Preemption, Kawhi’s Payday, & Tokenized Confusion
Happy Wednesday, Fintech Listeners!
Today’s newsletter comes to you from New York, where a lot of the fintech conversation is about … well, precisely what you’d expect it to be about: AI, open banking, and stablecoins.
Gotta talk about those hot trends!
I’ll be recapping my learnings and what I’ve been hearing this week in Friday’s newsletter.
Today? We’re not chasing trends. We’re going to lean into our passions and curiosities.
- Alex
3 BIG IDEAS FROM THE PODCAST
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Bank Nerd Corner is now rocking and rolling with Kiah Haslett, fresh off launching her Fintech Takes Banking newsletter (subscribe and read here!).
Expect chitchat around federal preemption battles, fintech fraud stories (this time featuring the NBA’s most mysterious/boring superstar), and a wonderful soliloquy about tokenized deposits from Kiah.
The throughline: banking’s rules and guardrails keep bending … sometimes by design, sometimes by accident, and sometimes because no one can explain what problem they’re solving.
Tune in for the full conversation here
And read below for my three big ideas...
#1: Can I interest anyone in a dual banking system? Anyone?Copy anchor linkCopied
Reuters reported that big banks are lobbying the OCC for uniform rules that would override the patchwork of state laws and regulations.
This is not unheard of. The fight over federal preemption vs. state authority has always been part of the dual banking system, but right now the tectonic plates are shifting.
The CFPB has been defanged (after years of complaints from banks). And crypto is introducing new laws and regulations, which are further scrambling the picture.
How will the rules for stablecoin issuers take shape? How will those rules advantage or disadvantage state bank regulatory agencies? Will the perceived availability of Fed master accounts drive more non-banks to seek bank charters? And if so, which charters? How will the states adapt their approaches to consumer protection now that the CFPB has been decimated? Will we see a similar response from the states on the prudential side as well?
I don’t think anyone knows the answers to all of these questions, but fights over the structure and function of our wonderful dual banking system tend to impact companies operating in financial services far more than most people think.
We may not know all the answers, but it’s worth asking the questions.
#2: Entanglement: Is it Inevitable?Copy anchor linkCopied
Fintech. The NBA. Funny stories of fraud.
[Dame Julie Andrews singing voice] These are a few of my favorite things!
And we got all of them in Kawhi Leonard’s bizarre no-work contract with Aspiration.
Clippers owner Steve Ballmer reportedly invested ~$50M in Aspiration, and then (conveniently) his star player wound up with a nearly identical payday: $24M in cash plus $20M in equity, with zero work required. Kawhi could literally opt out of any and all work and still collect his quarterly checks … which he allegedly did.
What makes this story more than tabloid fodder is what it revealed: the fragility of the rules designed to keep systems fair.
Apparently, in the NBA, it is permissible to have companies sponsor teams, even if those companies have been invested in by the team owners and/or the companies strike separate sponsorship deals with the players on those teams.
This feels like a massive conflict of interest to me, but if it’s not against the rules, you can see why the sponsoring companies are interested in it.
We see something similar in fintech (and tech startups more broadly): getting your customers, suppliers, and partners to invest in your company in order to wring better commercial terms out of them.
Wells Fargo and Bilt is a good example. Wells Fargo invested in Bilt and then inked a co-brand deal so lopsided for them that it turned into one of the worst economic trades in recent memory. Bilt got growth, Wells got mounting losses, which is why they’re in the process of parachuting out.
Entanglement blurred judgment: was Wells making a sound business deal, or subsidizing the growth of a card portfolio because it was also an investor?
And that raises harder questions we don’t always like to ask in financial services. Like, should banks ever sit on both sides of the table when the terms they sign will ripple into credit losses or consumer pricing?
And at what point does “aligning incentives” become a conflict of interest that blinds boards and risk management teams to basic realities?
In the same way Kawhi’s no-work contract should make the NBA question how enforceable its rules really are, Wells Fargo’s co-branded deal with Bilt should make financial services companies examine whether our own guardrails are strong enough to withstand the pressures of entanglement.
#3: Tokenized Deposits Solve a Problem Most Banks Don’t HaveCopy anchor linkCopied
Kiah's take in today’s episode was great: talking about tokenized deposits makes you feel like you misunderstood everything you thought you knew about money.
On paper, the concept seems simple: a tokenized deposit is just an on-chain representation of a dollar already sitting in a bank account. Same insurance, same deposit (just with a twin wandering around on Ethereum or Solana).
But the questions pile up fast.
If money is already digital, what problem is this actually solving?
Do both parties need to be “on chain” for it to work, or does that just create another closed loop?
If scams (via P2P payments apps like Zelle and Venmo) are already rampant, won’t this just make it easier to beam money instantly to a scammer across the world?
And when does the deposit actually “leave” the bank — when it’s tokenized, or when it’s redeemed?
These questions were the focus of Kiah’s reluctant (and hilarious) soliloquy on tokenized deposits: the more you chase the logic, the more it feels like you’ve walked in a circle (pun very much intended!) back to where you started.
Maybe faster rails and greater certainty and transparency for B2B payments and commercial treasury management make sense for Citi or JPMorgan Chase. But for most banks, it’s hard to see why the astral projection of money — tokenized deposits — fixes anything their customers actually struggle with.
🎬 DIRECTOR'S COMMENTARY
Asking Kiah what tokenized deposits are and why they’re good was maybe my favorite thing I’ve ever done on a podcast.
Clip that section and place it in the Fintech Takes podcast Hall of Fame.
WHAT I'M LISTENING TO
#1: The Business of KPop Demon Hunters (Everybody’s Business) 🎧Copy anchor linkCopied
I’ve been told by people I respect that I need to become conversant in KPop Demon Hunters, which is a movie, I think?
I don’t know. I’m in the cultural blackout period that every parent of little kids goes through. Honestly, outside of fintech and some sports stuff, the 2020s are a bit of a blank slate for me. But I’m trying to come up to speed!
There’s also some good conversation on tariffs in this episode.
#2: A Primer On The Federal Reserve's Independence (Throughline) 🎧Copy anchor linkCopied
If you need a primer on why the Fed is independent and why that’s important, start with this episode.
WHERE I'LL BE
First things first:
⛰️ The Fintech Takes: Builders Summit | Nov 12 - 13 | Bozeman, MTCopy anchor linkCopied
Big conferences are great for collecting swag (not so much for solving the most existential problems in financial services). The Fintech Takes: Builders Summit is a small (~60), exclusive gathering built around a handful of well-researched deep dives on the toughest challenges in fintech, led by some of the most thoughtful and curious minds out there.
📍If you're ready for meaningful conversations (and real progress), apply here to join us.
Second, I still have a few more events to attend in September (starting next week):
✈️ Money Experience Summit | 9/15 - 9/17 | Salt Lake City, UTCopy anchor linkCopied
One of my favorites. I never miss it. My panel this year should be a lot of fun!
✈️ Salt Flats Summit | 9/17 - 9/18 | Salt Lake City, UTCopy anchor linkCopied
Truly one of the most unique events I’ve ever attended. Looking forward to year 2!
💻 Future-Proofing Your FinCrime Ops—Automation, AI, or Elbow Grease | 9/30Copy anchor linkCopied
I'm going to be nerding out with some very smart financial crime experts during this webinar. Please join us!
✈️ AI-Native Banking & Fintech Conference | 9/30 | Salt Lake City, UTCopy anchor linkCopied
Year 2 for this one as well. The first one was a lot of fun (plus, I’m digging all these conferences in my backyard … Silicon Slopes for the win!)
Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
