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Happy Monday,

I hope you’ve had a safe and meaningful holiday weekend. 

I’m taking today (mostly) off and planting flowers with my wife and kids, but worry not. Today’s newsletter has plenty of good stuff.

Also, very exciting news: My next Fintech Office Hours is on Thursday and it’s open to everyone. As a reminder, these are monthly virtual events where I get together with folks from the Fintech Takes community to recap what’s been happening in fintech and to chat about what we find most interesting/confusing/exciting/infuriating. Please join us!

- Alex

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3 FINTECH NEWS STORIES

#1: How Much Are Fintech Banks Worth?

What happened?

Mercury got conditional approval from the OCC to become a national bank:

Mercury received conditional approval for a national bank license from the Office of the Comptroller of the Currency, the fintech announced Monday.

Mercury announced it had applied for a charter on Dec. 19, at the time appointing Jon Auxier — an alum of SoFi, Green Dot and Goldman Sachs — as CEO of the proposed Mercury Bank.

It also raised some additional capital:

Mercury … has raised $200 million in funding at a $5.2 billion valuation, CNBC has learned exclusively.

That valuation is 49% higher than the San Francisco-based company’s previous funding round just 14 months ago, bucking the downturn facing much of the fintech sector.

Meanwhile, Chime’s CEO made it clear that a bank charter is coming at some point:

For fintech Chime to achieve its long-term vision, CEO Chris Britt said Monday “it’s more of a when, not if” that the company will seek a bank charter.

“It’s, to some degree, an inevitability that we’ll become a bank; the question is just, when?” Britt said during an appearance at a JPMorgan Chase investor conference.

And SoFi bought a fintech infrastructure company:

US fintech SoFi has made its second acquisition in a matter of weeks, snapping up lending technology platform Peach. Financial terms were not disclosed.

Founded eight years ago, Peach is an API-first, cloud-native tech platform that helps financial institutions and fintechs quickly launch lending programmes in areas such as personal loans, credit cards, auto loans and BNPL products.

So what?

Banks are commonly valued by a metric called price to tangible book value (P/TBV), which is a metric that compares a company’s market price per share to its “hard” assets that can be easily liquidated (cash, high-quality liquid assets like treasuries, loans, physical real estate and equipment, etc.)

Banks with distressed assets (risky loan portfolios, underwater bond portfolios, etc.) often trade below a 1.0x P/TBV. Many community banks do too, simply because the baseline compliance costs of running a bank of any size are so high. A strong P/TBV in banking is generally in the 1.2x to 1.5x range. Anything above 2.0x is considered exceptionally good. This is where mega-cap banks like JPMorgan Chase sit, as well as a few specialists with unusually lucrative businesses, like The Bancorp.

This is important for two reasons.

First, it tells you something about the inherent skepticism of bank investors. These people don’t like to pay more for a company than what they could get back if they sold everything that isn’t nailed down.

Second, it’s very different from the way that tech investors think.

Tech investors don't ask what a business could be liquidated for. They ask what it could be worth in ten years. The math anchors on growth rate, gross margin, customer retention, and total addressable market. That's why tech companies trade on revenue multiples (price-to-sales ratio or P/S) rather than tangible book multiples. A SaaS business growing 40% with strong gross margins might trade anywhere from 10x to 20x P/S.

So what is a B2C or B2B fintech company — literally a SaaS business that provides banking services — worth?

There is some variability, but, in general, the rules are:

• 2021 companies were worth a premium in 2021 because 2021 was an insane year. 

• Private companies are worth more than public companies because private market investors are more focused on the future (which requires a certain amount of optimism) and public investors are rigorously focused on the present (which requires a great deal of realism).

• Companies with bank charters are worth less than companies without bank charters because bank investors are very skeptical people.

• Companies that are big, profitable, and growing quickly are worth more than companies that aren’t those things because those things are good and desirable traits for companies to have.

SoFi is the best case study for understanding how these rules apply, because it has triggered all of them at one point or another. 

SoFi made it to a high of over 20x P/S after it went public via a SPAC in 2021. Once ZIRP mania ended and the company acquired a bank charter, it saw its P/S decline, dropping all the way down to 2.3x in 2022, before rebounding to around 5.5x today. If we translate that to P/TBV (which, as a reminder, measures price against assets, not revenue), it’s about 2.2x currently.  

Is that the right number?

Shit, man, I don’t know. The core consumer business is doing quite well (it grew to 14.7 million members, who collectively hold 22.2 million products). The infrastructure business (anchored by Galileo and Technisys, and now joined, confusingly, by Peach) is doing very badly. It’s on track to make meaningfully less money this year than it did last year (it lost Chime as a customer) and Galileo’s long-time CEO left last year to pursue a new AI venture. And the company still has a strong base of passionate (arguably illogical) retail investors from its SPAC days, who appear to be pot-committed. That mix of factors prices out the company at 5.5x P/S and 2.2x P/TBV.

So, what does this mean for Mercury and Chime?

Mercury is getting the bank charter before going public, which is unusual among its fintech/bank peers. It will make it difficult to evaluate the company in the short-to-medium term. Its current P/S ratio is roughly 8x after this most recent fundraise, which is high for a bank. However, Mercury also appears to be in an extremely strong position (it claims to have 300,000 customers, including a third of early-stage startups, and that it has been profitable for the past four years). My guess is that we will see it go public within the next two years, but until that happens, public market bank investors won’t have an opportunity to have their say.  

Chime is the more interesting case. It was a private company in 2021, which allowed it to “earn” a P/S ratio of 31x when it raised its Series G in August of that year. When it IPO’d last year, after years of post-ZIRP skepticism, it did so at 7x P/S. Since then, public market investor scrutiny has further compressed the P/S ratio down to roughly 3x.

The question is what will happen when Chime eventually gets that bank charter.

Logically, the ratios should improve. Chime is already a public company. It is being rigorously evaluated by investors who are anchored firmly on the present, not some hypothetical future. Those investors should like the business benefits that Chime will realize once it gets a bank charter and ditches its bank partners. The business model — high-volume, low-margin transactional revenue from a broad base of underserved customers — will stay the same, but the margin will get better!

And yet, I’d be surprised if Chime’s valuation doesn’t compress further once it gets that bank charter. It won’t really make sense, but it’ll probably happen.

#2: What is the Fed Doing?

What happened?

President Trump signed an executive order directing federal banking regulators to identify ways to make fintech companies’ lives easier and asking the Federal Reserve to evaluate how it can make access to its payments infrastructure broader and fairer:

The Order asks the Federal Reserve to conduct the same regulatory review and to evaluate the legal, regulatory, and policy frameworks governing access to Reserve Bank payment accounts and payment services by uninsured depository institutions and non-bank financial companies.

And the Federal Reserve Board released a proposal for a “skinny” Fed master account, asking for feedback from the industry:

The Federal Reserve Board on Wednesday requested public comment on a proposal to establish a "payment account," which legally eligible financial institutions could use for the specific purpose of clearing and settling their payments.

The Federal Reserve Board also asked for a pause on considering riskier master account applications:

To promote greater clarity and consistency, the Board is also encouraging Reserve Banks to temporarily pause decisions on access requests from institutions that fall within Tier 3 of the Board's Account Access Guidelines until the Board has completed its policy development process on the payment account proposal. The temporary pause will allow the Federal Reserve to solicit and consider public input on payment accounts and to promote consistent implementation. 

So what?

I’ve been covering the drama around Fed master accounts — which are essentially bank accounts for banks at the Federal Reserve that allow them access to the Fed's payment rails, incur intraday overdrafts, tap the discount window for emergency liquidity, and earn interest on their reserve balances — for a while now.

It’s easy to get lost in the details (believe me) but when you look at it as a timeline, the story gets easier to understand. I’m going to lay out that timeline, but first, a couple of quick reminders:

1. Only “depository institutions” as defined under the Federal Reserve Act and amended by the Monetary Control Act, can get master accounts. That definition is the subject of significant debate, especially for state-chartered uninsured depository institutions.

2. The 12 regional Reserve Banks within the Federal Reserve System make the decisions on which depository institutions get master accounts. Each bank covers a different region of the country and master account applications from those regions are reviewed by their corresponding banks.

3. The Reserve Banks have near-unlimited discretion in deciding which applications to approve and which to decline. 

Make sense? 

No? 

OK, great!

Let’s get to the timeline:   

• 2017 — The Kansas City Fed denies a master account application from Reserve Trust (Colorado-chartered, non-depository trust company).

• 2018 — The KC Fed reverses course and grants Reserve Trust a master account.

• 2020 — Custodia Bank (Wyoming special-purpose depository institution) files master account application with KC Fed.

• 2022 — It is alleged that former Fed Governor Sarah Bloom Raskin helped Reserve Trust get its master account while serving on the company's board. Shortly after, the KC Fed revokes Reserve Trust's master account after determining the company is "no longer eligible."

• 2022 — The Federal Reserve Board adopts guidelines for reviewing master account applications, which defines three tiers of potential applications, with tier 3 applicants (state-chartered uninsured depository institutions) being considered the riskiest.   

• 2023 — The KC Fed denies Custodia's master account application. Custodia sues over the decision and loses.

• October, 2025 — Fed Governor Waller publicly floats a "skinny" master account, which would be a more limited account type for higher-risk depository institutions.

• December, 2025 — The Fed Board publishes a RFI to ask for feedback on this skinny master account idea.

• March, 2026 — The KC Fed grants Kraken (Wyoming special-purpose depository institution) a master account. The account is restricted in ways that are functionally similar to the proposed skinny account. Vice Chair for Supervision Michelle Bowman later clarifies that the approval is a one-year pilot and Representative Maxine Waters asks the KC Fed to explain itself.

• May, 2026 — President Trump signs the EO asking, among other things, for the Fed to figure its shit out. 

• May, 2026 — The Fed Board publishes its formal proposal for a skinny master account and encourages the individual reserve banks to pause evaluating tier 3 applications. 

Wild. Absolutely wild.

It’s bizarre to me that the Federal Reserve, and specifically the individual Reserve Banks, have so much unilateral power over these decisions. I’m a passionate supporter of central bank independence when it comes to setting monetary policy, but a national payments system should not be governed this way.

#3:The Difference Between Kalshi and Polymarket

What happened?

Polymarket has launched a new type of event contract:

Polymarket announced on Tuesday that it is launching a new category of prediction markets tied to private company milestones, including IPO timing, valuations, earnings, and secondary market activity.

The crypto-native prediction market platform said the new offerings will exclusively source resolution data from Nasdaq Private Market via a new partnership between the two.

Early markets seen on the 'New' tab on Polymarket include contracts tied to companies like OpenAI, Anthropic, Stripe, Databricks, and Kraken reaching specific valuation thresholds by certain dates.

So what?

One thing I’ve noticed about Kalshi and Polymarket is that they tend to mirror each other very closely. They offer the same types of bets. They hire the same strategic advisors (one in particular). They even run the same dumb local marketing stunts.

So, when one company does something that the other doesn’t immediately copy, I take note.

This appears to be one of those times. And I’m curious why.

The surface explanation is compliance risk, and that explanation is real. Polymarket launched its private-company valuation contracts on its international platform, not on its newly CFTC-approved U.S. venue. This tells us that Polymarket likely believes that such contracts would be unlikely to be approved by U.S. regulators (especially the SEC, which is likely to see these as securities rather than pure derivative swaps). Kalshi, by contrast, lives or dies by its U.S. regulatory positioning, so it can't entertain these contracts on its domestic venue.

But, again, why is that the case? Why is Polymarket’s offshore platform (which U.S. users are obviously accessing illegally via VPNs) still the place where the company is innovating and introducing new, legally questionable products? Why is it taking that risk? And, conversely, why isn’t Kalshi? Shouldn’t it be building an offshore version of its platform in order to offer some of these legally-questionable contracts too?

The answer to these questions is actually fairly straightforward. Each company is building for a different customer base.

Polymarket is a pure information market. Insider trading makes the market more accurate. Polymarket exists to help insiders trade against dumb retail bettors.

Kalshi, on the other hand, exists to help institutional traders — the folks at Susquehanna and Jane Street — trade against dumb retail bettors. Those institutional traders cannot tolerate structural adverse selection from counterparties who know things they don't. That's why Kalshi has been so much more aggressive than Polymarket about cracking down on insider trading: it's not a difference in values, it's a customer-acquisition strategy. Listing contracts where the most informed participants are unobservable would undermine the entire institutional pitch. 

Bets on the future valuations of private companies are ripe for manipulation by insiders. The information asymmetry here is structural and undetectable (a VC who sat in on a board meeting last Tuesday looks identical to any other user in the order book). That’s a desirable feature to Polymarket and an unacceptable bug to Kalshi.  

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2 READING RECOMMENDATIONS

#1: How Prediction Markets and Crypto Firms Steamrolled a Watchdog Agency (New York Times) 📚

Depressing, but very important reporting on the CFTC’s capture by Kalshi and Polymarket. Nothing unexpected here, but the details are still alarming.

#2: The Broken Ladder: AI, Remote Work, and Early-Career Hiring (by Peter John Lambert and Yannick Schindler) 📚

I don’t normally recommend academic research papers in the newsletter, but I’m making an exception here because this is an important topic. The combination of remote work and AI seems like a very negative super trend for people early in their careers.

*Bonus: The Shift to Cash Flow Underwriting (Fintech Takes x Prism Data) 🎧

Cash flow underwriting changed how lenders evaluate borrowers at the front door. The more interesting question is what happens after. Jason Rosen, founder and CEO of Prism Data, makes the case for why proactive servicing is one of the most consequential shifts in consumer lending (and why the pieces are finally in place to act on it). I've been waiting for this conversation for a while! Watch here.

*This rec is brought to you by one of our fantastic brand partners.

1 QUESTION FROM THE FINTECH TAKES NETWORK

There are a TON of interesting questions being asked in the Fintech Takes Network. I’ll share one question, sourced from the Network, each week. However, if you’d like to join the conversation, please apply to join the Fintech Takes Network. 

Do you think companies will be less likely to hire interns and entry-level employees (at least at the volumes that they have hired in the past) over the next 10 years because of AI? If not, why not?

If you have any thoughts on this question, reply to this email or DM me in the Fintech Takes Network!

Thanks for the read! Let me know what you thought by replying back to this email.

— Alex