I'm writing this newsletter on the plane back to Amsterdam atfer a few interesting days in Vegas for Money2020. Before I touch base in Europe, let me share an interesting story from the US where Coastal Community Bank, based in Washington state, gained significant attention after partnering with fintech companies, such as Aspiration, which was backed by celebrities like Leonardo DiCaprio and Orlando Bloom.
Initiated in 2017, the bank soon became a primary partner for numerous fintech firms, offering them lending, deposit, and card services. This strategy skyrocketed Coastal’s assets more than four times since 2017.
Coastal went from striking its first partner deal in 2017 to having a peak of 29 partners earlier this year, according to the bank’s public filings. A person familiar with the matter said the partner list at one time was as high as about 45.
However, recently, several of these fintech partnerships are dissolving either due to the startups collapsing or Coastal cutting ties with them. One notable fallout was with MovoCash, which was later involved in a regulatory scandal for fraud.
Federal and state regulators have fined Metropolitan, MovoCash's previous banking partner, $30 million due to fraudulent activities amounting to over $300 million. The issue with MovoCash is attributed to its practice of providing accounts to customers with minimal identity verification.
Despite these revelations, Coastal's involvement with MovoCash regarding regulatory actions remains unclear.
There were earlier warning signs with MovoCash and its CEO, Eric Solis. Solis had prior issues with the Financial Industry Regulatory Authority (Finra) and was also sued by venture firm Bighorn Ventures Nevada for alleged mismanagement.
Furthermore, Coastal’s partnerships with several FinTechs, like Fair Fintech, Cheese Financial, Sable Money, and Catch Financial, have ended.
The bank's CEO, Eric Sprink, cites increased regulatory risks, especially in the cryptocurrency sector, as a significant challenge. To address compliance issues, Coastal has expanded its compliance staff from four in 2018 to 150 currently.
To be continued..
POST OF THE DAY
🏦 The Banking-as-a-Service Model Explained. There are three parties in the Banking-as-a-Service model:👇
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MOVERS & SHAKERS
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