For this Friday, we’ve got a round of the latest industry news in payments, particularly from a fintech angle, where a Nobel laureate and former Secretary of Treasury think inflation is going, and a look at KYC/AML and what purpose it really serves.
1. All things new in payments
The past few weeks have produced a flurry of news around consumer payment space. Some of the highlights to keep tabs of:
- Early Warning Services (Zelle’s parent company) throws down the gauntlet for online payment wallets to challenge Apple Pay (and others, but really Apple)
The banks expect to enable 150 million debit and credit cards for use within the wallet when it rolls out.
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Crypto-focused Custodia Bank’s application for Fed supervision is denied. Related is their ongoing legal battle with to obtain a master account and access to the Fed’s payment system. Similar conflict around fintech master accounts led to the undoing of President Biden’s pick for Fed vice chair last year.
- Despite the investment pullback in fintech, payments also have led the sector’s investment strategy of VC leader a16z.
More than a quarter (28%) of a16z’s fintech investments in 2022 went to the payments category. Notable investments include:
- SpotOn ($300M Series F): SpotOn offers a cloud-based platform that provides payment solutions for restaurants and small retailers.
- Jeeves ($180M Series C): Jeeves offers corporate cards and other expense management tools for businesses, with a focus on credit and payments rails across countries and currencies.
- Tally Technologies ($80M Series C): Tally’s app helps consumers pay off credit card debt more quickly by automating payments.
2. Krugman and Summers agree on inflation; the fight may not be over
Nicholas Gordon of Fortune brings us the reluctant agreement of economists Paul Krugman and Larry Summers that the Fed may not have it right on inflation and should not commit to future interest rate moves yet.
“It really disturbs me to say this, but I think I agree with Larry.” Nobel laureate Krugman told Bloomberg TV on Monday.
Summers spent most of 2021 and 2022 as an inflation hawk, first arguing that the U.S’s large fiscal stimulus would cause price increases throughout the economy, then claiming that a tight labor market was increasing wage costs, and thus prices.
Krugman, on the other hand, has argued that high U.S. inflation figures were distorted by short-term distortions, particularly in housing and rents. The Nobel Prize-winning economist was more optimistic of the possibility of a “soft landing” as the effect of these shocks began to fade.
Yet both Summers and Krugman seem to agree that the battle against inflation isn’t over. “The markets are pricing in that inflation is over. That could be a self-denying prophecy,” Krugman said on Monday.
3. What is AML/KYC really for?
The always entertaining, if not irreverent, Patrick McKenzie, on his blog Bits About Money, writes on how AML/KYC is more about a statistical approach to preventing some crime vs. an absolute system to stopping all of it.
“You ask questions which have obviously correct answers. You give people less than a tweet worth of space to answer them. How could this possibly catch any criminals not stupid enough to write Occupation: Drug Dealer?”
And this is the first important non-intuitive thing about KYC and AML regimes: the goal is not to achieve banks having good knowledge of their customers or to prevent money laundering. It is to (statistically or stochastically) manage crime and terrorism at the margins by requiring an oft-unrecognized policy arm, the financial industry, to implement their own stochastic management of their books of business.
A particular important realization is that KYC and AML don’t have to be effective in their own terms to contribute to these goals.
His discussion uses examples of how things like wire fraud charges, although sometimes controversial, can be effective in prosecuting related crimes simply because of violations of front-loaded KYC processes. Well worth the time to read, particularly if you often chaff against the customer experience friction compliance in these areas creates.
That’s it for this first Friday in the most honest month of the year. And who knew there was such a range in women’s basketball from absolutely great coaches (HT Jordan Parker at Traditional Bank) to unbelievably bad coaches. How are we doing here? Let us know at blog@mindspaninc.com. Feedback is our manna from heaven. Thank you for reading.