Happy Sunday,
The Fed’s Beige Book showed relatively benign economic conditions, all things considered. The CFPB dropped a new proposed rule on overdrafts. Kashable raised a $25.6Mn Series B round. Pier raised a $2.4Mn seed round. Circle filed confidentially to IPO. Fiserv is seeking a limited purpose bank charter. Visa completed its acquisition of Pismo. Earnings season.
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Beige Book Shows Few Changes in Economic Conditions
The Fed’s Beige Book survey of regional business sources suggested relatively few changes in economic conditions. Continued strength in consumer spending over the holiday period helped to offset softness in other areas of the economy, including manufacturing. Most Fed districts reported little or no change vs. the prior period, with sentiment about future economic conditions improving. Surveyed firms reported easing inflationary pressures and noted increased consumer sensitivity to price hikes, causing retailers to narrow profit margins.
Economic conditions are leading some to expect the Fed to start cutting rates sooner than later. Fed Gov. Waller acknowledged the Fed needs to take a cautious approach, but suggested that, absent a rebound in inflation, the Fed could start cutting rates later this year. Other Fed officials have argued that the Fed’s next meeting, scheduled for March, is too soon to consider cutting rates.
CFPB Proposes Treating Overdrafts as Credit
Last week, the CFPB proposed a new rule that, if finalized, could substantially reduce overdraft fee revenue for banks with more than $10Bn in assets. The measure is part of the Bureau’s and wider Biden administration’s fight against so-called “junk fees.” The proposed rule seeks to treat overdrafts, with some exemptions, similarly to other forms of consumer credit by making them subject to TILA Reg Z. Such a change would require increased disclosures and consumer protections for overdrafts, potentially including disclosing the cost of overdraft fees as a finance charge and calculated as an APR.
The CFPB’s proposal would exempt banks whose overdraft fees are such that they cover actual costs and losses from overdrafts. Covered banks would have the option of calculating their own actual costs or using a safe harbor benchmark amount set by the CFPB. The rule proposes benchmark fees of either $3, $6, $7, or $14. The measure is sure to be highly contentious with potentially impacted banks. Should the CFPB be successful, the measure is likely to reduce the availability of overdrafts, particularly to account holders perceived as riskier. This could provide tailwinds to other forms of small-dollar, short-term credit.
Employment-Based Lending Fintech Kashable Raises Series B
Kashable, a fintech company offering credit and financial wellness solutions, announced it has raised a $25.6Mn Series B round. Kashable offers its solutions (financial education tools and employment-based loans) as an employer-sponsored voluntary benefit. By integrating with employer Human Resource Information Systems and payroll systems, the fintech is able to leverage employment data to underwrite its employment-based loans. Per the Kashable website, the fintech offers $250 – $20,000 loans over 6–24-month terms, with an average loan size of $3,500 – $4,000. Loans are automatically repaid through payroll deductions, which Kashable says helps to increase the likelihood of timely repayment. Revolution Ventures and Moneta Ventures co-led the round, which included participation from EJF Capital and Krillion Ventures (note: Krillion Ventures was a prior investor).
As covered in our quarterly lending reviews, consumer access to credit (specifically personal loans) has diminished over the past couple years, due to rising rates and significant credit tightening measures. However, fintech and consumer lenders continue to report robust consumer demand for loans, and we have seen consumers turn to credit cards, cash advance products, and higher-APR (above 36% APR capped loans) credit products. Fintechs like Kashable are likely looking to tap into this consumer demand by way of employer-sponsored programs, which offer Kashable visibility into cashflow for underwriting purposes, and may allow them to offer lower-cost loans to employees.
Pier Raises $2.4Mn to be “Stripe for Credit”
Alums of non-bank lender Stilt slash short-lived credit-as-a-service platform Onbo announced their new company, borne out of that experience, has raised a $2.4Mn in seed funding. The company, Pier, describes itself as “Stripe for credit,” and aims to provide customers with an API that enables them to manage credit products end-to-end with just a few lines of code, including underwriting, origination, compliance, and servicing. Investors in the seed round include Y Combinator, ACME, Horizon Ventures, and well-known Silicon Valley angel investors. Still, Pier is hardly the only company attempting to be the “Stripe for credit,” and, it’s worth noting, offering credit is a substantially more complex undertaking than the merchant acquiring capability Stripe itself is most well known for.
Circle Tries Again to Go Public
If at first you don’t succeed, try, try again. Circle, which issues the USDC stablecoin, has confidentially filed IPO paperwork with the SEC. The company had previously attempted to go public via a SPAC vehicle in a deal that fell apart in 2022. With a drought of tech IPOs last year, there are signs that 2024 may be more favorable to companies looking to debut on public markets. Circle has some favorable tailwinds, with crypto prices rebounding as of late, and rising interest rates potentially boosting its revenue. Circle is the second-largest stablecoin issuer, with about $25Bn of USDC in circulation. Still, regulatory uncertainty in the U.S. over crypto and stablecoins seems unlikely to improve this year, casting a bit of a shadow over Circle’s IPO plans.
Fiserv Confirms Special Purpose Bank Charter Application
Fiserv has confirmed rumors that it is in the process of applying for a limited-purpose bank charter in Georgia. The charter would enable Fiserv to insource some aspects of the payment processing stack it currently relies on external bank partners for. Controlling the entire process, including authorizing, settling, and clearing credit and debit transactions could allow Fiserv to realize cost savings and pass some of those along to merchant customers, in the increasingly competitive merchant acquiring space. The largest merchant acquirer in the U.S., JPMorgan Chase, benefits both from scale and vertical integration. Adyen, which is seeking to expand its business in the U.S., has the status of an acquiring bank in Europe and received permission to open a foreign branch in the U.S.
Visa Completes Pismo Acquisition
Visa has completed its acquisition of Brazil-based Pismo, the card network announced in a press release last week. The $1Bn acquisition was announced last June. Pismo is a global, cloud-native core banking and issuer-processor platform. The acquisition boosts Visa’s capabilities in LatAm, Europe, and Asia-Pacific, including better support for real-time payments and emerging payment methods in those regions. Pismo’s management team, including CEO and cofounder Ricardo Josua, will remain at the company.
Banks Report Earnings
Source: Yahoo Finance
We are back with our Q4 earnings season coverage, with a handful of banks reporting results.
Starting with average loan balances, we saw Discover +4.2% and PNC – Consumer +0.1% report quarterly growth, while Citizens – Retail (0.9)% saw a slight decline from the third quarter.
During the fourth quarter, Goldman announced the sale of GreenSky, the fintech lender it acquired in 2021, to a Sixth Street-led investor consortium (including KKR, Bayview Asset Management, Cardworks). Additionally, Goldman sold the bulk of GreenSky’s loan portfolio during the quarter. As a result, we saw Goldman’s installment loan book decline to $3Bn, from $6Bn a quarter prior. At the same time, Goldman’s credit card loans grew to $19Bn from $18Bn a quarter prior. However, CEO David Solomon noted that, “We’ve also reached an agreement with General Motors regarding a process to transition their credit card program to another issuer.”
Despite stubborn inflation, consumers continued to spend through the end of the year, with Discover Card sales volume up 3.0% YoY, to $60.9Bn for the quarter.
Turning to deposits, PNC’s average consumer deposits were down slightly (0.5)% QoQ, while Ally’s average retail deposits were up slightly +0.5% QoQ. Elevated interest rates continue to put pressure on banks to raise deposit rates, with Ally’s average retail portfolio deposit rate up 15 bps QoQ to 4.15%.
Citizens’ average consumer deposits also grew slightly, +0.4% QoQ. However, its total deposits declined (0.5)% QoQ. Looking within Citizens’ total deposits, term deposits continued their upward trend, +12.4% QoQ, while checking with interest deposits fell (4.4)% QoQ, and demand deposits fell (3.8)% QoQ (continuing their downward trends). These shifts highlight consumers’ yield-seeking behavior, as funds flowed into higher-yielding term deposit accounts while leaving lower-yielding demand deposit and checking with interest deposit accounts.
Discover’s period-end deposits grew +4.6% QoQ, while its interest-bearing deposit rate rose 18 bps, to 4.41%. Goldman’s deposits were up +7.3% QoQ, to $428Bn. These deposits consisted of consumer $157Bn, private bank $93Bn, transaction banking $72Bn, brokered CDs $47Bn, deposit sweep programs $32Bn and other $27Bn.
As credit continues to normalize from pandemic era levels, we saw an increase in NCOs across the board, with Goldman consumer NCOs +190 bps, Discover NCOs +59 bps, Ally NCOs +46 bps, Citizens – Retail NCOs +10 bps and PNC’s Consumer NCOs/Average Loans +6 bps on a sequential basis.
Capping things off, this week Ally announced that Synchrony Financial agreed to acquire Ally Lending, Ally’s POS financing business. The deal includes $2.2Bn of loan receivables and portfolio “includes relationships with nearly 2,500 merchant locations”.
Hi all, Cole here. If you’ve made it this far, thank you for being a loyal subscriber to the newsletter. Looking for more updates on the companies covered during earnings season? Follow/connect with me on LinkedIn and join my Discord server for exclusive access to earnings updates (and archives), including bullet notes on important info from earnings releases, key quotes from earnings calls, and relevant slides from decks.
In the News:
House Financial Services Committee forms AI working group (American Banker, 1/12/2024) The HFSC formed a working group to continue to better understand the impacts of AI on financial services.
Real estate fintech start-up Downpayments launches in Florida with $32.8m in debt and equity funding (Fintech Futures, 1/11/2024) The company seeks to offer down payment financing for property investors.
Thomvest Ventures closes $250M fund to invest across fintech, cybersecurity, AI (Techcrunch, 1/16/2024) Thomvest Ventures’ new fund will focus on investments in cybersecurity, AI, and fintech.
The Last Man Standing in Crypto (Wall Street Journal, 1/14/2024) Coinbase has benefitted from the collapse of other crypto firms but still faces legal uncertainty.
Got $60 Million? Goldman Sachs Wants to Lend You More (Wall Street Journal, 1/14/2024) Goldman is looking to double down on lending to high net worth individuals.
Fraud cost $500B, illicit money topped $3T in 2023: Report (American Banker, 1/16/2024) Financial institutions face a “tidal wave” of fraud and money laundering.
Worldline partners with Google (The Paypers, 1/16/2024) Worldline will leverage Google Cloud infrastructure to accelerate its digital development.
Synapse Now Seeking More Than $30M From Mercury, New Court Filing Reveals (Fintech Business Weekly, 1/14/2024) BaaS platform Synapse said its seeking more than $30Mn from business banking startup Mercury in a recent legal filing.
How AI is changing T&E (American Banker, 1/15/2024) Companies are looking to streamline expense reports with AI-powered tools.
Wise upgrades guidance as Q3 customer numbers surge (Finextra, 1/17/2024) Wise has benefitted from growing customer numbers and rising interest rates.
N26 rolls out in-app stock trading (Finextra, 1/17/2024) Germany-based neobank N26 has added stock trading features.
Lighter Fare:
Cloned rhesus monkey created to speed medical research (BBC, 1/17/2024) Researchers successfully cloned the first rhesus monkey, which could speed up medical research.