3 FINTECH NEWS STORIES
#1: Benched!
What happened?
Bench, a Canadian fintech firm focused on accounting for small businesses, shut down abruptly and then, in a New Year miracle, was acquired:
Bench Accounting, a Canada-based fintech firm providing bookkeeping services and financial solutions tailored for small and medium-sized enterprises (SMEs), has been acquired by San Francisco-headquartered start-up Employer.com for an undisclosed sum.
Founded in 2012, Bench provides a suite of SME-focused bookkeeping, tax filing, and advisory services via its software-as-a-service (SaaS) platform.
Employer.com, specialising in payroll and workforce management services, plans to integrate Bench’s tax and accounting capabilities into its broader suite of solutions.
The acquisition news, announced on 30 December, comes just days after Bench issued a notice on its website that it was set to close down, writing at the time: “We regret to inform you that as of December 27, 2024, the Bench platform will no longer be accessible”. With the acquisition, the company’s website is now fully operational once more.
So what?
First, a disclosure — I have been a mildly disappointed Bench customer for the last couple of years.
Second, this is a really weird story. Based on the reporting done by The Information and TechCrunch, here’s what we know:
- Bench was founded in 2012. In the 13 years since, it has raised $113M from investors such as Shopify and Bain Capital Ventures. Most recently, they raised a $60 million Series C in 2021, but this round was actually comprised of $37M equity and $23M debt (that it was reported by some in the press as $60M is a clear violation of the Mikula Rule … always split out equity and debt!) This detail will be important later.
- In 2021, after the Series C, Bench’s co-founder and first CEO, Ian Crosby, left the company. He claimed in a LinkedIn post that his leaving was due to Bench’s investors, which wanted to replace him with a “professional CEO.” The successive two CEOs were Jean-Philippe Durrios (Bench’s former CFO) and Adam Schlesinger (an executive-in-residence at Inovia Capital, one of Bench’s investors, and a former Microsoft executive and president of a tequila company).
- Unsurprisingly, these changes didn’t help. Bench went through multiple rounds of layoffs starting in late 2022. By the end of 2024, less than 400 people worked at Bench, compared to almost 700 in January 2023.
- During his brief tenure, Schlesinger attempted to sell the company but was unsuccessful. This is likely due to the fact that the company had accumulated quite a bit of tech debt in its mostly failed attempts to become more reliant on AI and automation and less on human bookkeepers.
- The December 2024 closure, which took customers and employees entirely by surprise, was precipitated by one of the banks that participated in the debt portion of the Series C round, which called in the loan, forcing the company to shut down.
- The resulting public outcry from customers and significant press attention put Bench on the radar of Jesse Tinsley, the CEO of Employer.com, who then proceeded to acquire Bench for an undisclosed (likely very low) price. Employer.com has been working to bring many Bench employees back (though on a contract basis in many cases) and has committed to honor all existing contracts with Bench customers.
Like I said, weird!
What lessons can we take away from this story? I think there are a few:
- As Sheel Mohnot pointed out on Twitter, venture debt (i.e., loans to venture-backed companies) is very dangerous. Banks don’t have the same upside that equity investors have and, as such, they don’t tend to be patient or all that flexible when it comes to protecting their downside. If you breach your debt covenants (as Bench did) they will put you in the ground without a second thought. Personally, I am going to look much more skeptically at late-stage, non-lending companies raising debt than I did before.
- Speaking of VCs, this is quite a black mark for Bench’s investors (Inovia, Bain, Altos, Contour, etc.) Small business accounting is a tough space to operate in, but I can personally attest (as a customer) to how bad the product and service became towards the end, as the “professional CEOs” tried to automate their way into profitability. I also find it surprising that Bench couldn’t find an acquirer until after the company abruptly shut down its service and fired all its employees. That’s lousy executive-in-residence –ing!
- To reiterate the point I just made even more strongly — small business is a super tough market to operate in. This is true in banking, lending, and (yes) accounting. Acquisition costs are high, customer retention is low (because many go out of business), and profitability is exceptionally challenging. I do wonder if this story might have turned out differently if Bench had been founded in 2023 rather than 2012. Generative AI seems like a potential path to profitable scale in the accounting business (if you look at companies like Basis). Perhaps Employer.com can get Bench on that path.
#2: A Change At The Fed
What happened?
The Fed’s Michael Barr is stepping down as the vice chairman for banking supervision:
A top Federal Reserve official who is the government’s most influential banking regulator is planning to step down from his leadership role by the end of February, after advisers of President-elect Donald Trump seriously weighed demoting him.
Trump advisers had been considering taking the unprecedented step of trying to strip Michael Barr of his leadership role as the Fed’s vice chairman for banking supervision, according to people familiar with their thinking. The move was likely to kick off a legal battle, with ramifications for the independence of the Federal Reserve from the White House.
So what?
This is big news!
It’s unclear if the Trump Administration could have forced Barr from his leadership role, but it seems that Barr was sufficiently worried that they would make the attempt and what that would do to the perception of the Fed’s political independence that he voluntarily stepped down (although he is staying on as a Fed Governor).
The question is, what will the Trump Administration do next?
The Fed has committed to not pursuing any major rulemaking until a new vice chair for supervision is confirmed. This sets up an interesting dilemma for the Trump Administration. With Barr staying on as governor and another spot on the board not opening up for a year, the administration must either appoint an existing Fed Governor (likely Mikki Bowman or Chris Waller) or wait until 2026.
As much as some fans of deregulation might prefer the post to remain vacant and no significant rulemaking pursued for the next year, and as much as Trump may want to handpick the next vice chair, I can’t imagine that it won’t be Bowman or Waller (Bowman, who is a former community bank CEO and former state banking regulator, seems the most likely choice).
Also, as the astute Rob Blackwell pointed out on Twitter, we are entering a new era in which new presidential administrations will have Day 1 control over every federal bank regulatory agency (CFPB, OCC, FDIC, and Fed Vice Chair of Banking Supervision).
#3: The CFPB & Zelle
What happened?
The CFPB sued Bank of America, Wells Fargo, JPMorgan Chase, and Early Warning Services (EWS) over their failures to protect customers from fraud and scams through Zelle:
Today, the Consumer Financial Protection Bureau (CFPB) sued the operator of Zelle and three of the nation’s largest banks for failing to protect consumers from widespread fraud on America’s most widely available peer-to-peer payment network. Early Warning Services, which operates Zelle, along with three of its owner banks—Bank of America, JPMorgan Chase, and Wells Fargo—rushed the network to market to compete against growing payment apps such as Venmo and Cash App without implementing effective consumer safeguards. Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence due to these failures. The CFPB’s lawsuit describes how hundreds of thousands of consumers filed fraud complaints and were largely denied assistance, with some being told to contact the fraudsters directly to recover their money. Bank of America, JPMorgan Chase, and Wells Fargo also allegedly failed to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors. The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief.
So what?
This has been in the works for a while. The CFPB has been investigating Zelle since 2021. And they’re not alone. Last year, the Senate Permanent Subcommittee on Investigations released a report on Zelle fraud that reached similar conclusions.
Director Chopra may be getting this lawsuit in under the wire but the bureau did its homework on this one. Specifically, the CFPB claims that:
- Zelle’s lax identity verification processes allowed bad guys to take over customers’ accounts.
- EWS didn’t share data on bad guys, allowing them to hop from one bank to another after their accounts were closed for cause. If you know where EWS got its start, you’ll understand the irony of this claim.
- The banks failed to investigate and follow up on consumer complaints in a timely fashion and failed to report fraud to EWS.
- The banks improperly denied customers’ requests for reimbursement, even when presented with clear evidence that the transaction wasn’t authorized.
I’ve written a lot about Zelle and the rise of scams in the newsletter over the last couple of years, so I won’t belabor the points I have previously made. I’ll just say three things:
- No one asked for a P2P payments network that operates in real-time by default. Venmo doesn’t work that way. Cash App doesn’t work that way. Consumers mostly don’t need real-time P2P payments functionality; when they do, they are generally willing to pay for it (which is the option that Venmo and Cash App both provide). For competitive reasons, the big banks that own EWS decided to jump us forward into a world where P2P payments are authorized and settled in real-time by default. Fraud thrives in that world, and the banks should take responsibility for bringing us into it.
- I’m also glad the CFPB singled out BofA, Wells, and JPMC in the lawsuit. These three banks, as the owners of EWS with the largest retail banking franchises, are the ones that are primarily responsible for driving the fast (arguably too fast) growth of Zelle. As massive banks with significant staffing and technology budgets, these companies were reasonably well-positioned to manage the risks. However, smaller banks and credit unions were not nearly as ready, but were (I know from having spaoken with many of them) pressured by EWS and the big banks to join Zelle in order to “compete with fintech”. This is a decision that many of those smaller companies now regret.
- There are documented cases of customers having their phones physically stolen so that bad guys could steal their money using Zelle, and those customers not being reimbursed for those unauthorized transactions. That’s infuriating. If your wallet is stolen and someone spends your money with your debit card, you’re not liable under Reg E. This is no different.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Fintech’s Next Half-Decade (by Nik Milanović, This Week in Fintech) 📚
I always enjoy Nik’s annual predictions for fintech (and review of his prior year’s prediction). A good combination of analysis and honest reflection.
#2: Why Fintechs Are Beating The Banks In New Checking Accounts (by Ron Shevlin, Forbes) 📚
Consumer survey data is never perfect, but it’s a useful lens to understand changing trends in banking and fintech. Ron is the premier purveyor of consumer survey data on deposit account opening (among many other topics).
1 QUESTION TO PONDER
What’s your one “crazy” prediction for fintech/banking in 2025?
