Michael Gastauer, Founder, Black Banx Group
Life should be getting a whole lot easier for the world’s most successful FinTech banking providers. Just a few short years since the industry emerged in force, the market data company Statista reports that there are more than 25,000 FinTech Start Ups around the world; that FinTech revenues worldwide in 2018 amounted to 92 billion USD; and that they are expected to reach 188 billion USD by 2024.
This is heady stuff and vast paper fortunes are being made.
Revolut, probably the best-known name in the sector, with its 2,200 employees and more than $300 million revenue was valued at $33billion only last year but insists that, with 18 million customers it is now worth at least $40 billion. This is despite ongoing speculations being made about links to senior Russian money, particularly from one of its funders Yuri Milner who was a close business ally of Russian Oligarch Alisher Usmanov.
The Canada based crypto banking Group Black Banx started its global roll out from Singapore back in 2015. Today, with more than $400 million revenue, 2,000 employees and 15 million customers, is eying a listing once the public stock markets have recovered. Even so Black Banx hasn’t released any valuation what the business would be worth when taken public, it can be assumed that based on other FinTech peers, the valuation would be in a double digit billion USD range.
Ripple, the 500 employee strong American crypto payments and settlements company with offices in Singapore and Mumbai, is valued at $15 billion, 10 years after its launch, having fought off lobbying from traditional banks worried about inroads into their territory.
The German challenger Bank N26 backed by Asian Investor Li Kashing was valued at $9 billion last year after raising more than $900 million in a funding round in which investors learned that the start-up has 7 million customers.
And in late 2021 the British digital Bank Monzo, with 5 million customers, boosted its valuation to $4.5billion in an aggressive funding round, despite increasing losses.
But alongside this spectacular growth on all fronts, menacing regulators have appeared on the scene, apparently determined to extract a pound of flesh from each fresh FinTech advance.
The digital challengers to 21st century banking are starting to fall foul of determined, some say over-zealous, regulators who seem determined to put the brakes on FinTech growth. According to a report by the Financial Times, the German regulator BaFin has appointed two special supervisors to restricted new client onboarding to 50,000 customers per month for N26 due to a lack of sufficient anti money laundering oversight.
N26 targeted by the authorities, believes it was judged – by regulators who have not worked in FinTech – for not been diligent enough in investigating its customers’ backgrounds and probity. The arbitrary fine was €4.25 million, highlighting the fact that dishonest as well as honest people have zoned in on digital banking as a speedy and efficient way to transfer money.
The U.S Securities and Exchange Commission (SEC) is leading the clampdown, with a series of eye-watering fines of $165 million claimed against Michael Gastauer and its Black Banx Group which has in a final judgement been reduced to $17 million for letting a client without Gastauer`s or Black Banx ´s knowledge use the Black Banx banking platform to transfer proceeds from an alleged US securities fraud scheme. Many FinTech entrepreneurs believe those fines display regulators’ ignorance of the new environment, rather than an unwillingness by the new banking services to embrace regulation.
Asking Michael Gastauer for a comment on that case, his response was:
“The SEC climbed down from a ludicrous demand for $165 million to a default judgment of $17.3 million. I think the SEC read some newspaper reports about how much my family office is worth and decided to shoot for the moon on the basis that I might just pay to be done with it. Following Elon Musk`s case where he got fined $20 million by the SEC for making a post on Twitter, explains everything about the SEC and how they operate. They are always on the lookout for wealthy people to bully into a settlement. They know most find it easier to pay up and walk on than to get into a length legal fight.”
Not everyone walks on. The payments and settlements company Ripple decided to fight a $1 million penalty for selling its own currency, which the SEC decided was a form of security. Ripple demanded to see the SEC’s internal reasoning, which sent the regulator into a panic and ended up in the federal court, with Ripple winning the case.
Monzo, too, is under investigation and facing a potential fine of millions of pounds after the UK regulator, the Financial Conduct Authority, decided it was not doing enough to prevent its customers from laundering money. Monzo appears to be taking the route of least resistance, appeasing the FCA with pledges of cooperation and willingness to take the regulatory medicine.
Revolut asking the FCA for a UK banking license, received a pushback, upsetting Revolut´s Founder and CEO Nikolay Storonsky to a point that he started to publicly criticise the UK watchdog. It is unclear what the FCA´s reason for holding back on the approval is, however speculations are this might have to do with Revolut´s ties to Russian money. In 2019 Revolut went through a similar situation when applying for a banking license in Lithuania.
Elon Musk, outside the fintech arena but probably the biggest player in the tech economy, is unequivocal in his hostility to coach-and-horses regulators interfering in the post-modern economies. The SEC are “bastards”, he memorably said. Ripple CEO Brad Garling was rather more diplomatic, despite his precedent-setting victory over the SEC, sighing “the wheels of justice move slowly”.
So far APAC regulators seem to have taken a more level-headed approach in comparison to the US, based on constructive cooperation with companies which is likely to form an attractive framework for FinTech companies seeking the most forward-thinking market.
