Mastercard-Paxos deal: Why the card giant is offering crypto
Good morning, and welcome to Protocol Fintech. This Tuesday: Mastercard’s long game, digging into Three Arrows’ bankruptcy, and when an NFT looks more like a security.
Off the chain
PayPal is getting into the rewards game, combining its existing merchant discounts and Honey Gold into a single program. As credit card issuers have found with airline miles, consumers love points. Klarna and Affirm bring the rewards concept to “buy now, pay later.” Of course, we all pay for rewards programs, which are funded through merchant fees. The Points Guy is sounding the alarm about the Credit Card Competition Act, which it says could “gut” rewards programs. I suspect that card issuers and their imitators will find a way to continue showering customers with points, even if they have to be creative about the fees that fund them. If you don’t get a piece of the action, what’s the point of shopping?
– Owen Thomas (e-mail | twitter)
Playing the long crypto game
Mastercard launched a new service to help consumers buy and sell crypto through their banks. It shows that the payments giant is playing the long crypto game. More and more banks will want to bet on this market – but they will do it in a way that won’t get them into trouble.
Despite crypto crash, big banks want in. The market crash wiped out $2 trillion in value, but interest in crypto remains strong, especially among large financial institutions.
- Payments giants, led by Mastercard, Visa and AmEx, have been building their crypto capabilities for years. “Our commitment is simple,” said Jorn Lambert, Mastercard’s chief digital officer. Mastercard will “explore” crypto-technology and come up with ways to support “customer choice in payments.”
- The payment floats are not going away, despite the view that crypto threatens their existence, underlined by investor Chamath Palihapitiya’s prediction that they would be the “biggest loser of 2022”. (Last we checked, Visa and Mastercard were worth a combined $675 billion.)
- On the contrary: It is becoming clearer that payment giants are likely to play a key role in crypto growth. Walter Hessert, chief strategy officer at Paxos, cited Mastercard’s “powerful network of financial institutions around the world” that offers traditional financial companies “the fastest and most reliable way to provide safe, reliable crypto access for their consumers.”
Crypto needs the old guard. One might expect this crypto winter to “keep legacy institutions away,” but “volatility is likely what will make consumers feel more secure with established financial institutions,” Melody Brue of Moor Insights & Strategy told Protocol.
- Turning to a legal, centralized company like Mastercard is “a bit of a sidestep from the underlying decentralized purpose of blockchain,” but big crypto players may not have a choice, she said. Their familiarity with the ways of Washington could be an advantage when regulators move in.
- Serhii Zhdanov, CEO of crypto exchange EXMO, agreed: “Their processes are already in place and have been adequately tested.” Mastercard made “a logical move,” he said, given how “crypto could outgrow their existing industry and there’s already a huge demand.”
Crypto tokens may have taken a nosedive, but consumer interest in crypto remains strong and the industry still appears to be heading towards the financial mainstream. When that day comes, “the card networks and the legacy banks won’t necessarily be the competition that will delineate the world’s coinbases, but an opportunity for them to co-exist and cooperate that provides more consumer protection,” Brue told Protocol.
—Benjamin Pimentel (e-mail | twitter)
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On the money
The FTC is investigating Visa and Mastercard’s debit card routing. The regulator wants to know whether the security tokens the companies use for certain payments limit competition, The Wall Street Journal reports.
Texas’ securities regulator is looking into whether FTX’s yield-bearing crypto accounts are illegal. The agency said the crypto exchange should not be allowed to buy Voyager’s assets out of bankruptcy until the review is complete.
US regulators dig into Three Arrows Capital bankruptcy. The CFTC and SEC are looking into whether the collapsed crypto hedge fund broke rules by misleading investors about the strength of its balance sheet and failing to register with the agencies, Bloomberg reports.
Are fintech jobs still cool? The struggles of fintech firms this year are reversing a years-long trend and making traditional financial services more attractive to top talent.
The CEO of an “anti-woke” neobank has resigned. Toby Neugebauer has stepped down from the top role at GloriFi following a report by The Wall Street Journal that the startup had nearly run out of money, despite backing from big names in technology and finance.
Overheard
Norton Rose Fulbright cohabitant Mohammed Paracha working for big banks during the day. On the page, he beats them while promoting his fintech startup Nests, Above the Law reports. “We are programmed to trust banks, but then they use our income to make more money for themselves. Is that OK? Why do we continue to trust them?” Paracha said in a promotional video for Nester.
Why is SEC goes after Bored Ape Yacht Club maker Yuga Labs? It is quite simple, University of Kentucky law professor Brian Frye told Decrypt: “What you’re buying is a piece of Bored Ape Yacht Club, and the value of your NFT rises or falls with the value of the Bored Ape Yacht Club badge.” It makes it look much more like a stock than a piece of art, Frye explained.
Agreement flow
Small business banking company NorthOne raised $67 million in a series B round. The company has raised a total of $90.3 million in funding from firms including Battery Ventures, Ferst Capital Partners, Next Play Capital and Redpoint Ventures.
Maplerad, a Nigerian embedded finance startup, raised $6 million in seed funding. Peter Thiel led the round, with participation from Michael Vaughn, Polymath Capital, Unpopular Ventures, Sean Mahsoul and others.
British banking startup GoHenry raised $55 million in equity for its app, which targets children under 18. Edison Partners and Revaia led the round, with participation from the Italian payment company Nexi.
New York-based Uniswap Labs raised $165 million in Series B funding. The round, which was led by Polychain Capital, brings the company’s valuation to $1.66 billion.
TripActions, which has reportedly filed a confidential filing for an IPO, raised $154 million in Series G funding. Lightspeed Venture Partners, a16z, Group 11 and several other firms participated in the round. The company has a value of 9.2 billion dollars.
New York B2B payment infrastructure company OatFi raised $8 million in seed funding. QED Investors led the round with participation from Picus Capital, Cambrian Ventures, Fin VC and others.
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With the amount of our economy now dependent on technology, the lack of government regulation results in great risk for companies, and ultimately our own citizens. In the absence of measures from the authorities, insurance steps in.
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Thanks for reading – see you tomorrow!
