Fintech Recap: Failures, Prediction Markets, & Debanking

Speaker A: This episode is brought to you by ocralus. Every small business is different, but most lenders only see a snapshot. Oculus gives SMB lenders the cash flow analytics, borrower behavior, and peer context to fund more, faster and with confidence. Visit ocralist.com to learn more. Hello, and welcome back to the Fintech Takes podcast. Today we have another episode of Fintech Recap with our friend and the publisher of Fintech Business Weekly, Jason Nicula. Uh, another month has passed, which means we have another month's worth of fintech and fintech adjacent news to talk about. So on today's episode, Jason and I cover quite a few interesting stories, including the failure of ParkerCard, a fintech company that I was not aware of. The that gives us some really interesting insights and lessons into the challenges of complex fintech infrastructure. Jason forced me to talk about prediction markets. I didn't want to, but, uh, we apparently had to get into that. So I sort of ranted and raved about all the interesting news stories around prediction markets right now, uh, and some good lessons from that to financial services more broadly. And then we end with a really interesting and I think nuanced discussion about debanking, which is a topic that refuses to go away and that, uh, Jason and I have both spent quite a bit of time writing about and really trying to wrestle to the ground. Uh, we end, as we always do, with some can't let it go topics, including a product that feels like it was pulled directly out of my nightmares. Um, a very enjoyable and ranty episode of Fintech Recap is next. I hope you enjoy it. This is FinTech takes the podcast, keeping you in the loop on all the latest fintech trends, news and ideas. I'm Alex Johnson, creator of the FinTech Takes newsletter, your host and self confessed fintech nerd. Let's go.

Speaker B: Okay.

Speaker A: He's trying to stay cool in the midst of a heat wave. Jason Mikula. Good to see you, sir.

Speaker B: I do miss American air conditioning. I will admit it. I'm a baby in both directions. It's a temperate climate here and so I don't like it when it's super cold. And I also don't like it when it's super hot. And right now it is super hot.

Speaker A: It's funny you say that. I'm taking a family trip to San Diego this summer. So we're taking the kids and we're going to do Legoland and the zoo and all these things. And, um, they're kind of asking me what San Diego was Like, and I was like, well, it's basically like 70 degrees with a little breeze off the ocean all year round. And it was funny because I told my sons that, and they grew up in Montana, where it's distinctly not that. And, uh, they were like, oh, my God, like, almost worried about it. Like, what do you mean? Like, how can the weather just stayed nice all the time and never. And I was like, I don't know, but it does, and you're going to get to experience that. And so, like, the idea that there are a few places on earth where they don't have to be a baby in either extreme and they can just stay right in the middle totally freaked them out.

Speaker B: Uh, we may have to introduce FIFA mandated hydration breaks during this podcast. I don't know. Uh, you and I were texting. I am not a big soccer slash football fan, but I do. I have multiple teams I need to root for. Right. So obviously I'm in the Netherlands. Got, uh, to root for the Dutch team, uh, rooting for the Mexican team, who's crushing it. But apparently the controversy, uh, on Twitter is that FIFA has added these. I think it's like, three minute quote unquote, hydration breaks, which are also known as time for American TV channels to run ads.

Speaker A: Oh, yeah.

Speaker B: Um, so. So taking my inspiration from that, I'm. I'm holding up my. My giant water bottle. Take a. Take a hydration break halfway through.

Speaker A: That is a smart thing to do. It is funny that, like, American, uh, broadcast networks were like, okay, so this game, you want us to show that everyone's going to watch. There's no timeouts, so we can't show any commercials. They're like, yeah, isn't it great? And, like, they're like, yeah, no, doesn't sound great. I mean, like, I, I would almost be willing to believe a conspiracy theory that if you're going to host it in this continent, we have to have places to put commercials. Like, we have to. We have to find a way to do that. I will also say, Jason, um, our mutual friend Kia Haslet has sort of encouraged me to learn much more about soccer, uh, as a part of leaning into the World Cup. And, um, I, in doing my research, discovered that Mexico has never been to the semifinals of the World cup, which is apparently like. Like, no team has had more success in terms of making the tournament and doing fairly well in the tournament without making it to the semifinals than Mexico. So, like, I wasn't really going into this rooting for Mexico, but I kind of am now.

Speaker B: Honestly, they also know how to have fun. I was seeing some. Some clips of. Oh, gosh, I'm forgetting now, uh, whoever they were playing and, like, some of the fans had, did not realize they could not take their tequila into the stadium. So you have, like, the opposing team fans and the Mexican team fans just chugging tequila before they, like, go in to watch the match.

Speaker A: I love that. Yeah, I mean, soccer, uh, fans put all the rest of us to shame, I will say, in terms of just, like, commitment to the bit. I mean, I. I do a little bit of tailgating for college football. I. I've gone to professional sporting events of various kinds, have never been to a World cup match. But, um, now I am sad that I don't have tickets because it does seem like a distinct, uh, rooting experience versus all other sports. So I, uh, I'm. I'm like you. I don't really know anything about soccer apart from watching my kids play it and playing it when I grow up a little bit. So I'm looking forward to leaning in a little bit, uh, until the World cup stops, and then I can, like, safely ignore it again.

Speaker B: I am in the same boat with you there.

Speaker A: Excellent. All right, um, Mr. Mikula, we have lots of stories to get to, so I will let you take us through our first one.

Speaker B: Yeah, so this, uh, it's not quite a throwback. Uh, but the sort of impetus for this was at the beginning of May, when a SMB charge card and baking startup called Parker or ParkerCard abruptly shut down. You and I have actually podcasted since then, and, like, frankly, it didn't make the cut because, like, it wasn't a particularly large company. I'll be honest, I don't think I'd actually heard of it before it abruptly shut down.

Speaker A: I don't think I had either.

Speaker B: Um, but there was some discussion on Twitter, on LinkedIn, about the abrupt shutdown. Uh, the piece that I thought was worthy of our conversation was some additional details that have come out in a lawsuit filed by Silicon Valley bank svb, uh, against the issuing partner of Parker's card, Patriot. So, to sort of set the stage, um, Patriot. Excuse me, Parker, abruptly shut down at the beginning of May, subsequently filed for Chapter 7 bankruptcy, which is a liquidation. Game over. The sort of unique proposition Parker, uh, was offering was basically extended payment terms targeting the SMB segment. Right. So we're all familiar with credit cards. Credit cards have, uh, a typical monthly statement and billing cycle. So if you have a very large purchase on the last day of that billing cycle, you're essentially getting less, less float, less grace period to repay that. So Parker's proposition was what they described as rolling terms. So you would have as much as 90 days from the date of you made a purchase to repay. Uh, they charged nothing for 45 day terms and a flat 1.25% fee for 60 day terms. I actually could not find on their website if the fee was different for 90 day terms, which I guess is probably not a, uh, ringing endorsement of uh, their compliance.

Speaker A: No.

Speaker B: They also offered a sort of banking and treasury management product which was through a partnership with Piermont. All of these companies have p, which I'm going to do my best not to make another mistake about which one I'm trying to refer to. Uh, okay, so, uh, the abrupt failure, uh, obviously upsetting to the SMB customers. This is not a consumer product, so the protections are significantly lower than what you would see in the consumer space. Okay. With that context setting out of the way, uh, SVB's lawsuit against Patriot, where does SVB come into the equation? SVB was uh, the key debt capital provider for Parker's facility. Uh, so the short version is basically svb. And there was a junior debt partner, uh, varde or Varde Partners were providing Parker's warehouse debt facility. Uh, Parker was working on a potential acquisition which based on the CEO's subsequent, uh, post, uh, appears to have fallen through around the week of April 19th. Uh, but Parker continued operating. So customers are still swiping. Patriot, uh, is still processing these transactions. Receivables are accruing. Uh, but Parker had only actually paid or reimbursed Patriot, uh, for the receivables that had been originated through April 21, plus or minus a day. So there's $21 million in receivables that were originated after that date and before the program shut down on May 4th. So in the lawsuit, uh, Patriot, and I'm simplifying this because it's like hundreds of pages of documents. Patriot is basically arguing that Parker never paid for the receivables and thus Patriot owns the rights to them. SVB is arguing that the actual terms of the receivables sales agreement call for the receivables to be unconditionally conveyed the third business day after they're originated, regardless of whether or not Parker actually makes payment to Patriot for those receivables. Are you following along?

Speaker A: I think so. I think so. This is uh, weirdly complicated though.

Speaker B: It is. Well, in this we'll get, you know, in the discussion portion, this is what I want to talk about, but uh, running these programs is complicated, uh, so to sort of like break down like where the wheels came off and why this is a fight. So there were clearly signs that Parker was running into trouble. In February of this year of 2026, Parker asked Patriot to reduce the amount of its reserve account held at the bank. So the original agreement said Parker would hold three times daily receivables, daily originations, which was in the range of about 6 to 8 million dollars, would basically hold that in a collateral account at Patriot. That protects Patriot from exactly what has happened.

Speaker A: Right.

Speaker B: But Patriot, uh, agreed to reduce that account to a flat $600,000. I feel like it's reasonable to infer that Parker was having financial difficulty, wanted to release that some, some of those reserves to meet other operating expenses. In return for reducing that reserve requirement, Parker agreed to pay a fee that basically was the equivalent of about five and a half percent of, of what was originated in a month in return for lowering the reserve requirement. In the lawsuit, SVB characterized that arrangement as, quote, effectively payment via a high interest loan rather than cash. And perhaps more worryingly, Parker did not inform SVB about the changes in the terms with uh, with Patriot. So again, per the lawsuit, then on April 21, Parker begins recycling funds from the SVB facility. I'd actually not heard this term. Uh, the judge explains it as basically SVB allowing Parker to access money that is coming in from customers paying their statement cycles or paying their transactions outside of the normal monthly cadence with svb. So basically the implication is Parker's running out of cash and needs to get money out of the warehouse facility earlier than it normally would. On April 28, SVB declined further recycling requests from Parker. And the inference I'm drawing there is most likely that that is after this proposed acquisition has fallen apart. April 30th, patriot is like, uh, hey, you owe us $6.4 million for these receivables. But Parker's specific account at Patriot only had about $465,000. Uh, there's a call that takes place on May 1st between Patriot, Parker, SVB and some of the other players. Uh, and then later on May 1st, patriot sweeps the entire balance of what Parker is holding in other accounts at the bank, leaving Parker, uh, with $0 available in its account at Patriot. Parker did have some operating accounts at other places, but ultimately the upshot is, and May 1st is a Friday. By Sunday, Parker sends out an email to its partners saying because Patriot has swept, uh, it was about 5ish million dollars uh, out of these accounts, we do not have enough money to continue operating. We are laying off all of our staff. And then that I believe it is Tuesday, May 5th. Patriot, not Parker. Patriot bank emails Parker's customers telling them their cards are no longer working. And then there is a whole additional slew of kind of uh, unusual activity where Patriot is communicating with Parker's customers. Parker card holders saying, you should be sending money to Patriot to repay these transactions that took place after April 21st. You shouldn't be sending money to Parker, you shouldn't be sending money to svb, you shouldn't be sending money to their backup servicer. Uh, so that is what has sort of engendered this huge, uh, fight of who really owns these receivables. And as is too often the case, the customers are caught in the crossfire of like, oh, well, these guys are telling me send money to Patriot, but these other guys are saying no, no, no, send money to the backup servicer. I just want to pay my bill and I'm getting asked for the same money twice, basically. Um, so I mean, I guess like the key question that you already alluded to is how does a mess like this happen? I mean, I guess I kind of outlined it, but there were plenty of warning signs along the way. And what should the stakeholders, fintechs, bank partners, debt facility providers, and uh, I guess customers. What lessons should we learn from this disaster?

Speaker A: Oh boy. Well, um, that is very complicated as you described. It's funny, I think a point you made when we were kind of exchanging messages about this is that, and you already said it before, like Parker is very small. Like I had not heard of it and I, I, not that I know every single fintech company in existence, but I know a lot of them and I've at least heard of them and it wasn't even like on my radar. And so I think again it's a good illustration of like fintech can be small, but fintech problems can be big. Just based on the nature of how the mechanics work behind the scenes. Right? $21 million in receivables. Again, like absolute terms, not that huge, but big and meaningful and certainly meaningful enough to engender lawsuits. And obviously we have customers caught in the middle of it. I think. You know, to me the thing I think about is um, if you were to apply like a, more of like a traditional bank lens to this type of thing, there's just so many processes built in to monitor banks performance so that when they get to a point where like obligations aren't being met or money's being moved around in different places, like stakeholders involved in making sure bad things don't happen become aware of that in advance. And you know, do we have dramatic bank failures that happen kind of somewhat suddenly and then the FDIC steps in on a Friday? Like, sure, yes. But at least there's kind of this mechanism to sort of monitor what's happening. And as you get closer to failure, like, we know kind of what to do and what that motion looks like and what these stories. And this is not totally dissimilar to like, SYNAPSE or other things we've talked about in the past on this show, but what each of these stories keeps kind of illustrating to me is we have constructed a system in which it's vastly more modular, where you have different parties that are all kind of stacked on top of each other playing different roles. Each party's role is like, somewhat cooperative but also adversarial in the sense that, like, if something goes wrong, like, I m am going to do what I need to do to protect myself. Right? So it's like, we're friends, we're friends, we're friends. And then as soon as, like, we hit a rough patch, everyone kind of like reaches for a chair and it's like, um, you know, musical chairs where like, there's not enough chairs for everybody. And usually the customer is one of the people who doesn't get a chair at the very end of it. And I don't, I guess I don't really know what the solution is. I mean, I kind of hearken back, Jason, to, um, you were just interviewed as a part of your, um, work on SYNAPSE and Evolve and all of that stuff, uh, where you were sort of explaining like, what happened and kind of what the lessons are. And I'm remembering right, the like, takeaway from that piece, uh, that the producers of that piece sort of like came to the conclusion of was, well, maybe we just shouldn't have like bank fintech partnerships. Like, maybe this is too dangerous of a model to allow. And that seems extreme and I don't agree with it. But at the same time they have a point. This is a very complex model that when it breaks, there's almost no way for it to break safely. Whereas again, to hearken back to the bank counter example, we've spent 100 plus years figuring out a way to make banks break safely. And I just feel like that level of thinking and infrastructure and guardrails has not been applied to FinTech. And I was very hopeful coming out of Synapse that that's what we were going to get from the regulatory agencies was like really thoughtful rulemaking and maybe some new laws on um, like here's how we can make this model break safely. And I don't feel like we got that. And this is just another small data point that we need that.

Speaker B: No, absolutely. And uh, I did make this clear on social media. I did not co sign the uh, policy recommendation in the interview that you were just describing. Uh, interviewer did ask my recommendations but I, I guess they were not TV worthy or whatever. Podcast worthy.

Speaker A: Too nuanced, I think.

Speaker B: Yeah, yeah, um, no, I mean I think you're exactly right in, you know, in this case, Parker, you know, is, was an SMB program. But you could imagine like if this situation had played out in a consumer program, one, there would have been far more regulatory, uh, implications for, for the bank partner, so for Patriot, uh, and two, the potential for harm. And I don't want to discount the challenges that Parker's customers are facing because uh, from everything I have reviewed, uh, and people I've talked to, there was literally zero notice. So if you were that SMB who's like, oh, I need to go buy whatever, I'm a bakery and I need to go buy flour M. Whatever bakery is by, um, and your car just got turned off, you had this uh, as much as 90 day float all of a sudden yanked away with no notice and potentially with no backup plan. So I mean there is real harm that comes from letting this stuff collapse with, to your point, sort of no good guardrails, no good playbook around it. Um, and I do like your analogy about everyone being on the same team when things are going well, but then, yeah, when the music stops it's like, oh, but now we're not on the same team now.

Speaker A: Now we're like deeply adversarial with each other and it's like, I mean it goes back like, I mean we talked about um, you know, Mercury and evolve breaking up. I mean there's been lots of examples of this where it's like, oh yeah, yeah, actually I know we said we'd never do this, but we actually have the email addresses of all these customers and we are going to proactively reach out to them before you can like crazy stuff that does really damage the perception, I think of fintech with end customers. And that I guess is the thing I worry about just like most broadly speaking. And I think I had the same takeaway after SYNAPSE as well, is just like, these people are never going to use a product like this again. You know, I mean like, it's probably not that many customers overall with Parker, but like those small businesses are just not going to use fintech products again. Like, they're just going to go boring. They're going to go to their bank, they're going to go work with a credit union, whatever. And you know, that's like good news for the banking and credit union lobbies, broadly speaking. Like, see, we told you this fintech thing is crazy. But I wish that like the fintech lobby would take even small examples like this seriously and would push for again, like kind of guardrails or mechanisms or just some like, like regulatory overlay that could make the, the analogy. This is a silly one, but like on nuclear submarines that they used to have like ashtrays that would like were designed to break into like three dull pieces so that the glass wouldn't like go into the eyes of the people on the boat. Like, and the ashtrays cost way more and were really annoying and made, you know, Pentagon procurement budgets have to go up and blah, blah, blah. But like you're on a submarine and when the ashtray breaks, you really don't want glass flying all over the place. And I feel the same way about fintech regulation, I guess is yes. Will it be annoying to have sort of FDIC like equivalents built around some of these types of arrangements and like figuring out ways we can make this safely? Will it increase everyone's costs and make it more annoying? Yes, but if we don't do that, then customers are going to get glass shards in their eyes every time one of these things breaks.

Speaker B: And I mean, I think both of us tend to take a consumer or I guess in this case like a customer or small business protection lens is one of the ways we view the world. But this is also just like wildly value destructive for all of the stakeholders involved. Right? So it's like, okay, I don't know what happened with the potential acquisition. Uh, I'm forgetting the name of the company. I reported it out previously. I do not know why that potential deal fell through. Uh, I believe the Parker CEO tweeted something to the effect of like, uh, you know, there was like a 90 million, like a week ago I was going to have a 90 million exit and now the company's in bankruptcy. So like, like something happened that made that deal not happen. I do not know what it was. But even just thinking about this through the lens of Patriot, of SVB as the debt provider and of uh, Parker's equity investors. And I think there was also some venture debt in there as well. Um, okay, they kept this thing spinning when frankly they probably shouldn't have because they were hoping to land the plane. They realized like, ooh, this Runway I was hoping to land the plane on, can't land there. And then uh, Patriot was like, this is my interpretation, like asterisk, asterisks, uh, speculation, Please don't sue me. Um, Patriot was like, oh, I don't have the stomach for this. I'm going to pull the rip Cord, sweep this 5ish million dollars to try to mitigate as much of my own risk as I can. And then to your glass. We mix all our metaphors on this show. I love it. We do, we do like, I think glass shards just go everywhere. But like what was the actual risk? Like the credit risk? This was maximum 90 day charge card receivables, um, which presumably were like underwritten and had relatively low credit risk. And now you're in a situation where the people who actually owe that money, the small businesses that owe that money are getting conflicting direction about where they're supposed to make payment. So like presumably the risk of non payment has actually gone up and you have SVB and Patriot like fighting over who, who's going to bear this risk. But the risk wouldn't be as elevated as it now is if they didn't blow this thing up.

Speaker A: Yeah, it's almost, it's almost like a tragedy of the commons thing, right? Where it's like everyone acting in their own individual when something goes wrong manifests a problem that if they just didn't do that, you know, it's like uh, uh, there is like a game theory element to this too, to these types of arrangements where it's like maybe Prisoner's dilemma is a better example. Like hey, if we all cooperate, we can roughly land this plane in a way that minimizes damage for everyone. But as soon as one person acts in their own selfish best interest, everyone else does that too. And then the problem like magnifies. And I mean, I guess the, the other point to add on to this is just that like I, I continue to see, I, I see very little signs that the fintech ecosystem is becoming more vertically integrated. Like I guess in some senses you could say like some large fintech companies are becoming banks and they're kind of vertically integrating. But like the, the early stage side of the market, all we're doing is creating more like layers of abstraction. Right? Like we're, we have Private credit. We have all of these debt facilities which used to be, like, less accessible to very early stage fintech companies. And now we have just like, sort of money and infrastructure seeping down everywhere into early stage fintech. And the good part of that is it allows everyone to spin something up and to try something and to build a company. But the bad version is you just have a ton of these little programs that are like, individually not a huge deal, but collectively, there's just a lot of, like, operational risk sort of seeded everywhere in the industry. And again, I go back to this, like, kind of customer outcome thing. It doesn't take that many of those failures to really sour end customers on trying these products. So, uh, it feels like even though, again, this is a small story in the grand scheme of things, the lessons from it, I think, are much bigger.

Speaker B: I feel like somebody's probably going to tweet at us that stablecoins, fix this, but do you want to close turn the page on this and take, uh, us to our next next story?

Speaker A: Well, not really, but I will, um, because the. The headline for the next story that I typed into our outline is, I'm in hell. This is hell, and I'm in it. So, um, this is prediction markets. Yay. Um, I have three stories, Mr. McCula, to share with you, and then I would like you to just, uh, I don't know, sigh deeply. Take, uh, a drink of some alcohol that you have next to you. Whatever you have to do. Ready? This episode is brought to you by Oculus. Most SMB lenders are making credit decisions on a snapshot. Raw cash flow numbers, no borrower behavior, context, no sense of how that merchant compares to peers. Oculus fixes that expect cash flow analytics, borrower behavior, and industry benchmarking, all built directly into the underwriting workflow. Visit ocralist.com to learn more.

Speaker B: Ready?

Speaker A: Okay, so story, uh, number one, uh, the Wall Street Journal, um, reviews, uh, 1,105 videos posted by the prediction market Polymarket, uh, specifically by creators that Polymarket had hired to work with them, and found that none of the bets that were being promoted by those creators, uh, were real. Creators apparently were filming trades on fake poly market websites, uh, that showed the bets that were paying off, but that weren't actually real, and showed that they were getting paid, uh, you know, winnings out of those bets. The creators behind these were getting paid 2,000 to $3,000 a month to post these videos. And, uh, the same bets that showed that these creators, uh, won would have actually collectively lost more M than $166,000. Um, which is I think a pretty stupid lie to tell. And apparently how the Wall Street Journal caught them was that they were showing the specific bets and then all the Wall Street Journal had to go do is look and see. Did anyone win on this bet? No. Okay, well then how the, how could the creators have said that they did, and then they did their investigative reporting thing and found out that uh, all of the videos were staged. Polymarket, um, says that it will now, it will now start auditing its promotional content which, uh, better late than never I guess. Um, and this opens uh, up the question of whether um, the cftc, which nominally is the regulator, uh, in charge of making sure stuff like this doesn't happen, uh, will investigate this or take any action. If there was the ability to bet on that outcome in polymarket or Kalshi, I would take a strong, uh, bet on no, regardless of what the odds were, because I don't think that's going to happen. I do think it's notable that um, even though polymarket is ostensibly a platform that's based overseas in uh, Panama as a matter of fact, um, and is not legally uh, allowed to operate, at least in the way that it traditionally does in the US or uh, advertise to US users, most of the creators that were being paid to advertise this product were US focused creators. So obviously um, there is a lot of um, sort of VPN type betting happening by US users that polymarket is aware of and is trying to encourage more of. Uh, that is story number one, story number two. The New York Times reports that uh, Mark Zuckerberg has instructed a team at Meta to start building a standalone app called Arena. I'm just going to put a pin in the name arena, because I know what it's in response to and I don't even want to talk about it. Uh, where people can guess the outcome of real world events. So a prediction market. However, instead of wagering real money, users of the new app will receive a quote, daily virtual allotment of, again quote play money that can be used to place bets on the outcome of future events. Um, the app will reportedly use Llama, which is Meta's large language model, to automatically generate questions from trending topics. Uh, Meta's AI will also make personalized market recommendations to users who download the app. Uh, the same uh, Llama model will also resolve the markets, according to the documents that reporters have seen. Which means, in other words, AI will have the final say over whether something did or did not happen. Um, it's interesting history because in 2020 meta actually released an app called Forecast, which is a crowdsourced prediction market app where people could guess about what might happen in the world, including predictions about the course of the pandemic. So this is all when we were locked down and just losing our minds. The app was wound down two years later, which I guess you could just say is a matter of bad timing on Meta's parts. Internal, uh, documents reviewed by npr, uh, cited the operational costs of manual question curation as the reason that Meta shut down the effort. Uh, which would suggest that uh, if AI can be used to get rid of the humans that were involved in running that app, that it might be something that would make sense for them. It is unclear if arena would eventually let users wager, wager real money on event contracts. I think that is something that's being discussed at Meta. However, Meta may want to see how the current legal fights over prediction markets play out before taking on the compliance risk of allowing real money wagers. Which brings us, Jason, to our third story. And I promise I'll go through this quickly because I'm already starting to like, stroke out. Um, the cftc, again, the nominal regulator in charge of regulating uh, prediction markets, has proposed a rule, uh, to evaluate event contracts that may be in areas that are prohibited, uh, under existing uh, commodities rules, as most recently updated under the Dodd Frank Act. This proposed rule includes a three step process for evaluating this. Uh, number one, is it an event contract? Number two, does it involve what uh, they call an enumerated activity, which is one of those things that's not allowed by law to exist in prediction markets. That includes, uh, activities that are unlawful, uh, event contracts on quote, gaming, which is a category that is uh, uh, widely fought over and disagreed on, um, terrorism, war or assassination. And then three, does the contract, if it is one of those enumerated activities, violate the public interest? Um, broadly speaking, it seems as though the proposed rule is trying to take the perspective that uh, contracts involving terrorism, assassination and war are likely to be deemed contrary to public interest and prohibited. Uh, whereas event contracts on sporting outcomes would generally be permitted, with a few exceptions for things like bets on, will there be a fight in a game, bets on specific plays like will this pitch be a strike or ball, uh, and bets on, and I kid you not, this was addressed in the proposed uh, rule Youth, uh, Sports, uh, and saying that that probably would not be likely to be approved. Um, when evaluating an event contract that serves, uh, public interest, the CFTC will Weigh factors like the value of price discovery and information aggregation, utility hedging capability, and the potential to cause market manipulation or settlement integrity issues. Um, my take on this rule is that it is clearly written to basically give the prediction markets everything that they want and protect the business that they currently have, while sanding off some of the roughest and most objectionable use cases for prediction markets like bets on if somebody is going to be assassinated.

Speaker B: It.

Speaker A: Uh, Jason, that was a lot. What jumps out to you across all the things I just said.

Speaker B: Uh, okay, so I also had read that Wall Street Journal piece. As you and I'm sure many of our listeners know, I came from a consumer marketing background.

Speaker A: Right?

Speaker B: Uh, I'm not going to pretend that some of the earlier stage startups, uh, I had worked for, you know, crossed every T and dotted every I exactly as you might hope. But like, generally speaking, we did, I did, we did make a sincere effort to like market the products in a true, uh, in a way that reflected like what the product actually was. Uh, and then, you know, certainly during um, my time at Goldman, I was like, oh, this is how real banks implement compliance and legal controls specifically around things like marketing claims. Um, and I realize this can get a bit esoteric and in the weeds if it's not a discipline that you actually work in, but even saying things like rates as low as 5.99%, uh, you actually have to be able to defend making that claim. And it can't just be one guy, one time qualified for a rate of 5.99%. So like as a marketer who is making a TV commercial or making an ad, uh, on Facebook or Google Ads, like, I would have to work with compliance with legal, with data science, depending on exactly what the claim was to be able to say, hey, if the relevant regulator comes in and says, how can you justify saying loans up to X rates as low as Y pre qualified, pre approved. There was actually a whole stream of work, multidisciplinary work that went into justifying how can we make this claim. And so when I saw this Wall Street Journal story that uh, you summarized, it's like, oh yeah, they just made up a fake website and it had a, had a bunch of bets that weren't even real, basically my head exploded. I, uh, was like, there's no world in which anyone who's actually done not just financial services marketing, by the way. I mean, FTC enforces deceptive marketing stuff all the time. It's not totally like a financial services restriction. It's any product, um, and so the idea is that anyone who has experience working in a tangentially reputable organization was like, oh, yeah, we should make a fake website that shows, uh, that shows people who are getting paid to then make bets that are not real and then go and, like, pump those out all over social media as if these people were really earning, you know, multiples of what they were. Do we say wagering? Do we say investing?

Speaker A: Uh, we're supposed to say investing. Although, like, again, if you. If you have to advertise your product by showing fake videos of someone winning money or m. I should say making money on an investment that you offer, because the actual truth is that no one is making money on that investment. That. I don't know that we should use the word investing to describe that. I mean, it's. It's funny because, like, the prediction market thing that bothers me the most, I would say, is the gap between the way that they are sort of discussed in a sort of formal sense. Like, whenever Mike Selig at the, uh, CFTC talks about prediction markets, he's like, talking about the value of hedging and price discovery and all of this kind of stuff. And it's like that argument contrasted with the documented behavior of the people running these companies is so incredibly different. I mean, it would be like. It would be like saying, like, you know, Cruella Deville really likes dogs. Like, like, that's just like, if you know anything about Cruella De Vil, like, that's a vast understatement that obscures the terrifying reality of what's actually happening. And I just. I can't stand the discrepancy between those two things. Like, if we just said we, uh, just want to enable rampant gambling, and it's up to everyone to make their own decisions and to try to be safe, but, like, be careful out there because everyone is going to try to trick you to take your money from you. And we're fine with that. Like, we just said that that would be fine. Like, I wouldn't like that. I would vote against that in my own personal politics, but, like, at least it would be honest. The thing that's driving me crazy is, like, is Mike Sully going to do anything about this? He has the power to go after this particular example now that it's been reported. I would have liked some supervision to exist so that the Wall Street Journal didn't have to break this story, but if they do, at least now we know it happened. Like, is the CFTC going to do anything? Is the FTC going to do anything Is the Consumer Financial Protection Bureau, which could plausibly get involved here if it wanted to, is it going to do anything? And the answer is no. And it drives me out of my mind.

Speaker B: Yeah, I have sort of purposely tried to not cover the prediction market space because you are already doing a very good job and it would make my blood pressure explode more than it already does. Um, maybe this isn't even the only example. I honestly, I forget if it was polymarket or Kalshi, um, that was also running a bunch of ads on Instagram and other places that was like, you know, I paid my rent thanks to Kelshi, or I paid off my student loans.

Speaker A: Yeah, yeah, yeah, right.

Speaker B: Which is just equally, equally disingenuous and potentially potentially deceptive and misleading. And it's like, uh, the sort of macro question I come back to is, you know, is this a pendulum where, you know, when there's a change in administration, you know, you have, you know, different folks in those chairs at cftc, at cfpb, at ftc, you know, do we see this swing back a lot? Do we see it, uh, swing back a little bit? Or are we sort of on a pathway into some sort of, like, new normal? And frankly, I could probably argue both sides of that. Right. Because I feel like the prediction market stuff, in a way, is not literally legally, but I feel like it is a conceptual outgrowth of, uh, you can probably actually name the case, the Supreme Court case that paved the way for legalized sports gambling, like Sports Murphy. And obviously what's happening here is a different, uh, legal and economic structure. But, like, functionally, as you've pointed out, it is serving a very similar. I can't use the word consumer need, consumer desire, I guess, to wager or to speculate. Um, but yeah, I struggle. It's not going anywhere good. So I guess my question is, how bad of a place are we going to do we continue on this trajectory? You know, sort of until something really, really bad happens in like a sort of like macroeconomic sense or, you know, are we going to see this pendulum swing back when, you know, whatever President John Ossoff appoints AOC to be like the head of the cfpb. I need to come up with your characters when I do this example.

Speaker A: But no, no, it's, um, it's a great question. I mean, I. So this ties to the meta example, right? Because, um, to your point, like, this question is, does this behavior transcend the sort of risk profile that the current products operate in? Right. And so you could look at it and say, all right, Kalshi, uh, and polymarket and their investors, who we shouldn't let off the hook, are just trying to drive a giant truck filled with money through this loophole while it exists. And they know the loophole is going to go away. And as soon as it goes away, the investments are going out to zero. But, like, if they can IPO Kalshi before that happens and dump all of their money onto retail, then they did their job and everyone walks away happy, uh, except for retail and all of us. Um, that I think is one way of looking at it, is like, that's going to happen. AOC or John Ossif or whoever the future Democratic president is, is going to just, like, wipe, uh, all of this market out. They'll go, that was crazy. Well, what were we doing? Maybe the Supreme Court weighs in on some of this stuff and it just sort of, like, goes away. It was like, wow, that was a weird moment in time. And I think to a degree that will happen because there will be a regulatory backlash to the excesses of Kalshee, polymarket and some other bad, uh, actors in the space, um, who are basically the space. Um, the thing that I think is concerning to your point, though, is this is like teaching people who design digital products who, their only goal is to make something addictive that people just want to use constantly. This whole prediction market thing has taught them that betting on something is really addictive, and that that's where the Meta thing comes in for me, where it's like, Meta might not ever even introduce actual money wagers into this product. In fact, if I had to bet on it, I would say they probably don't, just because of the timing. Right. Like, I think the legal loophole won't exist the way that it does fast enough for Meta to be able to, like, really monetize it and feel comfortable with that. So they'll probably build some version of this arena product. It'll probably be kind of embarrassing and, like, you know, in the same way that, like, um, all the kids abandoned, you know, Facebook, uh, and even Instagram and are, like, on TikTok and elsewhere, I think arena will not sort of strike the right vibe and the right sort of thing to capture the same wave that Kalshi and polymarket have. But it's telling that, like, Mark Zuckerberg looks at this and he's like, this is a way that I can get young people to just stare at a property I own so that I can pump advertising through it and doesn't have to involve real money. We can just create our fake internal currency that they play with and blah, blah, blah. But I don't know that that means that, like, the damage of prediction markets will be contained to what the CFTC allows people to actually invest real money in. It might be a larger shift in consumer behavior and design patterns that outlast this age. And a specific example I was thinking about, Jason, that terrifies me is, is it possible that my sons, when they're in middle school and they're learning about sort of current events and social studies, that the teacher uses the arena app to get them to pay attention to and to speculate on and to be engaged in a discussion about world events and current events. Like, is that, is that plausible? Because if it is, then I think what that tells me is the future sort of way in which we think about the world will be mediated through this prediction market wagering user interface, regardless of real money invested and how it's regulated.

Speaker B: Oh, uh, that is a dark thought experiment that I had not had, so thank you for that. Um,

Speaker A: can I give you one more, by the way? Ah, just as long as we're giving you dark thought experiments. You'll, you'll, you'll love this one. Um, all right, this is based on the CFTC's proposed, uh, rule. Um, would a contract that, uh, asked will Elon Musk murder someone in 2027, would that be allowed and would that be deemed in the public interest? Uh, Jason Mikula, what do you think?

Speaker B: I mean, I feel like the answer to that should be no.

Speaker A: Correct, Correct. So, answer is no would not be allowed. Murder is illegal, and it's not, uh, permissible to allow a prediction market contract to settle on an illegal event. That would be one of the enumerated activities that is not allowed. Correct. Well done. Second question. Um, would a contract on whether Elon Musk will be convicted of murder in 2027 be allowed?

Speaker B: Oh, yeah, totally. That, that feels legit. That feels like a pretty big loophole too. Correct? Correct. You're.

Speaker A: You're two for two because, and I'm so glad you caught the, like, legal nuance, uh, in this question. A legal court conviction of a crime is a legal proceeding that is the law and therefore not one of the enumerated activities. So what this would suggest, terrifyingly, is that if you design your event contract in order to settle on a legal event, even if that legal event is in relation to an illegal event, you're fine. And in fact, that would have a lot of hedging purposes. Because I might want a short, uh, Tesla stock if I know that Elon Musk is going to be convicted of murder in 2027. Like, that's material information to me as a Tesla investor or now, I guess, a SpaceX investor. That would be good for me to know. So, yes, uh, Jason, that is exactly right. And well done parsing the difference there.

Speaker B: Oh, man. Uh, this is. See, this is why I've avoided going down the specific prediction market rabbit hole. Because like, like every door that it opens is a bad door. And all the points you've made today and also in your writing, what the advocates, whether it is selling in the regulatory establishment or the investors, all the use cases, they talk about, uh, hedging and information discovery and price discovery empirically are not how people are actually, for the most part, using these platforms. Um, I will say, and this is not necessarily, I guess, really a fintech or banking comment. I do find it kind of amusing that Mark Zuckerberg has literally never had an original idea, including, by the way, Facebook, because the sort of the plot of that whole movie with the Winklevosses and whatnot, uh, is that Zuckerberg, uh, stalled them while they were making their app, Harvard Connection, so that he could preempt them and launch his app, the Facebook. And it's just been like a sequence of either acquisitions, to be fair. Some of them very, very smart, very savvy. Both WhatsApp and Instagram have proven to be huge, uh, assets for the company. But these are like, the company has no ideas and frankly doesn't even appear to be that good at executing based on some of the recent stories. But. But I should not take us too far down that particular, uh, side trail.

Speaker A: No, no. Uh, we could do a whole thing on, uh, Mark Zuckerberg, the next movie that's coming out, that's a follow up to the Social Network. There's a whole set of things to talk about there. But, uh, instead, Jason, can we do just the tiniest bit of debanking talk?

Speaker B: Yeah. You and I both have talked about this in our respective newsletters, so we should squeeze in some debanking. I think you had a more comprehensive overview. I was specifically talking about Judge Jeanine, which I will explain in a minute. But do you want to give, like, the, the consideration set of recent activities and we can discuss.

Speaker A: Yes, indeed. I'll make this fast. So, um, a few things happened. Uh, one, as you, uh, just, uh, referenced with Judge Janine. Um, the DOJ is. And it's so ridiculous that I have to connect those two words together. The DOJ is investigating, uh, big banks over debanking, which has been, uh, reported, I believe, the Wall Street Journal. Uh, additionally, reputation, uh, risk has officially been eliminated as a bank supervision tool at the federal level, both, uh, by the individual agencies as well as now in, uh, all sort of interagency guidance, um, related to this topic, uh, and specifically reputation risk. Citizens bank is in the process of losing deposits because of its banking, uh, relationship with companies that operate, uh, ice, uh, detention centers. Um, the CFPB has issued guidance encouraging lenders to consider immigration status as a risk factor under ability to pay guidelines for credit cards and mortgages, uh, which is a reversal of the CFPB's prior guidance under the Biden administration. And finally, uh, Jackie Rhesus, uh, CEO of Lead bank, um, gave an interview recently in which she said, I don't believe there was debanking. I think it's a crock of. An absolute crock of end quote. Um, so, Jason, that is the collection of news stories that are in various ways related to all of this discussion about debanking. Um, you know, it's interesting because every time I write about debanking, and I don't know if you have the same experience, but I get a variety of replies back. And the replies are so interesting because it's very much a, like, like who you are and where you sit in the world type of thing. Like, well, your feelings about debanking tell me a great deal about who you are and what you think about the world more so than they do. Like, the actual facts of the case. Um, I have sort of constructed my own theory of how to think about debanking, but I'm curious to get yours first. What's your reaction to this news? And like, how do you, in a general sense, how do you approach the topic of debanking, which apparently is never going to not come up, at least over the next couple of years. So, like, how do you, when it comes up, how do you react?

Speaker B: Uh, okay, I hate the term debanking because I think it is so, uh, I mean, it is useless. Or it could be, I guess, a Rorschach test, uh, uh, of people seeing, I think, to the point you did make, or probably might maybe make, is like, people seeing what they want to see. So setting aside 20, 26 and what people are using that term to mean was redlining. Debanking was saying, like, we will not lend to people who are trying to buy a house in these zip codes that just happen to be predominantly black or predominantly Hispanic. Like, would that be considered debanking? What about.

Speaker A: I think it would.

Speaker B: Uh, what about, you know, uh, women not being able to open a bank account or have a credit card in their name? Like, was that debanking? And so. So, like, I think to use another very loaded term, I think people are weaponizing the term debanking. And to be fair on both sides, right? Because as I've written about, you know, sort of like the Elizabeth Warren wing of the Democratic Party have used that word, but then they use it to talk about a very different set of things. Whether it is, you know, forcible account closures due to repeated overdrafts and getting, uh, you know, a drogon check system so you can't open another bank account. Whether it is, you know, we talk about, like, legal but disfavored industries. You know, what about, you know, sex workers, where it is a legal profession, legal source of income, but getting their accounts closed because of the nature of where that money is coming from? I think Warren has also pointed to international charities and nonprofits, which, to be fair, are higher risk for money laundering and terrorist financing. And so it's like people are using this word, which it feels like it should be wrong and bad and not allowed. You should have a right to a bank account. I mean, the reality, and to try to get back to the actual question that you asked, is you actually do not have the right to a bank account. And so the debanking, and you mentioned, uh, Jackie's comment about referring to it as a crop of shit, um, in that context, I believe she was specifically talking about crypto debanking, Am I right? Because I absolutely, embarrassingly, still have not listened to that full interview, which I need to. Um, but it's like, uh, the amount of gray space here of how much business judgment, risk judgment should an institution have, whether it is a transactional bank account, whether it is. And certainly when it's a credit product, versus how prescriptive should government law and regulation be? And, uh, I don't think if you asked anyone in industry, and I guess I'll bracket that and say tradfi, because it gets complicated with crypto. But if you asked anyone, do you want a legal requirement that you have to offer a bank account to anyone who walks into your bank or opens your app and asks for one? Uh, anyone for legal purposes, um, you know, legally permissible use cases. I don't think most businesses would say, yes, I want this requirement. Like, they want to be able to exercise the judgment of like, hey, what is my risk tolerance? What customer segments am I comfortable and capable to serve? And so this entire conversation, you know, once people start using the word debanking, I almost automatically tune out because I feel like it's just not going to be a serious conversation.

Speaker A: I think that's totally fair. I mean I, I've sort of in my own head split the conversation into two things. And you, you already outlined them really well. Right. One is like debanking with a capital D. And debanking with a capital D is the conspiracy theory that um, the, and, and it will apply it to crypto, but you can see it playing itself out over and over as a pattern that in the case of crypto, the Biden administration had a top down structured initiative, operation choke point 2.0 to cut the crypto industry off from all banking services. Um, that is a very satisfying conspiracy theory. If you are in the market for a conspiracy theory, uh, about everyone's against crypto, there is just no evidence that that's true. Um, and I, I've examined all the evidence in detail. Uh, the House Financial Services Committee under the current Republican Congress made a really detailed effort at trying to gather that evidence and all they could find were sor. Anecdotal accounts of people having their accounts closed. Um, you know, the OCC published an initial uh, review of the large banks over the last uh, four plus years trying to find evidence of debanking. And all they really found were internal policies sort of uh, expressing higher levels of risk consideration for different industries that the banks might work with. Like there's just no evidence of a conspiracy. Now, now is it possible that there is a conspiracy and just no one wrote anything down or the evidence hasn't come out yet? Sure, that's always possible, but there's no evidence that that's true. So I tend to, in the same way that you do have an allergic reaction when I hear people talking about debanking in a capital D context. Um, the other version of it that you also described is like the lowercase D version of debanking. And that to me is more of a defensible critique basically of, and I wrote about this in the newsletter, this idea that like regulators have a set of tools at their disposal for influencing the way that the banks they supervise think and the risk tolerances that they are sort of comfortable with or uncomfortable with. And those tools range from very pointed public enforcement actions which you do a great job covering whenever they come out, to like lingering a little bit too long in One part of an exam when you're going through and supervising a bank just as a normal course of doing business, and like a pause at one spot might indicate to a very receptive bank, like, ooh, they seem a little nervous about that, maybe we shouldn't do this. And like, that's a continuum where there's a lot of different stops along the way. And I think the more substantive critique of debanking in this lowercase sense that I, I'm more kind of responsive to, is that over the last, I don't know, let's say 30 years. Because I think a lot of the like, reputation risk stuff dates back to like the mid-90s when the OCC sort of added that in an official capacity to its supervision. Docs like that critique basically suggests that over time regulators have allowed their own opinions about stuff, politics, events, technology, business, whatever, to influence the way they think about risks and then for that perception of risk to trickle down through various mechanisms, including reputation risk as a category within supervision, to then sort of color their recommendations or their feedback to the banks that they supervise and thus sort of biasing banks against certain categories of risk that they might otherwise be comfortable taking. Now again, that doesn't mean that entire industries are being illegally debanked. Right? Because there's always going to be some banks that take the risk of serving higher risk industries, regardless of what regulators tell them. Right. And we saw that during crypto, there were still banks banking crypto companies even in the midst of this supposed debanking thing that was happening. There are banks that bank sex workers, there are banks that bank marijuana companies. Like, there are banks, banks that will bank anyone. The question is, how much should we be scaring off the majority of banks from banking with certain industries, what role should regulators play in that decision? And I think what we're seeing right now, and this is the part of what the Trump administration is doing right now that I actually am roughly supportive of, which is this whole reputation risk thing probably went too far and is still kind of too nebulous anyway and we should just leave it to individual banks to decide what's too reputationally risky to do and what risks they're comfortable taking. And you know what, if they that up and they end up having a problem and maybe they go out of business, that's the market working as it should work and we have mechanisms to resolve failed banks and that's fine. And I think Citizens Bank, I mentioned that example before. Citizens bank, they're going through this right now with the, uh, work they do with those companies that work with Immigrations Customs Enforcement. And you know what like Citizens has mostly said so far? We're fine with this. Like we're comfortable with this risk. And if some people want to move their deposits elsewhere, that's fine with us. Good. Like that's fine. That's a risk decision that citizens can make. So it's strange, Jason, but after going through this whole process, after being transformed by all this debanking conversation, I find myself in a very like Montana libertarian sort of place where I'm like, maybe we should just let banks make risk weighted decisions about what they want to do. Make them and their equity holders live with the consequences of those decisions and just be really good at resolving banks when they have problems. Like maybe that's just what we should do.

Speaker B: No, that I, I'm very much aligned with that.

Speaker A: Right.

Speaker B: Like if it, you know, there may be businesses that uh, like, I mean using the phrasing like legal but disfavored and to your point, it's like hey, if your bank either whatever the objection is, whether it's like a moral objection of like okay, we don't want a bank, sex workers on moral grounds or whether it is a money laundering financial crime risk, in my uh, mind it doesn't matter. That is a business decision regardless of what it is grounded in. And as long as that is aligned with the current statutory and regulatory landscape. Obviously in credit products, in consumer credit products, there are some differences as far as ecoa and like what you can do there versus what you can't do there. Um, but yeah, like I, I subscribe to your Montana Montanian. Montanan.

Speaker A: Uh, sort of, uh, Montanan.

Speaker B: Yeah, free, free market viewpoint of like, hey, like there are you know, 9,000 ish banks plus credit unions and God knows how many fintechs and stablecoin based banking alike products. If your bank doesn't want a certain category of customer for whatever reason, there probably is. No, not probably. There is somebody who will take that customer and they may or may not charge for those services in a way that allows them to compensate for the risks they're taking. And if they're charging too little and they fail, uh, hopefully it's resolved without disrupting end users lives too much.

Speaker A: Absolutely. Well, and just uh, to put a final point on that, that's actually exactly what Jackie said in her interview was like the market will take care of this. Like there are other banks that will bank crypto. Like this is, that's why she's calling it a crock of shit. And I'll also say if you have a different viewpoint on this and you're like, actually no, uh, a bank account is a right. Everyone has a right to a bank account. Well then what you're arguing for, which is a totally separate argument, and I'm fine to have this discussion too, but like, then you're arguing for postal bank banking, you're arguing for a central bank, digital currency, you're arguing for like a basic government run bank account that anyone who legally can get a bank account can get with zero restrictions. And you know what you would find, I think in that scenario is, and I'm not like, you know, necessarily opposed to this public policy experiment, but what you would find is the government would struggle to serve those customers in many of the same ways that banks do and would have to subsidize the losses of serving those customers, would have to restrict certain services for those customers. We would find, if we had that model, that there's a limit to what they can do there. Because in the same way that the free market kind of pulls away from certain categories of banking, a lot of it's because it is risky and it's not a business that most banks or credit unions want to be in.

Speaker B: And this will be my last word on this topic before I have a heat stroke. Um, and I probably shouldn't even say this, but I'm going to. I do think the sort of debanking conversation as it takes place in the US market is an extension and a symptom of the politicization of everything. Right. Uh, and that makes it really, really hard to have a coherent, factually grounded conversation about what policy is, like, what the actual current reality on the ground, to the extent reality exists anymore is, and what it should be. Because everyone sort of sees it, this potentially political lens. And I do think that that can be very dangerous. I mean, we've seen this with, uh, I want to say it's APT Blue, which is like the fundraising apparatus of, I don't know if it's like the DNC or the Democratic Party of saying, oh, well, we're going to investigate this because we think they're doing bad things. Um, and so it is, it's a road that I'm like very uh, apprehensive to see the US go down of, like when the party in power is pointing at these things and saying, I'm going to use my control over these systems to try to disadvantage my opponents, it goes to very bad places very quickly. So I'm hoping that that is not uh, the trajectory that we're on.

Speaker A: Yeah, I hope so too. Um, in either direction, to be clear.

Speaker B: On either side. Side. Uh, because. Oh, I agree.

Speaker A: I mean, I, I, well, and that's the thing about people who are excited maybe on one side of the aisle about the debanking conversation that's happening. And this is so great. We're getting to the bottom of all this debanking thing. We're making debanking this really big, like, political priority. You're not going to enjoy it when debanking flips to the other side of the aisle. Right. Because to your point, the, I mean, Elizabeth Warren and others have already been really banging the drum using debanking as the framework to talk about the political issues that they care about. And so, yeah, I would just love to get politics completely out of anything relating to bank supervision regulation. Just, like, let banks run their business and we'll just kind of live with the consequences of that. Jason, um, not that we haven't already been ranting, because I think we have A lot of this podcast has been that. But, uh, let's, let's pick some things we can't let go of. I'll let you go first.

Speaker B: First. Okay, I will, I will keep it brief and, uh, on topic. This one was doing, doing the rounds on, uh, bank, bank and fintech social media. The recent, recent announcement from the OCC that, like, if you understand what the announcement says, it's basically, please stop submitting incomplete charter applications. Which, I mean, I guess it goes to show just how incredibly wide open some companies perceive the charter window to be, that they're just rushing to slop together a charter application and get it in when it doesn't actually even meet the minimum requirements of what the application calls for. Um, which I think some of us who saw that announcement had a good laugh at it. What, uh, can you not let, what can you not let go of? Ah, this month?

Speaker A: Um, well, all right, so we should, we should just do this for a second. Um, so first of all, I will say, just as like, kind of like an in memoriam for this section of the podcast outline, I think, forever. I'm just going to mention that PayPal settled a DOJ investigation into Fair lending violations in regard to a program that didn't involve lending. Jason, I'm just going to say that every time we do this from now on, so I'm just going to get that out of the way. Um, but the one I wanted to just rant about for a quick sec is, is covered. Are you familiar with covered you are. I think I made you, unfortunately.

Speaker B: Thanks to you. Thanks, uh, to you. And a couple hours this afternoon. Yes, I am.

Speaker A: So, I mean, you, uh, actually played with the app, which is a step further than I've gone. Covered, um, is a credit card, I guess. I don't know. And it essentially seeks to gamify rewards by offering sort of a variable reinforcement reward structure where depending on the exact characteristics of your transaction, uh, the amount, the type of merchant, the time of day, so on and so forth, you, uh, may get 25, 50% or even a hundred percent cash back on that specific transaction, or you might get zero on probably many of the transactions. So it's sort of introducing a lottery, like variable reinforcements, uh, conceit to credit card rewards in order to sort of trip that dopamine circuit in your brain. And honestly, Jason, like, if that was the scope of it, I would not love it, but it would be fine. But there's so, so, so, so much behind it that we don't even have time to get into it all. But it involves mini games built in with, uh, sweepstakes and fake tokens that you can get, but you can also buy, but you're actually not allowed, allowed to sell the tokens because you have to comply with sweepstakes laws. The rewards you earn on the credit card can go towards cash back and statement credits, or they can go to more tokens to play these stupid games that you can't actually win in. Um, it involves crypto, it involves all manner of things. And honestly, like, it's as if the people who built this product, like, reached into my fintech nightmares and extracted all the things I've been having nightmares about and turned it into a product.

Speaker B: The funniest part about it, I mean, not literally funny, uh, although kind of, uh, it's funny. Gallo's humor funny. Yeah. It's basically a combination of Yotta's original product and Yotta's current product. Because Yotta's original product ostensibly was like price link savings, but there was this kind of like, you earn swipes from. Actually, excuse me, you earn, uh, like tickets. Tickets or something out of sweepstakes when you swipe your card. And one of the things you could get was essentially like 100% cash back or like a refund of a given transaction. And then Yotta memorably, you know, collapsed with synapse disaster.

Speaker A: Oh, uh, yeah.

Speaker B: After that, it just morphed into essentially a gambling app using the sweepstakes loophole that you're describing. So this new service covered that you're describing is basically just both of those smashed together.

Speaker A: Well, it's, it's funny because it's like, I think probably the founders think it's like a brand new idea that no one's tried. And to your point, like it has been tried. And then like, it's, it's so funny. There, uh, there was a story where they interviewed the founders and apparently the, the notion of this originally came about because they were pitched as an angel investment, a really like rigorous and kind of almost punitive like savings, like forced savings app where if you like, went out of budget or m, uh, overspent, it would like sweep money out and put it in investments and savings. And they saw that and their reaction to it was we should build the exact opposite of that. And really, honestly, that tells you everything you need to know about, ah, this corner of the fintech ecosystem and like their instincts for what to build in 2026.

Speaker B: Uh, exactly. Uh, everything is gamified.

Speaker A: It truly is. It truly is. Um, Jason, as always, a delight to speak with you. We'll do this again next month, but thank you, sir.

Speaker B: Have a good one.

Speaker A: Thank you for listening to this episode episode of Fintech Takes. Stay up to date with emerging companies and the latest fintech trends by subscribing wherever you get your podcasts. And if you love Fintech Takes, please tell a friend.