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 Happy Friday, Fintech Takers! People think my whole “Don’t move to Montana” thing is just a bit; a recurring joke about my desire to not see my literal paradise ruined by an influx of Californians. It’s not a joke. Do not move here. Do not even visit. We now have bears that have evolved beyond simply knocking down trash bins. Now they are strategically inverting them in order to test our responses and learn our weaknesses. We are engaged in a war that we cannot possibly win. It’s too late for us, but it’s not for you. Do not move to Montana. - Alex P.S. — Some topics should be blog posts. And some topics should be live discussions. The optimal amount of friction in a loan application is a topic that falls squarely into the latter category. Join us! Was this email forwarded to you? Sponsored by Nova Credit Cash flow underwriting earned its reputation at origination. But origination is one decision, made once. Nova Credit's invitation-only Cash Flow Intelligence Summit on September 10 in New York is built around exactly that shift. See you there in a few days? DEEP DIVE A (Mostly) Fake Fintech Q&ASometimes I lack the mental energy to come up with a clever premise or hook for the newsletter. Sometimes I just want to structure my thoughts on what’s happening in fintech (and in the broader world) in the form of a quick Q&A. The trouble is that I don’t always get as many questions from the Fintech Takes audience as I might ideally like (this is something we need to work on … I’d love to do a more regular mailbag, either written or through the Fintech Takes podcast … please let me know if this is something you’d enjoy, and if so, send me a question or two to get the ball rolling!) So … from time to time, I’ll just make up a set of questions for me to answer, publicly in the newsletter. If this strikes you as odd, and perhaps a little narcissistic, that’s fair. All I’ll say in my defense is that life as a full-time content creator can be hard sometimes. So, that’s what I have for you today — a (mostly) fake fintech Q&A, composed of three questions I made up myself and two that were sent my way by readers/listeners. I’ll leave it to you to try to guess which ones are which! #1: What’s going on with X Money in New York?X Money has apparently told its New York customers that it will stop paying them interest on their stored balances on October 1, 2026:
Well that’s weird! As I wrote about a while back, X Money has taken a very aggressive approach to customer acquisition by offering an eye-popping 6% APY on stored balances. That offer has some important caveats, but is still likely too much to be sustainable over the long-run:
X Money appears intent on not letting the New York Department of Financial Services stop it from being overly generous — the $300 direct deposit bonus functions, effectively, as a substitute for the interest payments — but the question is why is DFS doing this in the first place? On the surface, it’s an odd decision. X Money has money transmitter licenses in 42 states and Washington D.C. Typically, state MTLs allow companies to facilitate payments on behalf of customers and to store balances on behalf of customers, but those stored balances are not legally considered deposits, and, thus, they cannot pay interest. Fintech companies get around this problem by partnering with banks to hold customers’ funds, which allows them (acting on behalf of their bank partners) to offer yield on those deposits. That is the model that X Money has built, in partnership with Cross River Bank. Seemingly, it works just fine in 41 states and the District of Columbia, but not in New York. Again, this is really weird! It’s not clear if New York DFS is arguing that X Money’s bank-deposit characterization is invalid and is thus treating New York users’ balances as the company’s own stored-value liability under the state’s MTL rules. That would be a very novel interpretation, compared to how these arrangements are typically treated by state regulators. Or, perhaps, this is a special condition that New York DFS placed on the company when it approved the money transmitter license in July? Though, if that were the case, it would be odd for X Money to inform New Yorkers that they will stop receiving interest on stored balances on October 1st? To be honest, it feels like both sides (X Money and DFS) are in the middle of a larger fight (perhaps stemming from this letter?) and this action (and X Money’s customer communications regarding it) are an attempt to create leverage in that fight. It’s unfortunate that customers are being caught in the middle. #2: Why did the NBA come down so hard on Steve Ballmer and the L.A. Clippers?If you haven’t been paying attention to this story, allow me to first say that it is perfectly calibrated to my interests as both a fintech nerd and a huge NBA fan. The basic details are this:
This is, by far, the most severe punishment that the NBA has ever handed down to one of its teams. And the question is why? I have a few thoughts on this. First, the evidence produced by the law firm that the NBA hired to investigate the Clippers is super damning. To paraphrase Toby Ziegler, it’s not so much that the Clippers cheated. It’s how brazenly bad they were at it. The NBA couldn’t let it slide. Second, as I mentioned above, the NBA takes its salary cap very seriously. Or, to be more precise, the 30 people who own NBA teams care very deeply about the salary cap. Well, 29 of them do, and that’s the point. Steve Ballmer — former CEO of Microsoft and one of the richest people on Earth — does not care about the NBA salary cap. He wants to win. He wants to win very badly. He’s hypercompetitive. So much so, in fact, that he spent $2B of his own money to build a state-of-the-art stadium for the Clippers, because he was tired of being the little brother to the L.A. Lakers, who the Clippers previously shared an arena with. The guy is basically a maniac, in business and in basketball. The irony is that this is exactly what NBA fans want. We want the teams we root for to be owned by people who want to win as badly (or more so) than we do. We want those owners to not give a shit about money. We want those owners to view the team through the lens of competition, not asset management. But that’s not what most of the 29 other owners want. They want to win, but not if it means spending too much money. They talk a good game when it comes to competition, but, in their heart of hearts, they’re asset managers. Steve Ballmer broke the sports team owner code. That’s why he’s getting hammered by the league. One final note on this story. You might be wondering if Kawhi Leonard got punished by the NBA. After all, it was he and his representatives that pressured the Clippers to arrange these side deals. He was an active participant in circumventing the salary cap. And he benefited financially, to the tune of $2.5M - $5M. Shouldn’t he have to, I don’t know, pay that money back? Or maybe be suspended for a few games, at least? Well, no. Leonard did not have his contract voided. His trade to the Toronto Raptors (which happened this offseason) was not undone. He was not suspended. And he only has to pay a $700,000 fine. What gives? Here’s my theory. In order to drop the hammer on Ballmer, the NBA needed to ensure that he and the Clippers would have no legal avenue to fight back. Because the NBA is a private organization, governed by its own contracts and rules of conduct, it’s very difficult for individual NBA teams to sue the league. It’s like a country club. When members join, they agree to abide by the rules and the rules are final. That’s it. The courts generally don’t get involved. The one exception to this is the collective bargaining agreement between the league and the players. This agreement gives the players’ association the ability to fight back against league decisions that it disagrees with via a neutral arbitration process. That arbitration process is really the only avenue that the Clippers (via Kawhi Leonard) would have had to push back against the league’s punishment. But guess what? The players association agreed with the league’s punishment! And that makes the penalties final, binding, and un-appealable! I think that the NBA (very cleverly) negotiated a lenient penalty for Leonard, so that it could get the players association sign-off and then drop a nuclear bomb on Ballmer and the Clippers. #3: What did you learn in your podcast about the Cash App Score that you didn’t know before?So much! It was an absolute delight to have Juan join the show to talk about the Cash App Score. And, unbelievably, I’m getting the chance to do a sequel with him next week, live on stage at the Nova Credit Cash Flow Intelligence Summit (35 minutes will not be enough time!!) I’d encourage y’all to listen to the full podcast (and attend our session next week if you’ll be at the Summit), but I’ll share one quick thing I learned right now. Block’s distribution partnership with Nova Credit is a fascinating twist on the traditional credit bureau model. Nova, as you may know, is a consumer reporting agency, so Block does not have to become a CRA in order to distribute the Cash App Score to lenders through Nova (though Juan said that Block may become a CRA itself at some point in the future). That makes the Block/Nova partnership somewhat analogous to the distribution arrangement that has existed for decades between FICO and the credit bureaus. The difference, of course, is that FICO doesn’t have a massive portfolio of consumer banking customers and its score isn’t built on top of the proprietary data generated by those customers. But that is the case with Block and the Cash App Score. And what that means is that Block can play a much more involved role in the steps that surround the credit decision. For example, Cash App users will be in full control of the permissioning experience, meaning that they will be able to toggle on and off, in the app, whether they want their Cash App Score to be available to external lenders, and even to be notified in real time when a lender requests their score. That would represent a significant improvement, in terms of consumer control and visibility, over how traditional bureau-based credit decisioning works today. Adverse action notices are another example. This one might be a little further in the future (Block may have to become a CRA to enable it), but theoretically Block would be able to provide much more specific and personalized guidance to customers for how they can improve their creditworthiness. As Juan told me on the podcast, “we’re actually trying to inform them: ‘hey, you can do this–like set up direct deposit … or pay off outstanding debt.’ You can think about it more as a journey.” Pretty exciting stuff! #4: What do you think about Revolut and OpenReserve getting national bank charters from the OCC?#CharterWatch update: Revolut and OpenReserve have both been granted preliminary conditional approval to open up full-service national banks in the U.S. Let’s take them one at a time. Revolut is, as you know, one of the largest and most successful neobanks in the world. It has 70-80 million customers across 40 different countries (concentrated in Europe) and it generated about $6B in annual revenue in FY2025. It was recently valued at $115B during a company-sponsored secondary share sale, though I’ll freely admit that when it comes to private company valuations these days, I have no idea what numbers mean anymore. It has operated in the U.S. (through partner banks) since 2020, but it has only managed to pick up roughly one million U.S. customers during that span. That’s not great, and, more importantly, it’s not clear to me why having a national bank charter is going to change that dynamic. End customers don’t really care if the “bank” that they are working with has its own bank charter (sometimes to their detriment, See: Synapse). So, this development, while exciting for Revolut, doesn’t, by itself, make the company any more competitive in the U.S. (a famously brutal competitive environment). Additionally, it should be noted that Revolut has had its share of problems over the years. It took years for the company to get a banking license in the U.K. (largely due to concerns over audits and internal controls) and it was fined €3.5M by Lithuanian regulators for severe deficiencies in its AML transaction monitoring systems and customer due diligence processes. Additionally, in the U.S. in 2022, organized criminal groups discovered that when certain U.S. card transactions were declined, Revolut erroneously refunded the cardholders using its own corporate cash instead of properly rejecting the payout. This bug was quietly exploited to the tune of $23M and Revolut didn’t notice until its U.S. partner bank informed it that it was holding less cash in its accounts than expected. Not great! To the OCC’s credit, it seems to have taken some of these past missteps into consideration via the conditions of Revolut’s preliminary charter application approval. The company is required to put at least $95M of paid-in capital into the bank and hold a Tier 1 leverage ratio of at least 10% for its first three years, which is on the higher end of normal for a de novo national bank. Additionally, in a first for this OCC, the agency is requiring additional approval (known as supervisory non-objection) before it can offer four of its more complex and risky services to U.S. customers: leveraged currency trading, foreign exchange forwards, merchant acquiring, and correspondent banking for unaffiliated foreign banks. Additionally, it should be noted that Revolut still needs to be approved for deposit insurance by the FDIC (this one seems likely to me) and for setting up a bank holding company by the Federal Reserve (this one is a little less certain, IMHO, given Revolut’s long road in the UK and the Fed’s more independent and contradictory nature). OpenReserve just came out of stealth, announcing a $25M seed round (What does the term ‘seed round’ mean anymore?!?) and conditional preliminary approval from the OCC to start a full-service national bank. OpenReserve was founded by Dee Choubey and Rick Correia (formerly of MoneyLion). It markets itself as “the world’s first continuous bank,” which is a tagline I do not understand. Digging in a little bit deeper, it appears to be a crypto-native bank that is planning to launch a stablecoin-issuing subsidiary and offer (among other things) correspondent banking services, tokenized deposits, and embedded on-chain settlement 24x7x365, which is (I think) where the “continuous bank” framing comes in. It is clearly positioning itself as an infrastructure-first bank, ready and willing to partner with non-bank fintech and crypto companies. And the OCC is apparently onboard with this direction (even though it did stick the bank with a $210M paid-in capital requirement and 12% Tier 1 leverage ratio). As Roman Goldstein astutely pointed out, in the OCC’s approval letter for OpenReserve’s charter application specifically uses the term “banking-as-a-service,” which seems to be the first time that federal regulators have used that term. That might seem like a small detail, but it’s important. Regulators have traditionally referred to these arrangements as “third party relationships,” which helped to reinforce the traditional (and increasingly outdated view) that a fintech or crypto company that was partnering with the bank was acting as a service provider to the bank. BaaS, by contrast, acknowledges the reality that banks are, functionally, the service providers in many of these arrangements. Obviously, OpenReserve has just come out of stealth, so we don’t know very much about the bank or how it is planning to win in the market, yet. We’ll have to wait and see. My only observation is that the pitch that the bank is making sounds very similar to the pitch that other recently-approved de novo national banks — Erebor and Augustus — are already making. And that makes me wonder how many of these global/continuous/crypto-native/infrastructure-first banks we really need. #5: What do you think about New York City’s one-year moratorium on student-facing generative AI tools for public school children in pre-K through eighth grade?I love it. To be honest, I don’t think it goes far enough. But one step at a time. Predictably, most of the tech and VC folks (whose opinions I oversample because I’m on Twitter too much) hated it. Many of them made the argument that this decision would widen the gap between public school students and private school students, and that’s an argument that I’d like to address directly because it’s enraging to me. First, unless your kids actually attend public school, shut the fuck up. Second, why are we assuming that giving children between the ages of 5 and 13 access to AI in the classroom is going to make them smarter or help them learn better? We obviously don’t know, one way or another, how AI will affect learning outcomes. It’s too early, in both the development of AI as a technology broadly, as well as in the development of AI-native educational tools. But, like, it’s very plausible that AI will harm student learning, right? Especially at younger ages, where foundational knowledge and skill development are paramount. That’s not a crazy notion. Teachers (in college, especially) are already warning us about the negative effects that AI is having on their students’ attention spans and critical thinking skills. And that kinda makes sense. We all use AI. Has it made us smarter? More efficient, sure. But smarter? I think that’s a hard case to make. Learning isn’t about efficiency. If it were, we’d give calculators to first graders. Learning is about problem solving and, at least right now, AI is too good at solving our problems for us for it to be much use in a classroom. Sponsored by Middesk The most valuable thing a fraudster can steal isn't a bank account; it's your reputation. WHERE I'LL BE It’s just around the corner! Get ready for the fun!! ✈️ FinovateFall | September 9-11 | New York CityMy can't miss fall conference! September in New York is glorious and the fintech conversations will be too. ✈️ Cash Flow Intelligence Summit | September 10 | New York CityNova Credit has rebranded this from the "Cash Flow Underwriting Summit" to the "Cash Flow Intelligence Summit." Come find out why. ✈️ FDATA Global Open Finance Summit | September 17 | TorontoThis will be my first time at an FDATA event and my first time back to Toronto in a long time. If you work in open banking in Canada and want to yell at me for my bad takes in the past, this is your chance! ✈️ AI-Native Banking & Fintech Conference | September 29 | Salt Lake CityThe name of this event is a mouthful, but the content and networking are both A+. Thanks for the read! Let me know what you thought by replying back to this email. — Alex | |||||||||
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