Mastercard-Paxos deal: Why the card giant is offering crypto

Good morning, and welcome to Protocol Fintech. This Tuesday: Mastercard’s long game, digging into Three Arrows’ bankruptcy, and when an NFT looks more like a security.

Off the chain

PayPal is joining the rewards game, unifying its existing merchant discounts and Honey Gold into a single program. As credit card issuers have found with airline miles, consumers love points. Klarna and Affirm are bringing the rewards concept to “buy now, pay later.” Of course, we all pay for rewards programs, which are funded through merchants’ fees. The Points Guy is raising the alarm about the Credit Card Competition Act, which it says could “gut” rewards programs. I suspect card issuers and their imitators will find a way to keep showering customers with points, even if they have to get creative about the fees that fund them. If you don’t get a piece of the action, what’s the point in shopping?

— Owen Thomas (email | twitter)

Playing the crypto long game

Mastercard rolled out a new service to help consumers buy and sell crypto through their banks. It shows the payments giant is playing the crypto long game. More and more banks will want to dabble in this market — but they’ll want to do it in a way that doesn’t get them in trouble.

Despite the crypto crash, big banks want in. The market slide wiped out $2 trillion in value, but interest in crypto remains strong, especially among major financial institutions.

  • Payments giants, led by Mastercard, Visa, and AmEx, have been building their crypto capabilities for years. “Our commitment is simple,” Jorn Lambert, Mastercard’s chief digital officer, said. Mastercard will “explore” crypto technology and come up with ways to support “customer choice in payments.”
  • The payments behemoths aren’t going away, despite the view that crypto threatens their existence, underlined by investor Chamath Palihapitiya’s prediction that they would be the “biggest business loser for 2022.” (Last we checked, Visa and Mastercard were collectively worth $675 billion.)
  • On the contrary: It’s becoming clearer that payments giants will likely play a key role in crypto’s growth. Walter Hessert, head of strategy at Paxos, cited Mastercard’s “powerful network of financial institutions around the world” which offer traditional financial companies “the fastest and most trusted way to offer safe, reliable crypto access for their consumers.”

Crypto needs the old guard. One would expect that this crypto winter would “keep legacy institutions away,” but “it’s likely that volatility is what will drive consumers to feel safer with established financial institutions,” Melody Brue of Moor Insights & Strategy told Protocol.

  • Turning to a legal, centralized company like Mastercard is “a bit of a sidestep from the underlying decentralized purpose of blockchain,” but major crypto players may have no choice, she said. Their familiarity with the ways of Washington may be an asset as regulators move in.
  • Serhii Zhdanov, CEO of crypto exchange EXMO, agreed: “Their processes are already in place and have been sufficiently tested.” Mastercard made “a logical move,” he said, given how “crypto could outgrow their existing industry, and there is already a huge demand.”

Crypto tokens may have taken a dive, but consumer interest in crypto remains strong, and the industry still appears to be on a path to the financial mainstream. When that day arrives, “the card networks and legacy banks will not necessarily be the competition that will edge out the Coinbases of the world, but an opportunity for them to co-exist and collaborate that provides more consumer protection,” Brue told Protocol.

— Benjamin Pimentel (email | twitter)

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On the money

The FTC is investigating Visa and Mastercard’s debit card routing. The regulator wants to know if the security tokens the companies use for some payments are restricting competition, The Wall Street Journal reports.

Texas’ securities regulator is looking into whether FTX’s yield-bearing crypto accounts are illegal. The agency said the crypto exchange should not be allowed to purchase the assets of Voyager out of bankruptcy until the review is complete.

U.S. regulators are digging into the Three Arrows Capital bankruptcy. The CFTC and the SEC are looking into whether the collapsed crypto hedge fund violated rules by misleading investors about the strength of its balance sheet and not registering with the agencies, Bloomberg reports.

Are fintech jobs still cool? The struggles of fintech firms this year are reversing a years-long trend and making traditional financial service jobs more appealing to top talent.

The CEO of an “anti-woke” neobank has resigned. Toby Neugebauer has stepped down from the top role at GloriFi following a report from The Wall Street Journal that the startup had nearly run out of money, despite backing from big names in tech and finance.

Overheard

Norton Rose Fulbright partner Mohammed Paracha works for big banks during the day. On the side, he bashes them while promoting his fintech startup Nester, Above the Law reports. “We are programmed to trust banks, but then they use our earnings to make greater profits for themselves. Is that OK? Why do we keep trusting them?” Paracha said in a promotional video for Nester.

Why is the SEC going after Bored Ape Yacht Club maker Yuga Labs? It’s pretty simple, University of Kentucky law professor Brian Frye told Decrypt: “What you’re buying is a piece of Bored Ape Yacht Club, and the value of your NFT rises or falls along with the value of the Bored Ape Yacht Club brand.” That makes it look a lot more like a stock than a piece of art, Frye explained.

Deal flow

Small business banking company NorthOne raised $67 million in a series B round. The company has raised a total of $90.3 million with funding by firms including Battery Ventures, Ferst Capital Partners, Next Play Capital, and Redpoint Ventures.

Maplerad, a Nigerian embedded finance startup, raised $6 million in seed funding. Peter Thiel led the round, with participation from Michael Vaughn, Polymath Capital, Unpopular Ventures, Sean Mahsoul, and others.

British banking services startup GoHenry raised $55 million in equity funding for its app, which targets children under 18. Edison Partners and Revaia led the round, with participation from Italian payments company Nexi.

New York-based Uniswap Labs raised $165 million in series B funding. The round, which was led by Polychain Capital, brings the company’s valuation to $1.66 billion.

TripActions, which has reportedly made a confidential filing for an IPO, raised $154 million in series G funding. Lightspeed Venture Partners, a16z, Group 11, and several other firms participated in the round. The company has a $9.2 billion valuation.

New York B2B payments infrastructure company OatFi raised $8 million in seed funding. QED Investors led the round with participation from Picus Capital, Cambrian Ventures, Fin VC, and others.

A MESSAGE FROM AT-BAY

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Thanks for reading — see you tomorrow!


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