TITLE: Walmart Bought a Finance App and Reduced Fraud Protections. Guess What Happened Next?
https://www.propublica.org/article/after-walmart-bought-finance-app-one-complaints-soared
EXCERPTS: Only a few hours elapsed between the time that Carl’s pay landed in his checking account and when online thieves pilfered it. “They took all of it but like 67 cents,” he said. Months before, Carl had signed up for One Finance, a banking app. It’s owned and promoted by Walmart, where Carl works in a grocery department.
He was enticed by features like cash back on purchases at Walmart and the chance to receive his pay two days early, as well as by low fees and high interest rates. Everything was fine until Carl used his One debit card — for the very first time — to buy a video game at Walmart last fall. The next time he checked the app, he saw a series of unauthorized transactions that had drained his account. To get by, he tapped his savings, which he said was “just enough to cover everything.” Carl asked to be identified by first name only out of concern for his job security.
Carl’s experience has been distressingly common. One Finance was plagued by fraud and customer dissatisfaction after a Walmart-controlled partnership acquired it in 2022. As Walmart began touting One to employees and others, the “neobank” — as such ultraconvenient, lightly regulated apps are called — weakened user security and outsourced customer support. Con artists took advantage, spurring a litany of customer complaints to regulators and the Better Business Bureau and across social media platforms. One froze some accounts and blocked access to its app and website from several countries, according to current and former customers and employees.
Frustrated users tanked One’s rating on Google Play from 4.6 to 2.8 stars. So many complaints inundated a Reddit community for One users that moderators made the page private “due to ONE fraud issue and their lack of customer support.” One’s Better Business Bureau page warns that scammers are using the One name and logo to steal money via “loan and impersonation scams.”
One’s problems echo the fraud and compliance issues revealed in a recent ProPublica investigation of Walmart’s financial services business. That article found that the company resisted calls to rein in fraud and skimped on employee training as more than $1 billion in consumer fraud losses were routed through Walmart’s financial systems over the past decade.
One’s issues threaten to undermine Walmart’s biggest opportunity to enter consumer banking. Starting in 1999, Walmart made four bids to go into the banking business. All failed in the face of what a 2007 New York Times article called a “firestorm of criticism from lawmakers, banking industry officials and watchdog groups.”
Many feared that Walmart would use its power as the biggest retailer on the planet to become a financial behemoth that would wipe out small banks and suck up the profits of the big ones. In the face of stiff opposition, the company seemed to give up. The Times article quoted Walmart’s president for financial services saying, “We don’t plan to do this again. The bank is behind us. We will use our partners to roll out new products.”
Since then, Walmart has steadily expanded its financial services. The company now provides check cashing, money transfers, prepaid debit cards, gift cards and bill payment services in thousands of U.S. stores, typically at lower prices than those offered by competitors. Walmart managed to do that without becoming a government-approved bank, thus allowing it to avoid most regulatory oversight.
The rise of online-only neobanks provided a new opportunity: Essentially any company could offer checking and savings accounts, as long as it partnered with a traditional regulated bank, which would handle the underlying functions of holding deposits and insuring money. One launched as an independent operation in 2020 and sold itself with a brash anti-bank message. It created stickers with the slogan “Un*uck Your Money” and said it wouldn’t use customer deposits to invest in fossil fuel, tobacco or firearms companies.
In January 2022, Walmart announced that a partnership it majority owned was acquiring One and another company, Even, and merging them under the One brand. When the deal closed on March 31 of that year, Walmart valued the merged business at $3.67 billion, according to internal documents obtained by ProPublica.
Under Walmart, One expanded beyond its previous target market of middle-class users to focus on signing up Walmart’s 1.6 million employees and getting them to deposit their paychecks into One accounts. The goal was to keep associates’ pay in the Walmart ecosystem and induce them to spend it with the retailer, according to former One managers. “The idea that ‘Hey, how crazy is it that they’re going to be spending the money we give them with us? How perfect of a situation is that?’” a former senior manager said. A former One exec said she came to think of their company as “no longer One, but instead the Bank of Walmart.”
Walmart doesn’t require associates to use One. But the service has been overhauled to emphasize features that benefit Walmart employees and shoppers, such as free ATM withdrawals and cash back on purchases at Walmart stores. Walmart also incentivized the hundreds of thousands of contract drivers on its Spark platform, the company’s answer to delivery apps like Instacart, to use the app. Drivers get paid the same day if they use One as their deposit option, weekly if they don’t.
Soon after the acquisition, One eliminated some popular features, such as customer credit lines with low interest rates. It eliminated account overdraft coverage for some customers and reduced it to $200 for others. It also restricted the functionality of account “pockets,” a signature feature for budgeting, sharing and spending money. In a conversation with moderators of the One Reddit community, company reps said the restrictions were necessary to fight fraud.
But the company simultaneously made it easier for scammers to log in to and compromise accounts of Walmart employees and other customers. Previously, One users needed a username and password and a verification code sent by text message. After the acquisition, One removed the username and password requirement for mobile users. Instead, customers entered their phone number and received a login code via text. Nowadays, fewer companies require a password. They typically rely on a username, such as an email address, and a second form of authentication. But One uses the same telephone number both for the username and to deliver the login code, which makes it less secure, said Allison Nixon, the chief research officer of Unit 221B, a security research and consulting firm.
Without a password barrier, fraudsters were able to impersonate company representatives in calls and messages to gain access to customer accounts, according to interviews and online reports. Natasha Tabachnikoff, a One account holder who works in local government in Pennsylvania, said she received two calls from someone falsely claiming to work for One. The caller said her account, which she’d had for years, had unauthorized charges and asked her to confirm her identity by sharing the authentication code sent to her phone.
Tabachnikoff almost shared the code but instead hung up and contacted One. “I told them, ‘You have a very insecure system here.’ And they were basically like, ‘Well, we'll never call you and ask you to give us your code,’” said Tabachnikoff. She said she moved her savings out of One “to a more reputable bank.”
TITLE: British neobank Monzo raises $430 million in Alphabet-led round to relaunch in the U.S.
https://www.cnbc.com/2024/03/05/uk-neobank-monzo-hits-5-billion-valuation-after-430-million-raise.html
EXCERPT: A fair portion of the [$430 million it raised last week] will be allocated toward helping Monzo relaunch its services in the U.S.
Monzo previously tried launching in the U.S. in 2019, with a beta product available for American consumers. The company was live in the U.S. via a partnership with the community bank Sutton Bank.
It wanted to acquire a full U.S. bank license, but it was forced to abandon this plan in 2021 after a fruitless two-year discourse with regulatory authorities.
Monzo has since opted to focus on re-entering the U.S. with a partnership that would allow it to bypass the requirement of getting a full bank license to serve U.S. customers.
The firm began a search for a U.S. CEO in 2023 to spearhead a renewed attempt at cracking the American market. It hired Conor Walsh, a former executive at fintech firm Block’s Cash App division, as its new U.S. CEO in October 2023.
Monzo’s new round also comes after a focus on new products for the bank. Monzo made its first foray into investment products in 2023, launching investment pots that allow customers to park their cash at a range of funds managed by BlackRock with different levels of risk.
Monzo said it now has more than 9 million retail customers in the U.K., and that it added 2 million of those clients in 2023 alone. The company also has 400,000 business banking customers.
TITLE: US neobank Oxygen switches focus from banking to health insurance in new strategy
https://www.fintechfutures.com/2024/03/us-neobank-oxygen-switches-focus-from-banking-to-health-insurance-in-new-strategy/
EXCERPT: San Francisco-based digital banking platform Oxygen says it has “temporarily suspended” its banking services as it looks to redirect its focus towards health insurance solutions.
In a statement on the company’s website, Oxygen says it officially commenced the “account closure process” on 8 March, with both consumers and business users being informed that their accounts will be closed on 29 March.
The firm adds that customers will have continued access to their accounts until 29 March and that any remaining balance left in their accounts after this date “will be returned to you via check by The Bancorp Bank, N.A. within 45 days”.
Oxygen says customers will no longer be able to deposit funds into their Oxygen accounts from 16 March and “all services in connection with your Oxygen Savings Account” will be discontinued by 21 March.
In an email to FinTech Futures, Oxygen says it is “only temporarily pausing Oxygen Banking”.
David Rafalovsky, who was appointed CEO at Oxygen last year, says that with the “rapid changes” currently being experienced by the industry, “we see an opportunity to redefine our role and deliver even greater value to our customers”.
“During this transition, we will be focusing our efforts on creating a product line that integrates health with financial solutions.”
As part of its “transformation”, Oxygen is set to launch Oxygen Health, a health insurance offering, by the end of this month.
Rafalovsky describes the new offering as “a comprehensive, affordable health plan”, providing users with “the tools to invest in your future health and fiscal well-being all in one platform”, working in partnership with alternative and supplemental health plan providers.
Founded in 2017 and launched three years later, Oxygen had previously centred its remit on providing banking services for consumers and small businesses, including current and savings accounts, money transfers and cashback rewards.
The company secured $20 million in Series B funding in February 2023 from backers including Y Combinator, Rucker Park and Possible Ventures.