Embedded Finance News: VC Investment, BOI Reporting Rule, Fintech Fines
Every month we compile some of the most important and interesting fintech and embedded finance news stories and tell you why they matter. Find last month’s issue of The Takeaway here.
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1. VC investment in financial services down 50% in 2023, expected to improve in 2024
In 2023, venture capital funding for fintechs and financial services companies more than halved since the previous year, reaching its lowest levels in 6 years. Last year, total funding amounted to $43 billion, down from $89 billion in 2022 and $143 billion in 2021. Late-stage and early-stage funding were particularly impacted, although seed funding maintained pre-pandemic levels.
However, Nigel Morris, managing partner at QED, told Crunchbase that he expects fintech funding this year to go back to 2019 levels before rising again. In terms of where investment money is going, Mark Fiorentino of Index Ventures says that some areas of focus are next-gen fintech infrastructure, fintech for underserved industries, and CFO software stacks to increase revenue opportunities and manage company spending.
The Takeaway: VCs want to invest in companies that can improve efficiencies through embedded finance.
VCs are interested in fintechs that are developing products and services that are an “evolution” of the previous years’ investments. They want to focus on industries that have been overlooked by fintech innovation, such as manufacturing, insurance, and supply chain. Many of these businesses continue to rely on outdated billing and payment systems.
Watch expert venture capital panelists at Treasury Prime’s user conference, Activate, discuss how brands and VCs can leverage embedded finance to increase the value of their companies.
2. FinCEN’s BOI Reporting Rule goes into effect
The Financial Crimes Reporting Network’s Beneficial Ownership (BOI) Reporting Rule went into effect on January 1. As part of the Anti-Money Laundering Act of 2020, this new rule aims to improve corporate ownership transparency and make it more difficult for bad actors to hide behind and profit from shell companies.
Some fintechs are exempt from the BOI Reporting Rule because they’re already required to report beneficial ownership to government agencies and regulators. For example, banks, credit unions, money services businesses, and large operating companies (those with a physical presence, more than 20 U.S. employees, and more than $5 million in annual sales or gross receipts).
Non-exempt fintechs are required to report on beneficial owners (people who exercise substantial control over the reporting company, like the CEO), certain types of people who have ownership interest, and the company applicants who filed the documents to create or register the entity.
The Takeaway: The BOI Reporting Rule highlights the need for banks and fintechs to prioritize compliance and risk management.
The increased regulatory oversight that financial institutions faced last year is now directly affecting fintechs. Fintechs will need to ensure that their BOI reporting is current and their BSA/AML policies can withstand regulatory scrutiny.
For more on how fintechs can formulate a Bank Secrecy Act/ Anti-Money Laundering (BSA/AML) policy for bank due diligence, read our guide.
3. Fintechs and crypto companies paid $5.8 billion in fines in 2023
According to The Paypers, global regulators issued $5.8 billion in fines to crypto and fintech companies. Total fines, including the $835 million issued to traditional financial institutions, reached $6.6 billion, which was a 30% increase from the previous year.
That number is padded by the $4.3 billion fine levied on crypto company Binance. However, the number of fines increased significantly, especially for payments providers: this year, payments providers received 27 fines, compared to an average of 5 per year from 2018 to 2022.
These fines come from global efforts to combat money laundering and financial crimes. Sources say that the main reasons for these penalties stemmed from “deficiencies” in customer verification processes, anti-money laundering controls, and failure to adhere to sanctions and financial crime regulations.
The Takeaway: Failing to comply with regulatory standards will cost fintechs.
The amount of fines paid by crypto and fintech companies was more than seven times the amount paid by traditional financial institutions. While traditional financial institutions are not immune to fines, they are much more experienced in managing regulations and compliance. Fintechs need to step up their compliance and risk management programs, and the ones working with bank partners can and should lean on their partners’ expertise in this area.
4. Zeta partners with april to offer mobile-optimized embedded tax filing
Treasury Prime partner and neobank Zeta, which offers multi-user bank accounts and financial services to families of all shapes and sizes, has announced a partnership with embedded taxes fintech, april. Zeta users will be able to use the data they’ve already shared with Zeta and seamlessly file their taxes directly from the mobile app, instead of having to use standalone software.
The Takeaway: Embedded finance allows companies to bundle new products.
The collaboration between Zeta and april highlights the power of bundling services to enhance platform value. Establishing an embedded banking platform with core offerings such as bank accounts and payments not only creates a robust foundation but also acts as a dynamic launchpad for seamlessly incorporating additional products.
By extending its offerings to include tax services, Zeta strengthens its position as a one-stop financial solution.
Zeta's success in growing customer accounts by 924% demonstrates the potential for exponential growth when integrated services cater to the needs of the customer base. Read the Zeta case study.
5. Treasury Prime partners with High Circle and FirstBank to launch commercial checking accounts
Embedded banking software provider Treasury Prime is powering the partnership between banking and investment platform High Circle and Tennessee-based FirstBank. High Circle focuses on high-net-worth individuals and is designed to minimize risk while maximizing reward.
Through this partnership, High Circle will offer FirstBank-issued commercial checking accounts that are FDIC insured for up to $125 million and have up to 4% annual percentage yield, along with ACH and wire transfer capabilities. Customers will also be able to earn rewards based on deposit activity and access High Circle’s luxury rewards program.
In the future, High Circle also plans to offer other products like personal banking accounts through this partnership.
The Takeaway: Embedded finance can help fintechs better meet the needs of their customers.
Embedded finance can help fintechs offer products and services tailored to their clients’ needs, and help banks and financial institutions unlock new customer segments.
“Our collaboration with FirstBank and Treasury Prime is a significant step towards meeting this market need,” said High Circle Founder and CEO Hemanth Golla. “Together, we aim to offer tailored, cutting-edge financial services that cater to the unique needs of high-net-worth individuals and businesses.”
Chief Innovation Officer at FirstBank, Wade Perry, added, “By leveraging Treasury Prime’s technology, we can seamlessly embed bank accounts and provide payment rails within High Circle’s platform, all while improving the end-user experience.”
Discover the transformative potential of embedded banking for your company. Reach out to Treasury Prime, where we've successfully launched over 100 embedded finance programs with the largest network of banks in the industry. Benefit from our wealth of compliance expertise to ensure the safety and success of your program. Talk to the best embedded finance team in the industry.