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Business Finance

Cruising the Payments Swingles Bar

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

As holiday shopping season hits us, the whole payments space is starting to feel like a swingles bar at closing time: a lot of sudden pairings that may or may not make sense in the morning. FIN continues to think, for example, that Square’s $29 billion purchase of Australian Buy Now, Pay Later (BNPL) hegemon Afterpay was an extravagant indulgence.

But one player that is deadly serious is Amazon; its cost of payments is higher in the US than in any other country, and the company seems determined to fix that.

This week the global retail giant announced that, as of 2022, it will accept Venmo for payment. (This tryst could only happen now, since Venmo parent PayPal’s historic relationship with eBay prohibited it from getting hitched to another e-commerce platform.) Perhaps more stunning was the announcement that Affirm will be Amazon’s exclusive provider of BNPL purchases (of $50 or more) until January 2023.

It’s a striking partnership, especially given that Affirm seems to be following Amazon’s historic path of breakneck growth with no profit in sight (as part of the deal, Amazon gets the rights to buy a portion of Affirm stock). Affirm, which also announced a powerful deal with Shopify this week, now has more than 100,000 merchants on its platform, up from about 6500 a year ago. At the same time, its operating losses in 2021 were about three times as high as in 2019. This slide from a recent Affirm filing shows the tide of red ink continuing:

It stands to reason that Affirm and other BNPL providers will prosper during the holiday spending season. At some point, however, Affirm is going to need to deliver profits; how it does so without sacrificing some of the attractions it currently offers consumers is a well-kept secret.

Acima and the Darker Side of Fintech

Sometimes the more glamorous parts of the fintech world—players like Klarna who can splurge on Super Bowl ads—seem to rub elbows with the grittier characters in personal finance. In recent months, for example, while BNPL has received market accolades, some observers have pointed out its overlap with the considerably less celebrated world of rent-to-own.

The rent-to-own space has been quietly growing, particularly in noncoastal parts of America where the economy never really recovers, and where underfinanced Americans often lack access to credit. One of the dominant players is Acima (now owned by Rent-A-Center), whose model works like this: a customer identifies a product she wants—an appliance, say, or a piece of furniture—and applies to Acima. She then gets approved to spend a certain amount of borrowed money at a given store, and works out a lease with Acima to make regular payments (usually over a year more) until she owns it. Essentially all of this can be done on a mobile app.

Acima’s modest origin story has some unlikely turns. The company emerged from the “Silicon Slopes” hub of Salt Lake City, launching in 2013 as Simple Finance, a quick way for consumers with no or little credit to finance purchases. Cofounder Aaron Allred had no background in finance; for the first year or so the software he used to manage payments for leases was the system he used for his pest control company. In 2016 it took in a $10 million investment round led by Aries Capital Partners (also Salt Lake City-based) and it grew into a colossus. When publicly traded Rent-A-Center acquired Acima in December 2020, the pricetag was $1.6 billion. Acima recently announced a partnership with Mastercard to issue a “leasepay” credit card that simplifies its offerings even more.

Since that time, Rent-A-Center’s recurring regulatory filings have revealed that Acima seems to be constantly near or beyond the point of breaking the law. In October 2020, the federal Consumer Financial Protection Bureau (CFPB) served Acima with a Civil Investigative Demand, to see whether it was complying with various consumer financial protection laws. Acima shows up more than 600 times in the CFPB complaint database, but to date no charges have been publicly made. This week it was revealed that the attorneys general of 39 states are investigating Acima for possible violations of consumer protection laws. It’s a good reminder that when fintech companies boast about serving the underbanked, it’s not always with the purest of intentions.

Will Binance Be Sued to Death?

When you understand the vast amount of money tied up in stablecoins these days, it can be staggering—indeed frightening—to realize just how unstable the technology underpinning these coins is. The chart below comes from the recently released US Treasury Department Report on Stablecoins. Binance, which is actually the largest cryptocurrency exchange in the world, also has a coin which may be a distant third in size but still a significant player:

From that phenomenal growth one might readily assume that Binance has had a great year. Actually, however, in May Binance had a tech hiccup for which it’s still paying the price (and is under investigation or has been charged by regulators around the globe). With Bitcoin and Ethereum trading volumes very high, Binance disabled Ethereum withdrawals citing network congestion. As with Robinhood, Binance had shortchanged customer service and suddenly found itself under assault.

“We have way too many customer support issues on backlog,” CEO Brian Brooks said in an interview at the time. “I know it’s a big deal. We’re all over this and you’re going to see a different customer experience very shortly.”

Regulators, however, have a hard time pinning down an organization that has no headquarters or even licenses. Frustrated Binance customers have taken the matter in their own hands. It looks a little like one of those “Do you have mesothelioma?” ads, but Binance Claim is an active site that has had more than 2400 people sign up. Claimants are being represented by White & Case, and the proceedings will be handled by the Hong Kong International Arbitration Centre. It’s an open question what will happen to the Binance coin if the exchange is sued out of existence.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

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