Greetings,
Unemployment drops and record numbers quit their jobs. Energy costs are driving inflation concerns. Fintech infrastructure companies raise cash. Crypto lender Celsius valued at $3Bn, despite regulatory concerns. Oportun pulls its charter. NerdWallet readies IPO. Credit card issuers take BNPL threat seriously. Big banks begin reporting Q3 earnings.
New here? Subscribe here to get our newsletter each Sunday.
Unemployment Drops, Inflation Remains Elevated
Initial unemployment claims have continued to drift down, hitting a fresh pandemic low of 293,000 last week. New claim data tells only part of a complex story of what is happening in the job market, though. August, the most recent month for which data is available, saw nearly 3% of the workforce, about 4.3Mn workers, voluntarily quit their jobs. What some are calling “the great resignation” is being driven by job openings that outnumber the unemployed, creating a sense of opportunity to seek better roles or higher pay.
Image credit: The Washington Post
Meanwhile, risks for the macro picture remain elevated, amidst persistent supply chain disruptions around the globe. The IMF trimmed its year-over-year growth forecast for advanced economies from 5.6% to 5.2%. In addition to supply chain issues, spiking energy prices are driving inflation concerns. Natural gas prices have doubled, home heating oil has risen by 68%, and gas prices are averaging over $3 a gallon. Energy costs can be difficult for consumers to avoid, reducing other discretionary spending. All told, September saw prices increase 5.4% year-over-year.
With continuing price increases and disruptions headed into the busy holiday shopping season, the narrative of inflation being “transitory” is beginning to wear thin as some ask if this is beginning to be more of a “new normal”?
Image: New York Times, data: Bureau of Labor Statistics
Fintech Infrastructure, Embedded Finance Boom
Investor interest seems to be cycling from consumer startups to those building the behind-the-scenes technology that powers it. Not surprising, considering the market for “embedded finance” is expected to grow to $7.2 trillion by 2030, according to analysis from Simon Torrance.
Startups in the space are capitalizing on investor interest to raise new funds. Alviere, an embedded finance startup, just announced a $70Mn funding haul. Comprised of a $20Mn Series A in April and a more recent $50Mn Series B, Alviere plans to use the fresh funding to expand its offering beyond North America. Use cases for the platform include enabling non-financial brands, like telco, retail, and carmakers, to easily offer financial services like insured deposit accounts, debit cards, and credit within their products.
Meanwhile, payments ops software company Modern Treasury recently announced its $85Mn Series C. The round values the banking API provider at north of $2Bn. Modern Treasury offers software to streamline and automate treasury management functions, including initiating, approving, and reconciling payments.
Is Payroll Data the New Open Banking?
If “open banking” providers like Plaid are now almost taken for granted as a core piece of fintech infrastructure, payroll data APIs are still in their early innings. Instead of providing access to account information and transaction data, payroll APIs promise to make employee’s payroll data, like gross and net income, taxes, and deductions easily portable.
Atomic, one such startup focused on building a platform for payroll data connectivity, last week announced it has raised a $20Mn Series A to continue that effort. According to the company, it is on track to have integrations covering 120Mn Americans, or about 75% of US employees, by the end of the year.
Crypto Platform Celsius’ Valuation Reaches $3Bn As Regulators Circle
Celsius Network, a platform that enables users to earn a yield on their crypto holdings or borrow US dollars against them, has raised a fresh $400Mn in equity funding. The round, led by former Airbnb CFO Laurence Tosi’s WestCap with participation from the Québec pension fund, values the company at about $3Bn.
It hasn’t been all smooth sailing for Celsius, however. Like crypto-peers BlockFi and Coinbase, Celsius has attracted regulatory attention around it’s “interest” bearing products. New Jersey, Texas, Alabama, and Kentucky regulators have taken various investigative or legal actions against Celsius. CEO Alex Mashinksy told the FT he hopes the fundraise will reassure regulators about the stability and legitimacy of the company.
Personal Finance Site NerdWallet Preps IPO
NerdWallet revealed its S-1 last week, showing revenue that jumped more than 32%. While it hasn’t disclosed a price range for the offering, reporting suggests it is seeking a valuation of as much as $5Bn. The site, which offers advice and product comparison on products like credit cards, loans, and insurance, reaches an average of 21Mn unique users per month. Revenue, which primarily comes from commissions from products listed on its site, was $181.6Mn for the first half of 2021.
NerdWallet, which was founded in 2009, has shied away from public markets till now; perhaps the rich valuation multiples fintechs are currently fetching convinced it to change its mind.
Oportun Pulls Charter App (for now)
Oportun, a non-bank lender offering personal loans, credit cards, and banking products, has withdrawn its application for a national bank charter. The company came in for criticism from consumer advocates over high interest rates on some products and aggressive collections practices, for which Oportun is currently under investigation by the CFPB.
Oportun has said it plans to revise its application based on the conversations with regulators and intends to re-file it.
Credit Card Issuers Step Up BNPL Plans
First National Bank of Omaha, a top credit card issuer and leader in the co-brand space, isn’t taking the threat of eroding market share from buy now, pay later lying down. The bank has launched “Slice by FNBO,” which enables merchants to offer customers a “pay in 5” plan, with one upfront payment and four more each 15 days. FNBO decided to develop the offering after seeing market research suggesting as many as 50% of Americans have used BNPL at least once and particularly its popularity with younger consumers.
Meanwhile, JPMorgan Chase, which has seen loan volume and revenue declines year over year (more on that in the earnings summary), is vowing to “spend whatever it takes” to compete with new entrants like BNPL providers. Talking about fintech competitors, Dimon has said he expects “tough, brutal competition,” but that he expects to win.
Banks Report Jump in Profits, but Consumer Loans Have Not Yet Bounced Back
Banks kicked off earnings season with solid top line figures, driven by robust advisory, M&A and trading performance. Profits were helped by reserve releases at JPMorgan ($2.1Bn) and Bank of America ($1.1Bn).
While many banks saw total loan growth, the consumer loan segment lagged in recovery from a year prior. Consumer loans were mixed, but close to neutral or negative from the second quarter (JPMorgan +0.9%, Citi – Cards +0.2%, Bank of America (0.1)%, Wells Fargo (1.9)%, Citi – Retail (4.8)% ). Jane Fraser, CEO of Citi explained this with, “In Global Consumer Banking, healthy consumer balance sheets and persistently elevated payment rates did mean that loan growth remained under pressure.”
Source: Company Filings, PeerIQ
Big banks have seen lackluster growth in demand for consumer credit, despite non-bank lenders turning the corner and beginning to post sequential quarter increases in origination in Q2. Consumer preferences may also be playing a role, with the explosive growth in buy now, pay later potentially serving as a substitute for traditional bank credit, something JPMorgan’s CEO Jamie Dimon seemed to acknowledge by saying the bank “will spend whatever we have to spend to compete with all these folks in our space.”
While consumer loan growth has not yet returned, auto originations remained hot, with Wells Fargo reporting $9.2Bn for the quarter, up 10.4% from Q2 and JPMorgan reporting $11.5Bn for the quarter, down (7.3)% from its record Q2 but still the second highest origination volume ever reported. Demand for autos has spiked amid the pandemic, while supply has become constrained by ongoing supply chain disruptions. This has driven up prices of new and used autos substantially, helping drive banks’ originations in the category higher.
Home lending was also a bright spot for some big banks vs. the prior quarter, again owing to pandemic-related demand for new or larger housing and a continued low interest rate environment encouraging refinancing activity (PNC +13.8%, JPMorgan +4.8%, Morgan Stanley +6%, Wells Fargo (2.4%)).
Although consumers may have not been taking on additional debt, they have been spending, with double-digit credit and debit spend growth YoY (JPMorgan +25.8%, Bank of America +20.8%, Citi +20.1%, Wells Fargo 16.8%).
From the second quarter, we saw overall card spend flat or slightly increase, with credit card spend outpacing debit card (Bank of America Credit +3.2%, Bank of America Debit (1.8)%, Wells Fargo Credit +3.9%, Wells Fargo Debit (2.8)%). Bank of America CEO Brian Moynihan sees room for spending acceleration, stating, “September was the best month of the year, and we’ve seen that spending rates continue through the first part of October. In third-quarter ’21, we continue to see spending shift toward travel and in-person entertainment as well as fuel driven by both increased use in higher fuel prices.”
In addition to increased spending, consumers have continued to hoard cash, with average consumer deposits rising from the second quarter (Morgan Stanley+ 3.0%, JPMorgan +2.6%, Bank of America +2.2%, Wells Fargo +1.5%, Citi +0.1%), though the rate of deposit growth has slowed.
C-Suite executives highlighted low net charge-offs and credit losses, which helped to offset the lack of consumer credit growth and low yields during the quarter. JPMorgan CEO Jamie Dimon said, “we expect it to take some time for revolving credit card balances to return to pre-pandemic levels given the amount of liquidity in the system. In the meantime, credit losses and delinquencies remain extraordinarily low.”
Source: Google Finance, PeerIQ
Although banks beat earnings estimates across the board, share price performance was mixed. Bank of America led the pack up 4.5% on earnings with profits up 58% YoY and average loans increasing 1% due to strong commercial loan growth. Goldman Sachs, Morgan Stanley and Citi ended positive on solid investment banking, advisory, and trading fees. Although Wells Fargo, JPMorgan and PNC Financial beat bottom line estimates, they fell on earnings, potentially due to worries over increased expenses and net interest income pressure from lower yields.
In The News:
Is Modernizing National Bank Act the Answer to Fintech Charter Woes? (American Banker, 10/13/2021) The emergence of fintech and crypto brings pressure to regulate companies who may provide lending or deposit services.
Tala Raises $145 Million Series E To Expand Account And Crypto Capabilities (Forbes, 10/14/2021) Tala, which leverages smartphone data to help extend loans to underbanked consumers, raises $145Mn to continue growing, plans crypto offerings.
Racial Bias Skewed Small-Business Relief Lending, Study Says (New York Times, 10/11/2021) The majority of Black borrowers who got aid from the PPP program received it from a fintech company, not a bank.
Jamie Dimon Says Bitcoin is ‘Worthless’ (CNBC, 10/11/2021) Dimon maintains his anti-crypto stance, even as JPMorgan has begun to offer wealth management clients access to crypto funds.
JPMorgan and UniCredit Enable Near Real-Time US and Europe Payments (finLedger, 10/08/2021) New service called SWIFT Go to allow same day payments up to $10k to any JPMorgan branch in the U.S.
Chatbots Offer Advice Without Judgment. Low-Income People are Noticing. (American Banker, 10/08/2021) Those concerned with their finances warm to chatbots, which may be more approachable than talking to a real person.
Top Facebook Digital Currency Engineers Depart to Join Andreessen Horowitz’s Crypto Fund (CNBC, 10/11/2021) The departure continues the wave of defections from Facebook’s digital currency unit.
Citizens Bank Launches Feature to Reverse Overdraft (Banking Dive, 10/08/2021) The feature, called “Citizens Peace of Mind”, will reverse overdraft fees if the customer deposits or transfers enough funds to make the account positive by 10pm ET the next business day.
Coinbase is Launching a Marketplace for NFTs (CNBC, 10/12/2021) With the NFT market topping $10Bn in transaction volume in Q3, the marketplace could represent a way for Coinbase to diversify its revenue streams, as it is heavily reliant on exchange fees.
Lighter Fare:
In a Rocky Israeli Crater, Scientists Simulate Life on Mars (New York Post, 10/11/2021) Six astronauts train to simulate how they may be able to visit and live on Mars in the future.