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Hey Fintech Fam,
My recent story about the growing number of US couples asking for cash for a mortgage down payment in place of traditional wedding gifts sparked a debate in the comments over whether using your wedding to crowdfund a home is practical or tacky.
One thing that wedding guests seem to agree on, however, is that they do not want to pay any fees as part of the process. Earlier this year, wedding planning site Zola launched a pay-by-Venmo option on its cash funds in response to feedback from wedding guests who said they did not want to pay the 2.4 per cent processing fee to send a donation through the site. According to one of Zola’s representatives, the firm does not make any revenue from the cash funds, but charges the processing fee to offset its own costs.
Because of this hurdle, the brides I spoke to for the story said that most guest contributions came via physical cash on their wedding day, rather than an online cash fund.
Today’s newsletter digs deeper into the intensifying scrutiny that digital payments apps are coming under in Washington as they grow in popularity in the US.
Read on for Lex’s suggestion on how Robinhood can cure its growing pains and how JPMorgan’s UK digital consumer bank stacks up against peers.
What do you think about the relaunch of our newsletter so far? Please take the survey at the end of the newsletter and let us know. And as always you can reach us at [email protected] Happy reading!
Madison Darbyshire, Brooke Masters and Harriet Agnew spoke with top asset managers last week who struck a cautious tone about the surge of retail-focused alternative investments set to come to market in the next 12 months as the industry seeks new sources of growth.
Sid Venkataramakrishnan and Emma Dunkley report that JPMorgan’s UK digital challenger bank has amassed more than 1mn customers and $10bn in deposits in its first year of operation. Its US rival, Goldman Sachs’s Marcus has about $22bn in deposits.
Singapore correspondent Mercedes Ruehl reports that SoftBank-backed Grab plans to be profitable by 2024. Grab, one of south-east Asia’s biggest tech groups, is starting to abandon some of its business lines. It began in ride-hailing and has since expanded into banking, grocery delivery, hotel bookings and other services.
Customers cry foul, but banks see no ‘fraud’
Zelle, the bank-owned peer-to-peer payments product, became a focal point in congressional hearings late last month, as lawmakers pushed lenders to do more to protect consumers from the rampant scams that have flourished on the network.
“Last year alone, Zelle users were defrauded out of [$500mn] that we know of,” Senator Elizabeth Warren said to bank CEOs during a Senate Banking Committee hearing last month. “You built the system, you profit from every transaction on the system but when someone is defrauded, it’s the customer’s problem.”
For years, conversations about consumer protection in the US centred on data protection, but a new generation of scammers has figured out that it is easier to trick people into making payments themselves than to steal account information.
More than 18mn Americans said they had been defrauded out of money using real-time payment schemes in 2020, according to Javelin Research.
However, US banks say there is a clear distinction between fraud and a scam, and that they are not liable for the latter. Each of the seven banks belonging to the consortium that owns Zelle has said they will reimburse customers for all unauthorised transactions on the platform — a similar policy to those already in place for card payments. However, they have stopped short of assuming liability for payments that customers send, even if under false pretences.
Customers largely object to this approach, as evidenced by at least two class action lawsuits against Zelle and banks involving scams this summer.
Rather than focusing on refunds to rectify situations in which customers succumb to scams — which would no doubt leave lenders nursing hefty losses — banks have said that they need help from the government in preventing scams from happening in the first place.
“The scams are growing daily,” said PNC chief executive Bill Demchak. “It’s not enough that we apportion blame after the fact.”
Banks maintain that the onus is on consumers to be alert for scams and they have launched campaigns urging consumers to treat Zelle payments as cautiously as cash. Though they are united in their belief that the responsibility to avoid scams ultimately lies with the consumer, US banks have started investing heavily in scam prevention technology in a bid to manage the problem.
“The liability shift is coming,” said Bill Sytsma senior vice-president at cyber security firm Callsign. “The challenge you have today is you can educate your consumers all you want, but let’s face it, how many of us actually read those things?”
As with most things in fintech world, the US is behind. Regulators in the UK have already proposed a rule that would ask financial institutions to refund customers who are victim to authorised push payments fraud.
Though the cost of maintaining real-time payment networks like Zelle will only increase as liability shifts, it’s unlikely that the product will ever go away, Sytsma said. “The convenience of this is just going to continue to drive it.”
Chart of the week
Bank executives pointed outside of their sector in response to lawmakers’ concerns about payments app fraud. An industry trade group found that Zelle, which processed over $490bn in payments last year, had the lowest rate of disputed transactions.
Robinhood’s next act Digital retail brokerage Robinhood may need to court long-term investors’ cash to overcome the growing pains that have seen its revenue plunge by 43 per cent this year, writes Lex. That would mean embracing the business model it has sought to disrupt since it was founded nearly a decade ago.
US bank trade groups sue consumer watchdog A group of trade organisations representing the majority of US banks has taken the unusual step of suing a federal regulator. The group has accused Consumer Financial Protection Bureau director Rohit Chopra of abusing his power by forcing banks to submit to regular tests of how their treatment of customers may inadvertently disadvantage certain groups, including racial minorities, the New York Times reports.
China’s internet lenders brace for the worst Chinese digital lenders Lufax, 360 DigiTech and LexinFintech are putting themselves in “defensive mode”. They are prioritising risk management ahead of loan growth as delinquencies climb and China’s economic outlook darkens, writes the Wall Street Journal.
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