Nuked Bills, Fake Numbers, & Blackmail
Happy Wednesday, Fintech Listeners!
Well, the news continues to be relentless. The latest is that PayPal, after less than three years, is replacing its CEO Alex Chriss with the CEO of HP (and former chairman of the board of PayPal) Enrique Lores.
I’m not surprised. The company’s stock price has been in a brutal downward slide since the pandemic and nothing that Chriss has done has shocked the world.
It’s an unfortunate long-term trend for probably the most influential company in the modern history of fintech. Just think about how many fintech innovations PayPal has invented or been very early on. Everything from one-click checkout to P2P payments to digital wallets to BNPL to stablecoins. To say nothing of the density of talent that has gone through that company over the last 25+ years (AKA the PayPal Mafia).
However, as David Marcus pointed out, this is what happens when you put the finance people in charge and drive away all the product and payments people.
I’m not bullish on this next phase of the journey for PayPal. Lores essentially hired himself as the new CEO, which doesn’t inspire a ton of confidence.
I know he’s busy trying to build data centers in space, but honestly, at this point, I wish Elon Musk would find a way to acquire PayPal and turn it into what he’s always wanted it to be. That company needs a serious kick in the ass.
Anyway, in addition to these very brief PayPal thoughts, I also have a new podcast to share with you!
— Alex
P.S. There's no shortage of AI hype. Can our industry benefit from AI in our workflows? Absolutely. Does it introduce serious risk? Without question.
Join me and Jason Ionnides on February 25 for a candid conversation about how banks and fintechs are using AI to make better risk decisions. We'll share real-world stories of banks and fintech companies deploying AI today: what's working, what's failing, and what we can learn from both.
RSVP here and bring your questions.
3 BIG IDEAS FROM THE PODCAST
On this week’s episode of Fintech Recap, I sat down with Jason Mikula (again!) to unpack what might have been the most chaotic month in fintech memory, which is saying something.
Like, why Coinbase nuked its own crypto legislation at the goal line, burning a bunch of bridges in Washington in the process. Or why both banks and crypto companies decided that disinformation is somehow a … good strategy?
Then we drifted into why every fintech company suddenly wants a bank charter (after spending a decade avoiding them like the plague). And why Capital One's $5 billion bet on Brex might look great on a slide but faces some serious execution questions.
Plus, why financial services policy has devolved into bargaining chips at best (and blackmail at worst), with the Credit Card Competition Act weaponized against banks who won't play ball on crypto.
Tune in for the full conversation here
And read below for my three big ideas...
#1: How to Lose a Bill in 10 Days Copy anchor linkCopied
The Clarity Act is the closest that the crypto industry has come to having real market structure legislation. No one thought the latest draft of the bill was perfect, but it was something, and that something was moving.
But banks, late to this fight, managed to outflank the crypto industry on a single issue: closing the loophole that allowed exchanges and wallets to pay yield on stablecoins even though issuers (under the GENIUS Act) cannot.
As a result, Coinbase (the crypto company that cares the most about yield-bearing stablecoins) freaked out and announced that it wasn’t going to support the bill as it was written.
The bill, notably, contained a ton of other stuff that non-Coinbase actors cared about — rules on consumer protection, anti-money laundering, privacy, and the division of responsibilities between the CFTC and the SEC.
Coinbase’s decision detonated the coalition. As Jason put it, Coinbase expended an immense amount of political capital to get legislation to this point … and it seems like that investment may ultimately end up being wasted. Crypto advocates were pissed at Coinbase, including people inside the White House and Congress. Lawmakers don’t like having their time wasted.
The deeper implication for financial services is about what happens when policy is already this hard to pass. Crypto isn’t a monolith. Different players want different things. But when the largest, loudest actor takes a scorched-earth approach to protect a narrow advantage, it burns credibility for everyone else. When both sides aren’t being honest (more on that in a minute), good policy becomes impossible. And when you waste your shot, you are not guaranteed to get another one (though the White House is working on it).
#2: $6 Trillion in BullshitCopy anchor linkCopied
The stablecoin yield debate wasn’t only the wedge that derailed crypto market structure legislation; it was also the point where both sides stopped even pretending to tell the truth.
In some of its marketing and comms materials, Coinbase has framed the proposed ban on yield-bearing payment stablecoins as a bank bailout (what?!?) And while he was in Davos, Brian Armstrong talked about fractional reserve banking as if it were a conspiracy theory (banks are lending out your deposits without your permission!!!) rather than, you know, the way banking has worked for more than a century.
The banks, for their part, have been arguing against allowing yield-bearing payment stablecoins by painting a scary-sounding scenario: $6 trillion in deposits could vanish if stablecoins are able to offer yield.
That’s a lot of disappearing deposits!
I got curious, so I traced the number. Turns out that the $6 trillion figure came from a Treasury Department report, but got very distorted through a game of telephone. That figure is the total amount of non-interest-bearing deposits held by U.S. banks (checking accounts, essentially).
The banks were implying that grandma, your local plumber, and every small business in the country might move their operating accounts to Coinbase if they could earn a bit more yield. All the big bank CEOs used the same talking point during their latest earnings calls, which were happening at almost exactly the same time the market structure legislation was falling apart.
To be clear, the banks’ argument here is insane. There’s no way that yield-bearing payment stablecoins put $6 trillion of deposits at risk. One way we know that is that Coinbase offers a yield-bearing payment stablecoin (USDC) right now, and it hasn’t led to a frantic stampede of bank deposits out the door.
#3: The Not-So-Subtle ThreatCopy anchor linkCopied
So, Coinbase walked away from the Clarity Act to protect its yield advantage. Both sides have long-since abandoned reality entirely in favor of competing fabrications about bank bailouts and deposit apocalypses.
But here's where it gets truly surreal. As the battle over Clarity was raging, two policy proposals vaulted into prominence: the Credit Card Competition Act (CCCA) and a 10% cap on credit card APRs.
One White House official working on crypto policy tweeted that banks better get on board with the market structure bill … or else. And the “or else” seemed to be CCCA or the APR cap (or both).
Jason captured the subtext clearly: The CCCA resurfaced out of almost nowhere. More charitably, a bargaining chip. Less charitably, blackmail. A political game of nice credit card business you’ve got there… shame if something happened to it.
The President, offhandedly, floated the 10% APR cap as something his administration might pursue. From a political messaging perspective, both moves speak to the administration’s desire to be seen as tackling affordability.
Crypto policy, credit card regulation, and affordability politics are no longer separate fights — they’ve become negotiating pieces in a larger game.
WHAT I'M LISTENING TO
#1: America's next top Fed Chair (Planet Money) 🎧Copy anchor linkCopied
Some excellent background on Kevin Warsh, for those not familiar with his prior work and positions.
#2: Why Financial Health Builds Better Customers (The Galileo Financial Technologies Podcast) 🎧Copy anchor linkCopied
I enjoyed appearing on this podcast to talk about lots of different fintech and fintech-adjacent topics!
Bonus: Collections Conversations* (by me, with C&R Software) 🎧Copy anchor linkCopied
What happens to debt collections when generative AI changes how the work gets done? Catch episode 1 of Collections Conversations, my new miniseries on how generative AI is reshaping debt collections; what it enables, what it complicates, and why it might finally force the industry to retire the word “collections” altogether.
*this rec is brought to you by one of our fantastic brand partners
Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
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