3 Fintech News Stories
#1: Boring Fintech Companies Are About To Become Banks
What happened?
OakNorth announced that it intends to buy a community bank in the U.S.:
London-based digital bank OakNorth intends to buy Birmingham, Michigan-based Community Unity Bank
The deal, which is awaiting regulatory approval, will enable OakNorth to expand its business lending services across Michigan and the U.S., the company said.
OakNorth began offering its services in the U.S. in July 2023 and has since lent more than $700 million to businesses in the country, including many of its existing customers with U.S. and U.K. operations.
OneMain Financial announced that it has applied to open a Utah-based industrial bank charter:
OneMain Financial today announced it has submitted applications with the Utah Department of Financial Institutions (UDFI) and the Federal Deposit Insurance Corporation (FDIC) to establish OneMain Bank, a wholly-owned industrial bank subsidiary to be located in West Valley City, Utah.
As proposed, the OneMain Bank subsidiary would expand OneMain Financial’s current suite of financial products to hardworking Americans nationwide with personal loans, auto finance, credit cards, and savings accounts, building upon OneMain’s strengths. It would also allow OneMain to serve more customers and drive more capital generation without significant changes to its capital allocation strategy.
And SmartBiz announced that it has successfully acquired Centrust Bank:
SmartBiz announced today the closing of its acquisition of United Community Bancshares, Inc. and its wholly-owned subsidiary, Centrust Bank, N.A. The combined company, renamed SmartBiz Bank, N.A., will operate under the bank holding company, SmartBiz Bancshares, Inc. This transaction recently received regulatory approval from the Office of the Comptroller of the Currency and the Federal Reserve Bank of Chicago.
SmartBiz’s evolution into a bank furthers its mission of empowering business owners to thrive by providing access to the financial services they need. With this strategic acquisition, SmartBiz Bank will meet the dynamic needs of entrepreneurs and small businesses across the U.S. to fuel the growth of the small business community.
So what?
This was one of the more predictable outcomes of President Trump’s win in November. The window for fintech companies to acquire banks (or apply for de novo bank charters) is, once again, wide open.
In fact, the OCC went so far as to put out a press release regarding the SmartBiz news titled, “OCC Conditionally Approves Fintech Business Model for a National Bank.” Here’s the quote from Acting Comptroller Rodney Hood:
A safe, sound and fair fintech business model has a place in today’s federal banking system. This conditional approval demonstrates the OCC’s commitment to a regulatory framework that supports innovations in banking that expand access to financial services for consumers and communities across the country.
OK then! Message received loud and clear!
The interesting question will be which fintech companies will decide to acquire a bank charter?
It’s not an easy path to walk, as Colin Walsh at Varo can tell you. Operating a bank is an expensive and slow-moving endeavor. I’m not going to go so far as to say that it’s incompatible with the “stay lean, ship constantly” operating model common to fintech startups, but the two don’t mix particularly well.
And the prudential regulators at the OCC, FDIC, and Federal Reserve aren’t especially interested in making that mix any easier. Even if they’ve been instructed to play nice with the industry and encourage more M&A and de novo formation (which it seems like all of President Trump’s nominees have been), at the end of the day, prudential bank regulators are, well, prudent. They don’t like taking risks, and when they do take them, they take them with as much caution as they can.
Given that, I’m not surprised that the three fintech companies listed above are, primarily, lenders and that their average age is approximately 11.5 years (OneMain, which was formed out of the merger of two non-bank finance companies in 2015, is arguably more than 100 years old if you look at when its parent companies were founded).
Learning how to be a good lender and then getting a bank charter (and cheap deposits) is usually a better plan than acquiring a bank charter and then figuring out how to lend money (again, ask Varo). And acquiring the operational burden of running a bank is probably more palatable once your company has aged out of its move-fast-and-break-things phase.
My prediction — a lot of “boring” fintech companies (i.e., older companies with profitable, lending-centric business models) are about to become banks over the next four years.
#2: AI Isn’t The Solution to Banks’ Deposit Problems
What happened?
Large regional banks are leveraging AI to help them acquire deposits:
Fifth Third Bancorp, Huntington Bancshares Inc. and Valley National Bancorp are among regional US lenders that use artificial-intelligence tools to scrape customer data, helping them personalize deposit offerings as competition for customers’ money intensifies.
Increasingly digital-savvy consumers are hunting for better online alternatives and higher interest rates, and banks, which use deposits as their main source of funding for loans, have had to adapt to win and retain customers who can easily make a switch.
So what?
The Bloomberg article goes on to describe, in more detail, how these banks are utilizing AI (by which they mean machine learning) to target and acquire new deposits.
Valley National:
Valley National has used machine learning for about the past nine months to predict whether a customer would be a good target for a product, according to [Valley National Chief Data and Analytics Officer Sanjay] Sidhwani. The Morristown, New Jersey-based firm uses AI software to tailor online messaging for customers, and its data-analytics system flags customers who are deemed well-suited for certain accounts, he said.
Fifth Third:
Fifth Third’s offering personalizes product and service recommendations using more than 100 AI machine-learning models, and has increased customer engagement by 40%, according to Shawn Niehaus, executive vice president and head of consumer banking at the Cincinnati-based company.
Huntington:
Huntington Chief Financial Officer Zachary Wasserman said in a Bloomberg Radio interview that the bank uses AI to understand consumer behavior and figure out when to reach out to them with products that would be beneficial.
If none of this sounds all that revolutionary to you, I agree.
This is a pretty standard use of machine learning, which the biggest banks (JPMorgan Chase, Bank of America, etc.) have been capitalizing on for a while.
More importantly, this strategy, which is essentially better-targeted marketing campaigns powered by machine learning, will be useless once banks’ customers start using AI agents to shop their deposits around.
As I wrote about last year, this will eventually happen, thanks to a combination of generative AI and open banking. It is inevitable. All money will be hot by default, and once that’s the case, banks will need to fight like hell to keep the deposits they have (let alone earn new deposits).
Surviving that fight will require product innovation, not ML-powered predictive models.
#3: Onchain Agentic Commerce
What happened?
Two different crypto infrastructure companies raised money. Both of them are focused on the intersection of crypto and agentic AI.
Stablecoins will transform commerce, every asset will be tokenized, and every business will move onchain, just as they moved online in the 2000s.
AI agents are a massive new class of user that will gravitate to wallets and stablecoins as they facilitate an increasing portion of e-commerce spending, and take over the economy.
However, for this transformation to happen, building and using onchain applications must become radically simpler—a core belief that drives everything we do at Crossmint.
Today, we’re announcing $23.6M in funding, led by Ribbit Capital, to help move every business – and AI agent – onchain, with an all-in-one platform that supports any use case.
And Halliday:
Halliday, a startup that helps financial institutions automate services with blockchain and AI technology, has raised $20 million from venture capital giant Andreessen Horowitz.
With Halliday’s Agentic Workflow Protocol, companies can easily connect services like verifying a transaction or issuing a payment, into one cohesive workflow. “It’s an engine that lets you stitch together services into workflows so that they can be automated,” [CEO and co-founder of Halliday Griffin] Dunaif said.
Additionally, developers can implement agentic AI—a type of AI model that can solve problems and execute actions with limited supervision—within their workflows to automate decision-making. “We want to bring blockchain up to the agentic era, because no software will not be agentic as these technologies mature,” he said.
So what?
If you are building in crypto infrastructure (particularly stablecoins) and you want to raise a big funding round, my advice is to find a way to work agentic AI into the conversation. VCs will whip stacks of $100 bills at your head.
But why, you might ask, are crypto and agentic AI a match made in heaven? Here’s Crossmint:
Soon, most economic transactions will be executed by AI agents. These new economic actors will buy your groceries, book your flights, and manage the inventories and balance sheets of entire companies.
However, legacy systems have been designed to keep agents out. We know this particularly well given Crossmint co-founder Alfonso was formerly the PM behind Google’s “I’m not a robot,” reCAPTCHA, designed to block automated use.
Agents will need new systems that don’t require them to circumvent captchas, two-factor prompts, and manual approvals designed for human users. This is why we’ve adapted our APIs to cater to this new and rising class of consumer.
I don’t know, man. That whole last paragraph kinda freaks me out. AI agents aren’t a “rising class of consumer” (at least not yet), and the idea of unleashing those agents (without any established legal frameworks for liability) into the “code is law, no takesies-backsies” world of onchain commerce makes me a bit nervous.
Fintech Content Recommendations
A Whole Bunch of Smart BNPL Analysis 📚
Klarna’s coming IPO has inspired a lot of in-depth analysis, of both Klarna and the broader BNPL ecosystem. In place of my usual two content recommendations, I thought I’d share my longer BNPL reading list with you:
- Klarna Files IPO Paperwork, Puts PR Machine In Overdrive (by Jason Mikula, Fintech Business Weekly). Lots of good observations from Jason in this piece, including how fundamentally different Klarna is from Affirm.
- Is Klarna Fintech’s Main Character? An IPO Breakdown. (by Simon Taylor & Jevgenijs Kazanins, Fintech Brainfood). Simon and Jev do a wonderful job breaking down the coming IPO, including six critical questions for Klarna.
- Klarna Chameleon (by Marc Rubinstein, Net Interest). Marc astutely points out in his piece how difficult it is to categorize Klarna. Are they a lender? A payments network? An advertising platform?
- The Many Faces of Affirm (by Jevgenijs Kazanins, Popular Fintech). Jev makes a similar observation about Affirm, in his typically smart and data-driven way.
1 Question to Ponder
Who in fintech (founder, operator, VC, banker, etc.) is the best first principles thinker? Who do you think would have the clearest and most compelling vision for what fintech will look like 10 years from now?
If you have any thoughts on this question, hit me up on X or LinkedIn.
