The Monday Roundup: what we are watching this week | December 12th

By Puja Sharma

The Monday Roundup sets the scene for the week’s biggest news stories, industry deals, and upcoming events. For Prime subscribers only.

The rippling effect

✂️The downturn claimed Plaid as its latest victim. By laying off 20% of its staff, the firm hoped to lower its cost base and prioritize sustainable revenue.

Plaid CEO Zach Perret told a familiar story, common among some of the most highly valued fintech companies. The economic headwinds of 2022 have prompted a tougher market for startups.

“Macroeconomic conditions have changed substantially this year. Despite being well-diversified across every category of financial services, we are seeing customers across the industry experiencing slower-than-expected growth. The simple reality is that due to these macroeconomic changes, our pace of cost growth outstripped our pace of revenue growth,” he said

“I made the decision to hire and invest ahead of revenue growth, and the current economic slowdown has meant that this revenue growth did not materialize as quickly as expected. The underlying fundamentals that drive digital finance (and therefore Plaid) are not changing. People continue to need tools and services to manage their financial lives, and the financial industry will continue to move towards digital-first delivery,” he added.

According to a report by Traxcn, funding in Indian startups decreased by 35% (up to 5 December), to $24.7 billion. Indian startups raised about $37.2 billion in funding last year, according to the Geo Annual Report: India Tech 2022. In 2021, the amount of late-stage startup funding was $29.3 billion. In 2018, it was $16.1 billion.

Funding in seed-stage startups also declined by about 38% in 2022. In 2022, retail, FinTech, and enterprise applications emerged as winners amid the funding downturn. However, despite being frontrunners, FinTech and retail sector funding plummeted about 57% and 41% compared to last year, respectively. The sectors are, according to the report, not insulated from the overall slowdown in the funding ecosystem.

Regulatory loopholes

Despite repeated anti-money laundering (AML) failures, the UK’s Financial Conduct Authority (FCA) issued a fine of £107.7 million against the UK arm of Spanish banking giant Santander.

The regulator says between 31 December 2012 and 18 October 2017, Santander failed to adequately manage its AML systems, affecting more than 560,000 business accounts. FCA executive director of enforcement and market oversight, Mark Steward, said, “Santander’s poor management of their anti-money laundering systems and their inadequate attempts to address the problems created a prolonged and severe risk of money laundering and financial crime.”

The FCA says Santander’s systems did not adequately verify customer information regarding the kind of business they would be doing and also did not properly compare the money in people’s accounts against what customers said would be deposited.

Deutsche Bank has inked a multi-year innovation partnership with NVIDIA to accelerate the use of artificial intelligence (AI) and machine learning (ML) in the financial services sector.

Under the deal, Deutsche Bank will leverage NVIDIA AI Enterprise, an end-to-end software suite that can run in the cloud or in the data centre, to hasten the development of regulatory-compliant services. The partnership will support Deutsche Bank’s cloud transformation journey to simplify and accelerate cloud migration decisions.

“AI, ML, and data will be a game changer in banking, and our partnership with NVIDIA is further evidence that we are committed to redefining what is possible for our clients,” said Christian Sewing, CEO, Deutsche Bank.

“This partnership is a significant step forward in our AI and ML ambitions. It will help us take a leading position in the usage of these technologies in financial services,” added Bernd Leukert, Deutsche Bank’s Management Board Member responsible for Technology, Data and Innovation.

What is the buzz

A new Reserve Bank of India (RBI) guideline prohibiting securitization of loans with a residual maturity of less than a year is set to impact fintech lenders who deal in short-term loan.

Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. While complicated and opaque securitisation structures could be undesirable from the point of view of financial stability, prudentially structured securitisation transactions can be an important facilitator in a well-functioning financial market in that it improves risk distribution and liquidity of lenders in originating fresh loan exposures.

In October 2022, the RBI issued rules on digital lending for FinTechs and other digital lenders but fintechs have been seeking clearer outlook guidelines to fine-tune their lending operations.

“FinTechs have been waiting for clarity on the RBI guidelines concerning digital lending as most of these companies are into unsecured lending and are wishing to explore secured lending like a few big FinTechs,” said Mahesh Shukla, chief executive officer at Noida-based FinTech PayMe told local media firm MoneyControl.