Fintech 🧠 Food - Do we need narrower banks?

Plus, First Republic FDIC rescue, Fed criticizes itself, Cross River and what happens if the US Dollar global order breaks?

Hey everyone 👋, thanks for coming back to Brainfood, where I take the week's biggest events and try to get under the skin of what's happening in Fintech. If you're reading this and haven't signed up, join the 30,274 others by clicking below, and to the regular readers, thank you. 🙏

Hey Fintech Nerds 👋

It was a big Friday.

The story broke that the FDIC would take First Republic into receivership; the Fed said it didn’t act fast enough on SVB, and Cross River received an enforcement action from the FDIC over its lending practices.

A recent poll also suggests 63% of Democrats and 51% of Republican voters believe current regulation is insufficient.

We're not out of the banking crisis yet.

Regulation is never done. Finance is never “safe.”

The 📣 Weekly Rant is exploring why the regulation that followed the financial crisis in 2008 has just shifted risk to smaller banks, the shadow banking sector, and Fintech companies. 

Regulation is what happens after a crisis when something must be done. But the process of questioning it and upgrading it is political. The answer is always more regulation; like sedimentary rock, it just gets added to over time. Or de-regulation. There is no garbage collection or version control.

The software engineering approach to upgrading and iterating is fundamentally different, and there are lessons we could learn here to turn regulation from clean-up after a crisis to crisis prevention.

thoroughly enjoyed writing 💸 4 Fintech Companies this week. Worth a longer look, even if you usually skim. I love the companies for the insights they bring and thoughts reviewing their triggers.

The macro nerds in you will enjoy the 📚 Good Reads this week, is the US dollar's influence eroding, and what might that mean for Fintech?

PS. Tons of travel next week, so no brainfood. But to use the time wisely, why not reply with a topic you'd love me to cover?

PPS. Shoutout to Riseworks*, the regulated payroll solution powered by Blockchain tech who just finished their seed round!

Here's this week's Brainfood in summary

📣 Rant: Do we need narrower banks?

💸 4 Fintech Companies:

  1. Infact - Real-time credit bureau (UK) 

  2. Hiive - The marketplace for private stock

  3. Colbr - Digital Wealth Aggregation & Investment (FR)

  4. Charm Solutions - AI-powered SMB lending decision engine

👀 Things to Know:

  1. First Republic shares down 50% as $100bn deposits leave 

  2. Valuations slashed for Revolut and Atom Bank

  3. 🥊 Cross River FDIC enforcement

  4. 🥊 The Fed says it doesn’t have enough power to stop more SVBs

📚 Good Read:

Weekly Rant 📣

Do we need narrower banks?

Everything is Fintech. Now deposit taking and providing credit are increasingly becoming non-bank activities. Big universal banks still play a massive economic role but compete with Fintech companies and the shadow banking sector.

We've just been through a banking crisis; depositors are fleeing banks for government debt (treasuries), and finance is now embedded more than it is a destination. There's more supply of activities that look like banking and more demand for that to be anywhere but a bank.

The regulator is coming

Do we need better alternatives to universal banks and the current system? 

The market may have already decided. 

Money market funds that allow companies and individuals to hold treasuries are paying higher rates than most banks. Credit funds (and Fintech companies) supply the lending that traditional banks can't or won't because they have less capacity (either through capital controls or lower deposit basis).

Is this the end for banking?

Is this the biggest $trillion opportunity for Fintech companies?

If ever there was a week to keep in mind the regulator is coming, this is it.

Let's dive in 🏊‍♀️

  1. How did we get here?

    1. Pre-2000

    2. Financial crisis 2008

    3. The rise of shadow banking

    4. The rise of Fintech

  2. The role of banks in credit creation

  3. Defining a narrow bank

  4. What are the trends driving us towards narrow banking

    1. Historically long-term low interest rates

    2. Restrictive regulation on banks

    3. Followed by a spike in short term interest rates

    4. Possibly followed by another plunge in interest rates?

  5. The changing world means changing strategic impacts

    1. What happens if interest rates slowly fall but remain higher than in the past decade?

    2. What happens if interest rates whipsaw back down?

    3. What happens in a world where the US dollar doesn't run the finance infrastructure?

  6. How this impacts the Fintech industry

    1. The fastest to adapt win 

    2. Compliance is a competitive advantage

    3. Cost of funding and balance sheet power matters

    4. There's a giant opportunity to think globally

  7. What can we take from all of this?

    1. Regulation is hard

    2. We haven't seen all the consequences of the last Fintech cycle.

    3. Never bet against entrepreneurs 

1. How did we get here? 😕

The banking model we have today was never designed; it emerged. The regulations that constrain it are often implemented in the aftermath of a crisis rather than with a designed intention. And as an industry, financial struggle to iterate on business models because of these constraints.

Brick by brick, each of these constraints has limited the risks banks can take because of their vital role in the economy.  

But it has also indirectly created alternatives as the market demand continues.

Regulation is what happens when something must be done.

And nothing is quite as urgent for a politician as the economy imploding.

a) Pre-2000: Before the 1930s, banks could take risks in the stock market and lend to companies they may have personal relationships with. With 1 in 4 adults not working and lines for soup kitchens, the great depression showed something must be done.

The Glass-Steagall Act separated banking, insurance and investing activities, followed by the imaginatively titled Banking Act in 1935 that formalized the federal reserve system. The central bank (the Fed) gained autonomy to set rates and policies in the economy, and the US gained a single insurer of deposits (the FDIC). 

The system became safer; perhaps too safe?

Throughout the 1970s, banks complained about losing business to other financial services companies unless they could offer a wider variety of financial services (sound familiar?). The 80s and 90s saw waves of de-regulation culminating in the Financial Services Modernization Act of 1999. This act repealed Glass-Stegall. It allowed banks, insurance and securities firms to form conglomerates, sometimes called "universal banks." 

The early 2000s saw bank stocks become some of the biggest in the world. Even as the dot com bubble imploded, the banking sector never had it so good.

b) The Financial Crisis 2008: Long-term low interest rates set by the Fed combined with lax lending standards fuelled what we now see as a housing bubble. The global economy nearly imploded as banks scrambled to figure out who was still solvent, and governments threw money at trying to solve the panic. Unemployment doubled in the longest recession since world war 2. 

Something had to be done.

This impacted both monetary policy and regulation. 

With monetary policy, the Fed reacted by cutting interest rates which fell from the steady 4.5% at the end of 2007 to 0.25% by the end of 2008. The Fed also began buying mortgage-backed and treasury bonds (effectively printing money). 

Regulators passed new rules globally and domestically. In the US, the Dodd-Frank Act 2010 allowed the Fed committee to nominate banks as systemically important financial institutions (SIFIs), which subjects them to Fed oversight. These large banks (above $50bn in assets at the time and changed to $250bn in 2019) would also require regular stress testing.

Big banks became safe; perhaps too safe?

c) The rise of shadow banking: From 2010 to 2021, inflation stayed stubbornly below the 2% target, as did central bank rates. At these prices, credit was cheap, and demand outstripped the supply banks could offer. This gap has increasingly been filled by Non-Bank Financial Institutions (NBFIs). 

NBFIs include hedge and private equity funds, mortgage lenders and asset managers. These entities have existed in some form or other long before recent history. They're called "shadow" because they're not subject to the same oversight banks are because they don't take deposits. 

And it's massive.

The NBFI sector's share of total global financial assets reached 49.2% in 2021, at $293.3 trillion. The banks may have a point when complaining about the lack of a "level playing field".

d) The rise of Fintech: In case you missed it, Fintech happened. From pioneers in 2010 building "mobile only accounts" to CashApp, Stripe and "every company will be a Fintech company." Across consumer, SMB, wealth and payments, every bit of the Fintech landscape and infrastructure stack has 100s of new companies competing for deposits, lending and mindshare. 

It's little wonder Jamie Dimon, once admitted to being "shit scared" of Fintech companies like CashApp and PayPal. With Apple now having entered the deposit-taking game (kinda), with far better UX than most banks could dream of, the mindshare and deposit dilution continues.

For banks, this is more deposit flight in a market filled with it.

2. The role of banks in credit creation 💳

The ultimate zero-risk depository institution would be the central bank. 

If something goes wrong, the central bank can just print more money.

Why don't we end all financial crises and give everyone an account there?

Banks are useful.

Yes, the central bank can "print money." But in a way, so do banks. Banks create money by transforming the raw material (deposits) into lending. When you look in your bank account, your cash is still available on demand. But there's also someone else who now has a loan and slowly pays that back.

This has three benefits for an economy.

  1. The central bank didn't have to create new money (and therefore inflation) to make that happen; the commercial banks took care of it. 

  2. Banks transmit monetary policy. When the central bank changes the base rate, this gets passed on through the commercial banks out into the economy.

  3. The banks act as shock absorbers in the system. The economy has exogenous shocks often. Pandemics, wars, market panic, you name it. Banks should be slow, sturdy, well-managed organizations that can help manage the losses and provide credit in times of distress.

The most efficient banks are the ones that have the most deposits and the largest balance sheet. Those well-diversified and global banks have economies of scale that can drive profit from lending that others could only dream of. 

The bigger the balance sheet, the lower the cost of funds.

The raw material in finance is funding. Like corn or oil, if you can buy or produce that raw material (funding) cheaper than others, you should have a profitability advantage. 

One possible problem now is that with nearly 50% of credit being created by the shadow banking sector, markets are being asked to absorb shocks. 

And markets are known for being turbulent.

We're headed to a world of narrow banking, but not by design.

3. What is narrow banking? 🏦

To oversimplify, it is the separation of deposit-taking activities from lending activities. Shadow banks that don't take deposits qualify, and Fintech companies that don't have a charter qualify.

(Sometimes full-reserve banks are also called narrow, but technically, a full-reserve bank is something different. It takes deposits and keeps the full amount available as cash)

4. What are the trends driving us towards narrow banking? 🚗

It ultimately comes to supply and demand.

a) Historically long-term low-interest rates created a world where everyone had a cheap cost of funding. Taking deposits became less of a strategic advantage for the banks. 

On the broader economy, low inflation, unemployment, and interest rates created a "wealth effect." Because consumers could suddenly afford a much larger mortgage, why not stretch a little and get the big house? Because debt was so cheap as a business, why not use loans like cash and fund your day-to-day activities?

With the central bank creating money and the shadow banking sector but low-interest-rates, traditionally conservative investors had to look to more risky assets to generate a return—pension and school funds are invested in high-risk asset classes like VC. Institutions even began to invest in Crypto.

Everyone went risk on.

As more people bought assets and businesses invested, asset prices increased. When asset prices increase, the lending you need to be able to purchase that asset increases too. And who will provide all that credit to fulfil this new demand for these pricey assets?

The banks can't do it all.

b) Restrictive regulation on banks meant banks couldn't fulfil demand. The same rules put in place to prevent another financial crisis also limited the ability of the banks to lend. Banks also had to retreat to the profitable bits of their business after the financial crisis. 

Serving middle-class consumers with higher credit scores, stable companies, and avoiding high-risk lending meant banks could comply. But it also meant their share prices, growth, and profitability steadily slid downward. This retreat left gaps for low-income consumers, growth businesses, and anything that didn't fit the bank's risk appetite.

That gap got filled by BNPL providers, Neobanks, and specialist banks like Silicon Valley Bank. 

Then Ukraine, inflation, and rate hikes.

c) The 2023 rate hikes meant lending became profitable, deposits were expensive, and treasuries gave the best yield. Many large banks enjoyed a honeymoon period where the rate they paid savers did not increase, but the price they charged for credit (like credit cards) did increase. 

That didn't play out evenly. 

We saw the banking crisis hit and deposit flight for the banks exposed to the Tech sector or Crypto. Growth companies worried about their bank's stability and runway have sensibly sought to invest in treasuries to extend their runway. Neobanks that serve Fintech companies have started to offer treasuries and even compete on how much FDIC insurance coverage they have.

We now have a world where 

  • B2B Neobanks have several partner banks, broad FDIC coverage and offer treasuries and lending. 

  • Consumer Neobanks have moved ever more into credit and lending in the search for revenue (after having added stocks and Crypto in the last cycle)

Fintech companies look like an aggregation layer on narrower banks. 

Smaller, specialist banks making the most of the market opportunity for survival may be great at one bit of lending or deposit-taking. BaaS providers and the Fintech companies help re-aggregate those to provide experiences for businesses and consumers.

Fintech companies usually offer better UX, going deeper into the consumer or business problem space and embedding in everything. The only thing that's for sure is that banks continue to erode unless something changes. And that Fintech companies are brute force attacking for market share. (and don't forget Apple)

Macro is changing faster, and those who can adapt fastest can take the opportunities as they arise. 

5. Macro matters 🌍

The market conditions are reverse engineering Neobanks and wallets into re-aggregating financial services. We're heading to a world where the Fed still has a massive impact, but so does geopolitics. 

Regardless of if interest rates stay elevated or whipsaw down, several trends emerge. Most smaller banks need better tech to manage to be specialists in this market. Fintech companies react faster to new market opportunities, and the world is becoming more multi-polar.

If we consider these scenarios we see how the trends converge.

a) If interest rates slowly fall but remain higher than in the past decade. This is the base case many have assumed for the past 6 months (myself included). In this case:

  • Treasury yields stay elevated, creating more deposit flight from banks (although this could find a natural equilibrium).

  • Smaller banks struggle to attract deposits, manage the cost of regulation 

  • Lending remains profitable and becomes a battle for who has lowest cost of funds

  • Big banks have to work harder for profit and face erosion.

  • Investors stay risk-off but slowly re-balance towards risk-on assets as rates normalize

b) If interest rates whipsaw back down. There are already prominent investors suggesting the Fed has "overcorrected." The Cathy Wood / ARK investment thesis is that we whipsaw from high rates and high inflation to deflation and ultra-low rates. 


  • Treasury yields fall. So everyone who offered this as a wedge product has to pivot to something else.

  • Lending becomes less profitable. So the search for revenue has to move elsewhere (perhaps back into SaaS).

  • Investors would go risk-on. Everyone wants to offer stocks and Crypto again.

  • The battle for growth intensifies. Because investors are risk-on they're looking for growth metrics.

  • Smaller banks struggle. Now there's more demand than they can supply, and they need BaaS and risk tech partners to help.

  • More big bank erosion. The constant unless there is a major regulatory change (and with some exceptions, I suspect the tech-forward folks like Capital One and JPMC could do well. International equivalents like DBS or Standard Chartered also fit this category).

c) The world of finance is multi-polar. The dollar strength with rate rises and the use of sanctions has created a world less excited about the existing US-driven global financial system.

  • Inflation and dollar strength have driven countries to look for alternatives. You think inflation is bad in Europe or the US? Try Argentina, where it is over 100%. When the Fed makes decisions for domestic reasons it hits the whole world.

  • The conflict has created an opening for a dollar alternative. The US dollar is no longer preferred for trade in Russian oil, and now OPEC is happy to trade outside of the US dollar order. BRICs countries' interests are not well represented by a US Dollar order (much more on this topic unpacked in this week 📚 Good Reads below)

  • The global south has a Fintech default. In India, Nigeria, and China, consumers and businesses use wallets. Networks like SWIFT or the use of credit and debit cards seem antiquated and expensive. In these countries, most consumers and businesses are (rightly) less interested in geopolitics and more in improving their and their customer's lives. If that service or product comes from China or the US, does it matter to them? Everything comes with strings attached.

6. All of this will impact the Fintech opportunity 🚀

In the theory of evolution, those who adapt the fastest often survive. One of my favorite quips is that the pace of change is a power law. Those who can ship new products the fastest are best placed to take the new opportunities.

Ultimately the universal truths of finance remain similar, especially in a changing, unpredictable world.

a) The fastest to adapt win. There are almost zero downsides to shipping product faster. If Fintech companies need to add product depth to grow revenue, those who can do it faster have the best opportunities to win market share. They might ship some duds but have a higher chance of meeting demand. 

I can think of at least five companies that pivoted from offering Stablecoin yield to US Treasury yield as the market changed. Just about any B2B Neobank now has the same too. The opportunity to leverage partners and Fintech infrastructure companies is enormous for smaller and bigger banks. They bring pace and specialism.

b) Compliance is a competitive advantage. Payments are easy; edge cases are hard. Lending is easy; getting paid back is hard. And everything is compliance. Getting into the detail, wrestling with complexity, and surfacing that as a clean API or user experience is the essence of Fintech and why I love this industry.

The regulators are looking at Fintech very closely in the US and globally. We saw China neuter Ali and Tencent, and India and Brazil ensured big tech companies like Meta stay in their lane when offering payments. I doubt the US will go that far, but it does need something. The lack of clarity in Crypto, open banking, and BaaS is aching for rulemaking. 

c) Cost of funding and balance sheet power matters. Jamie Dimon has consistently used the "fortress balance sheet" strategy for at least a decade. This group-wide focus on the balance sheet and everything that supports it as a north start for a giant bank has enabled them to continue to grow when other competitors have faltered. 

In a market starved for lending, the big banks are best placed to take advantage of that opportunity. But in a market where rates are high and deposits are hard to come by, we may swing further into the arms of shadow banking. 

We may also see a scenario where the rates come back down, and Fintech companies have now learned how to lend as a core competency. If they can get the raw material supply (funding) cheap enough, they could make meaningful inroads to becoming a challenger for SMB lending.

Smaller banks must become specialists, leverage partners, and the unique privilege (and responsibility) of owning a charter.

d) Think globally. The global order change creates opportunities. There will be high-risk money flows that businesses and consumers need to and want to use, but that doesn't work. Who will make that fit together if the world has even more rails and risks?

When will your favorite Neobank or wallet be able to send money directly to a UPI or PIX-compatible wallet? Should we wait for FedNow to link with UPI in 2043 or build that today? How many businesses in e-commerce need more than supply chain financing or BNPL for B2B but need the ability to accept payments with these wallet standards?

This might not be an immediate priority for every business, but its an enormous opportunity for someone.

7. What can we take from all of this? 🤔

a) Regulation is hard. Life as a regulator must feel like fighting a pin-cushion. Push down hard on risk over here, and it pops up over there. Regulate one sector too much, and the market finds supply elsewhere. 

Regulators put banks on a leash because they're too big to fail, and then the smaller ones cause a crisis, and lending moves into the shadow-banking sector. Regulators try to whack Crypto, which moves offshore, hurting US investors more.

Life is an endless cycle of risk happening; something must be done, and regulation happens, creating unintended consequences where something must be done. 

We need a new story.

Risk is a fact of life. We can't remove risk, especially if we want to progress as a society. 

But we can limit the blast radius. 

That's why it is mission-critical for regulators and society to figure out how we make risk something that can happen without taking the whole system down (something I covered last week in The Future of Trust). 

We need sandboxes, open-source government, and supervisory tech; we need more open data. We need an X-Prize for regtech.

b) We haven't seen all the consequences of the last Fintech cycle. While the 2023 correction has hit public stocks hard, and regulators have arguably hit Crypto much harder than Fintech, I don't think we're far away from "something must be done." FTX, Signature and SVB all represent a something must be done moment, and we've already seen enforcement actions by the OCC and State regulators to correct potential failings in embedded finance and BaaS. 

If BNPL, a provider or a new Fintech lender, had a similar blow-up, the political pressure would magnify.

c) Never bet against entrepreneurs.


Society needs hope and a new narrative. 

Tech was the cool thing that made it feel like progress was happening because you could video-call grandparents anywhere in the world instantly.

But tech had some unintended consequences. Creating several something must be done moments.

But what if we had that X-prize for Regtech or Govtech?

What if we could incentivise entrepreneurs and risk-takers to help us progress in our biggest social and economic challenges?

And better yet, what if we could limit the blast radius in the process?

Market forces as a tool for progress. 

Shaped by incentives.

Everything is incentives.

Always was.


4 Fintech Companies 💸

1. Infact Systems - Real-time credit bureau (UK)

Infact provides lenders with a more complete, real-time picture to lenders to enable them to make faster and more accurate decisions. Often, rating agency data is inaccurate, outdated, or incomplete. Infact's API provides push notifications to lenders when consumer circumstances change, combines with alternative data sources and signals, and provides context for lending activity. This enables lenders to find "emerging prime" customers to reduce defaults and improve onboarding and conversion. Their wedge is with BNPL providers and extends from there. 

🤔 lending has a data quality and quantity problem, discriminating against consumers and leading to losses for lenders. The UK regulator highlighted the data quality problem and wants to enable competition with the "big 3" rating agencies. Setting up an entirely new CRA is non-trivial, and Infact is pending approval by the FCA to play this role. My sense is Infact has two tailwinds. 1) The regulator wants competition and 2) Open Banking alone isn't providing the outcomes for consumers. While we've seen open banking providers back into providing more data and context, lenders can't get it all in one place. (Interestingly, Pinwheel is attempting to be this for the US, an often overlooked quirk in their model).

2. Hiive - The marketplace for private stock

Hiive is a matching system for buyers and sellers of VC-backed company stock. Both parties can cut out brokers and trade over-the-counter (OTC) bi-laterally. Users can discover the market pricing, make a listing, place a bid and automate agreements. The service also provides 

🤔 Private stock lacks a single institutional marketplace. Hiive tell me having a platform creates efficiency with a central transparent market. It's competing with historically opaque brokerage structures where trust is in relationships, not data. The market data Hiive provides is fascinating. Hiive market data says companies are trading on average 40% below the last round. That would suggest a demand to sell, but The troll in me enjoyed the idea that Hiive is "cutting out the broker" but is a registered broker with the SEC and FINRA 😁. But that's a minor point; they have to be to comply. 

3. Colbr - Digital Wealth Aggregation & Investment (FR)

Colbr provides free account aggregation for assets like real estate, life insurance, and private equity. Users can then use the platform to access investment opportunities and buy assets backed up with expert premium support. 

🤔 Colbr is a digital Schwaab. The aggregation is super interesting and not something I've seen highlighted before, but it's a great wedge for customer acquisition. Customers of private wealth with more than one account must deal with multiple providers and fees across all of them. Others are building in the wealth and "family office in your pocket" space, but few are doing so with aggregation as the way in. Their website performance is terrible - amazing people still have sluggish websites in 2023.

4. Charm Solutions - AI-powered SMB lending decision engine

Charm is built on a proprietary database with more than 30 years of small business loan performance history. Lenders (like Fintech companies and small banks) can use this dataset to identify new lending opportunities or improve credit decisions. Charm also offers "scoring as a service," designed to integrate the service over existing tech infrastructure, preventing smaller banks from investing in major overhauls.

🤔 The website copy suggests the primary customer is SMB lending banks which is a competitive space. There are only so many SMB lending banks, and many are conservative in their approach to vendors. There are also plenty of companies selling into the small bank lending space. However, if everything becomes lending, perhaps Charm has a wedge into a growing market.

Things to know 👀

The bank reported more than $100bn in deposits had left the bank over the last quarter, sparking fears it could fail. Shares dropped 50% on the news and a further 50% on Friday following news a private-sector rescue was looking unlikely. 

🤔 Rumors JP Morgan and Bank of America were suitors for sale. Perhaps they get a better price after the FDIC cleans up the mess. We saw First Citizens acquire Silicon Valley Bank for a knockdown rate. Times like these can be great opportunities. Most giant banks are the product of 10s if not 100s of smaller banks coming together over a century or more. We're in for a wave of M&A in the short and long term. M&A consultants and bankers will be getting very little sleep rn!

🤔 The banking crisis is not over. It may be out of the headlines, but quietly the misery continues. Schwab, M&T and State Street reported a combined $60bn in deposit flight in the same period. 

🤔 It's not all doom and gloom. There is somewhat of a reversion to mean happening here after the pandemic. Consumers and businesses had the highest deposit levels in history, which needs to normalize. 

🤔 But why would anyone hold deposits at a bank when treasuries pay a better return? This, too, might be temporary if interest rates come back down. We still need banks, and the big universal banks are stronger than ever. It's the smaller banks that are in the most pain. What do they do? Especially if they were heavily exposed to the tech sector. 

🤔 As a smaller bank, you now have Apple competing for deposits, treasuries paying better rates and less budget to invest in tech than the giant banks. BaaS and embedded finance could be a crucial revenue stream, but only if you get the 3rd party and AML risk management right. Some will do well in this opportunity space. Most won't.

Fintech companies continue to see their valuations correct. Schroeders has cut Revoluts valuation by 46%, cutting them by $15bn (from $33bn to ~$18bn) and Atom Bank, the UK digital bank, by 31%.

🤔 $18bn isn't a bad valuation! A 46% cut is close to the market average of 40%, down from the last round (Hiive data). It's not that bad when you compare this with the down round Klarna took or some of the public BNPL providers.

🤔 It's hard to get a clear picture of what is really going on at Revolut. The metrics we see on user and product seem the business is still growing, but anyone can guess how far they are from profitability (their auditor famously quit over such a disagreement). Revolut has a breadth and depth of products none of its direct competitors can match. If it could reach profitability, it would become a formidable business. I don't see a world where Revolut dwindles to a WeWork-like valuation. But nor do I see a world where it's current multiple is sustainable in the long term.

🤔 The tech sector generally is in a lot of pain in the mid-growth stage. Companies are quietly running out of runway, and there are plenty of small to mid-sized zombie VC funds whose returns look awful. I heard a great quote at the Brainfood x TWIF happy hour last week "Every fund has that $250m valuation company with $1m of revenue, even the great ones."

🤔 There are still companies delivering 2x to 3x annual revenue growth that could grow into their lofty valuations, but the Tech sector needed this correction. That's why banks exposed to it are seeing deposit flight. 

🤔 What happens if the Fed did over-correct, inflation falls, we end up in deflation, and the rates swing right back down? This is the Cathy Wood / ARK thesis, and we've even seen big names like Michael Bury start to call right now a "generational investing opportunity." In that market, things could all change again.

🥊 Quick hits

🥊 The FDIC announced a settlement with Cross River Bank, including a provision that the regulator must approve all new 3rd parties it supports with credit. This is an especially important moment since Cross River supports major BNPL providers like Affirm and has become one of the most important partner banks in the ecosystem.

🤔 Regulator scrutiny is becoming a rite of passage for many companies. Cross River joins a list of well-regarded banks that have faced enforcement actions but have proven themselves over time. And need I remind you all readers that the world’s largest banks are also the world’s largest offenders of regulatory fines. This will be a net positive for the industry. We’re legitimizing BaaS. And we’re legitimizing lending as a service.

🥊 The US Central Bank “failed to act with sufficient force and urgency” over SVB, according to it its own report. It called for “strengthening its supervision and regulation.” The root cause is blamed on poor management at the bank.

🤔 The Fed concluded that the Fed needs more power. The Fed and FDIC's role in the economy seems only ever to expand. In a crisis, when something must be done, this is an understandable urge, but is it desirable and in the long-term interests of the economy? I’m divided on that.

Good Reads 📚

The dominance of the US dollar on the global stage is an enormous privilege allowing the USA to be indebted to foreign countries "free of charge." This topic comes up every so often last, peaking around the rise of the Euro, and now with the rise of the "overuse" of sanctions, China, and conflict, it has peaked again. Saudi now trades oil without the dollar, as does Russia with China. 

The data shows it's not China's Yuan rising; it is, in fact, the Euro, which is firmly #2. Euro countries also imposed sanctions, and China holds more federal "agency" debt (like home loans). Given current growth rates and how currencies change through history, China might be #3 by 2043, but dominant? Not quite. However, the dollar rose through the Marshall Plan and became a lender of last resort on the global stage. With "Belt and Road" and international lending, China is heading this way too, and Europe is not. The parallels to the dollar's rise are significant, and US policy isn't helping.

🤔 Fintech operators prepare for a multi-currency and polarized payments landscape, as if payments and cross-border were not hard enough. The existing SWIFT, dollar-based global trade order, has its problems, but at least we understand it. The dollar may not be the only option for businesses building connectivity to the global south as Chinese lending and economic activity continue. 

🤔 Wow, what a read. Worth it for quotes like this one (and there are so many more). What other currency is preferable to the dollar as a reserve and trade currency "when Europe's a museum, Japan's a nursing home, China's a jail, and Bitcoin's an experiment"?

🤔 Slowly, then suddenly, the world changes. China's financial technology is at least a decade ahead of the West. BRIC countries are now a counterbalance to the G7. If the future of finance is default global and real-time, how will that be possible with fractured infrastructure?

Tweets of the week 🕊

That's all, folks. 👋

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Disclosures: (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 (3) Any companies mentioned in Rants are top of mind and used for illustrative purposes only. (4) I'm not an expert at everything you read here. Some of it is me thinking out loud and learning as I go; please don't take it as gospel—strong opinions, weakly held.