The Party is Almost Over
Happy Monday, Fintech Takers!
And congratulations to Seahawks fans. That wasn’t a great game, but a win is a win.
I received disappointing news this weekend (so disappointing my wife made me sit down before she told me) — my favorite tea, the tea I drink at least one cup of a day, has been discontinued.
I discovered Fast Lane more than 10 years ago when my wife and I toured the Celestial Seasonings factory in Boulder, Colorado. It has more caffeine per serving than coffee, but it also contains other botanicals that help offset the caffeine and prevent a crash. Plus, it tastes delicious (it’s like a slightly spiced black tea … it doesn’t even require sugar!)
Put simply, it’s INCREDIBLE. Celestial Seasonings doesn’t sell it in stores (they’ve never been able to successfully market it nationally … which is probably the greatest marketing failure of the past 50 years), so my wife has been ordering cases of it for me, straight from the factory, for more than a decade.
And now it’s been discontinued, and I’ll be honest with you … I’m feeling lost.
This tea has been a part of my daily routine for so long that I can’t really remember what it was like without it. And I’m not sure how its absence will impact my abilities.
Like, I’m sure I’ll still be a good father without it, but I don’t know that. I’ve been using it to battle fatigue for the entirety of my kids’ lives. I’m sure I’ll still be a good newsletter writer and podcaster without it, but I don’t know that. It has been the scaffolding for my creative process since the very beginning of Fintech Takes.
It’ll probably be fine, but I don’t know that … and that is deeply disconcerting.
I try not to ask too much of you, but if you have a free minute today, would you please email Celestial Seasonings (celestialseasonings@worldpantry.com) and complain about them discontinuing Fast Lane? I doubt they will reverse their decision, but perhaps we can at least get them to question it.
And now, an uncaffeinated (but hopefully still good?!?) Fintech Takes newsletter…
- Alex
Me, without Fast Lane, trying to keep up with fintech.
And, also, Ben Affleck after watching the Patriots try to score on the Seahawks.
3 FINTECH NEWS STORIES
#1: The Party is Almost Over Copy anchor linkCopied
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Equifax’s business practices are attracting scrutiny:
Three Democratic senators have accused the credit-rating company Equifax of price gouging states for a service many will use to comply with the new work requirements for Medicaid and food assistance passed by Republicans in Congress last year.
Many states rely on an Equifax product called the Work Number to instantly verify a Medicaid applicant’s wages and work hours. The database covers at least 99 million workers, whose information is often obtained through exclusive contracts with payroll contractors and employers.
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The Work Number is Equifax’s U.S.-centric employment and income verification platform: employers and payroll/HR systems contribute employment and income records, and “credentialed verifiers” (e.g., mortgage lenders, landlords, background screeners, and government agencies) can instantly verify an individual’s employment and/or income with the consumer’s authorization and a permissible purpose.
The Work Number — which Equifax acquired through an acquisition in 2007 — is, by far, the most important product that Equifax sells.
This may surprise you. Reputationally speaking, Equifax is a credit bureau, providing credit reports and credit scores to lenders. That’s what it’s known for.
However, practically speaking, Equifax is an income and employment verification provider for mortgage lenders, landlords, and government agencies. That’s where a majority of its revenue and profit come from.
Workforce Solutions — the Equifax division sells the Work Number and related products — accounted for roughly 42% of Equifax’s revenue in 2025 and a whopping 63% of its profit. By contrast, Equifax’s U.S. Information Solutions business (which sells its credit and marketing data) generated 34% of the company’s revenue in 2025, and only 26% of its profit.
This context is important for understanding the New York Times’ reporting on how U.S. states are complying with federal requirements for Medicaid eligibility … and how Equifax has been cashing in. The data is quite shocking:
Take North Carolina, for example. Here’s the New York Times again:
In 2022, Equifax demanded a 24 percent price increase as part of a new contract with North Carolina’s Medicaid program, according to Jay Ludlam, the state’s Medicaid director. Last year, the company raised its prices again, this time by 36 percent. The state’s total spending on the contract nearly doubled — from $11.6 million in 2022 to $22.5 million this year, according to state officials.
“The costs exploded really fast to us, and it seemed unwarranted,” Mr. Ludlam said. “And we have very little leverage and recourse to back out.”
He expects needing to pay Equifax tens of millions of dollars more to comply with the work requirements.
This level of pricing power is absurd, and several fintech infrastructure companies (Truework, Argyle, Truv) have attempted, over the last decade, to disrupt Equifax’s hold on this market. However, their efforts have been stymied by Equifax, which has (allegedly) locked up a large percentage of income and employment data behind exclusive contracts and revenue-share agreements. Here’s some additional detail from a class action lawsuit brought by First Financial Lending LLC and Greystone Mortgage Inc.:
Equifax entered multiyear exclusive deals with large payroll software providers (e.g., ADP, Paychex, and Intuit Quickbooks), and large employers (e.g., Walmart and Home Depot) … with the intent and effect of denying competitors access to critical data inputs, thereby making it impossible for rivals to build databases of sufficient size and scale.
Equifax shares a portion of its monopoly profits with the Data Contributors to induce them to provide their data exclusively to Equifax, impede Equifax’s competitors, and thereby help Equifax maintain its monopoly power. These payments often come in the form of what Equifax terms “revenue shares.”
These allegations match up with what I’ve heard from my sources, and they fit into a larger pattern, which has become increasingly clear over the last year.
The big three credit bureaus — Equifax, Experian, and TransUnion — and FICO rose to prominence at a time when very few companies understood the value (and danger) of data and analytics. Because of this, they were able to construct enormously profitable and monopolistic businesses before regulators, consumers, or even their own customers realized what had happened.
We’ve spent the last couple of decades slowly dismantling those businesses. Regulators have embraced the idea that consumers own their own data (and should be able to control access to it). Companies have started looking at data furnishing with more suspicion. Credit building has become a fintech product wedge (and, thus, a source of pollution within credit files). And the ability to build highly sophisticated predictive models has become commonplace.
And that’s why we are seeing this type of behavior from FICO and the credit bureaus. You don’t raise the price of mortgage credit scores from $0.50 to $10.00 over eight years, or continually gouge U.S. states for employment verification for Medicaid eligibility, if you feel secure in your monopoly.
You do it when you know that the party is almost over.
#2: The ArkenstoneCopy anchor linkCopied
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OK, here we go:
The Trump administration has greenlighted its first new bank, and it is a startup that takes its name from a mountain where dwarves stored their treasure in J.R.R. Tolkien’s “The Hobbit.”
Erebor Bank, which will cater to startups and high-net-worth individuals, on Friday became the first newly created bank to receive a national charter under the second Trump administration. Launching with $635 million in capital, it says it will occupy a hole in the market left by the collapse of Silicon Valley Bank, which served California’s tech companies, founders and venture-capital firms.
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I find the way Palmer Luckey talks about Erebor to be very interesting. Here’s his tweet, after the Wall Street Journal published its story:
The “don’t let your client’s money disappear” and “the market sometimes goes down” comments are funny and clearly aimed at the risk-management failures that brought down Silicon Valley Bank.
Luckey is positioning Erebor as a bank that will do the simple things well and focus solely on the needs of its target customers (tech startups and high-net-worth individuals, or what he calls “real Americans doing real things”). Here’s the analogy he uses:
You can think of us like a farmers’ bank for tech. I think most farmers’ banks won’t claim that they’re the best bankers in the world, but they do understand farmers.
This aw-shucks routine is cute, but I don’t think it can be the guiding strategic principle for how to run the bank. After all, Silicon Valley Bank had a similar origin story back in 1983. Its original ambition was modest: to be a community bank for the tech/VC ecosystem. It didn’t set out to take insane interest rate-risk gambles. But it eventually did because taking risks is generally how banks return money to shareholders.
And this is highly relevant to Erebor because, even though it is a startup de novo bank and even though it has pledged to act conservatively and to never loan out more than 50% of its deposits, it already has a big valuation to live up to:
Erebor was valued at about $2 billion in a funding round last year, over seven times its book value, according to an investor pitch at the time. Most banks trade at one or two times their book values. A subsequent funding round valued Erebor at $4 billion.
How can a bank maintain a 7x (or greater) premium over book value and not lend out more than half of its deposits, when the average loan-to-deposit ratio for healthy commercial banks (valued at much lower premiums) is anywhere from 70% to 90%?
Everywhere you look with Erebor, there’s this fundamental contradiction between the type of bank it says it wants to be and the realities of building the next SVB.
Here’s another example. The Wall Street Journal reports that Erebor plans to sell many of its loans to investors (a common strategy in lending):
Erebor plans to sell many of the loans it makes to other banks and investment firms, an approach that likely means it will have to stick to loans that aren’t too exotic.
And yet, in the same article, it says that Erebor will specialize in exotic loans that other banks won’t go near:
Erebor said in its investor pitch last year that it plans to offer lines of credit backed by crypto or private securities and loans for advanced artificial-intelligence chips. Other banks might view such loans as risky, but Erebor has said its understanding of its customers’ businesses will let it more accurately gauge their risks—and offer more attractive loan terms.
You can’t do both of those things! You can’t run a boring farmers’ bank for tech and a bank valued at an insane premium that serves the fastest-growing companies in the world.
You can’t re-establish a peaceful dwarven realm under the Lonely Mountain and greedily hoard the Arkenstone.
#3: Ethical HoopingCopy anchor linkCopied
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Varo raised a $123.9 million Series G:
Varo Bank announced it has raised $123.9 million in a Series G growth investment led by existing investor Warburg Pincus and new investor Coliseum Capital Management, with additional participation from existing backers including Northview. The financing arrives as the digital bank positions itself for its next phase of expansion, pairing fresh capital with new board appointments it says will deepen oversight and operating expertise.
Alongside the round, Varo announced that Alice Milligan, the former chief marketing officer at Morgan Stanley, and Kevin Watters, a former division chief executive officer at JP Morgan, have joined the company’s Board of Directors.
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There’s a concept among basketball fans and analysts known as “ethical hooping.” On an individual level, it refers to a style played with pure skill, clean footwork, and a natural feel for the game, avoiding foul-baiting or grifting to draw fouls. On a team level, it refers to teams that refuse to bend the rules (in individual games or across the season) to achieve their goals.
Kyrie Irving is an ethical hooper, as compared to James Harden, who is not. The Utah Jazz are an unethical basketball team. They are tanking to get a high draft pick by benching their best players (sometimes at critical junctures in the middle of games?!?). The Sacramento Kings, by contrast, are an ethical basketball team. They have a worse record than the Jazz, but they are not trying to lose. In fact, they desperately want to win. They are tanking, but ethically.
Varo is the Sacramento Kings of fintech.
As Jason Mikula has been chronicling for a while now, the company has not been doing well. It has been burning through massive piles of investor cash, while getting a bank charter (back when that was very rare and very difficult) and very little else to show for it.
The latest data, compiled by Jason yesterday, is still quite bleak. Accounts, deposits, and loans have all grown modestly, and net losses have decreased, but the company is still not profitable (it lost $91 million in 2025), and credit performance remains terrible. Here’s Jason:
Varo’s loss rates remain stubbornly high. Net of recoveries, Varo charged off $6.1 million related to its small-dollar and personal line of credit loans in Q4 2025, or more than 10% of the size of that loan book at the end of 2025.
And yet, despite all of that, I gotta say — I kinda admire the way that Varo plays the game.
The company has more than 7 million accounts. If it had been willing to follow the playbook that many of its peers in the consumer fintech space followed in 2025, it could have made a ton of revenue by aggressively cross-selling those customers zero-day options trading, memecoins, and sports betting via partnerships with prediction markets. It’s not like the regulators we have right now would have objected.
But no. It doesn’t offer any of that shit.
Or take its newest product — Varo Line of Credit, through which customers can get pre-approved up to $2,000. Despite calling it a line of credit, the product functions more like a closed-ended installment loan. Customers must completely repay the first loan they draw from the credit line in equal, fixed monthly payments over 3-12 months before being eligible to draw additional funds.
It’s not a perfect product (it charges an upfront origination fee that isn’t refunded if a customer repays early), but what’s most notable to me is how non-optimal it is from a profitability perspective. Varo is lending to consumers with poor credit histories. A charge-off rate north of 10% bears this out. And yet, instead of adopting a product structure that can better balance out those risks with additional revenue levers (a credit card is an obvious option if Varo wants to offer a line of credit), it’s sticking with the non-optimal product structure that it thinks is better for customers.
I love it. Varo refuses to veer sideways into its defender in order to draw the shooting foul. It refuses to offend the Basketball Gods.
I just hope Varo’s investors realize there’s no high draft pick coming at the end of all of this.
2 READING RECOMMENDATIONS
#1: Sensible sports betting: A policy framework (American Institute for Boys and Men) 📚Copy anchor linkCopied
I’m very happy to see the American Institute for Boys and Men investing in this policy area. Statistics suggest that sports betting (and gambling and speculative investing, more broadly) negatively impact young men at far greater rates than other demographic groups.
This policy framework is a great (and very nuanced) exploration of the problem and some potential solutions.
#2: Cardholders Are Mad at Bilt’s CEO. They’re Still Renewing (by Paige Smith, Bloomberg) 📚Copy anchor linkCopied
I’m keenly interested to see if Bilt is able to continue converting customers to Bilt 2.0 cards at this rate, given the disappearance of the original arbitrage opportunity that attracted so many Bilt 1.0 customers.
Whatever happens, Bilt will end up being a very well-studied case study for future credit card builders.
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— Alex
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