Signals Q3’24: Can fintechs bank on brokered deposits?

Hey fintech friends,

Happy Q4 to all who celebrate! As always, we’re ringing in the new quarter with a round-up of fintech activity in Q3 and diving into forward-looking themes for the rest of the year.

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Signals quarterly roundups are possible thanks to Hayden Hill, who collates insights from TWIF's newsletters into a comprehensive data dashboard each quarter.

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Fintechs raised a total of $6.242 billion in Q3, down 26% from the prior quarter but up 39% Year-over-Year. The number of rounds raised was down 11% QoQ (⬆️10% YoY), and on average, raises shrank by 17% in size QoQ (⬆️26% YoY).

The 26% decrease in quarterly fintech funding is in line with a 38% dip in funding across the broader venture ecosystem. Still, two fintechs reached unicorn status in Q3: Aven, a home equity-backed credit card provider, clinched $142M in Series D funding at a $1 billion valuation, and Oyster, a global employment platform, raised a $150M Series C at a $1.2 billion valuation.

Areas that received the most funding were:

A few concepts received notable funding:

The World Bank estimates that the cost of sending a $200 remittance is on average equivalent to 6.35% of the transfer, still well above the G20’s target of 5%:

Areas that saw the highest M&A activity were:

Venture firms raised a total of $3.82 billion in committed capital across 12 new fintech-focused funds:

Fintechs expanded ever further into financial super apps: Klarna launched bank accounts with cashback rewards ahead of its upcoming IPO; Bunq, Europe’s second-largest neobank, launched stock trading; Revolut received its UK banking license– a milestone that will unlock full-service financial features for users in its home country; Block revealed ambitions to make Cash App the primary banking relationship “for families earning up to $150,000”, and Twitter X is reportedly on the verge of launching payments, a major step towards Elon Musk’s vision of becoming an “everything app”. 

PayPal unveiled a one-click checkout module– Fastlane– which Adyen immediately made available to its own US customers; Skipify announced support for Visa’s Click to Pay Cards in its frictionless checkout experience. Meanwhile, fellow instant checkout provider Bolt is raising a controversial new round of funding at a $14 billion valuation (up from $11 billion in 2022) and reportedly bringing ex-CEO Ryan Breslow back to the company’s helm.

The EPI began its initial roll-out of Wero, an instant cross-border payments app that aims to lower card interchange fees for banks and merchants by enabling pan-European A2A transfers, while Visa and HSBC jointly launched Zing, an international payment app and multi-currency card. 

Meanwhile, banks in Brazil, Japan, and Ghana all entered new phases of pilot testing CBDCs in their respective countries, as the Bank for International Settlements (BIS) unveiled Project Rialto– an FX settlement module designed to interlink wholesale CBDCs for instant global transfers. In the private sector, BitGo plans to launch its USDS stablecoin by January 2025; Ripple is gearing up to release RLUSD in the coming weeks; Revolut and Robinhood are reportedly looking at launching their own stablecoins at some point in the future 👀. 

A few key themes emerged in Q3 that will likely impact companies across fintech at some point in the coming months:

Smartphone users in the US, Canada, and Europe will soon be able to store ID documents in our mobile wallets– supplanting the need for physical documents in travel, commercial transactions, and eventually, in opening financial accounts. In countries like India and Singapore, where digital ID wallets have been widely available for over 20 years, digital IDs have streamlined consumers’ access to financial services by enabling customers to undergo KYC and authorize a broad range of transactions remotely.

Under the European Digital Identity Framework, EU member states are developing country-specific digital wallets (“EUDIs”) capable of storing citizens’ ID data, educational credentials, event tickets, and travel documents. Estonia, Sweden, Denmark, Belgium, and the Netherlands already offer their own digital ID wallets, and the European Commission expects EUDIs to be available across Europe by 2026.

In the US, Google recently unveiled an “Everything else” feature that will enable users to upload legal documents, proof of insurance, and government-issued IDs to their Google Wallets. Inrupt– a startup founded by the inventor of the World Wide Web, Sir Tim Berners-Lee– also announced the launch of its Data Wallet infrastructure, which companies and governments can leverage to authenticate data stored in users’ Inrupt Data Wallets globally. 

Once digital ID wallets become available to US, EU, and Canadian users, it will be interesting to see how quickly KYC/AML providers integrate this data in their workflows and, in turn, how financial services providers leverage this technology to increase the reach and security of their offerings.

As Synapse’s customers, bank partners, and end users continue to deal with the fallout from the BaaS platform’s collapse this past April, US regulators are taking a hard look at how to mitigate the risks that can stem from bank-fintech partnerships. 

The FDIC has already proposed new rules requiring banks working with fintech partners to keep (or at least, have consistent access to) records on account owners and transactions occurring within their fintech partners’ FBO accounts. Bank regulators have also issued statements outlining broader concerns around bank-fintech partnerships and issued a request for information on risk management processes to inform their rule-making.

A major area of focus will be whether the FDIC acts on its July proposal to (re-)impose restrictions on brokered deposits. Brokered deposits are a mechanism that allow banks with excess deposits to generate additional yield by “sweeping” these funds to other financial institutions in need of short-term liquidity. Yield on brokered deposits can be an important revenue stream for banks and their fintech partners; the FDIC actually loosened restrictions on brokered deposits to support the proliferation of bank-fintech partnerships back in 2020.

Since then, regulators have become increasingly concerned that brokered deposits have the potential to destabilize banks’ capital positions and obscure weaknesses in their balance sheets. 

Banks are hitting back, arguing that brokered deposits didn’t cause Synapse’s downfall and furthermore, that the proposed rules would upend business for fintech partners like PayPal, Venmo, and Cash App that provide related financial services to millions of US consumers.

Angry, blurry, always-moist baby hippo Moo Deng now has her own cryptocurrency, MOODENG. The memecoin hit a peak $323 million market cap at the end of Q3. This week alone, MOODENG soared 500% after Vitalik Buterin sold 10 billion MOODENG gifted to him by the memecoin’s creators and donated the $642,000 proceeds to charity.

MOODENG is already a testament to Vitalik’s argument that “... the best thing for memecoins is if they can be maximally positive-sum for the world."