Bill Harris

Regulatory Scrutiny in the Age of Neobanks: What You Need to Know About ILC Charters You’ve probably heard the buzz—Industrial Loan Company (ILC) charters are returning. And if you haven’t, it’s time to sit up and take notice. With the FDIC approving new ILC charters in 2024, this once-overlooked banking model is quickly becoming a hot topic. Everyone from fintechs to retail giants is eyeing the potential, but it’s not all smooth sailing. Why? Because regulators have their magnifying glasses out, and they’re watching closely. So, what’s the big deal with ILCs? Imagine you’re running a non-bank company but want to offer financial services without going all-in on a traditional banking license. That’s where the ILC comes in—it gives you the freedom to dip your toes in the banking world, minus the mountain of regulations. Sounds great, right? Well, it is… until the regulators step in. Here’s the reality: the FDIC’s approvals in 2024 are a game-changer, but with great opportunity comes even greater scrutiny. Regulators are laser-focused on bank-fintech partnerships, especially with neobanks shaking up the traditional finance space. They’re concerned about risks and how these partnerships might destabilize the financial system. And with more companies chasing an ILC charter, the pressure is on to get it right. Are you thinking about pursuing an ILC charter for your business? Here’s what you need to know before you dive in. First, it’s not an easy path. You must satisfy strict capital requirements, ensure solid governance, and put customer protection at the forefront. And regulators? They’ll be looking over your shoulder every step of the way. So, if you’re not ready to play by the rules, you could be in for some severe headaches—or worse, regulatory backlash. Bottom line: ILC charters offer massive potential for businesses wanting to offer financial services without becoming full-fledged banks. But don’t be fooled—it’s a delicate balance, and you’ll need to stay sharp on the regulatory front to avoid stumbling. Want to stay ahead of the curve and navigate these changes like a pro? Let’s talk about how to keep your business on track and in compliance. And if you’re ready to dive deeper into how banking licenses like these are reshaping the landscape, grab my book How Private Banking Licenses are Driving Exponential Growth for the full scoop on turning regulation into opportunity. Here is the link: https://lnkd.in/gnYYGTJD

6

The bankruptcy of Synapse, where $100 million of customer funds is missing, raises serious concerns about bank-fintech partnerships and the need for rigorous due diligence. This situation underscores the immediate need for banks to reassess their partnerships and prioritize consumer protection. Stricter regulations and enhanced oversight could become the norm, ensuring only fintechs that can withstand scrutiny will thrive in the financial ecosystem. #Fintech #AI

1

On the back of the article from The Guardian “Banks, airlines and media outlets hit by global outage linked to Windows PCs,” it got me thinking… What would happen if AI services like ChatGPT, Gemini, etc., went down? Why can’t we use these offline instead of being connected to the Internet? Many organisations are becoming dependent on AI, raising concerns around security and privacy. We would witness significant disruptions across various sectors. Customer service, healthcare, finance, and logistics heavily rely on AI to optimise operations, provide insights, and enhance user experiences. The absence of AI would slow decision-making processes, reduce efficiency, and potentially lead to increased errors. This scenario underscores the critical importance of AI in our modern infrastructure and the need for robust contingency plans to mitigate such risks. https://lnkd.in/e8KFV6QK #AI #Technology #BusinessContinuity #RiskManagement Whitespace

21

1 Comment

There’s a whole world of small farms and small businesses being powered by offgrid renewable energy. Understanding the business models that make it possible is critical for this bold new world. At the #GlobalSouthSouthSummit, innovators from across Africa and Asia will learn from each other to advance a sustainable world free of poverty.

15

YL Ventures is excited to partner with Daniel Shechter and Itai Goldman, cofounders of Miggo Security, the first Application Detection and Response (ADR) platform! YL Ventures led Miggo's $7.5 million #seed round, with participation from #Cyber Club London and a long list of #cybersecurity luminaries, including former CISOs from Google, Zscaler and Nike! Miggo Security is the first ADR platform, providing the visibility, response and understanding you need to prevent application breaches. Using in-application context to shed light on your biggest attack surface, Miggo’s ADR enables businesses to monitor how applications behave in runtime and stop attackers from manipulating chains of trust among distributed services. With Miggo, monitor application weak spots, identify and mitigate attacks in real-time. Read more in Forbes: https://lnkd.in/ghkXCwzk

241

11 Comments

👏 It’s an exciting day for fintech! After more than a decade in the making, the CFPB published its final 1033 rule, which protects consumer financial data access. I spent years negotiating Plaid's first data access agreements with banks; limited regulatory guidance made this exceptionally challenging. Here is a quick recap on what happened, and - most importantly - what it means for fintech founders. ❓ What is 1033? 1033 is a section of Dodd Frank that states that a bank must make a consumer’s financial information (including txn detail) available to them in a portable format. Its critical to the functioning of fintechs and the millions of consumers they service. 🗞️ What happened today? The CFPB issued a FINAL Rulemaking for Dodd Frank Section 1033, which provides eagerly awaited details on exactly HOW banks, aggregators, and fintechs are expected to work together to make data available to consumers (data fields, format, fee structure, governance etc.). The timeline for compliance ranges from April 1, 2026, to April 1, 2030 depending on institution size​​. 👉 What does this mean for fintech founders?  👍 No additional bank fees - Several large banks have threatened to charge for data access - which would almost inevitably be passed on to the fintech customers of aggregators. The proposed rule prohibits this, which is a win for fintechs. (The downside of this is that aggregators still need to align incentives with banks in the absence of fees…) 👍 No technical standards - The rule is not prescriptive with regards to how the APIs are constructed, but does encourage standardization. This is good for fintechs because it allows the market to drive the solution and encourages more innovation on the aggregator side. We expect this to result in better data access for fintechs. Additionally, the emphasis on standardization will make it easier to retrieve and use consumer data across different financial institutions. 🚩 New Responsibilities - The proposed rule does impose some responsibilities on fintechs - notably, to disclose how the data is used, only use data for the consented use case, honor customer deletion requests, and to refrain from selling consumer data. Fintechs - even young ones - should start thinking now about how to comply and to consider these requirements in future product rollouts. Many of these terms are already included in aggregators' terms of use.  Additionally, all data access must be through APIs; screenscraping is prohibited. 👎 No protections for brokerage & payroll data access - While the rule explicitly covers bank accounts (deposit, credit, debit, prepaid), it’s silent on brokerage account & payroll data access, which is non-ideal for any fintechs accessing these categories of data today. Shameless VC plug: If you're an early stage fintech founder building something cool + world positive, let's chat at M2020! cc: Obvious Ventures

213

5 Comments

The Financial Services space desperately needs company provided AI tools for their knowledge workers such as those from Praxis Solutions, Inc to accelerate internal adoption and use! This piece appears in the December 2024/January 2025 issue of Fortune with the headline “In the AI workplace race, the U.S. isn’t winning.”

2

I love seeing honest interpretations of the current capital markets by those who have more experience than I do on the capital side. I’m blessed to have an experienced team with many avenues for both funding as well as exit to come but love how the suggestion here is on the key metrics. Good business has always been had timelsss metrics that remain the same and have ROI about them. When I observe many of the current titans they had long plays but the metrics were and are the same business wise. What are metrics you focus on in early stage that translate well into later stage?

14

Why Buying Your First Business is the hardest & Financing The Fear is Being seen as too risky by lenders and investors. The Solution: Prepare a solid business plan with detailed financial projections. Work with a financial advisor to enhance your credibility. Consider alternative financing options like SBA loans or seller financing.

11

3 Comments

Payments companies are increasingly acquiring software and tech firms to enhance their technology capabilities, expand their service offerings, and secure their digital operations. Recent acquisitions include Mastercard's purchases of cybersecurity firm Recorded Future and subscription management company Minna Technologies. This trend of mergers and acquisitions (M&A) has accelerated in 2024, with 62 deals announced by mid-October, likely surpassing 2023's total. The Federal Reserve's recent interest rate cut may further boost M&A activity through 2024 and into 2025, as companies seek to strengthen their technology stacks, combat fraud, and expand into new markets. Key deals include Roper Technologies’ $1.5 billion purchase of Transact Campus, Veritas Capital’s acquisition of NCR Voyix for $2.45 billion, and Global Payments' acquisition of Yazara, a mobile payment solution. Continue Reading Here: https://lnkd.in/gKYgVYuv Payments Dive Shefali Kapadia Branded Hospitality Ventures #Ventures #Hospitality #Technology #Mergers Hospitality Headline Newsletter Ajay Banga Michael Miebach Alfred F. Kelly, Jr. Dan Schulman Hiroki Takeuchi Jason Gardner

19

3 Comments

LF Decentralized Trust, which will encompass the growing portfolio of Hyperledger projects and host new open source software, communities, standards, and specifications that are critical to the macro shift toward decentralized systems of distributed trust. Great initiative Daniela Barbosa Julian Gordon The Linux Foundation Hyperledger Foundation Hyperledger India Chapter #blockchain #hyperledger #decentralisedtrust #distributedtrust

12

Healthy loan financing in digital assets is driving a healthier recovery from past leveraged crypto cycles. Why? The sustainability of crypto financing and its continued growth hinges on balancing innovation with risk management. Prudent risk management practices paired with tools that provide transparent, secure, and efficient lending services are critical to building a robust and efficient crypto lending market. Leading firms that embark on sustainability are seeing rapid growth: Coinbase Prime’s financing business reported that its loan book increased +75% QoQ from $399mm to $700mm in 1Q24 Ledn, a crypto lending platform, publicly reported $584mm of institutional loans issued in 1Q24, a +400% increase QoQ Membrane, a loan technology provider, reported that the first-half of 2024 saw 3x the loan bookings of the full-year 2023 More from Craig Birchall, CFA at Membrane Labs: https://lnkd.in/e65hE-QG

13

4 Comments

What I appreciate most about how we designed the SMArtX Advisory Solutions platform is that we provide software to Turnkey Asset Management Programs as a FinTech, but we prove out every piece of our technology platform by using it to run a TAMP and servicing advisors ourselves. In tech this is called "Eating your own dogfood" or simply "dogfooding". Wikipedia says: "Eating your own dog food or "dogfooding" is the practice of using one's own products or services. Hence dogfooding can act as quality control, and eventually a kind of testimonial advertising. Once in the market, dogfooding can demonstrate developers' confidence in their own products." No matter how you cut it, whether we are servicing them directly or through our enterprise clients; the end consumer is the advisor. And servicing them through an "out-of-the-box" TAMP gives us the unique opportunity to hear the clients needs directly and hone our product and make it a better experience for everyone using it. So let's be both a TAMP and a FinTech while we sing along with Dierks Bentley and agree that SMArtX is "little bit of holy water, but still a little bit burning man"

11

I see a lot of people wishing or working to bring ICOs back. But Initial Coin Offerings, as we've known them in 2017 / 2018, when projects raised funds directly from retail using immediately liquid tokens (or quasi), are never coming back. The problem with ICOs is an incentive alignment problem. Let me explain 👇 A/ If tokens are tradeable from day 1, then nobody is aligned on long-term value creation: it's a get-rich-quick scheme, and you get thousands of scammers to launch ICOs to speculators. From the investor perspective, your token is nothing more than a memecoin. There is 0 incentive to build anything long-term in that scenario. Note also that this ICO model can only exist in the non-security world. The only projects that did ICOs and are still here today are only here because their founders were missionaries who needed no incentives: they were here to create something in the world they deeply believe in vs getting rich. Founders like that exist: Vitalik Buterin (Ethereum), Martin Koppelmann (Gnosis), Stani Kulechov (Lend / Aave), Kain Warwick (Synthetix), Luis Cuende (Aragon)... are the first ones that come to mind, but they are the exception, not the rule. B/ If tokens are not tradeable from day 1, then you have better alignment in future value creation, but now you need to find investors that believe in your project long-term and are willing to wait (wait = risk + opportunity cost). Naturally, those investors will also ask for some level of investor protection, given the risk they take. In that scenario, you'll find fewer investors and want fewer investors because you don't want to give governance rights to people you don't know. In summary: In the non-equity assets world, pump dot fun has created the ultimate ICO platform. It solves the ICO incentive alignment issue by treating everyone as a trader/speculator. If you're a founder, you can try to build something long-term with a token you launched on Pump Dot Fun... but you have little financial incentive. At best, you bought a ton of your tokens at launch, and you sold high enough to now self-fund your project, but you're now facing a choice with this newfound money: eat glass and stare at the abyss for the next 5 years or.... go enjoy your money and your micro CT influencer status from the beach. Tough... In the equity world, ICOs (as people know them, where retail can broadly participate to fund a project) will *never* come back. Don't get me started on scammy crowdfunding platforms (that's for another post). The only ICO model that works is called the IPO. We can (and should) make IPOs more accessible to more companies, that would be an excellent thing for the economy (and I would love to see it happen). But, as of now, IPOs are for $10B companies growing 30% YoY, so it will take a long time and lots of regulatory work & political will to make IPOs accessible to early-stage companies. 

13

5 Comments

What do you do when a radical new technology puts your main product right in the crosshairs of disruption? Listen to David Okuniev — co-founder of Typeform | Ask awesomely — discuss the challenges of innovation within existing structures. David shared a game-changing insight: Radical innovation is really, really difficult to do inside your own product. He emphasized the need to break free from the constraints of familiarity and embrace change from outside the box. Henrik Werdelin and I have both seen our fair share of this in our respective careers. What struck us most was how David leveraged structure to overcome the innovator’s dilemma. By creating a culture of experimentation and providing space for bold ideas, he propelled Typeform beyond incremental improvements. What other hacks have you seen or employed to help your organization overcome the innovator’s dilemma? Share your stories below! 👇 And if you want to dive deeper into our conversation, click the link in the comments to catch the full podcast episode!

4

2 Comments

🤓 fintech nerd alert!! 🤓 Now that so many of the tourists are gone and (mostly) done valuing everything in the space like a pure software business regardless of the business model, Eric Kaplan and I thought it might be helpful to pull together some thoughts to help early-stage entrepreneurs focus on what matters most when building the next disruptors across the different financial services verticals. This is how we at Bessemer Venture Partners evaluate these businesses and try to guide our own portfolio companies. Hopefully folks out there find some of these frameworks helpful. Let us know if you have any thoughts, questions, or suggestions!

173

4 Comments

That’s very accurate. PE Buyout Funds. Publicly traded parent companies with corporate VC arms scooping up the most profitable sector-specific subsidiaries. Fund of Funds get more popular and much more strategic. Family Offices dominate the landscape. Not investment advice.

2

Interesting piece from Marc Andreessen on how startups are not getting the regulatory support they need to sustain America's technological leadership. "Regulatory agencies have been green lit to use brute force investigations, prosecutions, intimidation, and threats to hobble new industries, such as Blockchain. Regulatory agencies are being green lit in real time to do the same to Artificial Intelligence." While many investors themselves (both in the US and Europe) are worried how AI will change our lives, our jobs and social interactions, the top VC opinion leader thinks regulation is already too restrictive. #techstartups #techleadership #strategicgrowth

9

1 Comment