That’s More Like It
By Alex Johnson
3 FINTECH NEWS STORIES
#1: I Don’t Get It
A London-based fintech infrastructure company raised a seed round:
Kennek has raised $12.5 million in a seed funding round led by HV Capital and supported by Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures and Syndicate One.
The company has developed an end-to-end operating system designed to streamline the operations for lenders, credit investors, corporates, and servicers in the alternative credit sector.
Not to go all Josh Baskin on you, but I don’t get it.
$12.5 million is big for a seed round these days, and it is apparently coming only nine months after a $4.5 million pre-seed.
And the thing that they’re building is an end-to-end operating system for lending?
The Finextra article mentions that Kennek can support all different types of B2B lending products, including “bridge & development loans, SME term loans, R&D and grant advances”. This is weird because, generally speaking, if you’re going to build a ‘lender-in-a-box’ platform to enable any company to easily start lending money (which Kennek is supposedly doing) you need to be extremely prescriptive. You have to define, down to every individual application field and data variable, how the system will work. This level of prescriptiveness precludes the flexibility to support “all different types of B2B lending product”.
Who is this platform for?
The article says that Kennek is built to support both the lender-in-a-box use case and existing lenders and banks. This doesn’t make any sense. Lenders and banks don’t usually buy end-to-end platforms. It would wreck their unit economics. These companies buy individual, best-of-breed components and assemble their own stacks.
Non-bank companies that want to expand into lending or embed lending within their existing products probably are looking for an end-to-end platform, but I’m not sure how much demand there is in the world of embedded lending for bespoke B2B lending products like bridge loans (which usually involve a lot of manual underwriting and other non-tech steps).
#2: That’s More Like It
A fintech company focused on older consumers (and their families) raised a Series A:
Carefull, an AI-powered financial safety platform that helps banks and wealth advisors protect aging customers from scams and money mistakes, today announced that it has closed its Series A round with $16.5 million in funding. The round was led by Fin Capital and joined by Bessemer Venture Partners, TTV Capital, Commerce Ventures, Montage Ventures, and Alloy Labs, bringing the company’s total funding to $19.7 million.
Carefull actively scans all customer account types for over 50 financial and behavioral issues unique to aging, catching unusual activity, suspicious patterns, and even bigger problems like financial exploitation by a loved one or signs of cognitive decline. The platform also integrates identity, credit and home title monitoring; $1M in identity theft insurance; a password and document vault; and a smarter Trusted Contacts system for banks to gain “share of family” in addition to share of wallet.
Ohh yeah. That’s more like it.
Massive problem, which banks have been ignoring and that most fintech companies don’t care about? ✅
A comprehensive solution, which incorporates both customer segment-specific behavioral analytics and a thoughtfully-designed user interface? ✅
Scaling widely through both direct B2C marketing and B2B2C partnerships? ✅
A while ago I wrote an essay in which I sketched out a few different ideas for how banks could redesign the basic bank account to better address the specific customer segments.
I’m embarrassed to admit that I missed this one entirely.
I’m glad Carefull is building it.
#3: Fair Lending for Immigrants
The CFPB and the Justice Department jointly issued a statement:
[The statement] reminds financial institutions that all credit applicants are protected from discrimination on the basis of their national origin, race, and other characteristics covered by the Equal Credit Opportunity Act, regardless of their immigration status. The CFPB and Justice Department are issuing this statement because consumers have reported being rejected for credit cards as well as for auto, student, personal, and equipment loans because of their immigration status, even when they have strong credit histories and ties to the United States and are otherwise qualified to receive the loans.
The CFPB has been doing a lot of stuff with the Equal Credit Opportunity Act (ECOA) lately. Last month, it was adverse action notices (which I wrote about, in depth, here). This month, it’s this.
I’m not a lawyer (super important disclosure!), but this one seems a bit odd to me. Immigrants are not a protected class under ECOA. Although it’s easy to see how immigration status overlaps with other characteristics that do fall into protected classes (race, national origin, etc.), the CFPB has itself issued interpretive guidance on ECOA in the past that states that “a denial of credit on the ground that an applicant is not a United States citizen is not per se discrimination based on national origin.”
Additionally, under ECOA, lenders are allowed to consider immigration status and ties to the community when evaluating the likelihood of repayment, which makes sense given that there is a world of difference between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.
The core issue here is the CFPB’s focus on disparate impact, which is the idea that discrimination can be demonstrated by identifying a disproportionate adverse impact on members of a protected class even though the rules and processes employed by the lender on the front end are formally neutral.
The disparate impact doctrine is the subject of much debate generally (check out this article for a lot more detail). However, in this specific case, it seems like a tough fit. Most lenders are going to decline a disproportionately large percentage of immigrants. Many of those declines will be for valid reasons (KYC, lack of credit data, well-founded concerns about the likelihood of repayments, etc.), but that will likely still contribute to a disparate impact on specific racial and national origin groups. It’s not clear to me how the bureau will be able to fairly determine which of those disparate impacts were the result of discrimination and which were the result of sound risk management.
(Editor’s note – In my humble opinion, lenders should want to lend to immigrants, all things being equal. I suspect there’s some really powerful positive selection within this segment and fintech companies like Nova Credit are building great solutions to help address some of the structural challenges.)
2 FINTECH CONTENT RECOMMENDATIONS
#1: BaaS-ing The Buck: Who Has Fairness Obligations In The Banking-As-A-Service Ecosystem? (by Kareem Saleh, Forbes) 📚
Speaking of fair lending and ECOA, do you know who’s much smarter than I am on that topic and has recently written about it in the context of banking-as-a-service? My friend Kareem, Founder and CEO of FairPlay.
Read his article, please.
#2: The Decline of Chime (by James Ledbetter, FIN) 📚
Spicy stuff from James.
I’m continually fascinated by Chime. It’s obviously been enormously successful, and the folks at the helm are super sharp. And yet, I too have many questions about the company’s future that I don’t see clear answers to.
1 QUESTION TO PONDER
After Money 20/20 I’m done traveling in 2023 (thank goodness!), but it’s probably already time to start thinking about next year – what banking and fintech conferences are you planning to attend in 2024?
Bonus points if you can suggest ones that are a bit off-the-beaten-path.