f/acc

f/acc. Finance accelerated. It's about embracing fintech's potential while responsibly managing risks.

Welcome to Fintech Brainfood, the weekly deep dive into Fintech news, events, and analysis. If you’re not subscribed yet, hit the button below to fix that.

Hey Fintech Nerds 👋

Evolve, finally confirmed its data breach 🤦‍♂️. We need everyone in this situation to be better. That made me feel ranty. We can improve finance and accelerate it. Finance accelerated is f/acc. That’s your Rant this week.

Looks like Apple and the EU have settled with a binding commitment to enable other wallets to access NFC. Like GDPR and PSD2, expect this to start a trend we see play out globally.

PS. Congratulations NALA* for raising your Series A 👏

PPS. No newsletter next weekend; I'll be turning the ripe old age of 40 and trying to unplug a little :)

Here's this week's Brainfood in summary

📣 Rant: f/acc.

💸 4 Fintech Companies:

  1. Karta - Amex Platinum for HNW Immigrants

  2. Flume AI - Supplier sourcing AI

  3. ReRight - Direct Music Royalties Platform

  4. Affiniti - Industry-Specific Cashback cards

👀 Things to Know:

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Weekly Rant 📣

f/acc.

I'm f/acc. Finance accelerated. It's about embracing fintech's potential while responsibly managing risks.

Our industry has let a few bad apples spoil the narrative for the bunch.

What they did is bad, but the level of focus is disproportionate. Especially compared to the good the industry has already done, and the journey ahead of it.

There's an argument that finance is too complicated to let VC-funded startups in. The risk of failure is so high that we should avoid it entirely. Founders are so naive that they shouldn't be allowed anywhere near customer funds.

But the answer here isn't to sit back and let the banks get on with it.

As Jason points out, "Fintech bad" is not the lesson here.

Nothing quite bugs me more than the idea that everything will be fine if we just let the banks get on with it.

It won't.

Financial Services tries to manage and remove risk as an industry, but often at the cost of creating much bigger risks or, worse, creating the illusion of safety. Safety theatre.

Case in point. We have FDIC-insured banks with strong capital buffers, but they still suffered a run on the bank in the banking crisis of 2023. Just this week, a bank was fined $20m for mis-selling auto loans, and I need to remind you about mortgage mis-selling.

Headlines create a barbell of narratives. The news is either so good that everyone is excited or so bad that everyone is down in the dumps. We're covering hacks, consent orders, or giant funding rounds.

Things are never quite as bad or as good as they seem.

Fintech is a force for good. It's a force for change; it genuinely creates inclusion, 100x better customer service, and changes the default for the market.

Yes, there are risks and challenges, but we're better off with Fintech than without it.

I'm for more Fintech.

Better, more thoughtful Fintech.

I'm f/acc.

The Anti progress narrative has come to Fintech.

I now understand why Not Boring's PackyM created his weekly dose of optimism.

The narrative barbell has come to technology. "Big Tech" is the bad guy in a world post-Cambridge Analytica and the 2016 election. The consequences of social media haven't all been positive. We're now worried about state-sponsored manipulation, sanctions evasion, and even anti-competitive practices.

Somewhere along the lines, a large part of society and the political establishment compressed a series of complex issues into "Tech == bad." In turn, this made Tech a partisan issue—which it never should have been.

Whenever there is a series of scandals or problems, we overcorrect and conclude that an entire category is a net negative.

This is now happening in Fintech, too. When the chair of the Federal Reserve and mainstream media outlets cover "Synapse" and "Fintech" as scandals, we're in for a rough ride.

Finance and lawyer bros want to tell you, "Well, you see, what you really need is decades of banking experience and to let the banks get on with it."

While there is something to the fact that finance is 100x more complex than it appears on the surface. The default of finance is to simply tread water and play the spreadsheet game of building a balance sheet. There's no good incentive to innovate for customers.

Society desperately needs financial services innovation because finance, or money, is the fuel for the entire economy.

The psychology of big finance is big stability

The core business model of banking is

  1. Protect deposits

  2. Ensure payments arrive

  3. Risk manage lending to ensure affordable losses

Everything is protected, defended, and risk-managed. If you get that right, it's a very profitable business.

There are almost no incentives for innovation in a large bank or regulatory agency. The cost of failure is always a PR disaster, a large fine, and, in some cases, career-limiting or career-ending consequences for CEOs and CROs.

That creates a constant pressure to disrupt it as old ideas become ever harder to dislodge.

The problem with this mindset is that over time its actually more costly than beneficial. The system can never correct itself if you have zero appetite for bank failures. If you reduce risk too much, you cap your upside as an economy.

Regulation, risk management at incumbents and the KPIs we use to measure financial services are all well intended. But they've created a system that has arthritis.

It is almost impossible to innovate for customers.

Unless you start something small.

Innovation vs Risk Management

Of course, that, too, presents new risks.

If people can innovate, they often do so on top of regulatory frameworks and infrastructure that are not designed to support innovation. They're designed to prevent failure, not achieve success, and they're designed for use cases that didn't exist 10, 20, or even 30 years ago.

When you apply 21st-century technology to 20th-century laws, the risk of a Synapse/Evolve/BaaS clusterf*ck becomes the risk.

Accountability matters

We can always point to the idea that someone in some organization should have done better, but unless we solve the fundamental gap, there is no way to harden innovation, and we'll be doomed to repeat history.

The medical industry conducts clinical trials, rigorously testing innovations before widespread adoption. Finance needs its equivalent: controlled environments to test new ideas without risking the entire system.

The financial industry doesn't have a consistent equivalent.

Solutions exist at the policy and individual institutional level

There are proven ways to limit the blast radius of risk; we're just not using them enough.

At the policy level.

  1. Regulate effectiveness, not process. Often, a regulatory examination will find a gap in controls, and the answer is usually "implement a process to xyz." That's an unhelpful default. The word process suggests audit, spreadsheet, and committee. The reality is we can have dashboards for just about every risk.

  2. Tiered banking charters. The UK has the idea of a "bank charter with restrictions." that essentially says you're a bank, but if you're VC-backed you're limited until you've proven yourself. This is why and how the UK is able to offer de-novo (brand new) charters.

  3. Something between an MTL (Money Transmission Licence) and a charter. Again, the "Electronic Money Institution" license doesn't let an institution lend. Still, it is subject to direct oversight for AML, regulatory reporting, marketing standards, disclosures, etc.

  4. Regulatory sandboxes. If something is early, let's prevent it from going mass market until it demonstrates good controls and low risk in the data. This requires banks (and regulators) to supervise directly based on the data and automate much of that supervision.

At the individual institution level.

  1. Taking maximum accountability. Even if something isn't technically your responsibility, if you're anywhere near customer funds or a financial product, then the default should be to ensure any and all 3rd parties are delivering.

  2. Being data-driven. Things like fairness in lending and proving a lack of bias in AI are incredibly complex to measure. But they're also measurable if you measure almost everything.

  3. Automate to improve risk management. If we can measure more risk, we can automate what to do with it. Measuring 100x more risks with the existing processes and teams would be impossible. We need a step change in regtech and supervisory tech.

The "Tech is bad" is fighting the last war

I get it. Cambridge Analytica happened; big Tech has a massive impact on our lives, and Governments are grappling with state-sponsored actors trying to manipulate our media and evade sanctions.

By the same token, I get it. The Synapse, Evolve saga is one that has had a massive impact on customer lives. We'd all be better off if everyone involved had

The idea that Big Fintech is bad is the wrong lesson from recent failures.

The case for f/acc

f/acc takes all the best bits of finance, the intent of trust, near certainty of deposits, and risk management. But not at the expense of innovation.

f/acc is for new ideas and new ways to solve problems, but always with a sense of responsibility.

f/acc is about constantly finding new and better ways to manage the risk.

The f/acc Manifesto:

  1. Job #1 is the safety and soundness of customer funds.

  2. Help customers achieve their goals; do not monetize them by pulling them away from their goals.

  3. You are always accountable to customers, even if not fully captured by law.

  4. Disclosures matter; make them as clear and plain English as possible

  5. If you manage payments, you will be attacked. Be prepared with the best possible cyber, fraud, and AML approach.

  6. Innovation is a tool to improve customer outcomes above all else.

  7. Innovation exists to help manage risk, not arbitrage it.

  8. The best way to manage risk is with innovation as a tool.

  9. Transparency and fairness in lending is non-negotiable.

  10. «Your idea goes here dear reader»

I'm sure other good ideas could go here, but you get the point.

Summary

We're only scratching the surface of fintech's potential. Yes, there will be challenges and failures. But with the f/acc mindset - embracing innovation while responsibly managing risks - we can generate $1.2 trillion in new revenue and solve massive customer and social challenges along the way.

After last week's "Fintech is 3% done" piece, more than 30 of you reached out to say something like, "That's exactly what the industry needed to hear because people are really down right now."

And my gut reaction was, how can we be down? On an evidence basis we're only just scratching the surface of what's possible.

Whether it's mobile money bringing billions of people into the economy, neobanks creating genuine inclusion, or making expense cards that work, we've already come a long way.

We have a long way left to go.

It won't always be easy.

There will be failures.

But we're building something important.

I guess this is a long way of saying I'm f/acc

I'm for Finance accelerated.

ST.

A wise person once said that sharing is caring. So why not send this to someone you think might enjoy this weeks edition?

4 Fintech Companies 💸

1. Karta - Amex Platinum for HNW Immigrants

Karta is the premium charge card for US residents with a large foreign income and who may not have a social security number. Users can begin building a US-based credit history and a Visa Signature card with a flexible limit. The service is backed with a Whatsapp concierge

🧠 We've seen plenty of innovation for low-income immigrant populations but less on the high-income side. Part of me wonders if that's because the high-income side is already well-served. If you're a potentially valuable customer, someone like an AMEX or Chase might go the extra mile to get you an account even if the CAC is higher. This company is still early, but it's an interesting idea if nothing else.

2. Flume AI - Supplier sourcing AI

Flume helps construction businesses source building materials directly without brokers. The platform compares prices from numerous suppliers to help builders find the parts they need at the lowest cost. The platform also monitors a supplier's trustworthiness by looking at various signals from the internet and their network. Finally, it can help optimize shipping and handling routes to be more cost-efficient and timely.

🧠 Going directly to factory suppliers can save up to 70% of raw costs, which can double a builder's margin on a given project. Since the pandemic, the risk of missiles in the Hormouz Strait, and Russia's invasion of Ukraine, raw material prices have exploded. Finding a trustworthy supplier at low costs with a fast and cost-effective shipping route is incredibly difficult. Brokers solve this but, in turn, create a significant amount of cost. Flume aims to fix this with AI. This is a double-sided market that is hard to penetrate. Immediately, I wondered about distribution and their ability to prove cost reduction and trustworthiness. If they can pull it off, this could be the next Flexport.

3. ReRight - Direct Music Royalties Platform

ReRight helps artists boost song royalties for performing artists by cutting out the recording labels. The platform requires no up-front fees and issues simple monthly payments for any accrued royalties. The platform also gives direct analytics on usage and the revenue generated from platforms like YouTube or TikTok. They also assist in pitching to editorial playlists and radio networks

🧠 This will live or die by how many breakout stars use the platform. Artists are revolting against the record labels, with some looking to sell their rights to private equity and others, like Taylor Swift, re-recording their entire works to ensure ownership. This tells you how broken the rights can be. So many intermediaries are taking a cut, and often, artists have no data about how popular their music is and on which platform. ReRight solves many of those pain points, but they don't offer the cash advance and marketing deals that a record label would. If they can secure the next big cross-over, TikTok famous artists and help them get paid. They might have something.

4. Affiniti - Industry-Specific Cashback cards

Affiniti partners with B2B industries and companies to create cashback and rewards cards for the most frequently used supplier categories. Associations for government contractors, medical associations, and auto dealers can launch cards that also feature modern spending management and supplier discount features. Examples include the Medical Association of Georgia's MAG card. It gives a rebate on membership dues and 5% cashback on medical supplies.

🧠 This is a smart way for trade associations to monetize. Running trade associations can be a thankless task; you're organizing the industry, solving collective issues, and sometimes even lobbying on their behalf. This sounds valuable, yet the constant task is running fund raisers and demonstrating member value. The industry-specific card is such an intelligent way to do that.

Things to know 👀

Evolve confirmed that the personal data of at least 7.6 million people, including more than 20,000 customers based in Maine, was accessed during the recent data breach by Lockbit.

🧠 I legitimately don't get how "Fintech" is the bad guy in the Evolve hack story. Evolve has only confirmed the data breach weeks after it happened. Meanwhile, most Fintech companies have proactively responded to customers by re-issuing cards.

🧠 A hypothetical. Imagine if a core banking software provider had a fault and the bank couldn't reconcile that. Who would regulators hold accountable? Yep. You guessed it, the banks. I get that the BaaS provider in the middle of all of this has been a mess, but the industry focus is entirely in the wrong place.

🧠 Meanwhile, here is your friendly reminder that banks regularly do bad things. This week, the CFPB fined a bank for misselling auto loans. That's before we mention the mortgage miselling scandal, the banking crisis, or even the global financial crisis. The idea that Fintech needs to go away and that if we just left the banks to do everything, things would be fine is laughably stupid.

When a user is onboarding or in a transaction with a bank or Fintech company, they can call the Sonar red flag service to see if this customer's data has been breached. The service returns a "true" or "false." One of the main checks for onboarding new users was verifying account ownership. With PII and account information leaked, a fraudster could "prove" they own an account by validating that information.

🧠 This is what the industry needed. I've heard four times this week, "Fintech needs a win." Bad news and drama have become the narrative for the whole sector. But the reality is that a Fintech infrastructure company is helping patch up a bank data breach.

🧠 It's free, and it's available to competitors. Anyone who wants to sign up for the service must abide by the membership and governance but can use it for zero cost.

🐘 Look, the elephant in the room here is Sardine are my employer. They literally pay my mortgage. But I think this is so cool. I'd talk about it no matter who did it. In a market where there has been all bad news and drama, we can fix these things. So go with me as I analyze something I also saw happen.

Good Reads 📚

This report is full of killer stats like

  • By 2050, the global population will be 9 billion. China will be the world's largest economy, India second, and the USA third on a PPP basis.

  • The emerging 7 (E7) countries like Vietnam, India, and Bangladesh will grow much faster than the G7, which will slide into a decline of 0.3% in the working-age population driven by anti-immigration policy and low birth rates.

  • Brazil, Nigeria, and Turkey all show significant long-term growth potential, with the African continent being the next great emerging region after Asia.

  • The Asia miracle is credited largely to the rise of tech platforms like Alibaba, Tencent, and Grab.

🧠 The e/acc and "American dynamism" crowds are banging the drum for the US, and I sympathize with that. At its best, the US is a place of possibility, where optimism and the market make it unique.

🧠 But remember, the world is priced in dollars, and that's changing. If you price GDP in dollars, the dollar-based economy looks great. PPP (Purchasing Power Parity) is a much fairer measure, and on that, the US isn't as ahead as the headlines would suggest.

🧠 The insight here is how to align yourself and your business to growth. There will be growth sectors and growth markets. Ideally, align to both.

🧠 Generally, I worry about reporting data that suits policymakers or the market. "Adjusted" EBITA, "core" inflation, all these stats are poorly constructed. The UK decided a couple of years ago to report its unemployment number through a survey. If your data input is terrible, your decision-making will be worse.

Tweets of the week 🕊

That's all, folks. 👋

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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.

(2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a *. None of the above constitutes investment advice, and you should seek independent advice before making any investment decisions.

(3) Any companies mentioned are top of mind and used for illustrative purposes only.

(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel—strong opinions weakly held

(5) Citations may be missing, and I've done my best to cite, but I will always aim to update and correct the live version where possible. If I cited you and got the referencing wrong, please reach out