WORKWEEK

3 Fintech News Stories

#1: Wait, is your name even Frank?

What happened?

Well, we may already have our winner for the most insane fintech story of 2023, and it’s only January 16th:

JPMorgan Chase on Thursday shut down the website for a college financial aid platform it bought for $175 million after alleging the company’s founder created nearly 4 million fake customer accounts.

JPMorgan said it learned the truth about Frank after sending out marketing emails to a batch of 400,000 customers. About 70% of the emails bounced back, the bank said in a lawsuit filed last month in federal court.

After being pressed for confirmation of Frank’s customer base during the due diligence process, founder Charlie Javice used a data scientist to invent millions of fake accounts, according to JPMorgan.

So what?

The details of this story are bonkers. Here are a few of my favorites (from JPMC’s side of the story):

JPMC first noticed irregularities with the list when a JPMC employee observed that the list contained exactly 1,048,576 rows, the maximum permitted by Microsoft Excel. 

Whoops!

Also: 

She asked the Director of Engineering if he could help her take a known set of FAFSA application data and use it to artificially augment a much larger set of anonymous data that her systems had collected over time. The Director of Engineering questioned whether creating and using such a data set was legal, but Javice tried to assure the engineer by claiming that this was perfectly acceptable in an investment situation and she did not believe that anyone would end up in an “orange jumpsuit” over this project.

The Director of Engineering allegedly refused to do what the CEO asked, which was a good decision! Don’t do fraud or things that feel like fraud!

A college professor who allegedly did help out with this scheme was asked to adjust his invoice to be less specific, which is … not a good sign:

In response to the initial invoice, Javice demanded that he remove all the details admitting to how they had created fake customers – and added a $4,700 bonus. In an email to the Data Science Professor at 12:39 p.m. on August 5, 2021, Javice wrote: “send the invoice back at $18k and just one line item for data analysis.” In total, Javice paid the Data Science Professor over $800 per hour for his work creating the Fake Customer List, which is 270% of his usual hourly rate.

We really need to pay college professors more.

For her part, Javis argues that Chase’s insistence on exploiting her company’s customer list was narrow-minded and crass, and it undermined the value of the asset they had just acquired:

Chase undermined Frank’s value by pursuing poorly conceived business plans focused on monetizing student FAFSA® data and conducting direct marketing campaigns aimed at Frank’s historical customers. … the new team focused primarily on mining the personal information of Frank’s legacy customers to blast them with marketing emails promoting consumer financial products, including credit cards and personal loans.  

I’m kinda sympathetic to this argument! Why did Chase spend $175 million for (what it thought) was roughly 4 million email addresses? Even if the pull-through rate on a cross-sell campaign run against that list was 100%, I don’t think the resulting CAC would be even remotely reasonable. It seemed to imply, in its original press release announcing the acquisition, that it was interested in Frank’s product:

The firm will acquire Frank’s entire business, including its Easy FAFSA®, Classfinder College Course Marketplace, Scholarships & Employment tools, and Financial Education and Careers content.

“We want to build lifelong relationships with our customers,” said Jennifer Piepszak, co-CEO of Chase. “Frank offers a unique opportunity for deeper engagement with students. Together, we’ll be able to expand our capabilities for students and their families, helping them financially prepare for college and other major moments in their future.” 

The trouble for Javis is that Chase appears to have all kinds of evidence that she committed fraud in order to close the acquisition! That would seem to supersede any other arguments one could make!  

#2: Something odd is going on with Revolut.

What happened?

Revolut keeps missing a deadline:

Revolut’s long-awaited 2021 accounts have been finalised, however, the fintech will miss its 31 December deadline to publish them.

Instead the company will now publish its overdue accounts “in the new year”, AltFi can exclusively reveal.

HMRC requires company accounts to be filed on Companies House nine months after the financial year ends, however Revolut missed its original September 2022 deadline and had this extended to 31 December, a date that it will also now miss.

Revolut’s 2021 figures have reportedly come under increased scrutiny, with the Financial Times reporting earlier this year that accountancy firm BDO had its previous auditing of Revolut’s filings criticised as “inadequate” by the UK regulator.

So what?

This is becoming a bit of a pattern (Revolut also got fined for missing a financial reporting deadline in Lithuania recently), and it’s real weird.

The context here is that Revolut’s CEO Nikolay Storonsky has been describing Revolut as “profitable” based on its yet-to-be-filed 2021 accounts, and yet they seem reluctant to share those accounts.

I don’t know why that is, but I’m guessing there is a more interesting reason than someone just made a simple clerical mistake.

I do know that Revolut last raised money in 2021 ($800 million from Softbank and Tiger Global at a $33 billion valuation), and I would imagine that A.) that war chest is running a bit low and B.) it’s going to be incredibly difficult to raise more money at a valuation anywhere close to $33 billion.

Supposedly the books will finally be closed at the end of this month, so I guess we’ll see! 

#3: The Polar Opposite of Yield Farming

What happened?

Public is introducing a new savings option for its customers:

Public.com … has begun rolling out Treasury accounts … Treasury accounts are a new account type allowing members to invest their cash in U.S. Treasury bills that are automatically reinvested at maturity and can be sold at any time. Public’s Treasury accounts offer members similar flexibility to a high-yield savings account, but are currently offering even higher yields.

The 26-week T-Bill offering in these accounts is currently yielding 4.8% (as of Jan. 11, 2023), when held to maturity. Public plans to introduce additional T-Bill terms in the coming months.

So what?

This new functionality is being powered by Jiko (who I wrote about a few months ago), and it’s very compelling.

Treasury Accounts are basically a mashup of a traditional savings account (passively earn yield and withdraw your money with no penalty at any time) and a certificate of deposit (keep your money in until the maturity date and earn above-market returns). And it’s all really safe! T-bills are about as close as you can get to a risk-free investment because they are backed by the U.S. Government.

This is basically the polar opposite of yield farming. I’m here for it.

2 Fintech Content Recommendations

#1: 5 Predictions For Banking And Fintech In 2023 (by Ron Shevlin, Forbes) 📚 

Ron has a very discerning palette when it comes to predictions. In his view, most “predictions” are actually just sparkling trend observations. It’s only a prediction if it comes with the risk of being wrong.

With that in mind, Ron offers five predictions for 2023, including big banks jumping into BaaS (I agree!) and 2023 being the “year of the chatbot” in banking (not sure I agree!).

Read these!

#2: India as the bull case for Fintech (by Simon Taylor, Fintech 🧠 Food) 📚

I recently wrote a tiny bit about fintech in India (contrasting UPI to other P2P payments solutions around the world) and came away fascinated. So I was thrilled to read Simon’s excellent overview of India’s financial services ecosystem. It goes into a lot of depth on the history and current composition of the market, the role of fintech and public infrastructure (India Stack), and the challenges and opportunities for the future.

1 Question to Ponder

What’s one thing you can do to help someone else in the fintech ecosystem? 

I’ll share all of the suggestions and offers that I receive in an upcoming newsletter, so let them rip! 

Can you help someone who was just laid off find a new job? Can you introduce a diverse founder to an investor? Can you take an hour and provide feedback on a pitch deck or an early product concept? Can you be a mentor to someone who is new to our wonderful industry?

 Please DM me on Twitter or LinkedIn and let me know how you can help!