• Bloomberg

    No Banking Charter? No Problem. Fintechs Team Up With Small-Town Banks

    (Bloomberg) -- Customers of Square Inc., the Silicon Valley payments behemoth, might assume that the cash they send to friends on the platform is housed in a glassy building in Silicon Valley, tended to by hoodie-clad tech workers. Actually, that money is more likely to be sitting in a 117-year-old community bank in Iowa.Partnerships between high-flying tech companies and traditional banks, many of them tiny by comparison, are a key force behind the financial technology boom. Because virtually no tech companies have the license required to perform banking services, many of them partner with existing banks to offer a suite of services including checking accounts, credit cards and the back-end and regulatory work the tech companies aren’t equipped—or allowed—to handle.Now, driven by the tech industry’s thirst to jump into finance, a new crop of businesses are looking to broker the connections between tech and banks. One such business is Cambr, a little-known division of an investment company called StoneCastle, which counts Square and other fintechs as customers. StoneCastle works with more than 800 small banks, spread across the country, ready to take and hold deposits from Silicon Valley startups like Square.“Airbnb, one would argue they are one of the largest hotel chains that doesn't own a room,” said Josh Siegel, chief executive of StoneCastle Partners LLC. “Our network works in a similar way. We have an account at the bank, it's the room we rent, and we can rent it out to whoever we want.”Cambr’s service launched last year as a partnership between StoneCastle, which provides the bank connections, and digital banking platform Q2 Holdings Inc., which works on the software and programming. Square’s Cash App was one of Cambr’s first customers, Siegel said, and it has since added startups like Acorns Grow Inc., MoneyLion Inc., Qapital Inc. and robo-adviser Betterment LLC, in a recently announced deal.What Cambr aims to offer tech companies is a ready-made strategy to accept deposits that they wouldn’t otherwise have the license to handle. Here’s how it works: A tech company or startup might give Cambr as much as $100 billion of customers’ cash, and could then ask the service to spread the money around to potentially hundreds of different financial institutions. A result of spreading out the deposits is that more of the fintech’s cash is insured under the Federal Deposit Insurance Corp.’s $250,000-per-account guarantee, offering more coverage than if the money were deposited at a single institution.A Salve for Digital DisruptionThe partnership model, which has rapidly become the go-to for financial technology companies, does pose some risks for banks, particularly if fast-moving startups draw the ire of regulators, as has happened before. “The banks are the supervised entities so the buck stops with them,” said Brian Korn, partner and head of fintech practice at Manatt, Phelps & Phillips. “The regulators are waiting for situations where there’s a breakdown.”But many community banks have embraced such partnerships, seeing them as a salve in times of digital disruption. More deposits can allow small banks to grow and make more local loans. In Cedar Falls, Iowa, the 117-year-old Lincoln Savings Bank, which works with Cambr, has boosted its revenue by partnering with fintechs, said Mike McCrary, who runs e-commerce and emerging technology for the bank. McCrary said that when Lincoln Savings Bank considered how it could best position itself for the next 10 years, fintech partnerships were an obvious answer. “In order for us to be relevant years from now, there had to be something digital,” he said. “Now we’re putting a lot of resources into this area of our business,” including, he said, building out a new team dedicated to working with tech companies.  While the partnerships have injected cash into many small banks, some industry watchers have wondered if those banks could be left in a lurch if fintechs eventually got their own banking charters. If they did, community banks could find themselves as direct competitors to tech companies, without the same digital capabilities. But so far tech companies have made scant progress toward winning banking charters, particularly as government concern over digital financial services has grown. Some members of the U.S. Federal Reserve have voiced concern over fintech’s risk management capabilities. And Facebook Inc.’s foray into cryptocurrency has drawn ire from lawmakers.One option for tech companies has been to apply for an Industrial Loan Charter, which would effectively grant them license to provide financial services. Square first applied for the charter in the fall of 2017, but its request shows no signs of being approved. Social Finance Inc. also applied for an ILC, but withdrew its application altogether.“It’s not easy to become a bank here, and we haven’t seen much traction in general with the ILC,” Matt Burton, partner at venture capital firm QED Investors, said. “What we have seen is continued demand for non-banks to offer banking solutions.”Picking PartnersPartnering with multiple small banks is just one option for fintechs. Some, like Apple Inc. which developed a credit card with Goldman Sachs Group Inc., have teamed up with one big bank instead. But there are advantages to Cambr’s many-bank strategy. Some tech companies favor “the network approach over the big bank because they can negotiate better rates because both parties are getting something they want,'' said Lindsay Davis, a senior analyst at CB Insights. Smaller banks are also more likely to play ball because they aren’t developing competing services.“For the big banks, they are optimizing for customer acquisition and cross-selling services,” Davis said. “So a tech firm getting into financial services might be cannibalizing an existing business.” Joe Yeres, Cambr’s vice president of business development, is partly responsible for brokering the connections with community institutions, and travels a few times a month to places like Waterloo, Iowa, and Kansas City, Mo., where some of the banks it works with are located. The trips were eye-opening, Yeres said.“I was born and raised in New York metro, so the whole thing is a little funny to me,” Yeres said. “I was done with one of the leads of the banking team, and we went out for drinks after work one day, and walking around Waterloo it was like this guy was the mayor, everyone knew him. It was like, ‘Wow, this is how this part of the world works.’”Eventually, Cambr has its sights set on a bigger prize: It wants to handle deposits from the tech giants, not just the startups. Many industry watchers believe large tech companies will eventually move to offer more financial services, as Apple already has with the Apple Card. But Siegel realizes that Cambr, the little-known product of the relatively little-known StoneCastle and Q2, faces some hurdles. “Do they want to take a risk on a younger platform?” he asks, and in doing so, “upset big finance, which they’ll still have to work with on some things?”Still, Siegel is pitching the titans of tech, as they continue to march deeper into the world of finance. He adds: “We've probably been out and visited with almost all of them.”(Corrects Lincoln Savings Bank headquarters in eighth paragraph. )To contact the author of this story: Julie Verhage in New York at jverhage2@bloomberg.netTo contact the editor responsible for this story: Anne VanderMey at avandermey@bloomberg.net, Mark MilianFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

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    FX Empire

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    FX Empire

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    Bloomberg

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    (Bloomberg) -- President Donald Trump endorsed India’s need for “border security” at a rock concert-like event in Houston with Prime Minister Narendra Modi, whose government seeks to expand its control of the disputed territory of Kashmir.Sharing a stage in Houston and later walking hand-in-hand around a football stadium, Trump received Modi’s endorsement in front of more than 50,000 Indian Americans -- an influential voter base.Modi used Sunday’s event to rally his supporters, show off his closeness with the U.S. president and take aim at India’s rivals, which notably include Pakistan.In a speech that risks being viewed as siding with India in its dispute with Pakistan, Trump pledged expanded military cooperation with India, talked about the need to fight terrorism -- language Modi echoed soon after in an apparent swipe at Pakistan -- and called for more border security, drawing huge cheers from the raucous crowd.“Border security is vital to the United States. Border security is vital to India, we understand that,” Trump said. He pledged to fight “radical Islamic terrorism” and insisted: “We must protect our borders.”Kashmir TensionsWhile Trump didn’t explicitly endorse Modi’s moves in Kashmir, which have inflamed tensions with neighboring Pakistan, his remarks could be interpreted in Islamabad as signaling U.S. support.Modi in August scrapped seven decades of autonomy in the Muslim majority state of Jammu and Kashmir, prompting Pakistan to downgrade diplomatic and trade ties with India. Foreign Minister Subrahmanyam Jaishankar said last week that India ultimately expects to rule over the entire state of Kashmir.Modi told the crowd, “People have put their hatred of India at the center of their political agenda. These are people who want unrest. These are people who support terrorism and nurture terrorism.”Without naming a country, Modi rhetorically asked who was responsible for the 2008 terror attacks in Mumbai and the 2001 attacks in the U.S. “You know them, very well,” Modi said. “You know who they are. It’s not just you, the whole world knows who they are.”The Mumbai attackers were Pakistanis, while several key figures in the Sept. 11 attacks, including Osama bin Laden, were killed or captured in Pakistan.Lavish PraiseTrump’s remarks followed a speech by Modi in which he lavishly praised the U.S. president, echoing Trump’s 2016 campaign slogan, saying that “he has already made the American economy strong again.”Indians form about a fifth of 20 million Asian Americans and are often more educated and earn more than other immigrant groups, the Washington-based Pew Research Center found. About 65% of Indian Americans were Democrats or leaned toward the Democrats, according to a 2014 Pew Research paper. That didn’t stop the Republican president from getting loud cheers in the arena, especially when he addressed issues such as security.Trump responded with praise for Modi’s economic leadership, saying he was at the event to express his “profound gratitude” to the nearly 4 million Indian Americans in the country. He also said the U.S. and India would boost trade, conduct joint military exercises and even team up in space exploration.While analysts expect the joint appearance to ease recent trade tensions between the U.S. and India, it’s also being seen as the president’s attempt to gain support of affluent Indian American voters ahead of next year’s elections.The event is likely the largest in the U.S. for an elected foreign leader. Texas is Modi’s first stop in a week-long U.S. trip, where he hopes to win a better trade deal and convince investors that his government is capable of shoring up India’s slowing economy.Economic IncentivesModi’s earlier outings to address Indians in New York, London, Sydney and Toronto have been high-octane affairs, with chanting crowds and song-and-dance shows in sold-out stadiums. Texas was exactly that.The Indian government announced $20 billion worth of tax incentives just before Modi traveled to the U.S., cutting corporate rates on par with the lowest in Asia. The move could help Modi pitch for a better trade deal, more investments from the U.S. corporations he is scheduled to meet with in Houston and New York and resurrect his credentials as a business-friendly leader at a time when the Indian economy is growing at its slowest pace since March 2013.“Based on his first term, investors expected Modi to embark on a series of reforms, which have not been realized,” said Akhil Bery, South Asia analyst at risk consultancy Eurasia Group. The tax announcement “is a great signal for him to make his pitch to investors to come invest in India.”Foreign InvestmentModi will be addressing the Bloomberg Global Business Forum Sept. 25, which will be attended by 40 major companies, including Lockheed Martin Corp., American Tower Corp., Mastercard Inc. and Walmart Inc.India attracted $3 billion in foreign direct investment from American companies last year, the fourth-largest investor grouping in the $2.6 trillion economy.The cropped tax rates were the latest in a series of steps announced by his government -- including easier foreign investment rules for companies from Apple Inc. to Huawei Technologies Co. to BHP Group Plc -- to revive economic growth.“These moves seem to have been made keeping in mind Modi’s domestic base,” said Kashish Parpiani, fellow at the Observer Research Foundation. “To prove that Modi is paying attention to the economy at a time when it seemed like foreign policy and events like ‘Howdy Modi’ had taken central stage.”To contact the reporters on this story: Josh Wingrove in Houston at jwingrove4@bloomberg.net;Archana Chaudhary in New Delhi at achaudhary2@bloomberg.netTo contact the editors responsible for this story: Ruth Pollard at rpollard2@bloomberg.net, Linus Chua, Ian FisherFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • FX Empire

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  • FX Empire

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    Simply Wall St.

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  • FX Empire

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    FX Empire

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