Friday Briefing: SVB bankruptcy speeds up crypto regulation

March 17, 2023.  

#TopStory 🔝

Silicon Valley Bank failure underscores need for crypto industry regulation

This week’s collapse of tech-focused banks Silvergate, Silicon Valley Bank (SVB) and Signature has dealt a fresh blow to the fintech and cryptocurrency industry, which was already mired in the crypto winter. The debacle also highlights the need for regulation that protects user deposits and increases acceptance of the crypto market.

Although U.S. regulators moved quickly to contain a global contagion, the bankruptcies have further undermined the confidence of investors, institutions and users.
While greater involvement by regulators was already on the table, there’s now a greater sense of urgency following the trio of bankruptcies.

“We could see new regulation that poses adaptation challenges, as part of a drive to protect users of crypto assets and create guidelines and closer communication channels with financial and monetary authorities,” said Alejandro Beltrán, co-founder of the crypto exchange buda.com, which has a presence in Peru, Chile, Colombia and Argentina.

“This would further strengthen the trust of people who are attracted to these assets but who have concerns due to a lack of knowledge and regulatory intervention,” he told iupana.

The situation is far from under control, according to Ignacio Carballo, director of crypto and alternative finance at the consultancy Americas Market Intelligence (AMI).

The tech finance industry is suffering the knock-on effects of volatility in the wider financial system, which this week was also roiled by fears of a potential collapse of Credit Suisse. The bank received a bailout loan of EUR51 billion from the Swiss central bank, averting a broader crisis in global markets.

“The turbulence in the financial system may be far from over,” Carballo said.

However, he stressed that the sector is not necessarily facing a bear market environment, as recent rises in the prices of bitcoin and ether demonstrate.

US banks versus LatAm

Silvergate, which was often seen as a bridge between traditional banks and the crypto industry in the U.S., declared bankruptcy at the beginning of March after failing to overcome the collapse of crypto exchange FTX, with whom it had a close relationship. Signature, a crypto-focused lender, was the next to fall. And then earlier this week, the U.S government stepped in to protect customers of SVB, many of which are startups, following a run on the
bank.

Analysts agree that while banks in LatAm are not directly exposed to the US bankruptcies, slow economic growth and higher rates will keep lenders and investors in the region on their toes.

“We could see the indirect effect —in the form of the institutional investors’ increasing risk aversion— result in higher funding costs and scarce funding for the regional financial institutions,” S&P Global Ratings said in a report. “Such trends were already present across Latin America’s banking sectors, but recent U.S. banking troubles will amplify them.”

In this sense, Beltrán from buda.com and Carballo from AMI both recommend that companies put an additional emphasis on
communication to provide peace of mind to users.

“External shocks result in reputational impacts that infect an entire sector, which makes it more important for us to constantly communicate to our users about events, perspectives, new regulations and best security practices to allow the user to make informed decisions,” Beltran said.

Next Monday, we’ll bring a more in-depth analysis of the implications of SBV’s fall for LatAm fintechs. Stay tuned.

#Strategic Plays 📊

Meta lays off 10,000 employees and ditches NFTs

In the midst of the tech-banking crisis, Meta announced it will lay off 10,000 employees this year as part of a reorganization that will see 5,000 job vacancies eliminated and the cancellation of small projects. It’s the company’s second major cull in less than 6 months. Meta also said it will end the sale of NFTs on Instagram and the option of sharing them on either that platform or Facebook, representing a shift in strategy for blockchain-based technologies.

Stripe and OpenAI form an alliance to monetize ChatGPT

Financial platform Stripe established an alliance with the artificial intelligence startup OpenAI to support payments globally for its ChatGPT and DALLE-E products. At the same time, Stripe is integrating GPT-4, a new OpenAI natural language technology, which will cut the time it takes to make a payment by 40%.

Nubank plans savings account in Colombia

Nubank is set to introduce a savings account product in Colombia, Cuenta Nu. The move will pit the neobank against traditional lenders as well as alternative players such as Lulo and Rappipay. Nu Cuenta is already available in Brazil and Mexico.

Besides…

• In Mexico, payment processor Paymentology has teamed up with fintech Fondeadora to enable Apple Pay.
• In Colombia, Chilean fintech Global66 announced the launch of a debit card in partnership with Mastercard and said it will offer an international payment link for entrepreneurs, as part of its
  plan to become a neobank.

#Investments 📈

Clara obtains US$90M line of credit

Clara secured a line of credit of up to US$90 million from the investment firm Accial Capital. The Mexican unicorn aims to use the financing to consolidate its products, especially in Colombia, where it’s approaching its first anniversary.

#iupanaExclusive 🔥

Mexican banks Invex and Afirme want to extend their reach to new segments of the financial service market. To do so, they’re pinning their hopes on digital spin-offs Now and Billú, respectively, in a strategy focused on niches such as the metaverse, gaming, and credit cards with alternative risk models. This week, we spoke with both banks and they gave us the lowdown on their next steps:

• Afirme aims to use Billú to offer financial products to gamers.
• Invex wants Now to compete in the market for personalized credit cards.
• Both banks see scope for growth into new markets with digital brands that can also refresh their image and style of communication.

Learn more about Now and Billú’s strategies to reach new audiences in this week’s iupanaExclusive.