Let’s catch up on some news from the last few weeks.

#1: Holy Embedded Accounting Batman!

What happened?

Teal, an embedded accounting provider, raised some money:

Teal, a startup offering an accounting product to vertical SaaS companies, raised $8 million in seed funding.

Teal provides a set of APIs and tools for embedding its white-label accounting software onto vertical SaaS platforms. The product gives customers — typically SMBs — with insights like real-time cash flow and per-product profitability. It also simplifies the process of filing taxes and includes support from live bookkeepers.

And so did Layer:

Justin Meretab, a former product leader on Square’s Banking team, started San Francisco-based Layer in 2023 with Daniel O’Neel, a former engineering leader at Wealthfront. Their goal was to create a set of APIs that allows platform customers to pass data from their small business customers to Layer. Then Layer provides connections to external bank accounts and credit cards to pull in the data and flow that into Layer’s ledger and account system. This allows the small businesses to then build a complete picture of all their financial data.

Layer’s different approach has also attracted investors. Better Tomorrow Ventures led a $2.3 million pre-seed investment into the company and was joined by a group of executives at companies, including Square, Plaid, Unit and Check.

And so did Ember:

Ember recently raised a £5 million funding round ($6.3 million at today’s exchange rate) from Valar Ventures, Viola Fintech and Shapers.

The small company has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts. Ember could potentially gain thousands of customers with a single partnership.

Ember’s service fetches companies’ recent banking transactions and automatically categorizes them. After that, customers can track expenses, add receipts, create invoices and do basic accounting.

Ember then provides an overview of your company’s revenue and expenditures, estimates how much you’re going to pay in taxes and tells you how much money is available to withdraw as dividends for the owners. 

So what?

Well! This space is suddenly getting crowded!

In last week’s essay, I wondered if embedded back-office software (accounting, payroll, etc.) was supplanting embedded finance as the trend that fintech investors were most excited about. It appears, based on this surge in early-stage funding activity, that perhaps it has?

It makes sense. Accounting software is a natural platform for cross-selling banking and lending products (Quickbooks has actually built a very impressive embedded finance offering). 

By embedding accounting software into the offerings of vertical SaaS platforms, neobanks, and traditional banks, Teal, Layer, and Ember are gaining access to a much more efficient set of distribution channels for reaching small businesses (which are a huge pain to acquire directly) and positioning themselves to become distribution channels for embedded finance products. 

#2: Keep It Simple 

What happened?

Majority, a neobank focused on serving immigrants, raised $20 million:

For a $5.99 per month membership fee, migrants can open a bank account and get a debit card, community discounts, fee-free international money transfers and discounted international calling. There is also a peer-to-peer pay feature.

Accounts don’t require a Social Security number or U.S. documentation, just an international government-issued ID and proof of U.S. residence. They also don’t have overdraft fees or minimum balance requirements. In addition, users have access to Majority’s “Advisor Program,” a network of trained support staff nationwide, who are immigrants themselves.

So what?

I’ll forgive TechCrunch for violating the Mikula Rule with its headline (Majority raised $12.5 million in equity, the rest is debt financing) and instead focus on the fact that a niche neobank – and I’m being a bit aggressive with the term “niche” given the size of the global immigrant population – has successfully raised additional capital in this environment.

Yay! I’m a big fan of this model generally, and I like what Majority has built specifically.

What I like about Majority is that it offers a straightforward set of products and features – a bank account, debit card, P2P payments, international money transfers, and international calling – for a monthly subscription fee of $5.99. No punitive fees. No tipping (thank merciful God). Just a straightforward exchange of value.

The company is planning to launch a credit builder product soon (I have a strong hunch it will be designed in a way that doesn’t drive me insane), and it claims to be close to profitability.

I hope it can get there.  

#3: A Nuanced Discussion About the FDIC 

What happened?

The Wall Street Journal, as it is wont to do, published a dumb op-ed:

Today the FDIC regulates more than 5,000 banks for safety and soundness, resolves failed banks, and provides standard deposit insurance on individual accounts up to $250,000. As if that isn’t enough, its current leadership is attempting to expand its authority to target banks that work with financial-technology companies. The FDIC increasingly wants discretion in deciding where and under what circumstances consumers can obtain loans, financial products and other banking services. Arrogating such power to itself disregards the rule of law, innovation and consumer choice.

So what?

The piece, written by Jeb Hensarling, a former chairman of the House Financial Services Committee, goes on to complain about the FDIC’s recent crackdown on BaaS in some detail and suggests that FDIC Chairman Martin Gruenberg decided to go after fintech companies to distract from the toxic workplace scandal that has engulfed the agency during his tenure.

It’s quite something. An excellent demonstration of how far too many adult humans (including, and perhaps especially, those in Congress) are unable to hold multiple thoughts in their heads at the same time.

Discussing the FDIC, at this moment, requires more nuance. Allow me to demonstrate:

  • On the same day that Mr. Hensarling’s op-ed was published, TabaPay elected not to acquire Synapse, precipitating the BaaS meltdown that we’ve been witnessing the last few weeks. I’m not sure how Jeb can argue that the FDIC doesn’t have a point about the risks of BaaS (which have been evident with Synapse for months) when we literally have hundreds of thousands of consumers unable to access their money despite it, ostensibly, sitting safely inside FDIC-insured bank accounts.
  • On the other hand, it is clear to me that the FDIC’s current approach to dealing with fintech (cracking down on BaaS banks and aggressively going after companies that misrepresent FDIC insurance protection) is utterly insufficient. As the Synapse saga has demonstrated, consumers don’t understand the distinction between banks and non-bank technology companies, even when the required disclosures are made in full compliance with the rules. They see “FDIC insured” and they assume that the entire supply chain that they are interacting with is safe. That’s obviously not true, and that’s a problem that the FDIC needs to meaningfully engage with, not just say, “Well, that’s what you get for trusting a fintech.”
  • All of this is separate from the allegations of harassment and discrimination inside the FDIC, which are A.) disgusting and B.) legitimate cause for concern regarding the FDIC’s ability to carry out its intended regulatory functions (Kiah Haslett and Julie Hill made some great points about this in our most recent episode of Bank Nerd Corner). I’m glad that Mr. Gruenberg has agreed to step down. Hopefully, the FDIC can put itself back together under new leadership.   

#4: The War of the Five Kings 

What happened?

Rho and Navan have partnered up:

Rho, a New York-based business banking startup, will partner with Navan to let businesses add and manage corporate cards directly within Navan’s travel and expense platform.

Finance teams will use a unified dashboard to manage corporate travel and expenses, enforce expense policy compliance, handle expense reimbursements, and accelerate month-end close.

Customers of both Rho and Navan will have a co-branded user interface; for those that don’t use both tools, the companies are working together on a go-to-market strategy to refer business to each other.

So what?

Last season, on Game of Thrones … 

With Rho and Mercury locked in a fierce battle to control the future of B2B banking, each company is frantically adding adjacent functionality – treasury management, expense management, corporate cards, bill pay – in a bid to build the ultimate B2B bundle.  

Meanwhile, Navan, after a brief solo sojourn in the wild lands of expense management and corporate cards, has changed strategies and is quickly building alliances with other houses, both large and small.

And all the while, the two other great houses (Brex and Ramp) quietly prepare for the next campaign …

OK, OK, I know this is silly, but the world of B2B banking and expense management absolutely reminds me of Game of Thrones, and this partnership between Rho and Navan is giving me distinct Renly-Baratheon-allying-with-House-Tyrell vibes.

Overall, I think this is smart. Navan has such a headstart on travel that it doesn’t really make sense (IMHO) to try to compete with them directly. That hasn’t stopped Expensify, Ramp, and Brex from launching their own travel products over the last couple of years, but given that Rho is only competing in an adjacent sense with those expense management providers, I think it is a good strategy to partner on travel rather than trying to build it themselves.

Now we wait to see Mercury’s response (I trust that it won’t involve blood magic or assassinations).   

#5: Should Banks Be On The Hook for Scams? 

What happened?

The U.S. Senate is planning to grill big bank executives regarding the recent surge in P2P payments scams:

Executives from JPMorgan Chase, Bank of America, and Wells Fargo are expected to testify this summer before a U.S. Senate panel that has spent much of the last year examining fraud on the Zelle payments network.

At the upcoming hearing, the big banks are likely to face one key question: To what extent, if at all, should banks be financially responsible in situations where consumers authorize Zelle payments to fraudsters?

So what?

The data that this U.S. Senate panel has assembled on Zelle scams is eye-opening:

In 2022, customers of JPMorgan, BofA and Wells submitted claims reflecting a combined total of $456 million lost to scams and fraud on Zelle, according to Sen. Richard Blumenthal, D-Conn., who chairs the Senate Permanent Subcommittee on Investigations.

Nearly three-quarters of those losses were never repaid by the three banks … Blumenthal is focusing on JPMorgan, Wells and BofA because they accounted for 73% of all Zelle transactions last year.

The question is, to what extent should banks be held liable for the losses incurred by customers when they authorize payments that were fraudulently induced? Today, in accordance with the Electronic Fund Transfer Act, banks are not held liable for any losses resulting from customer-authorized payments.

I am on record as believing that banks should be held liable for authorized payment fraud.

Senator Ron Johnson, the ranking Republican member of the Senate panel, isn’t so sure, and his reasoning is interesting:

Johnson also expressed skepticism that banks should be held responsible for losses in situations where their customers get tricked into sending money to fraudsters. He noted that Zelle payments — unlike credit card transactions, which offer greater fraud protection — do not generate revenue. 

I gotta be honest – that makes absolutely no sense to me. The big banks’ choice to prioritize network growth over profitability in the rollout of Zelle (which is why they don’t charge money for it) has absolutely no bearing on whether or not banks should be held liable for scams perpetrated through Zelle.

Alex Johnson
Alex Johnson
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