Uncle Sean's Update - 7/2/21

Happy Friday!!!
 
Happy Independence Day; and welcome to the beginning of the 2nd half of 2021 (where has the time gone?)!!!!  Here is the Uncle Sean Update for 7/2/21:
 

• It seems like for years now, Robinhood never disappoints in providing a consistent feed of PR nightmares and compliance disasters for themselves…  This week proves to be no different as Robinhood gets the dubious distinction of “winning” the largest-ever FINRA penalty totaling $70M due to outages and misleading customers back in March 2020.  Congrats???
  • FINRA slapped Robinhood with the $70M penalty consisting of a $57M fine plus $13M in restitution to thousands of clients.  You can read the full FINRA news release here.  To Robinhood’s credit, the same day the fine was announced, Robinhood responded by announcing enhanced support staff now totaling 2,700 (3X increase from March 2020), as well as additional in-app educational resources, supervisory structure improvements, increased options supervision, and additional legal / compliance staff.  Uncle Sean applauds Robinhood’s growth and what they have been able to accomplish, but sometimes the old tech mantra of “run fast and break stuff” doesn’t mix well with a highly structured regulatory compliance environment.

 

• But wait, there’s more!!!  Robinhood gets double coverage from Uncle Sean as the highly anticipated Robinhood S-1 was filed this week and plans to trade on the Nasdaq under the symbol “HOOD” (I love it).  While growth rates have been stellar, the Risk Factors section is loaded with worries (73 pages long – WOW); as well as the Legal Proceedings section (pages 196 – 201) covering cybersecurity, anti-money laundering concerns, and many other ongoing regulatory issues – not to mention Payment for Order Flow (did I mention that the Feds recently seized Robinhood CEO’s cell phone as part of the GameStop trading probe…).  Of particular note is that the $70M FINRA settlement does not relate to the ongoing FINRA investigations related to the early 2021 trading restrictions / outages / etc…  CNBC has a great summary here so I won’t bore you with the financial details….. 
  • Okay – maybe just one minor financial detail (cough, cough - LOL)….  The roughly $1.5B cost in 1Q2021 related to meeting emergency capital / liquidity requirements during the “Reddit Meme Stock Craze” in early 2021 resulted in a Net Loss of $1.4B and devastated Robinhood’s Total Stockholder’s Equity to a negative $1.49B as of 3/31/21….  OUCH!!!!  Oh, and they mention that there are no assurances that this will not happen again….
  • Again, Uncle Sean believes in Robinhood’s overall mission to democratize finance for all; and I love the growth story - I just hope they can get it right on the compliance side and get out of the litigation pit.

 

• Take a look Gusto – they are a payroll and benefits platform with the added benefit of an embedded finance solution equipped with debit card, savings account, and wage advance loans.  Many folks I talk to consider payroll to be the last business payments vertical set for disruption.  Well, this week, Gusto announced Gusto Embedded Payroll via API which allows any B2B organization to embed and customize payroll directly into their own software solution – specifically naming platforms that serve “small and medium businesses: vertical SaaS, business operations, fintech, neobanks, and more.”  Very cool!!!

 

• While the Fed is busy looking into a US CBDC, Randal Quarles (Vice Chairman of Supervision for the Federal Reserve and the Chair of the Financial Stability Board) abruptly threw a proverbial “bucket of cold water” on the US CBDC hype and warned that the potential benefits of CBDCs are unclear and a Federal Reserve CBDC could pose significant and concrete risks.  However – he is not a “crypto hater”, he is just skeptical of the benefits of a fed issued CBDC.  He actually stated “a global US dollar stablecoin network could encourage use of the dollar by making cross-border payments faster and cheaper, and it potentially could be deployed much faster and with fewer downsides than a CBDC.”  By far, my favorite was when he specifically mentioned enthusiasm for novelty and fear of missing out “like that year in the 1980s when millions of Americans suddenly started wearing parachute pants.”  You can read his full speech here.
  • Full disclosure – Uncle Sean had a pair of red parachute pants back in the early to mid 80’s and they were AWESOME!!!  LOL!!!!

 

• Last week’s news - All 23 Banks that participated in the Fed Stress Test  (this is me yawning) easily cleared minimum risk levels (CET1 of 4.5% for the real finance geeks out there like me).  Which gives way to this week’s results – the largest U.S. banks announce huge dividend increases and share buy-back plans.
  • So basically, we have relegated the Dodd-Frank Stress Test into nothing more than a federal greenlight for stock market dividends and share repurchase programs….  Hmmmm….

 

• PayPal makes in-store payments push as it launches Zettle POS reader in the U.S. – great timing too as the economy fully opens up post-pandemic.  We all know PayPal as a leader in the online and mobile payments space, but many of us (in the U.S. anyways) forgot about their acquisition of Swedish firm iZettle for $2.2B a couple of years ago.  It’s not just a POS system, it is a fully integrated “digital POS solution designed to help small businesses manage sales, inventory, reporting and payments across all channels and in one place.”   PYMNTS has a good write-up here.

 

• Notable funding updates this week (follow the money):
  • Zest AI (alt credit underwriting software) raised $18M capital injection led by VyStar CU, First National Bank of Omaha, and Northgate Capital.
  • Chainalysis (blockchain tracking firm) raised $100M in Series E funding round at a valuation of $4.2B.  Chainalysis is in the super-hot blockchain tracking space due in large part to crypto’s role in ransomware.  Chainalysis helps “banks and law enforcement track illicit funds moving across public blockchains. Thanks to this so-called blockchain analysis, U.S. authorities were able to seize much of the bitcoin paid by Colonial Pipeline as ransom to the DarkSide hacking group.”
  • Marstone (digital wealth tech / RIA firm) raised $5M in Series A funding.
  • Orum (API / machine learning platform that accelerates ACH clearing while reducing ACH risk between banks) raised $56M in Series B funding round.  This is only three months after their $21M Series A round - understandably due to the volume of transactions being conducted with Orum growing at 100% each month.
  • Noname Security (API security platform) raised $60M in Series B funding.  Yes, that is really their name – LOL!!!  Check them out at nonamesecurity.com.  As API’s continue to rule the world (think “super app”), API security leaks are a real issue (see Experian API Exposed and Peloton API Leak).
  • Daylight (LGBTQ+ Challenger) raised $5M Seed funding round.
  • Kikoff (credit builder) began operations and disclosed $30M in Series B round for total funding to date of $42.5M.
  • Accept.inc (mortgage lending platform that creates all-cash offers) announced $90M in debt and equity funding to expand operations – currently only available in Colorado.
  • Karat Financial (business / freelance CC platform) raised $26M in Series A funding.

 
And here is the last thing I would like to leave you with this week as Uncle Sean is a HUGE proponent of financial literacy especially in our K-12 schools…  “Wealth does not create financial literacy, rather it is financial literacy that creates wealth and ultimately financial independence.” – Uncle Sean 😊  That just might become a new tag line!
 
 
Random Uncle Sean Stuff:

• 56 days until college football!!!!
• The Green Apple Flavored Licorice that they sell at Tractor Supply should be listed as a controlled substance because Uncle Sean is completely addicted to it!
• Have you ever been watching a 5 minute YouTube tutorial only to find yourself 5 hours later watching videos on how to teach a giraffe to sing (asking for a friend)???  I really need to get out of the house more often – HAHAHAHA!!!!!
• Headed over to Tanner’s again this weekend for some serious Independence Day festivities, great food, and much needed quality time with family and friends – maybe even catch a catfish or two (I love those hybrid blue cats in his lake)!  Can’t wait to be the first one to say, “Dang, it’s hotter than the 4th of July out here” – LOL!!!

 
 
Have a GREAT Independence Day Weekend and please stay safe!!!
 
Uncle Sean
 
 
Sometimes known as Sean Mayo – contact me directly for scope and pricing of custom reports / analysis projects at smayo@fedfis.com | 214-604-6961 – or you can contact FedFis Sales Team at 512-960-0911 | info@fedfis.com #FedFisHasTheData FedFis
 
FedFis, LLC disclaimer – The views and opinions of Uncle Sean are of his own and may not necessarily represent the views, endorsements, and/or opinions of FedFis, LLC – we all know he’s a little bit different; but that’s why we love him.