TWIF Monthly Macro #1

Hi and welcome to the monthly macro newsletter!

I am writing to you from Tel Aviv, where I have spent most of the past two weeks in safe rooms and underground bomb shelters. With a pause in missiles raining down on Tel Aviv, the biggest question for me right now is will the Israel-Iran ceasefire hold? What does an even larger Israel-Iran war mean? What will happen if the IRGC falls? What would be the repercussions for the international economy? What happens if the Strait of Hormuz is blockaded?

These are not just regional questions — they have global consequences. And yet, even amid geopolitical instability, fintech continues to charge forward. Hopefully the ceasefire holds and the tech world can continue to innovate in peace.

First off let’s talk about the trade war. Fear of Trump’s trade war put a short halt on fintech IPOs.

With the trade war starting to ease, some fintechs are starting to go public. Most notably, Chime went public. Chime’s stock surged about 59% after pricing at $27, raising $864  million and it is now being valued at around $11.6  billion. This valuation is down from its 2021 valuation of $25 billion, but still signals investor confidence. This goes hand in hand with a calming of the US stock market, signs of easing interest rates, and faith in neobanks rising - all good signs for future fintech IPOs.

Other fintechs that may go public include Klarna, Circle, Stripe, Wealthfront, Monzo, and Revolut. Circle and Wealthfront have already submitted their filings to regulators for an IPO. The Klarna IPO is still on hold as they continue to report net losses for Q1, reports for Q2 should be out soon.

Meanwhile, regulatory rollbacks under the Trump Administration, like the CFPB dropping rules on open banking and regulating fintechs like banks, will most likely have a positive effect on IPO rollouts. With fewer regulations and regulators watching over them, fintechs will have more latitude to test things out and compete with traditional banks and financial firms. 

Second, let’s talk about Trump’s “big, beautiful bill”. What is in this bill and what are the ramifications for fintech?

There are notable provisions on Medicaid, taxes, and clean energy tax credits. The bill also includes a specific provision for remittance tax. A 3.5% excise tax will be placed on US based remittances to foreign countries, to be collected by the sender’s payment provider. This leaves fintech money transfer platforms with increased compliance burdens to identify U.S. citizens and avoid misreporting. The effects of this tax are something to keep an eye out for. 

A main concern with this bill is the national debt, which the bill could add as much as $5 trillion to. This creates questions over potentially higher interest rates, inflation, and even credit downgrades. More spending not only adds to the national debt but could lead to a weaker dollar. A weaker dollar can cause inflation which could lead the Fed to raise interest rates, even amid pressure to cut rates, and effectively increase the cost of credit. Investors like VC firms may have less desire for riskier investments leaving some fintechs with a harder time finding funding. As access to capital tightens due to a weaker dollar, this would slow down innovation in the fintech space and restrict growth. 

Coexisting with this dreary outlook, there are some potential benefits for some fintechs from a weaker dollar. Crypto firms could benefit from people diversifying away from the dollar. Cross-border payment fintechs could earn higher revenues and fintechs operating internationally will benefit from money flowing into other countries away from the weakened dollar and into emerging markets. Overall, a weaker dollar is a cause for concern and something to keep an eye on. 

Third, while on the topic of financial regulation, is the GENIUS Bill. The GENIUS Bill is a bipartisan Senate bill that aims to regulate stablecoins by establishing rules for the creation and regulation of dollar-pegged stablecoins. Stablecoin issuers will have to hold a reserve of assets to protect consumers in an event of bankruptcy and start abiding by some AML rules and anti-terrorism sanctions. This bill is the first to regulate stablecoins, bringing more credibility into the crypto space, and is notably backed by Coinbase CEO.

The simplest way for the GENIUS Bill to become law is for the house to approve it as is and send it to the President to sign into law. The house has its own regulation it has been working on, the STABLE Act, so it could advance this instead, or pass the GENIUS Bill with changes, and reconciliation would be required. This would slow down the process as the finalized text would then need to be passed by both chambers before being sent for a presidential signature. 

Thinking of crypto, will more traditional fintech neobanks spread into this space? Smaller companies will be able to abide by state rules while larger companies will need to abide by federal rules. The crypto craze seems to still be going strong with JP Morgan offering a stablecoin-like token known as JPMD. If the GENIUS Bill is signed into law, it gives stablecoin legitimacy by regulating it. How this area will grow and what fintech innovations will come out of it will be exciting to watch. 

Fourth, another sign of confidence in the fintech market and the market itself is Carlyle Group teaming up with Citigroup to provide asset-backed financing to fintech lenders. Fintech lenders are turning to these more traditional sources of capital as demand for borrowing rises. Fintech lending is popular due to easier application processes and often more lenient standards. Larger, more traditional firms like Citi and Carlyle are opening up to more risk. This is a sign of optimism and growth in the economy. How this will play out as or if the fed rate cuts resume in the next few months can be interesting to analyze. A surge in borrowers and investor demand is likely but how will this balance out with credit risk and underwriting standards? 

Quick policy note here - the Federal Reserve voted this week on June 25th to issue a proposal to roll back 2008 financial crisis era regulations that required big banks to hold onto more capital based on the riskiness of assets, known as the enhanced supplementary leverage ratio. In reducing the amount of capital banks have to hold onto, what will banks do with this excess capital? Will this be good news for fintechs looking for capital and will we see more arrangements like this Carlyle Group and Citigroup financing? 

Thanks for reading the first issue of the monthly macro update. What did we miss? Any data you want us to look at or topics you want to see covered? Let us know!