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  • Why JPMorgan Chase is prepared to sue the U.S. government over Zelle scams

    Why JPMorgan Chase is prepared to sue the U.S. government over Zelle scams

    JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, D.C., on Dec. 6, 2023.

    Evelyn Hockstein | Reuters

    Buried in a roughly 200-page quarterly filing from JPMorgan Chase last month were eight words that underscore how contentious the bank’s relationship with the government has become.

    The lender disclosed that the Consumer Financial Protection Bureau could punish JPMorgan for its role in Zelle, the giant peer-to-peer digital payments network. The bank is accused of failing to kick criminal accounts off its platform and failing to compensate some scam victims, according to people who declined to be identified speaking about an ongoing investigation.

    In response, JPMorgan issued a thinly veiled threat: “The firm is evaluating next steps, including litigation.”

    The prospect of a bank suing its regulator would’ve been unheard of in an earlier era, according to policy experts, mostly because corporations used to fear provoking their overseers. That was especially the case for the American banking industry, which needed hundreds of billions of dollars in taxpayer bailouts to survive after irresponsible lending and trading activities caused the 2008 financial crisis, those experts say.

    But a combination of factors in the intervening years has created an environment where banks and their regulators have never been farther apart.

    Trade groups say that in the aftermath of the financial crisis, banks became easy targets for populist attacks from Democrat-led regulatory agencies. Those on the side of regulators point out that banks and their lobbyists increasingly lean on courts in Republican-dominated districts to fend off reform and protect billions of dollars in fees at the expense of consumers.

    “If you go back 15 or 20 years, the view was it’s not particularly smart to antagonize your regulator, that litigating all this stuff is just kicking the hornet’s nest,” said Tobin Marcus, head of U.S. policy at Wolfe Research.

    “The disparity between how ambitious [President Joe] Biden’s regulators have been and how conservative the courts are, at least a subset of the courts, is historically wide,” Marcus said. “That’s created so many opportunities for successful industry litigation against regulatory proposals.”

    Assault on fees

    Those forces collided this year, which started out as one of the most consequential for bank regulation since the post-2008 reforms that curbed Wall Street risk-taking, introduced annual stress tests and created the industry’s lead antagonist, the CFPB.

    In the final months of the Biden administration, efforts from a half-dozen government agencies were meant to slash fees on credit card late payments, debit transactions and overdrafts, among other proposals. The industry’s biggest threat was the Basel Endgame, a sweeping plan to force big banks to hold tens of billions of dollars more in capital for activities like trading and lending.

    “The industry is facing an onslaught of regulatory and potential legislative change,” Marianne Lake, head of JPMorgan’s consumer bank, warned investors in May.

    JPMorgan’s disclosure about the CFPB probe into Zelle comes after years of grilling by Democrat lawmakers over financial crimes on the platform. Zelle was launched in 2017 by a bank-owned firm called Early Warning Services in response to the threat from peer-to-peer networks including PayPal.

    The vast majority of Zelle activity is uneventful; of the $806 billion that flowed across the network last year, only $166 million in transactions was disputed as fraud by customers of JPMorgan, Bank of America and Wells Fargo, the three biggest players on the platform.

    But the three banks collectively reimbursed just 38% of those claims, according to a July Senate report that looked at disputed unauthorized transactions.

    Banks are typically on the hook to reimburse fraudulent Zelle payments that the customer didn’t give permission for, but usually don’t refund losses if the customer is duped into authorizing the payment by a scammer, according to the Electronic Fund Transfer Act.

    A JPMorgan payments executive told lawmakers in July that the bank actually reimburses 100% of unauthorized transactions; the discrepancy in the Senate report’s findings is because bank personnel often determine that customers have authorized the transactions.

    Amid the scrutiny, the bank began warning Zelle users on the Chase app to “Stay safe from scams” and added disclosures that customers won’t likely be refunded for bogus transactions.

    JPMorgan declined to comment for this article.

    Dimon in front

    The company, which has grown to become the largest and most profitable American bank in history under CEO Jamie Dimon, is at the fore of several other skirmishes with regulators.

    Thanks to his reputation guiding JPMorgan through the 2008 crisis and last year’s regional banking upheaval, Dimon may be one of few CEOs with the standing to openly criticize regulators. That was highlighted this year when Dimon led a campaign, both public and behind closed doors, to weaken the Basel proposal.

    In May, at JPMorgan’s investor day, Dimon’s deputies made the case that Basel and other regulations would end up harming consumers instead of protecting them.

    The cumulative effect of pending regulation would boost the cost of mortgages by at least $500 a year and credit card rates by 2%; it would also force banks to charge two-thirds of consumers for checking accounts, according to JPMorgan.

    The message: banks won’t just eat the extra costs from regulation, but instead pass them on to consumers.

    While all of these battles are ongoing, the financial industry has racked up several victories so far.

    Some contend the threat of litigation helped convince the Federal Reserve to offer a new Basel Endgame proposal this month that roughly cuts in half the extra capital that the largest institutions would be forced to hold, among other industry-friendly changes.

    It’s not even clear if the watered-down version of the proposal, a long-in-the-making response to the 2008 crisis, will ever be implemented because it won’t be finalized until well after U.S. elections.

    If Republican candidate Donald Trump wins, the rules might be further weakened or killed outright, and even under a Kamala Harris administration, the industry could fight the regulation in court.

    That’s been banks’ approach to the CFPB credit card rule, which aimed to cap late fees at $8 per incident and was set to go into effect in May.

    A last-ditch effort from the U.S. Chamber of Commerce and bank trade groups successfully delayed its implementation when Judge Mark Pittman of the Northern District of Texas sided with the industry, granting a freeze of the rule.

    ‘Venue shopping’

    A key playbook for banks has been to file cases in conservative jurisdictions where they are likely to prevail, according to Lori Yue, a Columbia Business School associate professor who has studied the interplay between corporations and the judicial system.

    The Northern District of Texas feeds into the 5th Circuit Court of Appeals, which is “well-known for its friendliness to industry lawsuits against regulators,” Yue said.

    “Venue-shopping like this has become well-established corporate strategy,” Yue said. “The financial industry has been particularly active this year in suing regulators.”

    Since 2017, nearly two-thirds of the lawsuits filed by the U.S. Chamber of Commerce challenging federal regulations have been in courts under the 5th Circuit, according to an analysis by Accountable US.

    Industries dominated by a few large players — from banks to airlines, pharmaceutical companies and energy firms — tend to have well-funded trade organizations that are more likely to resist regulators, Yue added.

    The polarized environment, where weakened federal agencies are undermined by conservative courts, ultimately preserves the advantages of the largest corporations, according to Brian Graham, co-founder of bank consulting firm Klaros.

    “It’s really bad in the long run, because it locks in place whatever the regulations have been, while the reality is that the world is changing,” Graham said. “It’s what happens when you can’t adopt new regulations because you’re terrified that you’ll get sued.”

    — With data visualizations by CNBC’s Gabriel Cortes.

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  • Justice Department accuses Visa of debit network monopoly that affects price of ‘nearly everything’

    Justice Department accuses Visa of debit network monopoly that affects price of ‘nearly everything’

    Justin Sullivan | etty Images

    The U.S. Justice Department on Tuesday sued Visa, the world’s biggest payments network, saying it propped up an illegal monopoly over debit payments by imposing “exclusionary” agreements on partners and smothering upstart firms.

    Visa’s moves over the years have resulted in American consumers and merchants paying billions of dollars in additional fees, according to the DOJ, which filed a civil antitrust suit in New York for “monopolization” and other unlawful conduct.

    “We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” Attorney General Merrick Garland said in a DOJ release.

    “Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service,” Garland said. “As a result, Visa’s unlawful conduct affects not just the price of one thing — but the price of nearly everything.”

    Visa and its smaller rival Mastercard have surged over the past two decades, reaching a combined market cap of roughly $1 trillion, as consumers tapped credit and debit cards for store purchases and e-commerce instead of paper money. They are essentially toll collectors, shuffling payments between banks operating for the merchants and for cardholders.

    Visa called the DOJ suit “meritless.”

    “Anyone who has bought something online, or checked out at a store, knows there is an ever-expanding universe of companies offering new ways to pay for goods and services,” said Visa general counsel Julie Rottenberg.

    “Today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving,” Rottenberg said. “We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable.”

    More than 60% of debit transactions in the U.S. run over Visa rails, helping it charge more than $7 billion annually in processing fees, according to the DOJ complaint.

    The payment networks’ decades-old dominance has increasingly attracted attention from regulators and retailers.

    Litany of woes

    In 2020, the DOJ filed an antitrust suit to block Visa from acquiring fintech company Plaid. The companies initially said they would fight the action, but soon abandoned the $5.3 billion takeover.

    In March, Visa and Mastercard agreed to limit their fees and let merchants charge customers for using credit cards, a deal retailers said was worth $30 billion in savings over a half decade. A federal judge later rejected the settlement, saying the networks could afford to pay for a “substantially greater” deal.

    In its complaint, the DOJ said Visa threatens merchants and their banks with punitive rates if they route a “meaningful share” of debit transactions to competitors, helping maintain Visa’s network moat. The contracts help insulate three-quarters of Visa’s debit volume from fair competition, the DOJ said.

    “Visa wields its dominance, enormous scale, and centrality to the debit ecosystem to impose a web of exclusionary agreements on merchants and banks,” the DOJ said in its release. “These agreements penalize Visa’s customers who route transactions to a different debit network or alternative payment system.”

    Furthermore, when faced with threats, Visa “engaged in a deliberate and reinforcing course of conduct to cut off competition and prevent rivals from gaining the scale, share, and data necessary to compete,” the DOJ said.

    Paying off competitors

    The moves also tamped down innovation, according to the DOJ. Visa pays competitors hundreds of millions of dollars annually “to blunt the risk they develop innovative new technologies that could advance the industry but would otherwise threaten Visa’s monopoly profits,” according to the complaint.

    Visa has agreements with tech players including Apple, PayPal and Square, turning them from potential rivals to partners in a way that hurts the public, the DOJ said.

    For instance, Visa chose to sign an agreement with a predecessor to the Cash App product to ensure that the company, later rebranded Block, did not create a bigger threat to Visa’s debit rails.

    A Visa manager was quoted as saying “we’ve got Square on a short leash and our deal structure was meant to protect against disintermediation,” according to the complaint.

    Visa has an agreement with Apple in which the tech giant says it will not directly compete with the payment network “such as creating payment functionality that relies primarily on non-Visa payment processes,” the complaint alleged.

    The DOJ asked for the courts to prevent Visa from a range of anticompetitive practices, including fee structures or service bundles that discourage new entrants.

    The move comes in the waning months of President Joe Biden‘s administration, in which regulators including the Federal Trade Commission and the Consumer Financial Protection Bureau have sued middlemen for drug prices and pushed back against so-called junk fees.

    In February, credit card lender Capital One announced its acquisition of Discover Financial, a $35.3 billion deal predicated in part on Capital One’s ability to bolster Discover’s also-ran payments network, a distant No. 4 behind Visa, Mastercard and American Express.

    Capital One said once the deal is closed, it will switch all its debit card volume and a growing share of credit card volume to Discover over time, making it a more viable competitor to Visa and Mastercard.

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  • Dutch neobank Bunq goes on hiring spree, targeting digital nomads, as other fintechs slash jobs

    Dutch neobank Bunq goes on hiring spree, targeting digital nomads, as other fintechs slash jobs

    Dutch digital bank Bunq is plotting re-entry into the U.K. to tap into a “large and underserved” market of some 2.8 million British “digital nomads.”

    Pavlo Gonchar | Sopa Images | Lightrocket | Getty Images

    Dutch challenger bank Bunq told CNBC that it plans to grow its global headcount by 70% this year to over 700 employees, even as other financial technology startups have decided to cut jobs.

    Bunq, which operates in markets across the European Union, is looking to expand into new regions including the U.K. and the United States, taking on the fintechs already in those countries, including the likes of Britain’s Monzo and Revolut, and American neobank Chime.

    Bunq said it needs corresponding talent in those regions to support its global expansion ambitions. To that end, the firm said it plans to see out the year with 735 employees globally — up 72% from its 427 members of staff at the start of 2024.

    “Bunq focusses on digital nomads who tend to roam the world,” Ali Niknam, Bunq’s CEO and co-founder, told CNBC via emailed comments.

    So-called “digital nomads” are defined as people who travel freely while working remotely, using technology and the internet to work abroad from hotels, cafes, libraries, co-working spaces, or temporary housing.

    “We’d love to be able to service our users wherever they go — given the regulatory environment we’re in, this results in us having to have a lot of extra people to make this happen,” Niknam added.

    Bunq is currently in the process of applying for banking licenses in both the U.S. and U.K. Last year, the firm submitted an application for a federal banking license. And in the U.K., Bunq is awaiting a decision from financial regulators on an application to become a licensed e-money institution, or EMI.

    The digital bank said it was actively looking to hire across sales and business development, product marketing, PR, affiliate marketing, and market analysis, as well as user support, development, and quality assurance.

    Many of these positions will be part of a “tailored digital nomad” program that allows staff to work from anywhere in the world, Bunq said.

    However, the firm stressed it’s not closing down office space and that many new hires would work in its offices, including in Amsterdam, Sofia, Istanbul, Munich, Paris, Dublin, Madrid, London, and New York City.

    A contrast from jobs cuts at other fintechs

    Over the past two years, one of the biggest stories in both the fintech and broader technology industry has been companies slashing jobs to cut back on the massive spending implemented during in the pandemic years of 2020 and 2021.

    The operating environment for fintech firms has gotten tougher, meanwhile, with inflation knocking consumer confidence and higher interest rates making it harder for startups to raise money.

    In January last year, cryptocurrency exchange Coinbase slashed 950 jobs. It was followed by payments giant PayPal, which reduced its global headcount by 2,000 people in early 2023, and then by another 2,500 jobs in early 2024.

    Meanwhile, some fintechs are looking to artificial intelligence to take on a growing number of roles.

    Swedish buy now, pay later firm Klarna, for instance, said last month that it was able to reduce its workforce from 5,000 to 3,800 over the past year from attrition alone. It added that it is looking to further cut employee numbers down to 2,000 through the use of AI in marketing and customer service.

    “Our proven scale efficiencies have been enhanced by our investment in AI, which has driven down operating expenses and improved gross profits,” the company said in first-half earnings.

    Klarna said that its average revenue per employee had risen 73% year-over-year, thanks in no small part to the internal application of AI.

    Bunq’s Niknam said he doesn’t see AI as a way to help firms reduce headcount, however.

    “We’ve been deploying AI systems and solutions years before they became mainstream, [but] in our experience AI empowers our employees to be able to do better by our users, more effectively and efficiently,” he told CNBC.

    Bunq earlier this year reported its first full year of profitability, generating 53.1 million euros ($58.51 million) in net profit in 2023. The business was last valued privately by investors at 1.65 billion euros.

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  • Buy now, pay later firm Klarna swings to first-half profit ahead of IPO

    Buy now, pay later firm Klarna swings to first-half profit ahead of IPO

    “Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.

    Jakub Porzycki | NurPhoto | Getty Images

    Klarna said it posted a profit in the first half of the year, swinging into the black from a loss last year as the buy now, pay later pioneer edges closer toward its hotly anticipated stock market debut.

    In results published Tuesday, Klarna said that it made an adjusted operating profit of 673 million Swedish krona ($66.1 million) in the six months through June 2024, up from a loss of 456 million krona in the same period a year ago. Revenue, meanwhile, grew 27% year-on-year to 13.3 billion krona.

    On a net income basis, Klarna reported a 333 million Swedish krona loss. However, Klarna cites adjusted operating income as its primary metric for profitability as it better reflects “underlying business activity.”

    Klarna is one of the biggest players in the so-called buy now, pay later sector. Alongside peers PayPal, Block‘s Afterpay, and Affirm, these companies give consumers the option to pay for purchases via interest-free monthly installments, with merchants covering the cost of service via transaction fees.

    Sebastian Siemiatkowski, Klarna’s CEO and co-founder, said the company saw strong revenue growth in the U.S. in particular, where sales jumped 38% thanks to a ramp-up in merchant onboarding.

    “Klarna’s massive global network continues to expand rapidly, with millions of new consumers joining and 68k new merchant partners,” Siemiatkowski said in a statement Tuesday.

    Using AI to cut costs

    The company achieved its adjusted operating profit “by focusing on sustainable, profitable growth and leveraging AI to lower costs,” he added.

    Klarna has been one of the forerunners in the corporate world when it comes to touting the benefits of using AI to increase productivity and cut operating costs.

    On Tuesday, the company said that its average revenue per employee over the previous twelve months increased 73% year-over-year, to 7 million Swedish krona.

    It comes as Klarna tries to pitch itself as a primary banking provider for clients as it approaches a much-anticipated initial public offering.

    The firm earlier this month launched its own checking account-like product, called Klarna balance, in a bid to persuade consumers to move more of their financial lives onto its app.

    The move highlighted how Klarna is looking to diversify beyond its core buy now, pay later product, for which it is primarily known.

    Klarna has yet to set a fixed timeline for the stock market listing, which is widely expected to be held in the U.S.

    However, in an interview with CNBC’s “Closing Bell” in February, Siemiatkowski said an IPO this year was “not impossible.”

    “We still have a few steps and work ahead of ourselves,” he said. “But we’re keen on becoming a public company.”

    Separately, Klarna earlier this year offloaded its proprietary checkout technology business, which allows merchants to offer online payments, to a consortium of investors led by Kamjar Hajabdolahi, CEO and founding partner of Swedish venture capital firm BLQ Invest.

    The move, which Klarna called a “strategic” step, effectively removed competition for rival online checkout services including Stripe, Adyen, Block, and Checkout.com.

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  • Bernstein analyst finally likes PayPal after correctly staying on sidelines for 3 years

    Bernstein analyst finally likes PayPal after correctly staying on sidelines for 3 years

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  • Jim Cramer: Merck is a buy after the drugmaker’s post-earnings dip — here’s why

    Jim Cramer: Merck is a buy after the drugmaker’s post-earnings dip — here’s why

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  • How thousands of Americans got caught in fintech’s false promise and lost access to bank accounts

    How thousands of Americans got caught in fintech’s false promise and lost access to bank accounts

    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.

    ‘A reckoning underway’

    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.

    ‘Deal directly with a bank’

    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.”

    FDIC safety net

    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.”

    Waiting for their money

    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.

    — With contributions from CNBC’s Gabriel Cortes.

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  • BlackRock-backed fintech Trustly says IPO still at least one year out even as profits jump 51%

    BlackRock-backed fintech Trustly says IPO still at least one year out even as profits jump 51%

    Trustly CEO Johan Tjarnberg.

    Trustly

    The boss of Swedish financial technology startup Trustly says an initial public offering for the company is still a year or two away from happening, even after a 51% jump in operating profit.

    In an exclusive interview with CNBC, Johan Tjarnberg, CEO of Trustly, said that his firm still needs time to prove the value of its open banking technology to investors before going public.

    “We need another year or two to really demonstrate to the market that open banking is happening happening, it’s here,” Tjarnberg told CNBC.

    “For me, there is so much we want to demonstrate to the market in terms of user adoption, merchant adoption. We still need some time to execute on our existing playbook.”

    Trustly is holding out on an IPO even after reporting a strong set of financials. Results shared exclusively with CNBC show the firm reported revenues of $265 million in its 2023 full year.

    Growth accelerated significantly in the second half of the year, Trustly said, climbing 27% compared with the same period in 2022. That was as transaction volumes spiked 48% over the same period.

    Tjarnberg told CNBC that the company’s performance in 2023 was heavily driven by the growth at its U.S. business. Trustly merged with American rival PayWithMyBank in 2020.

    “We invested a lot into the U.S. market,” Tjarnberg said. “We were roughly 20 people there four years ago; we now have 500 supporting the U.S. market.”

    Tjarnberg said that, in the first quarter of this year, Trustly saw heightened growth in areas like utilities, retail, and travel, with 22% of volumes coming from those core verticals, up 44% over 12 months.

    Chipping away at Visa, Mastercard?

    Trustly increased operating profit by 51% in full-year 2023, with adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) climbing to $51 million from $33 million in 2022.

    That was as overall transaction value processed during 2023 climbed by 79%, to $58 billion.

    Trustly helps companies integrate the ability to accept payments via open banking technology.

    This tech lets consumers make payments directly to a merchant’s bank account without the need for an intermediary such as a card issuer.

    It provides an alternative to incumbent credit card programs such as Mastercard and Visa, which charge merchants high fees for transactions.

    Gap between closed-source and open-source AI companies smaller than we thought: Hugging Face

    In the U.S., Tjarnberg said, Trustly is seeing heightened demand from merchants “trying to take down costs,” as high card processing fees have made them more price-conscious.

    “There is no secret that our objectives and ambition is to bring a good alternative to other payment methods, including cards,” he told CNBC.

    Open banking is a trend which has gained significant momentum, particularly across Europe.

    That’s thanks to the introduction of regulations which require banks to open their clients’ account data and payment functionalities to third-party firms.

    It has paved the way for new entrants into finance including fintechs, startups and tech companies. Founded in 2008, Sweden’s Trustly competes with the likes of GoCardless, TrueLayer, Volt, Bud, and Yapily.

    Future product plans

    Trustly expects to launch a feature that allows its merchants to set up recurring payments for customers. That will be targeted at things like telecom packages and subscription-based music streaming services.

    Tjarnberg said Trustly is “bullish” on the mobile space, particularly in the U.S. after having seen early success in mobile billing partnerships with the likes of AT&T and T-Mobile.

    Trustly is used by more than 9,000 merchants worldwide including Facebook, Alibaba, PayPal, eBay, AT&T, Unicef, Dell, Lyft, DraftKings, Wise, and eToro.

    Trustly is majority-owned by venture capital firm Nordic Capital, which owns a 51.1% stake in the business. Alfven & Didrikson is its second-biggest backer, with a 11.1% stake, while BlackRock holds an 8.9% stake.

    Aberdeen Standard Investments and Neuberger Berman own 0.7% and 0.9% stakes in Trustly, respectively, while others including the Trustly management and employees own 27.4%.

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  • CFPB says buy now, pay later firms must comply with U.S. credit card laws

    CFPB says buy now, pay later firms must comply with U.S. credit card laws

    Rohit Chopra, director of the CFPB, testifies during a House Financial Services Committee hearing on June 14, 2023.

    Tom Williams | Cq-roll Call, Inc. | Getty Images

    The Consumer Financial Protection Bureau declared on Wednesday that customers of the burgeoning buy now, pay later industry have the same federal protections as users of credit cards.

    The agency unveiled what it called an “interpretive rule” that deemed BNPL lenders essentially the same as traditional credit card providers under the decades-old Truth in Lending Act.

    That means the industry — currently dominated by fintech firms like Affirm, Klarna and PayPal — must make refunds for returned products or canceled services, must investigate merchant disputes and pause payments during those probes, and must provide bills with fee disclosures.

    “Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under long-standing laws and regulations already on the books,” CFPB Director Rohit Chopra said in a release.

    The CFPB, which last week was handed a crucial victory by the Supreme Court, has pushed hard against the U.S. financial industry, issuing rules that slashed credit card late fees and overdraft penalties. The agency, formed in the aftermath of the 2008 financial crisis, began investigating the BNPL industry in late 2021.

    Surging debt

    The use of digital installment loan-type services has ballooned in recent years, with volumes surging tenfold from 2019 to 2021, Chopra said during a media briefing. Among CFPB concerns are that some users are given more debt than they can handle, he said.

    “Buy now, pay later is now a major part of our consumer credit market as these loans provide a meaningful alternative to other options for consumers,” Chopra told reporters. “The CFPB wants to make sure that these new competitive offerings are not gaining an advantage by sidestepping longstanding rights and responsibilities enshrined under the law.”

    It’s unclear how many BNPL providers don’t comply with refund and dispute requirements; on the website for Affirm, for instance, there are pages for both activities.

    While the CFPB acknowledged that many BNPL players offer those services, the new rule will ensure that they are applied consistently across the industry, a senior agency official told reporters.

    The new rule will go into effect in 60 days, and the agency is now accepting public commentary on it, the official said.

    Shares of Affirm were off 5.2% Wednesday, while PayPal slipped 3%.

    Litigation ahead?

    For some time, BNPL providers have anticipated greater regulation, including efforts to apply existing card rules onto the industry. In March, Klarna published a post arguing that its no-interest product was less risky for customers than credit cards — which can often come with steep interest rates — thus requiring less oversight.

    “Instead of trying to jam BNPL into an outdated credit card framework that does little to actually protect consumers, leaders in Washington should draft and implement a framework for BNPL that is proportionate to the risk it poses,” Klarna said at the time.

    In a statement provided Wednesday, Klarna called the CFPB move a “significant step forward” in BNPL regulation, adding that it already adhered to standards for refunds, disputes and billing information.

    “But it is baffling that the CFPB has overlooked the fundamental differences between interest-free BNPL and credit cards, whose whole business model is based on trapping customers into a cycle of paying sky-high interest rates month after month,” said a Klarna spokesperson.

    An Affirm spokesman said the company was “encouraged” that the CFPB was promoting industry standards, “many of which already reflect how Affirm operates,” and that it was engaged with the regulator on improving how it operates.

    “Affirm’s success is aligned with responsibly extending access to credit as we do not charge late or hidden fees,” the spokesman said. “We urge other companies that offer buy now, pay later products to live up to the industry’s promise to provide consumers with a more flexible and transparent alternative to other payment options.”

    The industry’s stance raises the possibility that, like other financial players including payday lenders, BNPL companies could push back against the CFPB rule by suing the agency.

    The CFPB rule capping credit card late fees at $8 per incident, which was set to go into effect this month, was challenged and paused by a federal judge recently.

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  • Walmart-backed fintech One introduces buy now, pay later as it prepares bigger push into lending

    Walmart-backed fintech One introduces buy now, pay later as it prepares bigger push into lending

    Customers shop in a Walmart Supercenter on February 20, 2024 in Hallandale Beach, Florida.

    Joe Raedle | Getty Images News | Getty Images

    Walmart’s majority-owned fintech startup One has begun offering buy now, pay later loans for big-ticket items at some of the retailer’s more than 4,600 U.S. stores, CNBC has learned.

    The move puts One in direct competition with Affirm, the BNPL leader and exclusive provider of installment loans for Walmart customers since 2019. It’s a relationship that the Bentonville, Arkansas, retailer expanded recently, introducing Affirm as a payment option at Walmart self-checkout kiosks.

    It also likely signals that a battle is brewing in the store aisles and ecommerce portals of America’s largest retailer. At stake is the role of a wide spectrum of players, from fintech firms to card companies and established banks.

    One’s push into lending is the clearest sign yet of its ambition to become a financial superapp, a mobile one-stop shop for saving, spending and borrowing money.

    Since it burst onto the scene in 2021, luring Goldman Sachs veteran Omer Ismail as CEO, the fintech startup has intrigued and threatened a financial landscape dominated by banks — and poached talent from more established lenders and payments firms.

    But the company, based out of a cramped Manhattan WeWork space, has operated mostly in stealth mode while developing its early products, including a debit account released in 2022.

    Now, One is going head-to-head with some of Walmart’s existing partners like Affirm who helped the retail giant generate $648 billion in revenue last year.

    Walmart’s Fintech startup One is now offering BNPL loans in Secaucus, New Jersey.

    Hugh Son | CNBC

    On a recent visit by CNBC to a New Jersey Walmart location, ads for both One and Affirm vied for attention among the Apple products and Android smartphones in the store’s electronics section.

    Offerings from both One and Affirm were available at checkout, and loans from either provider were available for purchases starting at around $100 and costing as much as several thousand dollars at an annual interest rate of between 10% to 36%, according to their respective websites.

    Electronics, jewelry, power tools and automotive accessories are eligible for the loans, while groceries, alcohol and weapons are not.

    Buy now, pay later has gained popularity with consumers for everyday items as well as larger purchases. From January through March of this year, BNPL drove $19.2 billion in online spending, according to Adobe Analytics. That’s a 12% year-over-year increase.

    Walmart and One declined to comment for this article.

    Who stays, who goes?

    One’s expanding role at Walmart raises the possibility that the company could force Affirm, Capital One and other third parties out of some of the most coveted partnerships in American retail, according to industry experts.

    “I have to imagine the goal is to have all this stuff, whether it’s a credit card, buy now, pay later loans or remittances, to have it all unified in an app under a single brand, delivered online and through Walmart’s physical footprint,” said Jason Mikula, a consultant formerly employed at Goldman’s consumer division.

    Affirm declined to comment about its Walmart partnership. Shares of Affirm climbed 2% Tuesday, rebounding after falling more than 8% in premarket activity.

    For Walmart, One is part of its broader effort to develop new revenue sources beyond its retail stores in areas including finance and health care, following rival Amazon’s playbook with cloud computing and streaming, among other segments. Walmart’s newer businesses have higher margins than retail and are a part of its plan to grow profits faster than sales.

    In February, Walmart said it was buying TV maker Vizio for $2.3 billion to boost its advertising business, another growth area for the retailer.

    ‘Bank of Walmart’

    When it comes to finance, One is just Walmart’s latest attempt to break into the banking business. Starting in the 1990s, Walmart made repeated efforts to enter the industry through direct ownership of a banking arm, each time getting blocked by lawmakers and industry groups concerned that a “Bank of Walmart” would crush small lenders and squeeze big ones.

    To sidestep those concerns, Walmart adopted a more arms-length approach this time around. For One, the retailer created a joint venture with investment firm firm Ribbit Capital — known for backing fintech firms including Robinhood, Credit Karma and Affirm — and staffed the business with executives from across finance.

    Walmart has not disclosed the size of its investment in One.

    The startup has said that it makes decisions independent of Walmart, though its board includes Walmart U.S. CEO, John Furner, and its finance chief, John David Rainey.

    One doesn’t have a banking license, but partners with Coastal Community Bank for the debit card and installment loans.

    After its failed early attempts in banking, Walmart pursued a partnership strategy, teaming up with a constellation of providers, including Capital One, Synchrony, MoneyGram, Green Dot, and more recently, Affirm. Leaning on partners, the retailer opened thousands of physical MoneyCenter locations within its stores to offer check cashing, sending and receiving payments, and tax services.

    From paper to pixels

    But Walmart and One executives have made no secret of their ambition to become a major player in financial services by leapfrogging existing players with a clean-slate effort.

    One’s no-fee approach is especially relevant to low- and middle-income Americans who are “underserved financially,” Rainey, a former PayPal executive, noted during a December conference.

    “We see a lot of that customer demographic, so I think it gives us the ability to participate in this space in maybe a way that others don’t,” Rainey said. “We can digitize a lot of the services that we do physically today. One is the platform for that.”

    One could generate roughly $1.6 billion in annual revenue from debit cards and lending in the near term, and more than $4 billion if it expands into investing and other areas, according to Morgan Stanley.

    Walmart can use its scale to grow One in other ways. It is the largest private employer in the U.S. with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for a corporate version of One.

    Walmart’s next card

    There are signs that One is making a deeper push into lending beyond installment loans.

    Walmart recently prevailed in a legal dispute with Capital One, allowing the retailer to end its credit-card partnership years ahead of schedule. Walmart sued Capital One last year, alleging that its exclusive partnership with the card issuer was void after it failed to live up to contractual obligations around customer service, assertions that Capital One denied.

    The lawsuit led to speculation that Walmart intends to have One take over management of the retailer’s co-branded and store cards. In fact, in legal filings Capital One itself alleged that Walmart’s rationale was less about servicing complaints and more about moving transactions to a company it owns.

    “Upon information and belief, Walmart intends to offer its branded credit cards through One in the future,” Capital One said last year in response to Walmart’s suit. “With One, Walmart is positioning itself to compete directly with Capital One to provide credit and payment products to Walmart customers.”

    A Capital One Walmart credit card sign is seen at a store in Mountain View, California, United States on Tuesday, November 19, 2019.

    Yichuan Cao | Nurphoto | Getty Images

    Capital One said last month that it could appeal the decision. The company declined to comment further.

    Meanwhile, Walmart said last year when its lawsuit became public that it would soon announce a new credit card option with “meaningful benefits and rewards.”

    One has obtained lending licenses that allow it to operate in nearly every U.S. state, according to filings and its website. The company’s app tells users that credit building and credit score monitoring services are coming soon.

    Catching Cash App, Chime

    And while One’s expansion threatens to supersede Walmart’s existing financial partners, Walmart’s efforts could also be seen as defensive.

    Fintech players including Block’s Cash App, PayPal and Chime dominate account growth among people who switch bank accounts and have made inroads with Walmart’s core demographic. The three services made up 60% of digital player signups last year, according to data and consultancy firm Curinos.

    But One has the advantage of being majority owned by a company whose customers make more than 200 million visits a week.

    It can offer them enticements including 3% cashback on Walmart purchases and a savings account that pays 5% interest annually, far higher than most banks, according to customer emails from One.

    Those terms keep customers spending and saving within the Walmart ecosystem and helps the retailer better understand them, Morgan Stanley analysts said in a 2022 research note.

    “One has access to Walmart’s sizable and sticky customer base, the largest in retail,” the analysts wrote. “This captive and underserved customer base gives One a leg up vs. other fintechs.”

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  • Here’s why Capital One is buying Discover in the biggest proposed merger of 2024

    Here’s why Capital One is buying Discover in the biggest proposed merger of 2024

    Capital One CEO and Chairman, Richard Fairbank.

    Marvin Joseph| The Washington Post | Getty Images

    Capital One’s recently announced $35.3 billion acquisition of Discover Financial isn’t just about getting bigger — gaining “scale” in Wall Street-speak — it’s a bid to protect itself against a rising tide of fintech and regulatory threats.

    It’s a chess move by one of the savviest long-term thinkers in American finance, Capital One CEO Richard Fairbank. As a co-founder of a top 10 U.S. bank by assets, his tenure is a rarity in a banking world dominated by institutions like JPMorgan Chase that trace their origins to shortly after the signing of the Declaration of Independence.

    Fairbank, who became a billionaire by building Capital One into a credit card giant since its 1994 IPO, is betting that buying rival card company Discover will better position the company for global payments’ murky future. The industry is a dynamic web where players of all stripes — from traditional banks to fintech players and tech giants — are all seeking to stake out a corner in a market worth trillions of dollars by eating into incumbents’ share amid the rapid growth of e-commerce and digital payments.

    “This deal gives the company a stronger hand to battle other banks, fintechs and big tech companies,” said Sanjay Sakhrani, the veteran KBW retail finance analyst. “The more that they can separate themselves from the pack, the more they can future-proof themselves.”

    The deal, if approved, enables Capital One to leapfrog JPMorgan as the biggest credit card company by loans, and solidifies its position as the third largest by purchase volume. It also adds heft to Capital One’s banking operations with $109 billion in total deposits from Discover’s digital bank and helps the combined entity shave $1.5 billion in expenses by 2027.

    ‘Holy Grail’

    But it’s Discover’s payments network — the “rails” that shuffle digital dollars between consumers and merchants, collecting tolls along the way — that Fairbank repeatedly praised Tuesday when analysts queried him on the strategic merits of the deal. There are only four major card networks: giants Visa and Mastercard, then American Express and finally the smallest of the group, Discover.

    Capital One and Discover credit cards arranged in Germantown, New York, US, on Tuesday, Feb. 20, 2024. 

    Angus Mordant | Bloomberg | Getty Images

    “That network is a very, very rare asset,” Fairbank said. “We have always had a belief that the Holy Grail is to be able to be an issuer with one’s own network so that one can deal directly with merchants.”

    From the time of Capital One’s founding in the late 1980s, Fairbank said, he envisioned creating a global digital payments tech company by owning the payment rails and dealing directly with merchants. In the decades since, Capital One has been ahead of stodgier banks, gaining a reputation in tech circles for being forward-thinking and for its early adoption of cloud computing and agile software development.

    But its growth has relied on Visa and Mastercard, which accounted for the vast majority of payment volumes last year, processing nearly $10 trillion in the U.S. between them.

    Capital One intends to boost the Discover network, which carried $550 billion in transactions last year, by quickly switching all of its debit volume there, as well as a growing share of its credit card flows over time.

    By 2027, the bank expects to add at least $175 billion in payments and 25 million of its cardholders onto the Discover network.

    Owning the toll road

    The true potential of the Discover deal, though, is what it allows Capital One to do in the future if it owns the toll road, according to analysts.

    By creating an end-to-end ecosystem that is more of a closed loop between shoppers and merchants, it could fend off competition from rapidly mutating fintech players like Block and PayPal, as well as buy now, pay later firms like Affirm and Klarna, who have made inroads with both businesses and consumers.

    Capital One aims to deepen relationships with merchants by showing them how to boost sales, helping them prevent fraud and providing data insights, Fairbank said Tuesday, all of which makes them harder to dislodge. It can use some of the network fees to create new loyalty plans, like debit rewards programs, or underwrite merchant incentives or experiences, according to analysts.

    “Owning a network allows us to deal more directly with merchants rather than a network intermediary,” Fairbank told analysts. “We create more value for merchants, small businesses and consumers and capture the additional economics from vertical integration.”

    It’s a capability that technology or fintech companies probably covet. The Discover network alone would be worth up to $6 billion if sold to Alphabet, Apple or Fiserv, Sakhrani wrote Tuesday in a research note.

    Will regulators approve?

    The Capital One-Discover combination could fortify the company against another potential threat — from Washington.

    Proposed legislation from Sen. Dick Durbin, D-Ill., aims to cap the fees charged by Visa and Mastercard, potentially blowing up the economics of credit card rewards programs. If that proposal becomes law, the competitive position of Discover’s network, which is exempt from the limitations, suddenly improves, according to Brian Graham, co-founder of advisory firm Klaros Group. That mirrors what an earlier law known as the Durbin amendment did for debit cards.

    Chairman Dick Durbin (D-IL) speaks during a US Senate Judiciary Committee hearing regarding Supreme Court ethics reform, on Capitol Hill in Washington, DC, on May 2, 2023.

    Mandel Ngan | AFP | Getty Images

    “There are a bunch of things aimed, in one way or another, at the card networks and that ecosystem,” Graham said. “Those pressures might be one of the things that creates an opportunity for Capital One in the future if they have control over this network.”

    The biggest question for Capital One, its customers and investors is whether the merger will ultimately be approved by regulators. While Fairbank said he expects the deal to be closed in late 2024 or early 2025, industry experts said it was impossible to know whether it will be blocked by regulators, like a string of high-profile takeovers among banks, airlines and tech companies.

    On Tuesday, Democratic Sen. Elizabeth Warren of Massachusetts urged regulators to swiftly block the deal, calling it “dangerous.” Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee, said he would be watching the deal to “ensure that this merger doesn’t enrich shareholders and executives at the expense of consumers and small businesses.”

    The Discover deal’s survival may hinge on whether it’s seen as boosting an also-ran payments network, or allowing an already-dominant card lender to level up in size — another reason Fairbank may have played up the importance of the network.

    “Which thing you are more concerned about will define whether you think this is a good deal or a bad deal from a public policy point of view,” Graham said.

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  • Companies — profitable or not — make 2024 the year of cost cuts

    Companies — profitable or not — make 2024 the year of cost cuts

    Mathisworks | Digitalvision Vectors | Getty Images

    Corporate America has a message for Wall Street: It’s serious about cutting costs this year.

    From toy and cosmetics makers to office software sellers, executives across sectors have announced layoffs and other plans to slash expenses — even at some companies that are turning a profit. Barbie maker Mattel, PayPal, Cisco, Nike, Estée Lauder and Levi Strauss are just a few of the firms that have cut jobs in recent weeks.

    Department store retailer Macy’s said it will close five of its namesake department stores and cut more than 2,300 jobs. JetBlue Airways and Spirit Airlines have offered staff buyouts, while United Airlines cut first-class meals on some of its shortest flights.

    As consumers watch their wallets, companies have felt pressure from investors to do the same. Executives have sought to show shareholders that they’re adjusting to consumer demand as it returns to typical patterns or even softens, as well as aggressively countering higher expenses.

    Airlines, automakers, media companies and package giant UPS are all digesting new labor contracts that gave raises to tens of thousands of workers and drove costs higher.

    Companies in years past could get away with passing on higher costs to customers who were willing to splurge on everything from new appliances to beach vacations. But businesses’ pricing power has waned, so executives are looking for other ways to manage the budget — or squeeze out more profits, said Gregory Daco, chief economist for EY.

    “You are in an environment where cost fatigue is very much part of the equation for consumers and business leaders,” Daco said. “The cost of most everything is much higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even interest rates.”

    There are some exceptions to the recent cost-cutting wave: Walmart, for example, said last month that it would build or convert more than 150 stores over the next five years, along with a more than $9 billion investment to modernize many of its current stores.

    And some companies, such as banks, already made deep cuts. Five of the largest banks, including Wells Fargo and Goldman Sachs, together eliminated more than 20,000 jobs in 2023. Now, they’re awaiting interest rate cuts by the Federal Reserve that would free up cash for pent-up mergers and acquisitions.

    But cost reductions unveiled in even just the first few weeks of the year amount to tens of thousands of jobs and billions of dollars. In January, U.S. companies announced 82,307 job cuts, more than double the number in December, while still down 20% from a year ago, according to Challenger, Gray and Christmas.

    And the tightening of months prior is already showing up in financial reports.

    So far this earnings season, results have indicated that companies have focused on driving profits higher without the tailwind of big price increases and sales growth.

    As of mid-February, more than three-quarters of the S&P 500 had reported fourth-quarter results, with far more earnings beats than revenue beats. The quarter’s earnings, measured by a composite of S&P 500 companies, are on pace to rise nearly 10%. Revenues, however, are up a more modest 3.4%.

    Layoffs, flight cuts and store closures

    While companies’ drive for higher profits isn’t new, they have made bolstering the bottom line a priority this year.

    Downsizing has rippled across the tech industry, as companies followed the lead of Meta’s 2023 cuts, which many analysts credited with helping the social media giant rebound from a rough 2022. CEO Mark Zuckerberg had dubbed 2023 the “year of efficiency” for the parent of Facebook and Instagram, as it slashed the size of its workforce and vowed to carry forward its leaner approach.

    In recent weeks, Amazon, Alphabet, Microsoft and Cisco, among others, have announced staffing reductions.

    And the layoffs haven’t been contained to tech. UPS said it was axing 12,000 jobs, saving the company $1 billion, CEO Carol Tome said late last month, citing softer demand. Many of the largest retail, media and entertainment companies have also announced workforce reductions, in addition to other cuts.

    Warner Bros. Discovery has slashed content spending and headcount as part of $4 billion in total cost savings from the merger of Discovery and WarnerMedia. Disney initially promised $5.5 billion in cost reductions in 2023, fueled by 7,000 layoffs. The company has since increased its savings promise to $7.5 billion, and executives suggested in its Feb. 7 quarterly earnings report that it may exceed that target.

    Last week, Paramount Global announced hundreds of layoffs in an effort to “operate as a leaner company and spend less,” according to CEO Bob Bakish. Comcast’s NBCUniversal, the parent company of CNBC, has also recently eliminated jobs.

    JetBlue Airways, which hasn’t posted an annual profit since before the pandemic, is deferring about $2.5 billion in capital expenditures on new Airbus planes to the end of the decade, culling unprofitable routes and redeploying aircraft in addition to the worker buyouts.

    Delta Air Lines, which is profitable, in November said it was cutting some office jobs, calling it a “small adjustment.”

    Some cuts are even making their way to the front of the cabin. United Airlines, which also posted a profit in 2023, at the start of this year said it would serve first-class meals only on flights more than 900 miles, up from 800 miles previously. “On flights that are 301 to 900 miles, United First customers can expect an offering from the premium snack basket,” according to an internal post.

    Several of the country’s largest automakers, such as General Motors and Ford Motor, have lowered spending by billions of dollars through reduced or delayed investments on all-electric vehicles. The U.S.-based companies as well as others, such as Netherlands-based Stellantis, have recently reduced headcount and payroll through voluntary buyouts or layoffs.

    Even Chipotle, which reported more foot traffic and sales at its restaurants in the most recently reported quarter, is chasing higher productivity by testing an avocado-scooping robot called the Autocado that shortens the time it takes to make guacamole. It’s also testing another robot that can put together burrito bowls and salads. The robots, if expanded to other stores, could help cut costs by minimizing food waste or reducing the number of workers needed for those tasks.

    Shifting patterns

    Industry experts have chalked up some recent cuts to companies catching their breath — and taking a hard look at how they operate — after an unusual four-year stretch caused by the pandemic and its fallout.

    EY’s Daco said the past few years have been marked by a mismatch in supply and demand when it comes to goods, services and even workers.

    Customers went on shopping sprees, fueled by government stimulus and less experience-related spending. Airlines saw demand disappear and then skyrocket. Companies furloughed workers in the early pandemic and then struggled to fill jobs.

    He said he expects companies this year to “search for an equilibrium.”

    “You’re seeing a rebalancing happening in the labor markets, in the capital markets,” he said. “And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth.”

    The auto industry, for example, faced a supply issue during much of the Covid pandemic but is now facing a potential demand problem. Inventories of new vehicles are rising — surpassing 2.5 million units and 71 days’ supply toward the end of 2023, up 57% year over year, according to Cox Automotive — forcing automakers to extend more discounts in an effort to move cars and trucks off dealer lots.

    Automakers have also been contending with slower-than-expected adoption of EVs.

    David Silverman, a retail analyst at Fitch Ratings, said companies are “feeling a bit heavy as sales growth moderates and maybe even declines.”

    Cost cuts at UPS, Hasbro and Levi all followed sales declines in the most recent fiscal quarter. Macy’s, which reports earnings later this month, has said it expects same-store sales to drop, and there’s early evidence that may come to bear: Consumers pulled back on spending in January, with retail sales falling 0.8%, more than economists expected, according to the latest federal data.

    Most major retailers, including Walmart, Target and Home Depot, will report earnings in the coming weeks.

    Credit ratings agency Fitch said it doesn’t expect the U.S. economy to tip into recession, but it does anticipate a continued pullback in discretionary spending.

    “Part of companies’ decision to lower their expense structure is in line with their views that 2024 may not be a fantastic year from a top-line-growth standpoint,” Silverman said.

    Plus, he added, companies have had to find cash to fund investments in newer technology such as infrastructure that supports e-commerce, a resilient supply chain or investments in artificial intelligence.

    Forward momentum

    Companies may have another reason to cut costs now, too. As they see other companies shrinking the size of their workforces or budgets, there’s safety in numbers.

    Or as Silverman noted, “layoffs beget layoffs.”

    “As companies have started to announce them it becomes normalized,” he said. “There’s less of a stigma.”

    Even with rolling layoffs, the labor market remains strong, which may help explain why Wall Street has by and large rewarded those companies that have found areas to save and returned profits to shareholders.

    Shares of Meta, for example, almost tripled in price in 2023 in that “year of efficiency,” making the stock the second-best gainer in the S&P 500, behind only Nvidia. After laying off more than 20,000 workers in 2023, Meta on Feb. 2 announced its first-ever dividend and said it expanded its share buyback authorization by $50 billion.

    UPS, fresh from job cuts, said it would raise its quarterly dividend by a penny.

    Overall, dividends paid by companies in the S&P 500 rose 5.05% last year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, and he estimated they will likely increase nearly 5.3% this year.

    — CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this story.

    Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.

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  • Sheryl Sandberg says she's leaving Meta's board

    Sheryl Sandberg says she's leaving Meta's board

    Sheryl Sandberg, chief operating officer of Facebook Inc.

    David Paul Morris | Bloomberg | Getty Images

    Former Meta operating chief Sheryl Sandberg is leaving the company’s board of directors.

    “With a heart filled with gratitude and a mind filled with memories, I let the Meta board know that I will not stand for reelection this May,” Sandberg wrote in a Facebook post on Wednesday.

    Sandberg, 54, joined Facebook in 2008 as Mark Zuckerberg’s top deputy after spending about seven years at Google. In 2012, she became a board member at the company. During her tenure, Facebook rose from a highflying startup to become one of the most valuable companies in the world, topping a $1 trillion market cap at its peak in 2021.

    Sandberg announced her departure from Meta in mid-2022, following multiple controversies that dogged the company and sullied its reputation among users, lawmakers and investors. Most notably, Facebook was central to the spread of disinformation ahead of the 2016 election and during the early days of the Covid pandemic in 2020. The company has also been in the subject of antitrust investigations and was scrutinized in Sandberg’s waning days for its insufficient efforts to combat hate on its platform.

    When Sandberg stepped down as Meta COO in June 2022, she was replaced by Javier Olivan, who had been serving as Meta’s chief growth officer.

    Since leaving Meta, Sandberg has dedicated much of her time on her LeanIn.org nonprofit, which focuses on empowering women tin the workplace, and related projects.

    “I wanted my new chapter to be able to really make a difference,” Sandberg told CNBC Make It in August. “We’ve been in development on this since I was at Meta, but being able to have the time to put into [this launch] and to really be … a bigger part of this has meant a lot to me.”

    Shortly after Sandberg’s post, Zuckerberg responded with a short reply.

    “Thank you Sheryl for the extraordinary contributions you have made to our company and community over the years,” Zuckerberg wrote. “Your dedication and guidance have been instrumental in driving our success and I am grateful for your unwavering commitment to me and Meta over the years. I look forward to this next chapter together!”

    Meta technology chief Adam Bosworth wrote, “Amazing run Sheryl, thank you so much for everything you did for all of us and also for me personally.”

    Meta’s board consists of Zuckerberg, who serves as chairman, as well as former PayPal Executive Vice President Peggy Alford, venture capitalist Marc Andreessen, Dropbox CEO Drew Houston, former McKinsey & Company senior partner Nancy Killefer, former U.S. deputy secretary of the treasury Robert M. Kimmitt, DoorDash CEO Tony Xu and Tracey T. Travis, a former CFO at Estée Lauder.

    Here’s the full text of Sandberg’s post:

    With a heart filled with gratitude and a mind filled with memories, I let the Meta board know that I will not stand for reelection this May. After I left my role as COO, I remained on the board to help ensure a successful transition. Under Mark’s leadership, Javi Olivan, Justin Osofsky, Nicola Mendelsohn, and their teams have proven beyond a doubt that the Meta business is strong and well-positioned for the future, so this feels like the right time to step away. Going forward, I will serve as an advisor to the company, and I will always be there to help the Meta teams.

    Serving as Facebook’s – and then Meta’s – COO for 14 ½ years and a board member for 12 years has been the opportunity of a lifetime. I will always be grateful to Mark for believing in me and for his partnership and friendship; he is that truly once-in-a-generation visionary leader and he is equally amazing as a friend who stays by your side through the good times and the bad. I will always be grateful to my colleagues and teammates at Meta for all the years of working side by side and all they taught me. And I am particularly grateful to my fellow Meta board members for their lasting friendships, the guidance they provided me for so many years, and their stewardship of products that mean so much to people all over the world.

    WATCH: Three buys and a bail

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  • The 2023 stock winners investors should let ride, sell or hedge in the new year

    The 2023 stock winners investors should let ride, sell or hedge in the new year

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  • Here are Wednesday's biggest analyst calls: Tesla, Walmart, Qualcomm, Deere, Robinhood, Shopify & more

    Here are Wednesday's biggest analyst calls: Tesla, Walmart, Qualcomm, Deere, Robinhood, Shopify & more

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  • Cramer examines why bank stocks performed poorly this year

    Cramer examines why bank stocks performed poorly this year

    CNBC’s Jim Cramer on Tuesday explained why the regional and national banking sector has performed poorly this year.

    “When we look back at this era of stagnant bank stock prices, I think we may have to conclude that unless something changes, they’ve become an anchor to leeward in a market desperate for a broader firmament,” he said.

    Cramer said part of traditional banks’ issues stem from fear of regulators, who have become more aggressive. Banks also ran into problems when they made investments in longer-term bonds while interest rates were lower, with these assets now worth less in a higher rate environment, he said. He added that regional banks should consider mergers to cut costs.

    But Cramer also stressed many banks’ inability to modernize, saying they “simply missed an entire generation of customers.”

    Banks should have tried to get in on fintech businesses with newer modes of money lending and management, he said, mentioning enterprises like PayPal or Affirm, which offers customers “buy now, pay later” services. Cramer also wondered why banks “ceded” point-of-sale business to companies like Toast, a cloud-based restaurant management outfit.

    “I don’t want to hear that they aren’t allowed to innovate,” Cramer said. “These banks could figure out a way to do more — they could do it — if they were more creative, and they would have got permission. Heck, the government should want them to do it, then they could regulate these financial technology businesses.”

    Jim Cramer takes a closer look at the financials sector

    Jim Cramer’s Guide to Investing

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  • Klarna, Europe’s $6.7 billion buy now, pay later firm, sets wheels in motion for eventual IPO

    Klarna, Europe’s $6.7 billion buy now, pay later firm, sets wheels in motion for eventual IPO

    “Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.

    Jakub Porzycki | NurPhoto | Getty Images

    Buy now, pay later firm Klarna has established a holding company in the U.K. that will sit at the top of its corporate structure, in a symbolic move that paves the path for an eventual listing.

    A Klarna spokesperson confirmed to CNBC that the Stockholm-based business, which lets shoppers defer payments over a period of instalments, has begun a legal entity restructuring to set up the holding company.

    Preparations for the new company have been agreed with some of Klarna’s largest shareholders, including Sequoia and Heartland, the spokesperson said.

    The Klarna spokesperson said that the move was a precursor to a formal listing, but added these are still “very early days,” and the company has no immediate-term plans to go public.

    Klarna also hasn’t decided on where it would opt to list, the spokesperson said, and setting up its new legal entity in the U.K. does not necessarily mean that the company will go public there.

    It does, however, give Klarna flexibility over which stock exchange it decides on.

    The restructuring “is an administrative change that has been in the works for over 12 months and does not affect anyone’s roles, nor Klarna’s Swedish operations,” the Klarna spokesperson told CNBC via email.

    “Klarna Holding will continue to be the regulated financial holding company under the direct supervision of the SFSA and we will continue to hold a Swedish banking license.”

    Klarna is a big player in the European payments industry, worth $6.7 billion.

    Like PayPal and Stripe, it allows merchants to add checkout functionality to their online stores. It differs from these competitors in its flexible payment plans, known as buy now, pay later.

    At the height of the Covid-driven boom in e-commerce, Klarna was worth a whopping $46 billion, onboarding SoftBank as an investor. Its valuation slashed by 85%, to $6.7 billion after the pandemic-fueled boom in technology valuations deflated.

    Klarna, which was included in CNBC and Statista’ list of the top 200 fintech companies, has raised more than $4 billion in funding to date from investors including Sequoia, Silver Lake, and China’s Ant Group.

    The U.K. was originally set to enforce tough new regulations on the buy now, pay later industry, with plans to require affordability checks and clearer communication in the advertisement of such services.

    Britain has reportedly been considering shelving those plans after a number of the biggest players said, in talks with the government, that they may be forced to leave the U.K. if they are subjected to “heavy-handed” regulation.

    Bosses at Klarna and Block, which owns buy now, pay later service Clearpay, had lashed out at certain aspects of the U.K.’s regulation plans, including a measure which would have exempted e-commerce giant Amazon from being subjected to the rules.

    It has since been pushing aggressively toward profitability, reporting its first month of profit earlier this year for the first time since 2020.

    Klarna has been investing heavily in artificial intelligence products, most recently launching an AI image recognition tool that can identify certain products, like a jacket or a pair of headphones.

    Separately this weekend, Klarna also reached a deal with workers in Sweden to put an end to plans to go on strike.

    WATCH: Klarna’s buy now pay later losses are 30% below industry standard, says CEO Sebastian Siemiatkowski

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  • Big Tech earnings have been strong, but Apple is about to answer the thousand-dollar question

    Big Tech earnings have been strong, but Apple is about to answer the thousand-dollar question

    While the stock market reactions may not prove it, Big Tech is four-for-four so far this earnings reporting season.

    Alphabet Inc.
    GOOG,
    -0.03%

    GOOGL,
    -0.09%    ,
    Amazon.com Inc.
    AMZN,
    +6.83%    ,
    Meta Platforms Inc.
    META,
    +2.91%
    and Microsoft Corp.
    MSFT,
    +0.59%
    all beat earnings and revenue expectations for the latest quarter, showing, among other things that the advertising market was healthy in the latest quarter and that software spending is holding up.

    But one more major test looms in the week ahead. Apple Inc.
    AAPL,
    +0.80%
    is due to deliver September-quarter results on Thursday and those earnings will answer a key question: Are consumers still so willing to purchase thousand-dollar iPhones in the current economy?

    Results from other companies in recent weeks have painted a mixed picture of consumer spending. Visa Inc.
    V,
    -0.87%    ,
    Mastercard Inc.
    MA,
    -0.14%
    and American Express Co.
    AXP,
    -1.42%
    say that spending remains resilient, but there are also signs that cracks are starting to form in categories deemed non-essential. Just look at Align Technology Inc.
    ALGN,
    +0.20%    ,
    the maker of Invisalign orthodontic aligners, which saw its stock plunge last week after noting that people seem to be putting off dental and orthodontic visits.

    Read: Invisalign maker’s stock craters after soft earnings, but analysts still say it’s a buy

    Granted, some might say that iPhones are glorified necessities these days for Apple fans, even with their high price tags. But Apple conducted an effective price increase on its iPhone 15 Pro model when it rolled out its new phones in September, all while delivering a mostly incremental suite of feature upgrades across all its latest models. Will the new phones prove enticing enough in a period of stretched budgets?

    Just judging by S&P 500
    SPX
    results so far in the aggregate, the odds would seem to be in Apple’s favor for a beat this quarter. About half of index components have already reported, and 78% have posted earnings upside, while 62% have surprised positively on the top line, according to FactSet.

    Revenue will be the key item for Apple, as consensus expectations call for a small decline on the metric, which would mark the fourth consecutive year-over-year drop. It’s also worth noting that companies on the whole haven’t been topping revenue estimates by their usual margin. S&P 500 components in aggregate have reported revenue 0.8% above expectations, which compares with a five-year average of 2.0%, FactSet Senior Earnings Analyst John Butters wrote in a recent report.

    Apple’s report could also highlight the impact of currency on corporate results, as the company generates more than half of its revenue internationally.

    “Given the stronger U.S. dollar in recent months, are S&P 500 companies with more international revenue exposure reporting lower (year-over-year) earnings and revenues for Q3 compared to S&P 500 companies with more domestic revenue exposure?” Butters asked. “The answer is yes.”

    This week in earnings

    Many U.S. investors in financial-technology companies likely hadn’t heard of European payments player Worldline SA
    WLN,
    +9.06%
    before last week, but a warning from the French company about deteriorating conditions in Europe helped send shares of PayPal Holdings Inc.
    PYPL,
    -2.63%
    and Block Inc.
    SQ,
    -3.98%
    sharply lower Wednesday, in a selloff one analyst deemed an overreaction. Those companies will look to reassure Wall Street about the health of their businesses with their own reports this week. Plus, while not a payments name, SoFi Technologies Inc.
    SOFI,
    -0.43%
    will provide another read on the fintech sector. Investors will be watching to see how the end of the student-loan moratorium impacted student lending volumes.

    The week ahead will also shed light on how consumers’ dining preferences have evolved in the current economy. Starbucks Corp.
    SBUX,
    -0.70%    ,
    Dine Brands Global Inc.
    DIN,
    -0.12%    ,
    Cheesecake Factory Inc.
    CAKE,
    -0.47%
    and Sweetgreen Inc.
    SG,
    +0.59%
    are among names on the docket. Plus, amid concerns about the impact of GLP-1 drugs such as Ozempic and Wegovy on eating habits, Kraft Heinz Co.’s management will be in the spotlight.

    Don’t miss: What exactly are patients taking new weight-loss drugs eating and what are they avoiding? Bernstein asked them.

    The call to put on your calendar

    You can’t spell Advanced Micro Devices without AI (sort of): Nvidia Corp.
    NVDA,
    +0.43%
    has been ruling the chip world this year thanks to its dominance with the sort of hardware needed to power the corporate AI fervor. Investors will be watching Tuesday afternoon to see how quickly Advanced Micro Devices Inc.’s
    AMD,
    +2.95%
    own AI story is coming together. “The AMD narrative feels all about their data center (and, particularly, their AI story) right now,” Bernstein analyst Stacy Rasgon wrote in a note to clients. “In the near term the achievability of their 2H data-center growth (guided to 50% half-over-half) will be the question.” Rasgon expects AMD to discuss recent customer wins for its MI300X chip, though he thinks it will take time for the company to see “real volume.”

    The number to watch

    PayPal transaction margins: Shares of the one-time investor darling are trading at their lowest levels since May 2017, and the latest source of anguish for Wall Street is the company’s transaction margins. PayPal’s lower-margin unbranded checkout business has been growing more quickly than its higher-margin branded checkout product, a trend that’s been weighing on overall transaction margins. Barclays analyst Ramsey El-Assal expects the third quarter to mark a bottom on the metric before trends stabilize in the fourth quarter. “We do not believe the stock is crowded on the long or short side into earnings, as investors lack conviction regarding the magnitude of transaction margin headwinds in Q3,” he wrote in a recent preview. “In any case, we view Q3 as a potential clearing event.” PayPal posts results Wednesday afternoon.

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  • With China playing catchup with the U.S., these 3 charts show the top countries for fintech in 2023

    With China playing catchup with the U.S., these 3 charts show the top countries for fintech in 2023

    Chinese and US flags fly outside a hotel during a 2012 U.S. presidential election results event organized by the US embassy in Beijing on November 7, 2012.

    Ed Jones | AFP | Getty Images

    From the U.S. to China, countries around the world are battling it out to lead on financial technology, a heavily lucrative industry that has grown over the years taking everything from retail banking to wealth management online.

    Since the 2008 financial crisis, thousands of new firms have been set up with the aim of taking on the financial incumbents and providing more accessible services to both consumers and businesses alike.

    In the U.K., startups like Monzo and Starling took the banking world by storm with their digital-only offerings, while in China, Alibaba and Tencent launched their own respective mobile wallets, Alipay and WeChat Pay.

    In August, CNBC, in partnership with Statista, launched a list of the world’s top fintechs. To choose the top global firms, Statista used a rigorous method that evaluated a few key business metrics and fundamentals, including revenue and number of employees.

    Statista identified 200 of the top companies globally, across nine categories including neobanking, digital payments, digital assets, digital financial planning, digital wealth management, alternate financing, alternate lending, digital banking solutions, and digital business solutions.

    Using additional data provided by Statista, CNBC analyzed the top nations overall when it comes to financial technology, splitting the analysis into three main areas of focus:

    • The countries with the most valuable fintech industries based on market capitalization.
    • Overall number of top fintech firms, as identified by Statista.
    • The amount of “unicorn” companies with valuations of $1 billion or more across different countries.

    So, which countries are at the top of their game when it comes to fintech? In three charts, here’s what we found.

    U.S., China home to most valuable fintechs

    The U.S. is home to most valuable financial technology companies in the world in 2023, according to Statista data — but China isn’t far behind with mega-payments firms like Tencent and Ant Group making the country a solid second.

    The valuation data is up to date as of April 2023, with the exception of Ant Group, Stripe, Nubank, Checkout.com, Revolut, Chime, Polygon, Rapyd, Ripple, Blockchain, and Plaid.

    Combined, the U.S. produces the most value in terms of fintech, with eight of the top 15 highest-valued financial technology companies in the world worth a combined $1.2 trillion based stateside.

    Visa and Mastercard are the two biggest fintech firms by market value, with a collective market capitalization of $800.7 billion.

    China is home to the second-most highly valued fintech industry, with its financial technology giants worth a combined $338.92 billion in total market capitalization.

    UK has second-biggest number of top fintech firms

    The U.S. was home to 65 of the top fintech companies, according to CNBC’s list of world’s top 200 fintech companies. The U.K. was a close second with 15 of the top 200 fintech names globally, while the European Union is home to 55 top fintech companies.

    The U.S. has a vibrant fintech market, not least thanks to its deep-pocketed investors.

    Silicon Valley is a natural home for the sector given its storied history in birthing some of the world’s largest technology companies, like Apple, Meta, Google, and Amazon, and a well-established venture capital ecosystem with major players such as Sequoia Capital and Andreessen Horowitz present.

    In the U.S., some of the top global fintech companies on Statista’s list include names like Stripe, PayPal and Intuit. These are all companies with significant shares in their respective markets and hallmark products used by thousands, if not millions, of businesses both big and small.

    The U.K., similarly, has a prominent fintech industry.

    Buoyed by forces many — from innovation-driven regulars like the Financial Conduct Authority, to growing pools of capital, including venture and private equity, to a government that has tried to rank fintech firmly high up on its agenda — the U.K. has managed to produce significant in the fintech world, from digital banking behemoth Monzo to listed payments firm Wise.

    In China, which was another standout fintech player identified by Statista, the market for digital financial services is massive.

    WATCH: CNBC’s full extended interview with Robinhood CEO Vlad Tenev on AI, credit cards and more

    Watch CNBC's full extended interview with Robinhood CEO Vlad Tenev on AI, credit cards and more

    Tencent’s WeChat Pay and Ant Group’s Alipay have cornered the market for mobile payments, providing ample competition to its fragmented, less built-up banking sector. Consumers in China tend to have a closer relationship with digital platforms like WeChat than they have with incumbent lenders.

    But the fintech industry is faced with a number of challenges — not least macroeconomic headwinds.

    Among the top roadblocks the sector faces right now, dwindling liquidity in venture capital is well up there.

    In Europe, a combination of the Russian invasion of Ukraine, the aftermath of Covid-19 lockdowns, and resulting interest rate increases have impacted most major economies.

    In the U.K., meanwhile, the technology industry’s problems generally have been compounded by Brexit, which critics argue is limiting foreign investment.

    “The venture environment is generally struggling,” Nick Parmenter, CEO of business management consultancy Class35, told CNBC. “IPOs are fewer and lower in valuation, funds are struggling to raise from LPs and valuations are down throughout the venture cycle.”

    “This makes raising growth capital a lot tougher, which makes management teams more conservative in their cash consumption. This has had a trickle-down effect on the fintech market — consumers have less discretionary income to invest or spend, which limits revenue potential for consumer-focused fintechs and small businesses alike.”

    U.S. top for fintech unicorns, UK second

    The U.K. again flexes its fintech muscles when it comes to the number of richly-valued “unicorn” companies in the country — Britain stands only second to the U.S., which hosts most of the world’s fintech unicorns. Unicorns are defined as venture-backed companies with a valuation of $1 billion or more.

    In the U.K., some of the biggest unicorns include online banking startup Revolut ($33 billion) crypto wallet provider Blockchain.com ($14 billion), and digital payments groups Checkout.com ($11 billion), Rapyd ($8.75 billion) and SumUp ($8.5 billion).

    Stateside, meanwhile, the largest fintech unicorns are Stripe ($95 billion), Chime ($25 billion), Ripple ($15 billion), Plaid ($13.5 billion), Devoted Health ($12.6 billion, and Brex ($12.3 billion).

    Other leading ecosystems for fintech unicorns include India, on 17 unicorns, and China, on eight. France, Brazil and Germany each have six fintech unicorns.

    Standing in 8th place is Mexico, with five fintech unicorns, Singapore, also with five, and the Netherlands, which has four in total.

    WATCH: U.S. ranks first for top global fintechs in new report from Statista and CNBC

    U.S. ranks first for top global fintechs in new report from Statista and CNBC

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  • As U.S.-China tensions rumble on, fintech unicorn Airwallex pushes into Latin America with Mexico deal

    As U.S.-China tensions rumble on, fintech unicorn Airwallex pushes into Latin America with Mexico deal

    The deal, which is subject to regulatory approvals, marks a major push from Airwallex into Latin America.

    Airwallex

    Global fintech giant Airwallex on Thursday said it has agreed to acquire MexPago, a rival payments company based out of Mexico, for an undisclosed sum to help the firm expand its Latin America footprint.

    The company, which competes with the likes of PayPal, Stripe, and Block, sells cross-border payment services to mainly small and medium-sized enterprises. Airwallex makes money by pocketing a fee each time a transaction is made.

    The deal, which is subject to regulatory approvals and customary closing conditions, marks a major push from Airwallex into Latin America, a market that has become more attractive for fintech firms thanks to a primarily younger population and increasing online penetration.

    Jack Zhang, Airwallex’s CEO, said the company was looking at Mexico as something as a hedge as it deals with geopolitical and economic uncertainty going on between the U.S. and China.

    “U.S. people export to Mexico to sell to the consumer there,” Zhang told CNBC. “Because of the supply chain, you can also export out of Mexico to other countries like the United States.”

    “You get both the inflow and outflow of money,” he added. “That’s really what we like the most. We can take a global company to Mexico and also help the global companies making payments to the supply chain.”

    U.S.-China trade tensions have escalated in recent years, as Washington seeks to address what it sees as China’s race to the bottom on trade.

    The U.S. alleges China has been deliberately devaluing its currency by buying lots of U.S. dollars, thereby making Chinese exports cheaper and U.S. exports more expensive, and worsening the U.S. trade deficit with China.

    China has sought to address these concerns, agreeing to “substantially reduce” the U.S. trade deficit by committing to “significantly increases” its purchases of American goods, although it’s struggled to make good on those commitments.

    “Mexico is one of the largest populations in Latin America,” Zhang added. “As the trade war intensifies in China and the US, a lot is shifting from Asia to Mexico.”

    “[Mexico] is very close to the U.S. Labour is cheaper compared to the U.S. domestically. A lot of the supply chain is shipping there. There’s a lot of opportunity from e-commerce as well.”

    A maturing fintech

    Airwallex operates around the world in markets including the U.S., Canada, China, the U.K., Australia, and Singapore. The Australia-founded company is the second-most valuable unicorn there, after design and presentations software startup Canva, which was last valued at $40 billion.

    The company, whose customers include Papaya Global, Zip, Shein and Navan, processes more than $50 billion in a single year. It has also partnered with the likes of American Express, Shopify and Brex, to help it expand its services internationally.

    It has been a tough environment for fintech companies to operate in lately, given how interest rates have risen sharply. That has made it more costly for startup firms to raise capital from investors.

    For its part, Airwallex has raised more than $900 million in venture capital to date from investors including Salesforce Ventures, Sequoia, Tencent and Lone Pine Capital. The company was last valued at $5.6 billion.

    At this stage we are still expanding against our mission, which is to enable those smaller businesses to operate anywhere in the world and keep building software on top.

    Zhang said that the company is at a stage where it has reached enough maturity to consider an initial public offering — the company says it now processes more than $50 billion in annualized transactions. However, Airwallex won’t embark on the IPO route until it gets to a certain amount of annual revenue, Zhang added.

    Zhang is targeting $100 million of annual recurring revenue (ARR) for its software business within the next year or two. Once Airwallex reaches this point, he says, it will then look at a public listing.

    “At this stage we are still expanding against our mission, which is to enable those smaller businesses to operate anywhere in the world and keep building software on top … to protect our margins [and] grow our margins from a cost point of view, not just infrastructure,” Zhang said.

    MexPago offers much of the same services as Airwallex — multi-currency accounts for small and medium-sized businesses, foreign exchange services, and payment processing — but there are a few more payment methods it has on offer which Airwallex doesn’t currently provide.

    Why Latin America?

    A big selling point of the MexPago deal, Zhang said, is the ability to obtain a regulatory license in Mexico without having to embark on a long process of applying with the central bank. The company has secured an Institution of Electronic Payment Funds (IFPE) license from MexPago.

    Why Americans are relocating to Mexico City for a better life

    That will allow Airwallex’s customers, both in Mexico and around the world, to gain access to local payment methods such as SPEI, Mexico’s interbank electronic payment system, and OXXO, a voucher-based payment method that lets shoppers order things online, get a voucher, and then fulfill their order with cash.

    “The ability to access the license for the native infrastructure over there will give us a significant advantage with our global proposition,” Zhang told CNBC.

    Airwallex has seen huge levels of growth in the Americas in the past year — the company reported a 460% jump in revenues there year-over-year.

    Airwallex isn’t the only company seeing the potential in Latin America.

    SumUp, the British payments company, has been active in Latin America since 2013, opening an office in Brazil back in 2013. The firm’s CFO Hermione McKee told CNBC in June at the Money 20/20 conference that it plans to ramp up its expansion in the region.

    “We’ve had very strong success in Latin America, in particular, Chile recently,” McKee told CNBC in an interview.

    “We are looking at launching new countries over the coming months.”

    More than 156 million people in Latin America and the Caribbean are between the ages of 15 and 29, accounting for over a fourth of its population. These consumers tend to be more digital-native and mistrusting of established banks.

    Correction: This story has been amended to reflect the fact that Jack Zhang is CEO of Airwallex. A previous version of this story misstated his title.

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