regulators are turning up the heat on neobanks, wondering if they’re any better than the institutions they’re trying to replace. And with money drying up across the sector, is this the beginning of the end for neobanks?

LendUp’s downfall

LendUp Global is liquidating its assets, including Ahead Financials, a neobank with thousands of customers, under an assignment for the benefit of creditors.

Liquidation is the nail in the coffin for LendUp, which was ordered to cease lending operations by the CFPB in December after allegedly misleading and deceiving customers with “illegal and deceptive marketing.”

  • At the time, however, LendUp told Protocol that Ahead Financials would continue operations.
  • Another neobank, Kinly, has reportedly acquired some of Ahead’s customers, though some of them have taken to social media and app stores with complaints that they cannot transfer funds.

LendUp’s collapse is just the latest in the fall of several neobanks. Others are tumbling because the money’s drying up, Protocol Fintech reporter Ryan Deffenbaugh told me.

  • Though VC firms infused fintech companies with billions last year, that’s slowed considerably: Banking-focused fintech startups raised just $1.9 billion during the quarter, an almost 80% year-over-year drop.
  • And making money has proven to be difficult for these banks: Just 5% of around 400 global neobanks reached a break-even point, according to a May report.
  • Varo recently laid off 75 employees, or 10% of its staff. And Chime, the largest U.S. neobank by account size, halted its IPO plans earlier this year, but it hasn’t imposed layoffs yet.

LendUp’s fall appeared to be driven by regulatory scrutiny, which has also been heating up in the industry with the CFPB’s renewed focus on nonbanks including fintechs, Ryan said. Though neobanks say that they provide an alternative to traditional banks that saddle low-income customers with onerous fees, regulators aren’t convinced they’re better than the institutions they want to replace.

Amazon, the emissions machine

Amazon released its sustainability report for 2021 yesterday. It’s still a massive polluter, and is getting worse.

Amazon’s emissions grew 18% in 2021, emitting 71.54 million metric tons of CO2 equivalent. That number is 40% higher than when it first started reporting emissions in 2019.

  • Amazon’s carbon footprint is likely larger than reported, as it doesn’t include emissions from the manufacturing of most of the products it sells, except for private-label merchandise (which makes up 1% of Amazon sales).
  • The majority of Amazon’s emissions came from indirect sources, such as supply chain, manufacturing, construction and operating costs, which made up 55.36 million metric tons of CO2, up 21% from 2020.

It’s not all doom and gloom, though. Amazon has made some strides, including placing purchase orders of thousands of EVs, which will cut down the company’s fossil fuel use. But Amazon still isn’t doing all that it can.

  • It has yet to come out in support of the Inflation Reduction Act, which includes $41.5 billion for the Environmental Protection Agency to address climate change. That would “go a long way toward decarbonizing the U.S. grid,” Protocol Climate editor Brian Kahn told me.
  • “Amazon's making some efforts, but if it wants to get serious about decarbonization, then it really needs to be focused on supporting policies that will do so, so that it makes its life a lot easier,” Brian said.
  • Amazon could also put pressure on its suppliers to improve their carbon emissions numbers in the first place, too.

Taken together, Amazon still has a shot at meeting its goal of net zero by 2040. But it has to start taking some bigger swings now.

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People are talking

Microsoft defended its Activision Blizzard acquisition by insulting it:

  • “There is nothing unique about the video games developed and published by Activision Blizzard that is a ‘must have’ for rival PC and console video game distributors that could give rise to a foreclosure concern.”

Making moves

Amazon reportedly hired Judd Smith, a senior Republican congressional aide, to push against a tech antitrust bill.

Ritesh Jain, Jessie Zhang and Steve Klinger are joining Lightmatter. Jain was Intel's VP of engineering, Zhang's led Apple's corporate financial planning, and Klinger comes from Innovium.

Zomato is considering reorganizing its management so that each of its individual businesses would have its own CEO.

The FTC is suing Opendoor for $62 million over claims of false advertising.

In other news

Adam Mosseri's moving to London in an effort to recruit more employees there, sources told The Financial Times. The relocation is only temporary.

Apple's mask mandate is over, The Verge reported. The company lifted the requirement at most locations "in light of current circumstances."

Coinbase is fighting back against the SEC, accusing the agency of having “little interest in this most fundamental role of regulators.”

Meta, Google, Apple and others filed a brief with the Supreme Court signaling support for affirmative action programs in colleges.

Elon Musk is being sued by an investor for trying to back out of the Twitter deal, targeting his “lame rationales for reneging on his contract.”

Bank of America and Morgan Stanley have been subpoenaed in Twitter’s legal battle against Elon Musk.

The SEC charged 11 people in a "crypto pyramid and Ponzi scheme." The commission targeted a site called Forsage, which let retail investors make transactions using crypto.

Cloud computing’s not going anywhere, but companies are moving machine learning data in-house, saving money and getting better results.

Friends across the income divide

According to a study analyzing the Facebook friendships of 72 million people, kids from poor families who grow up in neighborhoods where 70% of their friends are wealthy have, on average, a 20% higher income later in life. “Growing up in a community connected across class lines improves kids’ outcomes and gives them a better shot at rising out of poverty,” Raj Chetty, an economist at Harvard, told The New York Times.

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