Greetings,
Tech stocks have taken a beating lately, with the Nasdaq down 11% from its peak. SoFi gets its bank charter. Bolt becomes a “decacorn.” Payroll API startup raises $50Mn. Acorns SPAC is canceled. Coinbase and Mastercard team up on NFTs. Cash App adds Bitcoin Lightning Network support.
PeerIQ founder, Ram Ahluwalia, writes about how crypto will shape our everyday experiences in his latest post, Blockchain as The Blob: How Crypto Is Eating The World.
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Tech Stocks Hit Hard
Concern about inflation continues, as prices rose 7% in December vs. the year prior. Interest rates increasingly look likely to rise as soon as March. A rotation out of equities is hitting tech stocks particularly hard, with the Nasdaq entering correction territory. The tech-heavy index has dropped 11% from its recent November peak.
Changing market dynamics are taking a toll on the fintech sector. Acorns, which was in the process of going public via a SPAC merger, called off the deal, citing market conditions (more on that below).
SoFi’s Bank Charter
The OCC has conditionally approved SoFi’s application for a national banking charter, in conjunction with SoFi’s transaction to acquire Golden Pacific Bank. SoFi Bank, N.A. will have $5.3Bn in assets and $718Mn in capital as of the end of its first year of operations. SoFi will continue to service a range of locally-focused commercial lending and deposit products that had been offered by Golden Pacific prior to the acquisition.
The OCC’s approval requires SoFi to adhere to a complex set of regulations, including CRA requirements. Additionally, it requires that SoFi not engage in any crypto-asset activities or services.
SoFi is one of several fintechs that sought a bank charter in recent years. Fintechs that have secured charters include Varo, Block (Square), and Jiko. Given SoFi’s emphasis on lending, the lower cost of funds that come with holding deposits has obvious appeal. SoFi’s customer base also skews higher income and higher FICO than, say, Varo. What’s less clear is if that charter will improve SoFi’s ability to cross sell to these customers in order to boost its CLTV.
Biden Officially Makes Fed Nominations
After a number of false starts when it comes to appointing financial regulators, the Biden administration has formalized three nominations for the Fed, including the key regulatory role of vice chair of supervision.
For the vice chair role, Biden has nominated Sarah Bloom Raskin, a former Fed governor and Treasury Department official. Raskin is also the spouse of sitting Democrat Congressman Jamie Raskin, which could both help and hurt her chances of being confirmed.
For the other two Fed governor roles, Biden has nominated Lisa Cook, an economics professor at Michigan State University, and Philip Jefferson, a vice president, dean, and economics professor at Davidson College.
Industry analysts expect Raskin’s nomination to draw the most scrutiny from Republicans. Cook and Jefferson have relatively lower profiles, suggesting opposition to their appointments could be less likely.
Bolt’s Decacorn Round
Up, up, and away? One-click checkout startup Bolt has raised another monster round. The company announced a $355Mn Series E – just three months after its $393Mn Series D. The new round values the company at whopping $11Bn – entering the “decacorn” club (startups valued at over $10Bn).
Source: PeerIQ, Tech Crunch, Crunchbase
Still, Bolt is playing in an increasingly competitive field. Companies focused on or expanding into the payment button space include Fast, Klarna, PayPal, Amazon, and numerous others. The opportunity is undeniably large. But network effects built into the business model suggest it could be a “winner takes most” industry, with a small handful of providers accounting for the lion’s share of transaction value. Time will tell which payment buttons are king of the jungle.
Payroll Infrastructure Startup Pinwheel Raises $50Mn
Pinwheel, a startup building Plaid-like infrastructure that provides access to payroll providers, announced it has raised a $50Mn Series B. The round, led by GGV Capital, values the company at $500Mn.
Use cases of the tech include verification of income and employment, key parts of credit underwriting. Pinwheel plans to use the funds to triple its headcount to 180. The increased workforce will be used to develop additional product and feature offering, including in areas like earned wage access and tax prep.
Congrats to co-founder and CEO Kurtis Lin and the entire Pinwheel team on the raise!
Acorns Calls Off SPAC, Plans Private Raise Instead
Micro-investing app Acorns is calling off its plan to go public via a SPAC. CEO Noah Kerner cited market conditions, saying the firm would instead raise fresh capital in the private markets at a higher valuation. The original terms of the SPAC deal implied Acorns was worth about $2.2Bn.
With a slew of fintechs that went public in 2021 trading below their offering prices, a bit of turbulence in the SPAC market isn’t surprising. The length of time between when SPAC deals are priced and when they begin trading has expanded as regulatory scrutiny has increased. The longer lag increases the likelihood conditions may change between pricing and the start of trading, causing the kinds of swift drops experienced by recent SPACs like MoneyLion and Dave.
Coinbase and Mastercard Team Up on NFTs
The NFT gold rush is still in full swing. Coinbase, which is planning its own NFT marketplace to compete with market leader OpenSea, announced it is working with Mastercard to simplify the user experience of “participating in the NFT community.” According to Coinbase, it is working with Mastercard to classify NFTs as “digital goods,” which will enable users to purchase NFTs using the cards.
The ferocity of the NFT trend is reminiscent of the ICO craze of 2016 – including the use of NFT sales to fund crypto-related projects, often in conjunction with a Decentralized Autonomous Organization (DAO). Increased scrutiny on the sector seems inevitable, given reports of fraud and potential money laundering, among numerous other possible regulatory issues.
Cash App Lightning
Cash App announced it has added support for the Bitcoin Lightning Network. Block (fka Square) and its CEO, Jack Dorsey, have aligned firmly with bitcoin, eschewing interest in other cryptocurrencies and blockchains.
The Bitcoin Lightning Network solves some key pain points in using bitcoin for payments; namely, speed and transaction costs. Lightning is a Level 2 (“L2”) protocol that operates ‘on top’ of the Bitcoin blockchain (L1). Lightning functions similarly to a card network like Visa, in that it verifies that a user has a given amount of bitcoin, enabling near-instant transactions on Lightning. Then, the protocol batches together multiple transactions and settles them to the Bitcoin blockchain together.
The development is notable as it demonstrates the use of “crypto rails” at scale – Cash App had 70Mn transacting users last year. It also moves Cash App from a walled garden, where users can only transact with other Cash App users, to an interoperable ecosystem. The new functionality will allow Cash App users to send bitcoin to any user with a Lightning address, whether they’re on Cash App or not.
Earnings Coincide with Major Market Selloff
Bank earnings were mixed, as earnings misses, increased expenses and broader market weakness weighed on stocks such as Goldman Sachs (7.0)%, Citizens Financial Group (2.4)%, PNC (2.4)%. Morgan Stanley rose +1.8% on an earnings beat, and Bank of America ended positive +0.2% on lower projected increases to noninterest expenses than competitors. Discover fell (1.5)% and Ally fell (3.9)%, as equity markets sold off on concerns over rising rates.
Source: PeerIQ
In line with last week’s bank earnings, consumer deposits continued to grow on a year-over-year basis (Bank of America +16.0%, Morgan Stanley +13.0%, Ally +8.6%, Citizens +7.0%), likely helped by a strong labor and stock market.
Notably, we have begun to see bright spots in bank’s consumer loan growth, with PNC and Citizens posting increases to their consumer loan books on a year-over-year basis (PNC +26.0% Citizens +3.3%).
In contrast, we saw a (7.5)% decline in Bank of America’s consumer loan book from the year prior, though this decline may largely reflect the impact PPP loans had in 2020.
Neobank Discover reported that its loan receivables increased 2.4% year-over-year, continuing the growth that we have seen from non-traditional banking’s consumer loans.
Ally’s consumer auto and mortgage finance DTC originations climbed massively year-over-year (19.8% and 107.1%, respectively), but eased off third quarter highs, declining (11.4)% and (19.4)%, respectively.
Residential real estate loans had a solid quarter, with PNC and Citizens attributing their loan growth to this type of loan, and Morgan Stanley reporting a 26% increase in residential real estate loans from the prior year.
Goldman Sachs CFO Denis Coleman reported that, “Consumer banking revenues were $376 million in the fourth quarter, reflecting higher credit card loan and deposit balances year-over-year.” Higher credit card loan balances show that the consumer is re-leveraging and continuing to spend. We have seen the resurgence of spending through the recent holiday period, with Discover and Bank of America reporting 25.3% and 22.0% year-over-year increases in card spend, respectively.
In The News:
FDIC Chief Innovation Officer Resigns (Fintech Futures, 1/19/2022) Sultan Meghji will resign February 18th, just one year into his tenure.
Amazon Suspends Ban on Visa Payments (Finextra, 1/17/2022) Amazon had planned to stop accepting Visa payments made in the U.K. on January 19, but is now working on a “potential solution” with Visa.
Walmart is Quietly Preparing to Enter the Metaverse (CNBC, 1/16/2022) Walmart filed several new trademarks in December that indicate its intent to make and sell virtual goods, and offer a virtual currency and NFTs.
Day Traders as ‘Dumb Money’? The Pros Are Now Paying Attention (Wall Street Journal, 1/16/2022) 85% of hedge funds and 42% of asset managers reported that they now track retail-trading message boards.
BNPL Apps that saw the Most Holiday Traffic (Lendit Fintech, 1/14/2022) Klarna, Afterpay, Affirm, Sezzle, and Zip were the top BNPL apps on mobile through the holiday season.
JPMorgan Plots ‘Astonishing’ $12bn Tech Spend to Beat Fintechs (Financial Times, 1/15/2022) JPMorgan to increase compensation and travel expenses by $2.5Bn and new investments by $3.5Bn in 2022 in order to beat fintechs that are trying to disrupt them.
Ford Enlists Stripe to Drive Car Sales and Put Payments on the Dashboard (American Banker, 1/17/2022) The 5-year deal will include modernizing Ford’s e-commerce capabilities, allowing for in-car commerce, and implementing Stripe Connect to connect potential car buyers with local Ford or Lincoln dealers.
Truist Joins Industry’s Pivot Away from Overdraft Fees (American Banker, 1/18/2022) Truist plans to roll out two new overdraft fee-free checking accounts.
Record Year Seen for Credit Union Buyouts of Banks (American Banker, 1/18/2022) 25+ transactions are expected to be announced in 2022, a number that would smash the previous record of 16, set in 2019.
Lighter Fare:
Ancient Life May Be Just One Possible Explanation for Mars Rover’s Latest Discovery (CNN, 1/17/2022) Scientists explore potential explanations for the discovery of carbon atoms on Mars, which are tracers of biological activity on Earth.