Former U.S. President and Republican presidential candidate Donald Trump attends a campaign event in Philadelphia, Pennsylvania, U.S., June 22, 2024.
Shannon Stapleton | Reuters
Former President Donald Trump will headline a campaign fundraiser in Nashville on the sidelines of the Bitcoin Conference, where the top ticket is going for $844,600 per person.
According to an invitation shared with CNBC, the July 27 event will coincide with Trump’s expected keynote speech at the conference, the country’s biggest gathering of cryptocurrency fans.
The top-tier tickets, which include a seat at a roundtable with Trump, are priced at the maximum donation amount permitted for individuals to give to Trump and the Republican party’s largest joint fundraising committee, known as the Trump 47 Committee.
A next level down includes a photo with the former president at $60,000 per person or $100,000 per couple, according to the invitation.
Trump signed on to headline the Music City Center gathering shortly before he survived an attempted assassination on July 13.
A spokesman for the Trump campaign did not respond to a request for comment on his Nashville appearances.
In recent months, Trump has positioned himself as the pro-crypto candidate for president, a reversal from his previous stance during his time in the White House.
In April, Trump launched his latest non-fungible token collection on the solana blockchain in April and has been making increasingly bullish comments on crypto since then.
The Trump campaign team is accepting digital currency donations, and he has personally pledged to defend the rights of those who choose to self-custody their coins, meaning that they don’t rely on a centralized entity like Coinbase to hold their tokens and instead, do it themselves in personal crypto wallets, which are sometimes outside the reach of the Internal Revenue Service.
Trump also vowed at the Libertarian National Convention in Washington in May to keep Sen. Elizabeth Warren, D-Mass., and “her goons” away from bitcoin holders.
Meanwhile, following a meeting at Mar-a-Lago with about a dozen bitcoin mining executives who pledged cash and votes to him, Trump declared that all future bitcoin will be minted in the U.S., should he return to the White House.
On Monday, the Republican presidential nominee named Ohio Senator JD Vance as his running mate — a move viewed by many as a net win for the crypto sector. Vance has advocated for looser regulation of crypto and disclosed in 2022 that he personally holds bitcoin.
It comes in stark contrast to the Biden White House, which has taken a consistently skeptical approach to crypto regulation. Under Biden, the Securities and Exchange Commission has dialed up actions on the sector.
In the absence of hard-and-fast rules from Congress, the U.S. has proven to be one of the most active enforcers of penalties and legal challenges against crypto companies.
Read more about tech and crypto from CNBC Pro
This election cycle, the crypto contingent has become a key pipeline for cash — and votes.
One day after Trump named Vance to his ticket, venture capitalists Marc Andreessen and Ben Horowitz told employees of Andreessen Horowitz that they plan to make significant donations to political action committees supporting Trump’s campaign.
“They’re losing almost all these lawsuits, but the problem is that when you’re a startup, you don’t have the money to fight the U.S. government. And so they’re kind of nuking the industry in that way,” he said.
Fairshake, a super PAC backed by crypto’s top companies is now one of the top-spending PACs in this election cycle. Of the $160 million in total contributions it has raised, 94% can be traced back to just four companies: Ripple, Andreesen Horowitz, Coinbase and Jump Crypto.
The partnership between Citigroup and Numerated will help automate transferring important financial data from borrowers to the bank’s own systems. The transition should make the underwriting and data analysis process more efficient.
David Paul Morris/Bloomberg
Citigroup is partnering with the Boston-based digital lending fintech Numerated to help streamline the document organization process across the megabank’s enterprise lending operations.
Financial spreading is the process of transferring information from a borrower’s balance sheet into an institution’s financial analysis spreadsheet to spot trends and better predict future financial statements. It’s a critical part of any underwriting decision — and why Citi has been exploring the addition of technology to assist with this for many years.
“In a way, it’s a giant mapping exercise to ingest all the historical financial data on thousands of companies and automate future updates as they become available,” said Katya Chupryna, a director at Citi. “Converting this tremendous trove of information from disparate sources in diverse formats from unstructured to structured creates uniformity and opens up endless opportunities for immediate and future interaction with the resulting datasets.”
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Example of how Numerated’s platform can extract data from borrower documents and provide underwriters with summaries. (Numerated)
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Multipage documents are stored in Numerated’s platform for underwriters to verify and review. (Numerated)
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Numerated’s artificial intelligence-driven financial spreading automation tools can extract data from the documents and categorize it on the platform. (Numerated.)
After Numerated’s commercial lending platform receives credit documents from Citi’s borrowers through the bank’s customer-facing systems, the fintech’s artificial intelligence-driven automation tools help compile the statements like tax filings and balance sheets into a singular dashboard accompanied with ratios on liquidity, credit and more.
Underwriters can conduct credit analyses and other reviews of their own within the platform after the data has been validated, before exporting the results to other departments within the bank.
“Through digitization of labor-intensive processes with the help of machine learning, financial institutions can augment manual processes to complete tasks more efficiently and make faster and more accurate decisions with better insights,” Chupryna said. The bank also invested in Numerated through its Markets Strategic Investments division.
This initiative is the latest in a wave of tech adoptions by Citi, which has invested in firms like the California-based real-time analytics platform StarTree and Ateria AI‘s digital documentation platform for drafting and negotiation of financial contracts.
AI adoption within the financial services space has been gearing up in 2024. According to research released in March by Arizent, American Banker’s parent company, 36% of respondents said they were exploring tech providers throughout the industry and 34% held that they were attending industry conferences or events on AI to better understand different use cases.
One such institution that has built out new tools is the Royal Bank of Canada. RBC has been working with the AI-powered wealth management platform TIFIN AG through its U.S. wealth management division since last August to outfit its advisors with an AI-powered insights tool for identifying client leads.
Other examples include the $3.8 billion-asset Citizens First Bank in The Villages, Florida, which has partnered with the Tennessee-based risk management software firm Ncontracts for more than five years and is exploring the firm’s new Ntelligent Contracts Assistant.
Experts say the growing interest among banks and credit unions in lending technology is largely “driven by the integration of diverse alternative data into their decision-making processes,” according to David Donovan, head of financial services at Publicis Sapient, a global digital consultancy firm.
“Lenders now consider a variety of data sources such as payment history, bank account data, educational and employment backgrounds,” and more, Donovan said. “These alternative data points complement traditional metrics like credit scores and income, providing a more comprehensive and real-time understanding of an individual’s financial habits.”
But not all executives are eager to jump into the AI ecosystem. Further findings in the March Arizent report showed that 61% of respondents felt that the technology is evolving too quickly to keep pace with, in addition to a separate 57% saying AI could introduce new ethical concerns or biases into their businesses.
Ian Benton, senior analyst in digital banking at Javelin Strategy & Research, said that while generative AI used internally for assistance with lending is poised for rapid adoption, consumer-facing applications are less abundant.
“Hallucinated data and insights, biases, legal compliance and customer expectations of interacting with a human [all] add up to reasons providers should exercise extreme caution before rolling out customer-facing tools using generative AI,” Benton said.
Other hurdles involve data privacy and security restrictions, legacy system inadequacies and the regulatory differences at the state and federal levels over AI usage, said Rajul Sood, global head of banking at the global research and analytics firm Acuity Knowledge Partners.
As Citi’s commercial lending experts use the Numerated platform, the bank will continue rolling out the product across its footprint.
“To see a bank like Citi making a global, very significant investment in automating the ingestion of financial statements using AI is a big deal. … Front office automation using AI is going to change it,” said David O’Malley, president of Numerated.
Jane Fraser, CEO of Citi, speaks during the Milken Institute Global Conference in Beverly Hills, California, on May 1, 2023.
Patrick T. Fallon | AFP | Getty Images
Citigroup on Friday posted second-quarter results that topped expectations for profit and revenue on a rebound in Wall Street activity.
Here’s what the company reported:
Earnings: $1.52 a share vs. $1.39 a share expected, according to LSEG
Revenue: $20.14 billion vs. $20.07 billion expected
The bank said net income jumped 10% from a year earlier to $3.22 billion, or $1.52 a share. Revenue rose 4% to $20.14 billion.
Equities trading revenue rose 37% to $1.5 billion, driven by strength in derivatives and a rise in hedge fund balances, roughly $300 million more than the StreetAccount estimate.
Fixed income revenue dipped 3% to $3.6 billion, essentially matching analysts’ expectations, on lower activity in rates and currency markets.
Investment banking revenue surged 60% to $853 million, driven by strong issuance of investment-grade bonds and a rebound in IPO and merger activity from low levels in 2023.
Shares of the bank fell nearly 2%.
“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Citigroup CEO Jane Fraser said in the release. “Markets had a strong finish to the quarter leading to better performance than we had anticipated.”
Citigroup was just this week rebuked for failing to fix its regulatory shortfalls.
Last year, Fraser announced plans to simplify the management structure and reduce costs at the third-biggest U.S. bank by assets. But earnings will take a backseat if Citigroup cannot appease regulators’ concerns about its data and risk management.
Correction: This article has been updated to correct that Citigroup reported revenue of $20.14 billion for the second quarter. A previous version misstated the figure due to a rounding error.
There may be relief for the thousands of Americans whose savings have been locked in frozen fintech accounts for the past two months.
Banks involved in the mess caused by the collapse of fintech intermediary Synapse have made progress piecing together account information for stranded customers that could result in a release of funds in a matter of weeks, according to a person briefed on the matter.
Staff of Evolve Bank & Trust and Lineage Bank in particular have made headway after hiring a former Synapse engineer late last month to unlock data from the failed fintech middleman, said the person, who asked for anonymity to speak candidly about the process.
The development comes as regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., pressure the banks involved to release funds after media and lawmakers have heightened awareness of the debacle.
Beginning in May, more than 100,000 customers of fintech apps like Yotta, Juno and Copper have been locked out of their accounts.
“We’re strongly encouraging Evolve to do whatever it can to help make money available to those depositors,” Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Tuesday.
The sudden optimism of key players involved in the negotiations, including Evolve founder and Chairman Scot Lenoir, comes after weeks of apparent gridlock in a California bankruptcy court. Shoddy record-keeping and a dearth of funds to pay for a forensic analysis have made it difficult to piece together who is owed what, bankruptcy trustee Jelena McWilliams has said.
The episode revealed how small banks involved in the “banking-as-a-service” sector didn’t properly manage unregulated partners like Synapse, founded in 2014 by a first-time entrepreneur named Sankaet Pathak. Evolve and a string of peers have been reprimanded by bank regulators for shortcomings tied to their programs.
Evolve Bank initially planned to release $46 million it held from payment processing accounts to give fintech customers partial payments, according to the person with knowledge of the matter.
That plan changed in recent days when it became clear that something approximating a full reconciliation of customer accounts was possible, the person said.
But it remains unknown how the four main banks involved — Evolve, Lineage, AMG National Trust and American Bank — and what remains of Synapse will deal with a likely shortfall of funds, and that could hinder repayment efforts.
Up to $96 million owed to customers is missing, McWilliams has said.
The Synapse trustee didn’t respond to a request for comment. Neither did representatives for AMG, American Bank and Lineage. The FDIC declined to comment for this article.
On Wednesday Evolve filed a response to questioning from one of its regulators, FINRA, seeking to make it clear that while it holds some payment processing funds, deposits from the app Yotta migrated out of Evolve and to a network of banks in late October 2023.
“We believe there is still some confusion regarding who is in possession and control of customer funds,” Evolve told FINRA, according to documents obtained by CNBC.
The bank included an Oct. 27, 2023, email from Yotta CEO Adam Moelis to Lenoir where Moelis confirmed that funds had left Evolve as of that date.
“Synapse and Evolve are now saying contradictory things,” Moelis said this week in response to an inquiry from CNBC. “We don’t know who’s telling the truth.”
U.S. Bank is looking to fintechs to provide back-office management for its small-business clients. The $669 billion bank listens to feedback from business clients to understand what they are looking for and whether to develop solutions in house or team with a third party, Shruti Patel, chief product officer for business banking, told Bank Automation […]
Richard Rotondo, vice president and digital bank manager for American Commerce, who lead the development of Monesty. “A lot of institutions either need to do this [advancement] or possibly risk obsolescence in the market, but this fear of the unknown, this fear of cost and all those other factors,” is holding many institutions back, he said.
Frank Gargano
The evolving landscape of financial technology has become a race between financial institutions of all asset sizes for who can adopt the latest products and meet the changing needs of consumers. For those hesitating to jump into the fray, experts at American Banker’s Digital Banking conference last week weighed in on the reasons keeping many on the sidelines.
A research report published in December by Arizent, the parent company of American Banker, polled executives of banks, credit unions and other players in the financial services space to gauge what tech priorities were like going into 2024. Among the top five tech spending priorities were data and analytics, enhanced security and fraud mitigation, artificial intelligence and machine learning, digital payments and automation tools or platforms.
More than 66% of respondents said that new technologies like AI and distributed ledgers would be the top trend impacting the banking industry over the next three years. Changing competitive environments and fluctuating consumer demands were the next most prominent factors at 49% and 42% respectively.
“For community banks, it’s less about differentiating themselves through technology and more about keeping up with industry standards,” said John Soffronoff, partner and head of community banking at the global management and technology consulting firm Capco. “However, they have a unique opportunity to build on their existing customer service advantage by offering personalized and customized solutions.”
For companies like American Express, Santander U.S., Alliant Credit Union and others that have made major technology upgrades in the last few months, economies of scale have played a significant role in the scope and effectiveness of any new technology.
One such organization is American Commerce Bank in Bremen, Georgia, which faced this concern when launching its digital banking division in November 2022 to offer customers new channels for interacting with the bank.
Executives of the $494 million-asset bank waited roughly five months before consumers took notice of the new platform dubbed Monesty, but engagement has grown since then. Monesty opened 81 accounts in January that brought in roughly $6.5 million in deposits, and has seen that figure exceed $20 million through today.
“In April 2023, somebody flipped a switch and all of a sudden the public found us,” said Richard Rotondo, vice president and digital bank manager for American Commerce, who leads Monesty. “What I built worked, and we continue to tinker with it.”
Rotondo said that for a banking industry “dominated by technological advancement,” many smaller community banks like American Commerce that reach a crossroads “haven’t made the leap” due to a host of worries.
“A lot of institutions either need to do this [advancement] or possibly risk obsolescence in the market, but this fear of the unknown, this fear of cost and all those other factors,” is holding many institutions back, Rotondo said.
In addition to cost and what he calls “tech apprehension,” Rotondo identified six other hurdles facing community banks where tech innovation is concerned: fear of weakening customer relationships, regulatory challenges, cybersecurity concerns, competitive landscape, shortage of tech talent and lack of buy-in from senior management.
Deborah Perry Piscione, co-founder of the AI and web3 advisory firm Work3 Institute, said the emphasis on personal relationships and local knowledge that defines many community-based institutions can create a barrier for integrating new technology.
“There’s a palpable fear that embracing too much technology might erode the human touch that has long been their competitive edge. … This concern is not unfounded, as many community banks serve demographics that may be less tech-savvy,” Piscione said.
Regulatory discussions have also been top of mind for many executives over the last few months, as supervisory agencies continue exploring how to effectively govern AI usage.
In an effort to stem the potential for misuse of AI through adequate regulation, President Biden released his executive order last October that called on supervisory agencies like the Consumer Financial Protection Bureau to gather more information on how various models are developed and put into use.
Bank advocates were quick to seek additional clarity on how the recommendations would factor into current and future rules, while also contended that operating in an already highly regulated environment would make adjustments easier to manage.
But not everyone in the banking industry feels that community banks are lagging behind in the tech race.
Charles Potts, executive vice president and chief innovation officer for the Independent Community Bankers of America, pointed to the response from executives to the trade group’s ThinkTECH Accelerator and other relevant resources available for those seeking to interact with tech providers.
“Thousands of bankers have taken advantage of the opportunity to engage with start-up and early-stage technology providers for the express purpose of finding new and innovative ways to address the needs of the bank and the customers they serve,” Potts said. “Community banks have always been innovators and creative problem solvers, leveraging technology to improve efficiencies and enhance customer experiences.”
As technology becomes more widely accessible, be it cost decreases or integration improvements, the gap between community banks and their larger counterparts could begin to shrink.
“Technology adoption is no different for community banks than any other bank or large enterprise. … Time, expertise, staff and budget are common constraints and considerations when taking on any new tech adoption project for any organization,” Potts said.
Natasha Craft, a 25-year-old FedEx driver from Mishawaka, Indiana. She has been locked out of her Yotta banking account since May 11.
Courtesy: Natasha Craft
When Natasha Craft first got a Yotta banking account in 2021, she loved using it so much she told her friends to sign up.
The app made saving money fun and easy, and Craft, a now 25-year-old FedEx driver from Mishawaka, Indiana, was busy getting her financial life in order and planning a wedding. Craft had her wages deposited directly into a Yotta account and used the startup’s debit card to pay for all her expenses.
The app — which gamifies personal finance with weekly sweepstakes and other flashy features — even occasionally covered some of her transactions.
“There were times I would go buy something and get that purchase for free,” Craft told CNBC.
Today, her entire life savings — $7,006 — is locked up in a complicated dispute playing out in bankruptcy court, online forums like Reddit and regulatory channels. And Yotta, an array of other startups and their banks have been caught in a moment of reckoning for the fintech industry.
For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.
The startups prominently displayed protections afforded by the Federal Deposit Insurance Corp., lending credibility to their novel offerings. After all, since its 1934 inception, no depositor “has ever lost a penny of FDIC-insured deposits,” according to the agency’s website.
But the widening fallout over the collapse of a fintech middleman called Synapse has revealed that promise of safety as a mirage.
Starting May 11, more than 100,000 Americans with $265 million in deposits were locked out of their accounts. Roughly 85,000 of those customers were at Yotta alone, according to the startup’s co-founder, Adam Moelis.
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle.
They come from all walks and stages of life, from Craft, the Indiana FedEx driver; to the owner of a chain of preschools in Oakland, California; a talent analyst for Disney living in New York City; and a computer engineer in Santa Barbara, California. A high school teacher in Maryland. A parent in Bristol, Connecticut, who opened an account for his daughter. A social worker in Seattle saving up for dental work after Adderall abuse ruined her teeth.
Since Yotta, like most popular fintech apps, wasn’t itself a bank, it relied on partner institutions including Tennessee-based Evolve Bank & Trust to offer checking accounts and debit cards. In between Yotta and Evolve was a crucial middleman, Synapse, keeping track of balances and monitoring fraud.
Founded in 2014 by a first-time entrepreneur named Sankaet Pathak, Synapse was a player in the “banking-as-a-service” segment alongside companies like Unit and Synctera. Synapse helped customer-facing startups like Yotta quickly access the rails of the regulated banking industry.
It had contracts with 100 fintech companies and 10 million end users, according to an April court filing.
Until recently, the BaaS model was a growth engine that seemed to benefit everybody. Instead of spending years and millions of dollars trying to acquire or become banks, startups got quick access to essential services they needed to offer. The small banks that catered to them got a source of deposits in a time dominated by giants like JPMorgan Chase.
But in May, Synapse, in the throes of bankruptcy, turned off a critical system that Yotta’s bank used to process transactions. In doing so, it threw thousands of Americans into financial limbo, and a growing segment of the fintech industry into turmoil.
“There is a reckoning underway that involves questions about the banking-as-a-service model,” said Michele Alt, a former lawyer for the Office of the Comptroller of the Currency and a current partner at consulting firm Klaros Group. She believes the Synapse failure will prove to be an “aberration,” she added.
The most popular finance apps in the country, including Block’s Cash App, PayPal and Chime, partner with banks instead of owning them. They account for 60% of all new fintech account openings, according to data provider Curinos. Block and PayPal are publicly traded; Chime is expected to launch an IPO next year.
Block, PayPal and Chime didn’t provide comment for this article.
While industry experts say those firms have far more robust ledgering and daily reconciliation abilities than Synapse, they may still be riskier than direct bank relationships, especially for those relying on them as a primary account.
“If it’s your spending money, you need to be dealing directly with a bank,” Scott Sanborn, CEO of LendingClub, told CNBC. “Otherwise, how do you, as a consumer, know if the conditions are met to get FDIC coverage?”
Sanborn knows both sides of the fintech divide: LendingClub started as a fintech lender that partnered with banks until it bought Boston-based Radius in early 2020 for $185 million, eventually becoming a fully regulated bank.
Scott Sanborn, LendingClub CEO
Getty Images
Sanborn said acquiring Radius Bank opened his eyes to the risks of the “banking-as-a-service” space. Regulators focus not on Synapse and other middlemen, but on the banks they partner with, expecting them to monitor risks and prevent fraud and money laundering, he said.
But many of the tiny banks running BaaS businesses like Radius simply don’t have the personnel or resources to do the job properly, Sanborn said. He shuttered most of the lender’s fintech business as soon as he could, he says.
“We are one of those people who said, ‘Something bad is going to happen,’” Sanborn said.
A spokeswoman for the Financial Technology Association, a Washington, D.C.-based trade group representing large players including Block, PayPal and Chime, said in a statement that it is “inaccurate to claim that banks are the only trusted actors in financial services.”
“Consumers and small businesses trust fintech companies to better meet their needs and provide more accessible, affordable, and secure services than incumbent providers,” the spokeswoman said.
“Established fintech companies are well-regulated and work with partner banks to build strong compliance programs that protect consumer funds,” she said. Furthermore, regulators ought to take a “risk-based approach” to supervising fintech-bank partnerships, she added.
The implications of the Synapse disaster may be far-reaching. Regulators have already been moving to punish the banks that provide services to fintechs, and that will undoubtedly continue. Evolve itself was reprimanded by the Federal Reserve last month for failing to properly manage its fintech partnerships.
In a post-Synapse update, the FDIC made it clear that the failure of nonbanks won’t trigger FDIC insurance, and that even when fintechs partner with banks, customers may not have their deposits covered.
The FDIC’s exact language about whether fintech customers are eligible for coverage: “The short answer is: it depends.”
While their circumstances all differed vastly, each of the customers CNBC spoke to for this story had one thing in common: They thought the FDIC backing of Evolve meant that their funds were safe.
“For us, it just felt like they were a bank,” the Oakland preschool owner said of her fintech provider, a tuition processor called Curacubby. “You’d tell them what to bill, they bill it. They’d communicate with parents, and we get the money.”
The 62-year-old business owner, who asked CNBC to withhold her name because she didn’t want to alarm employees and parents of her schools, said she’s taken out loans and tapped credit lines after $236,287 in tuition was frozen in May.
Now, the prospect of selling her business and retiring in a few years seems much further out.
“I’m assuming I probably won’t see that money,” she said, “And if I do, how long is it going to take?”
When Rick Davies, a 46-year-old lead engineer for a men’s clothing company that owns online brands including Taylor Stitch, signed up for an account with crypto app Juno, he says he “distinctly remembers” being comforted by seeing the FDIC logo of Evolve.
“It was front and center on their website,” Davies said. “They made it clear that it was Evolve doing the banking, which I knew as a fintech provider. The whole package seemed legit to me.”
He’s now had roughly $10,000 frozen for weeks, and says he’s become enraged that the FDIC hasn’t helped customers yet.
For Davies, the situation is even more baffling after regulators swiftly took action to seize Silicon Valley Bank last year, protecting uninsured depositors including tech investors and wealthy families in the process. His employer banked with SVB, which collapsed after clients withdrew deposits en masse, so he saw how fast action by regulators can head off distress.
“The dichotomy between the FDIC stepping in extremely quickly for San Francisco-based tech companies and their impotence in the face of this similar, more consumer-oriented situation is infuriating,” Davies said.
The key difference with SVB is that none of the banks linked with Synapse have failed, and because of that, the regulator hasn’t moved to help impacted users.
Consumers can be forgiven for not understanding the nuance of FDIC protection, said Alt, the former OCC lawyer.
“What consumers understood was, ‘This is as safe as money in the bank,’” Alt said. “But the FDIC insurance isn’t a pot of money to generally make people whole, it is there to make depositors of a failed bank whole.”
For the customers involved in the Synapse mess, the worst-case scenario is playing out.
While some customers have had funds released in recent weeks, most are still waiting. Those later in line may never see a full payout: There is a shortfall of up to $96 million in funds that are owed to customers, according to the court-appointed bankruptcy trustee.
That’s because of Synapse’s shoddy ledgers and its system of pooling users’ money across a network of banks in ways that make it difficult to reconstruct who is owed what, according to court filings.
The situation is so tangled that Jelena McWilliams, a former FDIC chairman now acting as trustee over the Synapse bankruptcy, has said that finding all the customer money may be impossible.
Despite weeks of work, there appears to be little progress toward fixing the hardest part of the Synapse mess: Users whose funds were pooled in “for benefit of,” or FBO, accounts. The technique has been used by brokerages for decades to give wealth management customers FDIC coverage on their cash, but its use in fintech is more novel.
“If it’s in an FBO account, you don’t even know who the end customer is, you just have this giant account,” said LendingClub’s Sanborn. “You’re trusting the fintech to do the work.”
While McWilliams has floated a partial payment to end users weeks ago, an idea that has support from Yotta co-founder Moelis and others, that hasn’t happened yet. Getting consensus from the banks has proven difficult, and the bankruptcy judge has openly mused about which regulator or body of government can force them to act.
The case is “uncharted territory,” Judge Martin Barash said, and because depositors’ funds aren’t the property of the Synapse estate, Barash said it wasn’t clear what his court could do.
Evolve has said in filings that it has “great pause” about making any payments until a full reconciliation happens. It has further said that Synapse ledgers show that nearly all of the deposits held for Yotta were missing, while Synapse has said that Evolve holds the funds.
“I don’t know who’s right or who’s wrong,” Moelis told CNBC. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”
In the meantime, the former Synapse CEO and Evolve have had an eventful few weeks.
Pathak, who dialed into early bankruptcy hearings while in Santorini, Greece, has since been attempting to raise funds for a new robotics startup, using marketing materials with misleading claims about its ties with automaker General Motors.
And only days after being censured by the Federal Reserve about its management of technology partners, Evolve was attacked by Russian hackers who posted user data from an array of fintech firms, including Social Security numbers, to a dark web forum for criminals.
For customers, it’s mostly been a waiting game.
Craft, the Indiana FexEx driver, said she had to borrow money from her mother and grandmother for expenses. She worries about how she’ll pay for catering at her upcoming wedding.
“We were led to believe that our money was FDIC-insured at Yotta, as it was plastered all over the website,” Craft said. “Finding out that what FDIC really means, that was the biggest punch to the gut.”
She now has an account at Chase, the largest and most profitable American bank in history.
Investment firm FTV Capital is expanding its European presence with a London office. The London team of six, led by Richard Earnshaw, will “work on deals in collaboration with FTV’s U.S. offices, and we will be able to leverage expertise from both sides of the pond to strengthen our robust pipeline of European investment opportunities,” […]
Signage is displayed outside Morgan Stanley & Co. headquarters in the Times Square neighborhood of New York.
Michael Nagle | Bloomberg | Getty Images
Morgan Stanley is pushing further into its adoption of artificial intelligence with a new assistant that is expected to take over thousands of hours of labor for the bank’s financial advisors.
The assistant, called Debrief, keeps detailed logs of advisors’ meetings and automatically creates draft emails and summaries of the discussions, bank executives told CNBC. Morgan Stanley plans to release the program to the firm’s roughly 15,000 advisors by early July, marking one of the most significant steps yet for the use of generative AI at a major Wall Street bank.
While the company’s earlier efforts involved creating a ChatGPT-like service to help advisors navigate the firm’s reams of research, Debrief brings AI into direct contact with advisors’ most prized resource: their relationships with rich clients.
The program, built using OpenAI’s GPT-4, essentially sits in on client Zoom meetings, replacing the note-taking that advisors or junior employees have been doing by hand, according to Jeff McMillan, Morgan Stanley’s head of firmwide artificial intelligence.
“What we’re finding is that the quality and depth of the notes are just significantly better,” McMillan told CNBC. “The truth is, this does a better job of taking notes than the average human.”
Importantly, clients must consent to being recorded each time Debrief is used. Future versions will allow advisors to use the program on corporate devices during in-person meetings, said McMillan.
The rollout will serve as a real-world test for the vaunted productivity gains of generative AI, which took Wall Street by storm in recent months and has bolstered the value of chipmakers, tech giants and the broader U.S. stock market.
Morgan Stanley’s wealth management division hosts about 1 million Zoom calls a year, the bank told CNBC. While estimates vary, one Morgan Stanley advisor involved in the Debrief pilot said the program saves 30 minutes of work per meeting; advisors typically spend time after meetings creating notes and action plans to address client needs.
Morgan Stanley’s new Debrief program, a new AI tool for wealth management advisors based on OpenAI’s GPT-4.
Courtesy: Morgan Stanley
“As a financial adviser I’m doing four, five or six meetings a day,” said Don Whitehead, a Houston-based advisor who’s been testing the software. By “having the note-taking service built in through AI, you can really be invested in the meeting, you’re actually a lot more present.”
It remains to be seen what advisors will do with the hours reclaimed from essential grunt work. In a sense, Morgan Stanley’s projects in generative AI amount to a “grand experiment in productivity,” said McMillan.
If, as McMillan and others believe, advisors will spend more time serving clients and prospecting for new ones, the technology should boost Morgan Stanley’s growth in assets under management, as well as retention of clients and advisors.
Morgan Stanley’s wealth management division is one of the world’s largest with $5.5 trillion in client assets as of March; the firm wants to reach $10 trillion.
It will take at least a year to determine whether the technology is boosting advisor productivity, McMillan said.
“I’m the analytics guy, but the advisors will tell you that they’re at their best when they’re engaging” with clients, said McMillan. “None of them will tell you they love taking notes or looking at research reports, right? That’s not why they got into this business.”
Ultimately, Morgan Stanley’s vision for AI is creating a layer of technology that seamlessly helps advisors perform all of their tasks — sending proposals, balancing portfolios, creating reports — with simple prompts, Morgan Stanley wealth management head Jed Finn told investors in February.
Many of the core tasks set to be automated, such as parsing contracts and opening accounts, are universal throughout Morgan Stanley, including at trading and banking divisions, McMillan noted.
Finance jobs are among the most prone to displacement by AI, according to a recent Citigroupreport. AI adoption could boost the industry’s profit by $170 billion by 2028, Citigroup said.
While the process is still in its infancy, McMillan acknowledged that business models will likely change in ways that are hard to predict.
“I think that there will be disruption in some areas,” he said. “We look back on all the things that we think we’re going to lose, but we don’t see what’s ahead.”
What’s ahead is the need for millions of prompt engineers to train AI to create the desired outcomes for companies, McMillan said; it took Morgan Stanley months to fine-tune prompts for Debrief, he noted.
McMillan said he even told his teenage children to consider careers as prompt engineers.
“They’re going to learn how to talk to machines, and tell those machines what to do, and engage with people and collaborate,” he said. “It’s a whole different game than how we’ve been doing work.”
Ledgers of the failed fintech middleman Synapse show that nearly all the deposits held for customers of the banking app Yotta went missing weeks ago, according to one of the lenders involved.
A network of eight banks held $109 million in deposits for Yotta customers as of April 11, Evolve Bank & Trust said in a bankruptcy court letter filed late Thursday.
About one month later, the ledger showed just $1.4 million in Yotta funds held at one of the banks, Evolve said. It added that neither customers nor Evolve received funds in that time period.
“These irregularities in Synapse’s ledgering of Yotta end user funds are just one example of the many discrepancies that Evolve has observed,” the bank said. “A detailed investigation of what happened to these funds, or alternatively, why the Synapse-provided ledger reflected money movement that did not actually occur, must be undertaken.”
Evolve, one of the key players in a deepening predicament that has left more than 100,000 fintech customers locked out of their bank accounts since May 11, has been attempting to piece together with other banks a record of who is owed what. Its former partner Synapse, which connected customer-facing fintech apps to FDIC-backed banks, filed for bankruptcy in April amid disputes about customer balances.
But Evolve itself was reprimanded by the Federal Reserve last week for failing to properly manage its fintech partnerships. The regulator noted that Evolve “engaged in unsafe and unsound banking practices” and forced the bank to improve oversight of its fintech program. The Fed said the enforcement action was separate from the Synapse bankruptcy.
Evolve has been trying to separate itself from Synapse since late 2022 because of ledger problems it has found, a spokesman for the Memphis, Tennessee-based bank said, declining to comment further.
Yotta CEO and co-founder Adam Moelis said in response to this article that Synapse has said in court filings that Evolve held nearly all Yotta customers deposits. Evolve and Synapse disagree over who holds the funds and who is responsible for the frozen accounts.
“According to the Synapse trial balance report provided on May 17, there are $112 million of customer funds held at Evolve,” Moelis said.
Despite mounting pressure on the banks involved to unfreeze all the locked accounts, the messy records and a dearth of funds to pay for an outside forensic analysis has created uncertainty over when that will happen.
Evolve maintains that because of discrepancies in the ledgers, it is hesitant to allow payments to be made to many customers until a full reconciliation of the mismatched ledgers is complete, in particular related to a group of banks used in the Synapse brokerage program.
Synapse moved most of the fintech customer funds held at Evolve to a group of banks affiliated with its brokerage program in late 2023, Evolve has said in court filings.
Last week, the court-appointed trustee, former FDIC Chairman Jelena McWilliams, noted that a “full reconciliation to the last dollar with the Synapse ledger” may not be possible.
Even the total shortfall in funds owed to all impacted depositors isn’t known. Earlier this month, McWilliams pegged the amount at $85 million; but in subsequent reports stated that it was between $65 million and $96 million.
Meanwhile, the disruption to thousands of fintech customers has stretched into its sixth week. Many Yotta customers contacted by CNBC said they used the service as their primary checking account, and have had their lives turned upside down by the situation.
In a letter sent Thursday, McWilliams pleaded with five U.S. regulators to get more involved in the Synapse collapse, asking for resources to help impacted customers understand where their funds are held and to aid communication with banks.
“The impact of Synapse’s bankruptcy on end-users has been devastating,” McWilliams wrote to the regulators. “Many end-users are unable to pay for basic living expenses and food. I appreciate your prompt attention to this request and respectfully request that your agencies act on it as quickly as possible.”
McWilliams is scheduled to present her latest status report in the bankruptcy case during a hearing starting 1 p.m. E.T. Friday.
LONDON — British fintech firm Zilch said Wednesday it’s raised $125 million in debt financing from German banking giant Deutsche Bank in a deal that will help the company triple sales in the next couple of years and move closer toward an initial public offering.
The company, which offers shoppers the ability to purchase items and pay off the debt they owe in monthly, interest-free installments, said the debt was structured as a securitization, where multiple loans can be packaged together.
Zilch initially sourced credit for its installment plans and other loans from Goldman Sachs‘s private credit arm. The company said the deal with Deutsche Bank came with more flexible terms and would enable it to draw down up to $315 of credit in total — including from different banks.
Philip Belamant, Zilch’s CEO and co-founder, noted the terms of its arrangement with Goldman Sachs were beneficial for a young, fast-growing startup — but ultimately too restrictive. Zilch’s capital needs have accelerated as the business has matured, and required a credit arrangement that was more flexible, he said.
“For us, we think it’s a major milestone in the company’s growing stage, which is, we’ve gone through the line we have with Goldman, it’s been a brilliant relationship and partnership,” Belamant told CNBC. “But now we’re stepping it up to securitization … so we [can] continue scaling.”
The additional $190 million of credit will become available to Zilch as the firm continues to grow. Belamant said the firm is already planning to strike agreements with other banks to raise more debt in the coming months.
The move is a sign of how buy now, pay later upstarts are continuing to double down on their products and loan growth, even as larger incumbent players in finance and technology are bowing out of the once-buzzy market.
Belamant said that with additional capital of $125 million, the firm’s path toward an IPO will likely be accelerated, with Zilch currently aiming to go public in the next 12 to 24 months.
The deal will help Zilch generate $3.75 billion of gross sales by 2026, Belamant said.
He explained that for every $1 of debt raised, Zilch can generate $30 of gross merchandise value (GMV) — the combined value of sales processed on its platform.
So, with $125 million of capital, that will drive $3.75 billion of gross sales. Once Zilch has reaches the $315 million maximum funding threshold, it expects to generate nearly $10 billion of GMV by 2026.
Zilch has already generated over £2.5 billion in GMV since its founding in 2018. The firm reported revenues of £30 million ($38 million) in the 12 months ended March 2023. Losses totaled £71.7 million, marginally down from a 2022 loss of £78.3 million.
Zilch has three key ways of making money. The first is through interchange fees, where card networks charge merchants’ bank account each time a consumer makes a payment. The second is commission fees, where merchants pay to appear on Zilch’s app.
Zilch also has an advertising sales network where it provides placements for retailers to promote their wares to consumers. The UK firm claims it is able to achieve conversion rates of up to 55%, more than 10 times higher than the search industry average.
Belamant caveated the firm is keeping a watchful eye on uncertainty around the U.K.’s upcoming election and market conditions more generally.
“It’s hard to obviously say we’re on that range just due to the market, [and] there’s an election happening, [so] obviously we’ll see what happens,” he said.
Combining the August 2023 launch of Statewide Federal Credit Union’s new savings account with aggressive marketing efforts proved fruitful for the credit union, pulling in more than $8 million in deposits in less than a year as of May.
Bart Sadowski/bartsadowski – Fotolia
As the country emerged from the COVID-19 pandemic in May 2023, banks and credit unions flush with deposits saw the cost of funds increase along with average interest rates. These increases drove competition between institutions to offer the highest rates for consumers.
When Casey Bacon, chief executive of Statewide Federal Credit Union in Flowood, Mississippi, was facing the same drop-off in new deposits, he leaned on fintech partnerships to boost new member acquisition and, in turn, deposits.
“We didn’t have the deposit growth like we had throughout [the pandemic]. … As the interest rate environment changed, we had to become more aggressive with both retaining our existing deposits and attracting new deposits,” Bacon said. “Even today, the competition just continues to basically accelerate.”
It was around this time that the $177 million-asset Statewide began rolling out the first phase of its targeted campaign to grow deposits. The push was centered around marketing the credit union’s inaugural high-yield savings account to households that weren’t members of Statewide and those that were but had deposits elsewhere.
Bacon began by working with Strum Platform, a Seattle-based financial customer data firm Statewide has partnered with for more than four years. The fintech’s analytics engine allowed credit union executives to use core and online banking information to profile the different lifestyles of members and create concise market segments.
Those cohorts gave the credit union a deeper insight into its relationships with members and helped determine how best to tailor the marketing of products and services to those who could benefit most from them.
“The strategy here was both to lean into existing members and [figure out] how do we both retain the deposits before they’re gone, and then how do we ensure that strategy also finds new opportunities to grow more deposits,” said Mark Weber, CEO and chairman of Strum.
Combining the August 2023 launch of the new savings account with aggressive marketing efforts proved fruitful for the credit union, pulling in more than $8 million in deposits in less than a year as of May.
The second key component of the campaign involved a partnership with Bankjoy, the Royal Oak, Michigan-based digital banking provider which has been working with Statewide for roughly two years. The company’s online account onboarding product helped reduce the time needed to open an account with Statewide and uses integrations with Plaid to give members the option to add accounts with other financial institutions to the digital banking platform for easy viewing.
Other institutions have seen similar success leaning on fintech partnerships and new product launches to help boost the inflow of consumer deposits.
Jenius Bank, the digital division of the Los Angeles-based Sumitomo Mitsui Banking Corp. MANUBANK, introduced a high-yield savings account at the beginning of this year and has reached more than $1 billion in deposits.
The $20.1 billion-asset Alliant Credit Union in Chicago worked with the New York-based account opening fintech MANTL to help develop and deploy the firm’s MANTL for Credit Unions system in late 2022. After the first six months of 2023, the credit union’s core membership grew by 22% and deposits jumped by $500 million.
Upgrading to digital account opening has been a common theme for banks and credit unions aiming to boost deposits.
Data from Cornerstone Advisors’ annual What’s Going on in Banking report found that consumer digital account opening is the top selection for new or replacement tech among banks and credit unions for this year, garnering 27% and 36% of bank and credit union respondents respectively.
Amanda Swanson, senior director in the delivery channels practice and practice leader of marketing and growth at Cornerstone, said that organizations like Chime, SoFi and JPMorgan Chase set the bar for account opening standards, and those with fragmented processes are falling behind.
The process “needs to be very seamless,” which from a digital point of view means removing redundant “hoops and boundaries” but should also include more human connectivity throughout the steps to address questions.
“That human piece is where I think it becomes critical,” Swanson said.
Statewide plans to focus next on tailoring existing products and educational resources to foster relationships with consumers in different age ranges.
“The big rates are what gets you in the door, and it’s really common in business. … But the question then becomes how do you keep those people around that maybe have a chance of sticking, even when that rate goes down,” said Dylan Lerner, senior analyst in Javelin Strategy & Research’s digital banking practice.
Long gone are the days when venture capital was flowing into fintech startups with bold ideas — and little to show in terms of business metrics and fundamentals.
Bloomberg | Getty Images
AMSTERDAM — The financial technology industry is embracing a new normal — with some industry executives and investors believing the sector has reached a “bottom.”
Executives and investors at the Money20/20 event in Amsterdam last week told CNBC that valuations have corrected from unsustainable highs from the industry’s heyday in 2020 and 2021.
Long gone are the days when venture capital was flowing into startups with bold ideas and little to show in terms of business metrics and fundamentals.
Iana Dimitrova, CEO of embedded finance startup OpenPayd, told CNBC in an interview at the firm’s booth that the market has “recalibrated.”
Embedded finance refers to the trend of technology companies selling financial services software to other companies — even if those companies don’t offer financial products themselves.
“Value is now ascribed to businesses that manage to prove there is a solid use case, solid business model,” Dimitrova told CNBC.
“That is recognised by the market, because three, four years ago, that was not necessarily the case anymore, with crazy ideas of domination and hundreds of millions of dollars in VC funding.”
Iana Dimitrova, CEO of OpenPayd, talking onstage at Web Summit in Lisbon, Portugal.
Horacio Villalobos | Getty Images
“I think the market is now more sensible,” she added.
Around the show floor of the RAI conference venue last week, banks, payment companies and big technology firms showed off their wares, hoping to reignite conversations with prospective clients after a tough few years for the sector.
Many attendees CNBC spoke with mentioned that the conference hall was a lot lighter in terms of conferencegoers and the pitter-patter of delegates flocking to various stands and booths around the RAI.
Many of the most productive conversations, some attendees CNBC spoke with say, actually happened on the fringes of the event — at bars, restaurants and even boat parties held around Amsterdam once the day on the show floor was over.
In 2021, global fintech funding reached an all-time peak of $238.9 billion, according to KPMG. Companies such as Block, Affirm, Klarna, and Revolut had hit seismically high multibillion-dollar valuations.
But by 2022, investment levels sank sharply and fintechs globally raised just $164.1 billion. In 2023, funding sank even further to $113.7 billion, a five-year low.
That’s despite the massive growth of many companies.
The bruising impact of higher interest rates means that, for even the hottest and fastest-growing players, funding is either hard to come by — or being offered at a lower prices than before.
Nium, the Singaporean payments unicorn, said in an announcement Wednesday that its valuation had fallen to $1.4 billion in a new $50 million funding round.
Prajit Nanu, CEO of Nium, told CNBC that investors have at times been too distracted with artificial intelligence to pay attention to innovative products and growth stories happening in the world of fintech.
“Investors are now in the AI mindset,” he told CNBC. “Like, whatever it costs. I want in on AI. They’re going to burn a lot of money.”
Nanu added that the trend mimics the “craziness” fintech saw in terms of frothy valuations in 2020 and 2021.
Today, he believes we have now reached a “bottom” when it comes to fintech market values.
“I believe that this is the lowest end of the fintech cycle,” Nanu said, adding that “this is the right time to make it in fintech.”
Consolidation will be key moving forward, Nanu said, adding that Nium is eyeing several startups for acquisition opportunities.
OpenPayd’s Dimitrova said she isn’t considering tapping external investors for fundraising at the moment.
But, she said, if OpenPayd were to look to accelerate its annual recurring revenue past the $100 million mark, venture capital investment would come more firmly under consideration.
Crypto also made something of a comeback in terms of hype and interest at this year’s event.
Dotted around the RAI venue were stands from some of the industry’s major players. Ripple, Fireblocks, Token8 and BVNK, a crypto-focused payments firm, all had a big presence with notable booths around.
CoinW, a crypto exchange endorsed by Italian soccer star Andrea Pirlo, had advertising flowing through a bridge connecting two of the main halls of the conference.
Fintech execs and investors CNBC spoke with at this year’s edition of Money20/20 said they’re finally seeing a real use case for cryptocurrencies after years of bulls touting them as the future of finance.
Despite the huge promise of AI around changing how we manage our money, for instance, “there’s no new AI for moving money,” according to James Black, partner at VC firm IVP — in other words, AI isn’t changing the infrastructure behind payments.
However, stablecoins, tokens that match the value of real-world assets like the U.S. dollar, he said, are changing the game.
“We’ve seen the crypto wave, and I do think that stablecoins is the next wave of crypto that will gain more mass adoption,” Black said.
“If you think about the most exciting payment rails, you have real-time payments — I think that’s exciting, too. And it fits in with stablecoins.”
Charles McManus, CEO of ClearBank, speaks at the Innovate Finance Global Summit in April 2023.
Chris Ratcliffe | Bloomberg | Getty Images
ClearBank, the U.K. cloud-based clearing bank, is working on launching a stablecoin underpinned by the British pound that it is expecting to receive a provisional blessing from the Bank of England soon.
Emma Hagen, chief risk and compliance officer and incoming U.K. CEO of ClearBank, and Charles McManus, the firm’s global CEO, told CNBC at its booth at Money20/20 that the stablecoin it’s working on would be sufficiently backed by a matching number of reserves.
“We’re in the early days as we learn with our partners,” Hagen told CNBC. “It’s about doing it in a way that gives people that trust and safety that there is going to be practical issuance.”
ClearBank is also working with other crypto companies on offering the ability to earn high yield on uninvested cash, McManus said.
He declined to disclose the identity of which firm, or firms, ClearBank was in talks with.
A humanoid robotics startup cofounded by the CEO of bankrupt fintech firm Synapse has canvassed Silicon Valley investors for funds by claiming close ties and an imminent investment from General Motors — claims rejected by the automaker.
The company, called Foundation Robotics Labs, is seeking the last $1 million in funds for an $11 million seed round, according to documents obtained by CNBC. The investor pitch claimed GM had already committed to an investment, along with the Menlo Park-based VC firm Tribe Capital.
“Foundation is building humanoid robots to take over work that humans do in factories, warehouses and eventually homes,” the startup declared.
On top of the seed investment, the fundraising document said GM was set to be Foundation’s first customer, with a targeted $300 million purchase order, and had also provided access to its factories to help them train its robots.
“GM agreed to let us collect the ground truth data in their factories,” Foundation said in the document. “Our team is in their Mexico factory this week to start the collection process. We would probably be the only company in this space with a dataset like this.”
But, according to GM and one of the startup’s founders, most of Foundation’s claims related to the automaker are exaggerated or untrue.
While GM met with Foundation executives a few times, it hasn’t allowed data collection from its factories, has no agreements for robot orders and isn’t planning an investment, according to a GM spokesman.
“GM has never invested in Foundation Robotics and has no plans to do so,” spokesman Darryll Harrison said in an emailed statement. “In fact, GM has never had an agreement of any kind with the company. Any claims to the contrary are fabricated.”
In a phone interview with CNBC, one of Foundation’s cofounders, Mike LeBlanc, confirmed GM’s points and said he was embarrassed that marketing materials existed that overstated their relationship.
“The engineering stuff we’ve done is really incredible, and it’s the bedrock of what this company will be,” LeBlanc said. “That, to me is what Foundation Robotics is.”
Foundation was started in April by Synapse CEO Sankaet Pathak, Tribe Capital CEO Arjun Sethi, and LeBlanc, cofounder of Cobalt Robotics, a maker of autonomous security guards, according to the company’s fundraising pitch.
It’s raising money at a time when American corporations look to automate more of their labor: 25% of capital spending by industrial companies in the coming years will be on automated systems, according to McKinsey.
The misleading fundraising pitch was shared in an email group with about 1,500 startup executives and investors this month, according to one of the recipients. The contents of the document were confirmed by someone with direct knowledge of Tribe Capital.
Tribe Capital and its cofounder Sethi declined to comment, while Pathak didn’t respond to messages seeking comment.
The robotics startup finds itself in the spotlight after the implosion of Pathak’s other company, Synapse, which enabled fintech brands like Mercury and Dave to offer banking services by connecting them to FDIC-backed banks.
Cofounded by Pathak in 2014, Synapse went bankrupt earlier this year after some of its largest clients, including Mercury, left its platform. Mercury, which instead pursued a direct relationship with Evolve, later had disagreements with Synapse over contract issues.
The mess has left more than 100,000 Americans with a combined $265 million in deposits locked out of their accounts for more than a month, according to a trustee appointed to oversee the firm’s bankruptcy proceedings.
Making matters worse, there is an $85 million shortfall between what partner banks of Synapse are holding and what depositors are owed, and no answers yet on what happened to the missing funds, according to the trustee.
Pathak’s move to his next venture, coming on the heels of the still-ongoing Synapse failure, has raised eyebrows among some founders and investors in the startup community.
Apple device users will soon be able to tap into buy now, pay later loans from Affirm for purchases, the companies said Tuesday.
Affirm will surface as an option for U.S. Apple Pay users on iPhones and iPads later this year, the San Francisco-based fintech company said in a filing. Apple confirmed the news in its own update.
“This provides users with additional payment choices, and offers the ease, convenience and security of Apple Pay alongside the features users love in Affirm – flexibility, transparency and no late or hidden fees,” Affirm said in an email statement.
The move is a boost to Affirm and the buy now, pay later sector in general. When Apple introduced its own BNPL product last year, investors were concerned that the tech giant would crowd out stand-alone providers like Affirm. But the fact that Apple decided to also allow Affirm products in its ecosystem shows that the fintech company has something unique to offer.
For instance, while Apple’s BNPL loan lets users repay purchases in four installments over six weeks, Affirm has an array of longer-term offerings that can be repaid over a year or more. The companies didn’t provide details on the terms of the new loans.
“The bottom-line — in our view — is that Affirm’s strong brand and sophisticated underwriting technology have a moat that Apple likely could not replicate on its own,” Mizuho Securities analyst Dan Dolev said in a research note.
Apple also said that installment loans via credit and debit cards would be available on Apple Pay in the U.S. with Citigroup, Synchrony and Fiserv-related issuers. Traditional credit card players have begun offering BNPL-style installment loans after their popularity surged during the Covid pandemic
Synchrony said in an email that it was planning personalized installment loans with promotions based on the transaction size and merchant involved, with the possible use of promotional interest rates and loan durations.
“This announcement with Apple marks an opportunity for Synchrony to scale our flexible payment options and offer our merchants the ability to expand their presence in a growing mobile payments ecosystem,” Mike Bopp, Synchrony’s chief growth officer, said in an email.
Thanks to the ubiquity of the iPhone, Apple Pay has more than 500 million users around the world and a leading market share in the U.S. for its mobile payment and digital wallet platform.
Shares of Affirm rose 11% Tuesday, while Apple’s stock was up 7.3%.
Affirm’s stock rose despite the fact that the company indicated it would take time for the partnership to significantly boost its revenue.
“Affirm does not expect this partnership to have a material impact on revenue or gross merchandise volume in fiscal year 2025,” the company said in its filing.
Jelena McWilliams, chair of the Federal Deposit Insurance Corporation (FDIC), during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, D.C., U.S., on Tuesday, Aug. 3, 2021.
Al Drago | Bloomberg | Getty Images
There is an $85 million shortfall between what partner banks of fintech middleman Synapse are holding and what depositors are owed, according to the court-appointed trustee in the Synapse bankruptcy.
Customers of fintech firms that used Synapse to link up with banks had $265 million in balances. But the banks themselves only had $180 million associated with those accounts, trustee Jelena McWilliams said in a report filed late Thursday.
The missing funds explain what is at the heart of the worst meltdown in the U.S. fintech sector since its emergence in the years after the 2008 financial crisis. More than 100,000 customers of a diverse set of fintech companies have been locked out of their savings accounts for nearly a month after the failure of Synapse, an Andreessen Horowitz-backed startup, amid disagreements over user balances.
While Synapse and its partners, including Evolve Bank & Trust, have lobbed accusations of improperly moving balances or keeping incorrect ledgers at each other in court filings, McWilliams’ report is the first outside attempt to determine the scope of missing funds in this mess.
Since being named trustee on May 24, McWilliams has worked with four banks — Evolve, American Bank, AMG National Trust and Lineage Bank — to reconcile their various ledgers so customers could regain access to their funds.
But the banks need much more information to complete the project, including understanding how a Synapse brokerage and lending business may have impacted fund flows, said McWilliams. She said Synapse apparently commingled funds among several institutions, using multiple banks to serve the same companies.
What’s worse, it’s still unclear what happened to the missing funds, she said.
“The source of the shortfall, including whether end-user funds and negative balance accounts were moved among Partner Banks in a way that increased or decreased the respective shortfalls that may have existed at each Partner Bank at an earlier time, is not known at this time,” McWilliams wrote.
McWilliams, former chair of the Federal Deposit Insurance Corporation and current partner at the law firm Cravath, didn’t respond to requests for comment.
McWilliams’ task has been made harder because there are no funds to pay external forensics firms or even former Synapse employees to help, she said in her report. Synapse fired the last of its employees on May 24.
Still, some customers whose funds were held at banks in what’s called demand deposit accounts have already begun getting access to accounts, she said.
But users whose funds were pooled in a communal way known as for benefit of, or FBO, accounts, will have a harder time getting their money. A full reconciliation will take weeks more to complete, she said.
In her report, McWilliams presented several options for Judge Martin Barash to consider at a Friday hearing that will allow at least some FBO customers to regain access to their funds.
The options include paying some customers out fully, while delaying payments to others, depending on whether the individual FBO accounts have been reconciled. Another option would be spreading the shortfall evenly among all customers to make limited funds available sooner.
During the hearing Friday, McWilliams told Barash that her recommendation was that all FBO customers receive partial payments, which “will partially alleviate the effects to end users who are currently waiting locked out of access to their funds” while keeping a reserve for later payments.
Core Scientific’s 104 megawatt Bitcoin mining data center in Marble, North Carolina
Carey McKelvey
AUSTIN — For five years, bitcoin miner Core Scientific has quietly been diversifying out of mining and into artificial intelligence, a market that will require immense amounts of power to handle the training of AI models and the massive workloads that follow.
The move is no longer a secret.
On Monday, Core Scientific announced a 12-year deal with cloud provider CoreWeave to provide infrastructure for use cases like machine learning. Core Scientific said the agreement, which expands upon an existing partnership between the two companies, will add revenue of more than $3.5 billion over the course of the contract.
CoreWeave, backed by Nvidia, rents out graphics processing units (GPUs), which are needed for training and running AI models. CoreWeave was valued at $19 billion in a funding round last month. Core Scientific will deliver about 200 megawatts of infrastructure to CoreWeave’s operations.
Core Scientific, which emerged from bankruptcy in January, has been mining a mix of digital assets since 2017. The company began to diversify into other services in 2019.
“The best way to think about bitcoin mining facilities is that we are essentially power shells to the data center industry,” Core Scientific CEO Adam Sullivan told CNBC.
Sullivan jumped into the role of CEO while the company was still in the throes of bankruptcy, which resulted from the collapse of bitcoin in 2022. Since then, the former investment banker has settled debts with angry lenders and further beefed up the company’s non-bitcoin business as it reentered the public market.
Though Core is up more than 40% since relisting earlier this year, its market capitalization of around $865 million is significantly lower than its valuation of $4.3 billion in July 2021.
Demand for AI compute and infrastructure surged after OpenAI unveiled ChatGPT in Nov. 2022, setting off a rush of investment in AI models and startups. Meanwhile, Core Scientific and other miners like Bit Digital, Hive, Hut 8, and TeraWulf have been looking to bolster their revenue streams after the so-called bitcoin halving in April cut rewards paid out to bitcoin miners by 50%.
Many have been retrofitting their massive facilities to meet the needs of the market.
“Bitcoin miners, often stationed in energy-secure and energy-intensive data centers, find these facilities ideal for AI operations as well,” said James Butterfill, head of research at digital asset firm CoinShares.
Butterfill said the the overlap is leading to a competition for rack space between bitcoin mining and AI activities. While AI operations require up to 20 times the capital expenditure of bitcoin mining, they’re more profitable, according to a report from CoinShares.
“The introduction of AI activities leads to increased depreciation and amortization, which can enhance gross profit margins,” Butterfill said.
According to CoinShares, Bit Digital derives 27% of its revenue from AI. Hut 8 generates 6% of sales from AI, and Hive, which has data centers in Canada and Sweden, gets 4% of its revenue from these services.
Read more about tech and crypto from CNBC Pro
Hut 8 said in its first-quarter earnings report that it had purchased its first batch of 1,000 Nvidia GPUs and secured a customer agreement with a venture-backed AI cloud platform as part of its expansion into new technologies offering higher returns.
“We finalized commercial agreements for our new AI vertical under a GPU-as-a-service model, including a customer agreement which provides for fixed infrastructure payments plus revenue sharing,” said Hut 8 CEO Asher Genoot.
Genoot added that the company expects to begin generating revenue in the second half of the year at an annual rate of about $20 million.
Bit Digital had 251 servers actively generating revenue from its first AI contract as of the end of April, and the company said it earned about $4.1 million of revenue from the operation that month.
Iris Energy expects to generate between $14 million and $17 million in annual revenue from its AI cloud services. Core Scientific’s expanded arrangement with CoreWeave is expected to produce annual revenue of $290 million.
“While we intend to remain one of the largest and most productive bitcoin miners, we expect to have a diversified business model and more predictable cash flows,” Sullivan said.
Bitcoin’s volatility has made mining a challenging business.
Though bitcoin is currently up more than 150% in the past year to around $69,000, the bear market of 2022 sent many miners into bankruptcy or forced them to shutter altogether.
Pivoting to AI isn’t as simple as repurposing existing infrastructure and machines, because high-performance computing (HPC) data center requirements are different, as are the needs of the data network.
“Besides transformers, substations, and some switch gear nearly all infrastructure miners currently have would need to be bulldozed and built from the ground up to accommodate HPC,” Needham analysts wrote in a report on May 30.
The rigs used to mine bitcoin are called Application-Specific Integrated Circuits (ASICs). They’re built specifically for crypto mining and can’t be used to do other things.
Needham estimates that HPC data centers run at $8 million to $10 million per megawatt in capex, excluding GPUs, whereas bitcoin mining sites typically operate at $300,000 to $800,000 per megawatt in capex, not including ASICs.
Core’s Sullivan says there’s a lot of synergy between the two businesses.
“One of the most exciting parts about the bitcoin mining business is we have access to large amounts of power across the United States with access to fiber lines,” he said.
Beyond its partnership with CoreWeave, Core Scientific has also announced that over the next three to four years, it’s working to convert 500 megawatts of its bitcoin mining infrastructure across the country to HPC data centers.
Sullivan said the retrofit is manageable because the company owns and controls all of its data center infrastructure.
“There are components that we have to purchase to retrofit for HPC, but it is things that we can easily acquire,” he said.
In the next one to two years, Needham analysts estimate that large publicly traded bitcoin miners are expected to more than double power capacity, including both their mining and HPC business expansion plans.
Clean energy is a popular choice because it’s the cheapest power source in many markets. Miners at scale compete in a low-margin industry, where their only variable cost is typically energy, so they’re incentivized to migrate to the world’s cheapest sources of power. An industry report estimates the bitcoin network is 54.5% powered by sustainable electricity.
The Electric Power Research Institute estimates that data centers could take up to 9% of the country’s total electricity consumption by 2030, up from around 4% in 2023. Tapping into nuclear energy is seen by many as the answer to meeting that demand.
TeraWulf powers its mining sites with nuclear energy, and is looking to get into machine learning. So far, the firm has two megawatts dedicated to HPC capacity, though it has plans to transition its energy infrastructure toward AI and HPC.
OpenAI CEO Sam Altman told CNBC last year that he’s a big believer in nuclear when it comes to serving the needs of AI workloads.
“I don’t see a way for us to get there without nuclear,” Altman said. “I mean, maybe we could get there just with solar and storage. But from my vantage point, I feel like this is the most likely and the best way to get there.”
PARIS — Dutch digital bank Bunq is hoping it will manage to secure a banking license from U.K. financial regulators later this year or early next year, the firm’s CEO and founder Ali Niknam told CNBC.
“I hope we’ll get somewhere by the end of the year, maybe early next year, because the U.K.’s processes may be slightly different to Europe because it’s a different regulatory area,” Niknam said in an interview last week at the Viva Tech conference in Paris.
“I don’t know when they’re going to say yes, but so far I have little reason to believe that we won’t be successful.”
Bunq, known for its rainbow-colored cards and a focus on so-called “digital nomads” not bound by any one country or location, initially launched in the U.K. in 2019. But the bank was forced to exit the country in late 2020 because of Brexit.
The passage of Brexit into law meant that EU-based financial institutions couldn’t rely on their own country authorizations to operate in the U.K. market. Currently, Bunq only holds a banking license with the Dutch central bank.
Now, Bunq is plotting a reentry into the U.K. market. The firm last year submitted an application with the Financial Conduct Authority for an electronic money institution license. It says a U.K. launch would allow it to tap into a “large and underserved” market of some 2.8 million British digital nomads.
That will prove difficult, though. Rival European fintech Revolut, which is based in Britain and currently has an electronic money institution license, has been trying for some years to secure its U.K. banking license.
To be sure, a banking license is different from an e-money license. The key difference is that a banking license gives firms permission to offer loans. Monzo and Starling are among the few U.K. consumer fintech platforms that hold their own bank licenses.
“We’re working as hard as we can, the U.K. regulator has been very responsive, dialogue is ongoing, I don’t know how long it’s going to take, but things seem to be moving,” Niknam told CNBC.
Founded in 2012 in Amsterdam by Dutch tech entrepreneur Ali Niknam, Bunq has since grown to become one of Europe’s largest neobanks overall, with 12.5 million users across Europe and deposits of 8 billion euros ($8.6 billion). It was last privately valued by investors at 1.65 billion euros.
Earlier this year, Bunq reported its first full year of profitability, generating 53.1 million euros in net profit in 2023. Bunq is also pursuing expansion in the United States, having previously filed for a U.S. federal bank charter in April 2023.
When Adam Moelis co-founded a fintech startup named Yotta in 2019, he wanted to give Americans a new way to save money to help them cushion the ups and downs of life.
Instead, his company has inadvertently been a source of deep pain for thousands of customers who relied on Yotta accounts to receive paychecks, pay bills and save for emergencies.
The crisis began May 11, when a dispute between two of Yotta’s banking partners — fintech middleman Synapse and Tennessee-based Evolve Bank & Trust — led to the lockup of accounts at Yotta and at least two dozen other startups. Synapse declared bankruptcy earlier this year after several key clients abandoned the firm amid disagreements over the tracking of customer funds.
For the past three weeks, 85,000 Yotta customers with a combined $112 million in savings have been locked out of their accounts, Moelis told CNBC. The disruption had upended lives, forced users to borrow money for food and thrown upcoming events like surgeries or weddings into doubt, he said.
“The stories are heartbreaking,” Moelis said. “We never imagined something like this could happen. We worked with banks that are members of the FDIC. We never imagined a scenario like this could play out and that no regulator would step in and help.”
The ongoing mess has exposed the risks in a corner of fintech that grew in prominence during a boom in venture investment — and it will likely reverberate for years as regulators increase scrutiny of the space.
The so-called “banking as a service” model allowed consumer fintech companies to quickly launch savings accounts and debit services, with firms like Synapse acting as a bridge between the startups and FDIC-backed banks that ultimately held deposits.
The heart of the dispute between Synapse and Evolve Bank involves a foundational function of finance: keeping accurate ledgers of transactions and balances. Synapse and Evolve disagree on how much of Yotta’s funds are held at Evolve, and how much are held at other banks that Synapse worked with.
Synapse hasn’t responded to requests for comment, and Evolve has blamed Synapse for the breakdown.
The Synapse bankruptcy has mostly ensnared lesser-known consumer fintech firms, especially after larger fintech players including Mercury and Dave fled the Synapse platform in the past year.
That has left Yotta, which encouraged users to save money with free weekly lottery-style sweepstakes, as one of the largest companies to be affected. Accounts at crypto firm Juno and at Copper, which offered savings accounts for families and teens, also have been frozen.
Moelis, who has been in contact with other fintech principals impacted by the Synapse failure, estimates that at least 200,000 total customer accounts with balances are locked. While Synapse has said in court filings it has 10 million end users, it’s likely that active accounts are far smaller, Moelis said.
Adam Moelis, Co-Founder at Yotta Savings.
Courtesy: Yotta
The fintech co-founder said he believes the relatively limited scope of the issue, and the fact that most of those affected aren’t wealthy, has given regulators clearance to let the situation play out. Last year, regulators swiftly intervened in the regional banking crisis that threatened uninsured deposits of startups and rich families, he noted.
“To me, if this was happening at a larger scale, I think regulators would have done something by now,” he said. “We’ve got real, everyday Americans that aren’t necessarily wealthy and don’t have the ability to lobby that are being impacted.”
The Federal Reserve and the Federal Deposit Insurance Corp. have declined to comment on the issue. Representatives of the agencies have pointed to efforts they’ve made to encourage banks to manage the risks of using fintech partners.
But developments in the California bankruptcy court overseeing the Synapse failure give Moelis hope that at least some relief — a partial release of funds, perhaps — may be coming.
Last week, former FDIC Chair Jelena McWilliams was named trustee over Synapse. Her job is to develop a plan to maintain Synapse systems and craft a solution “that allows funds to be returned to end users, to the rightful owners of those funds, as soon as humanly possible,” said Judge Martin Barash.
For his part, Moelis said he doesn’t side with either Evolve or Synapse in their dispute — he just wants the situation resolved.
“I don’t know who’s right or who’s wrong,” he said. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”
In this week’s banking news roundup: NCUA grants Tribe Federal Credit Union a provisional charter; ICBA Payments names Jacob Eisen its new president and CEO; Mission Fed Credit Union announces new role for longtime leader Steve Hasbrooke; and more.
