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JPMorgan Chase sues start-up fintech Frank for fraud – Industry roundup: 13 January

The UK government examines digital pound, aiming to become a “crypto hub” 

The UK government is reportedly considering the introduction of a digital pound. The Treasury's economic secretary, according to the BBC, has stated that the government intends to launch a new public consultation on a national cryptocurrency in the coming weeks, with expectations of becoming a global “crypto hub”. Additionally, reports indicate that the government has made significant progress toward developing a system for the wholesale use of stablecoins for payment. 

The big six banks in the UK successfully complete their open banking rollout  

Six of the largest banks in the UK (Barclays, HSBC, Lloyds, Nationwide, NatWest and Santander) have completed their open banking implementation. Additionally, the Open Banking Implementation Entity (OBIE) reported that there are currently 6.5 million active open banking users in the UK, slightly up from 6 million noted in June 2022. 

Charlotte Crosswell OBE, Chair and Trustee, OBIE, who is reportedly stepping down at the end of January, commented that in addition to the new financial ecosystem assisting millions of people in the UK with managing their funds on a day-to-day basis, it also significantly improves their capacity to deal with the effects of the pandemic, rising living expenses and other unforeseen financial disruptions.  

While open banking rollouts have been successfully completed by Barclays, HSBC, Lloyds, Nationwide, NatWest and Santander, three remaining Competition and Markets Authority 9 (CMA9) banks (Allied Irish Bank, Bank of Ireland and Danske) reportedly still need to complete their rollouts.  

Reports indicate that the CMA, the Financial Conduct Authority, the Payment Systems Regulator and the UK Treasury plan to make recommendations on the layout of the future open banking entity in the first quarter of 2023. Final recommendations by the Joint Regulatory Oversight Committee for the OBIE's replacement and its open banking framework, which will reportedly detail how the government, regulators, banks and fintechs collaborate to foster innovation, are expected to be rolled out shortly. 

Stripe reduces its internal valuation by 11% to US $63 billion 

Stripe, a high-profile US-based payment technology firm, has reportedly reduced its internal valuation for the third time and is now valued at US $63 billion internally. Stripe's internal per-share price is reported at $24.71, a 40% drop from its peak. The 11% decrease follows a six-month internal valuation cut that reportedly valued the company at $74 billion.  

New 409A prices, which are determined by third parties and independent of venture backers or other investors, reportedly caused the valuation change rather than a new funding round. A fair market value is determined through a process that is governed by the IRS and compares the price of common stock to comparable shares traded on the open market.  

Reports indicate that companies are required to complete a 409A once every 12 months at minimum or when a significant event could potentially reduce their valuation. However, 409A valuation reviews for late-stage companies, such as Stripe, are now carried out on a quarterly basis due to uncertain economic and financial conditions, as well as Stripe's public market comps, which are all reportedly declining from their 52-week highs.  

A firm obtaining a 409A valuation that is lower than its private, investor-led valuation is reportedly viewed favourably by industry experts. Analysts claim that a low 409A valuation enables companies to grant stock options to employees at a lower cost. Additionally, businesses could reportedly use the lower 409A valuation as a recruitment and selection tactic. 

Patrick Collison, CEO, Stripe, explained that the valuation reduction could reportedly aid in maintaining current employees or moderate expectations prior to an optimistic initial public offering, as the company is still in its early stages. 

B2B BNPL firm, Mondu, receives US $13 million in Series A funding 

Mondu, a Berlin-based B2B buy now, pay later (BNPL) start-up firm, has reportedly raised a US $13 million Series A extension led by Valar Ventures and FinTech Collective, increasing the round's total funding to $56 million. Additionally, Mondu, since its initial Series A round last May, has introduced instalment payments and expanded into Austria and the Netherlands, where it has opened a second office in Amsterdam. 

The Mondu workforce has reportedly grown from 20 to 140 staff since the beginning of 2022, with more talent joining the C-suite, including Julian Kurz as Chief Commercial Officer and Lauren Hoehlein Joseph as Chief People Officer. Additionally, Mondu has reportedly received $90 million in equity and debt financing since its founding in October 2021 from Valar Ventures, FinTech Collective, Cherry Ventures and German-based bank VVRB. 

ClearScore, a UK-based fintech, introduces open banking 

ClearScore, a London-based financial technology firm, has established a B2B open banking division, which reportedly offers free credit scores and reporting.  Additionally, the new venture aims to enable banks and credit card companies to integrate consumer bank data into mainstream lending more quickly. 

Reports indicate that ClearScore’s new business, which is based on the early 2022 acquisition of Money Dashboard, plans to offer a robust collection of open banking links in the market to forty-six financial organizations. Additionally, the open banking service intends to assist financial services providers in classifying and analysing bank account transactions using what has been dubbed an “advanced transaction categorisation engine”, a system that has been under development during the previous ten years and has reportedly processed more than a billion transactions. 

The company claimed that it has identified a set of financial behaviours through its new open banking services, such as depositing funds into a savings account, that enable lenders to divide risk or more precisely classify the riskiness of borrowers. Justin Basini, Chief Executive and Co-founder, ClearScore Group, commented that the long-term vision of lending decision-making will be an amalgamation of various data in order to reach better decisions.  

American Express acquires Nipendo, a B2B payments firm, to create a global business payments network 

American Express has reportedly acquired Nipendo, a firm that helps international businesses automate and streamline B2B payments. Additionally, American Express aims to expand its B2B capabilities for both buyers and suppliers through new product development, mergers and acquisitions, and partnerships in efforts to further simplify and streamline business payments.  

Reports indicate that American Express has also expanded its financial platform by partnering with Versapay and BillTrust, two companies that specialize in accounts receivable, in 2022. In addition, the company revealed Amex Business Link in December 2022 as a B2B option for users of the American Express network.  

Businesses will reportedly be able to connect easily and communicate and automate procure-to-pay processes, such as accounts payable and receivable, using the Nipendo platform. The platform is expected to integrate with an organization's current systems, enabling clients to keep their current payment infrastructure in place while gaining more automation, said reports. Furthermore, Amex plans to incorporate Nipendo's team, technology and capabilities in order to broaden its portfolio of unique business offerings. 

Finding the right suppliers, managing order processes and supply chains, handling discrepancies and reconciling invoices are reportedly just a few of the challenges that businesses may face prior to initiating a payment. Eyal Rosenberg, Co-founder and Chief Executive Officer, Nipendo, commented that conventional paper-based processes demand significant time, effort and financial investment. 

The acquisition is expected to close within the quarter, subject to the typical closing requirements.  

JPMorgan Chase sues start-up fintech Frank for fraud 

JPMorgan Chase reportedly purchased Frank, a platform for financial planning for college students, in September 2021. However, the bank has claimed that the founder of the college financial planning website defrauded it by inflating the company’s customer base. The bank reportedly paid US $175 million for what it considered was a business actively invested with the college-aged market segment with 4.3 million customers, but the business now reports having less than 300,000 customers, according to the Delaware Court of Chancery.  

JPMorgan asserts that Charlie Javice, Founder, Frank, and Olivier Amar, Chief Growth Officer, reportedly used bogus client accounts to inflate the company's user base, which was discovered following the acquisition. After the investigation, Javice and Amar, who joined JPMorgan after the Frank acquisition, were both discharged, said reports. 

Mike Mayo, Analyst, Wells Fargo, commented that even shrewd financial institutions can succumb to fraud, although the Frank transaction was relatively small. Additionally, Mayo stated that JPM announced fifteen deals within the last two years, raising questions about JPM's financial discipline and whether JPM is overspending too quickly. 

The SEC charges crypto firms Genesis and Gemini for selling unregistered securities 

The US Securities Exchange Commission (SEC) has filed charges against cryptocurrency firms Genesis and Gemini for allegedly selling unregistered securities in relation to a high-yield product offered to depositors. 

In February 2021, Gemini, a cryptocurrency exchange, and Genesis, a cryptocurrency lender, reportedly collaborated on a Gemini product called Earn, which guaranteed customers yields of up to 8%. The SEC stated that Genesis lent Gemini users' cryptocurrency and sent a share of the profits back to Gemini, withholding an agent fee occasionally exceeding 4%, and reimbursing the residual profit to its users. The SEC officials cited that Genesis should have registered that product as a securities offering.  

Reports indicate that Gemini's Earn program, which was supported by Genesis' lending activities, reportedly fulfilled the definition by including both an investment contract and a note according to the SEC, which use these two characteristics to determine whether an offering qualifies as a security. 

The SEC further stated that the Earn program brought the businesses billions of dollars in cryptocurrency assets. The agency noted that investigations into additional alleged violations of the securities laws, as well as into other entities and people connected to the alleged misconduct, are ongoing, and it is requesting permanent injunctive relief, disgorgement and civil penalties against both Genesis and Gemini, said reports.  

The two companies have reportedly been involved in an elevated conflict pertaining to the Earn program, with over $900 million in client assets that Gemini entrusted to Genesis, which was terminated this week. The freeze has reportedly impacted more than 340,000 US retail investors. The SEC further cited that Gemini earned about $2.7 million in agent fees from Earn in the first quarter of 2022, adding that Genesis would use the assets of Gemini users as collateral for its own borrowing or for institutional lending. 

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