The Fed is committed to taming inflation. But rate hikes alone may not be enough to slow housing prices in the face of strong fundamentals. The CFPB is re-focusing on “competition” as a key vector to drive innovation. But the agency faces an existential threat to its funding. Auto refi platform Caribou raises a Series C. Klarna hits some turbulence. Pebble offers 5% APY (with a catch). Crypto exchange FTX looks to buy a brokerage.
It has been quite the quarterly earnings season. For a recap on performance and the most important trends, check out PeerIQ’s Q1 Consumer Lending review.
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Rate Increases Alone May Not Tame Rising Home Prices
The Fed is trying to find the ‘magic number’ to cool the red-hot U.S. housing market. Prices rose 18.8% last year. There are signs higher rates are reducing demand. New-home sales fell 16.6% in April from March, the largest monthly drop since 2013.
But fundamentals, including tight housing supply and millions entering their prime home-buying years, are expected to continue to push home prices up, despite higher mortgage rates. Economists expect home prices to rise 10-15% this year.
And the rate hikes aren’t over. According to minutes from the Fed’s meeting, there’s consensus the Fed will need to raise rates by half a point at each of their next two meetings. The rate hikes are expected to cool inflation – and economic growth – later this year and into 2023, according to the CBO.
CFPB Scraps “Sandbox” Program, Faces “Existential” Threat to Funding
Changes are afoot at the CFPB’s Office of Innovation. The group is being rebranded, and will now be known as the Office of Competition and Innovation. The primary focus of the office appears to be shifting to “promoting competition.” Examples include making it easier for consumers to switch accounts and providers, researching structural problems that pose barriers to innovation, examining how bigger players (including “Big Tech”) may threaten fair competition, addressing common obstacles, and hosting events.
As part of the reorganization, previous initiatives, like the fintech “Sandbox” program and the granting of No Action Letters, will be sunset.
Meanwhile, the agency faces what may be an existential threat to how it operates. Currently, the CFPB’s budget is funded via the Federal Reserve System. The Fifth Circuit of Appeals has signaled that this funding mechanism, designed to provide the agency independence, may violate the Constitution’s separation of powers, as it happens outside of the Congressional appropriations process. While the concurring opinion isn’t binding, it could influence other cases.
Caribou Raises $115Mn Series C
Caribou, previously known as MotoRefi, has raised a $115Mn Series C. The round values the company at $1.1Bn. Caribou partners with community banks and credit unions to originate auto refinance loans. The lenders benefit from a new source of originating assets, while borrowers benefit from lower rates and the option to lower monthly payments. In addition to auto refinance, Caribou recently launched a digital insurance marketplace. The company plans to use the new funding to continue its growth by developing new products and expanding its team.
Klarna Seeks to Raise $1Bn in Downround, Lays Off 10% of Workers
Europe-based BNPL giant Klarna is retrenching.
The company is looking to raise $1Bn. But, in an acknowledgment of how much the macro and fundraising environments have changed, the round may see the company’s valuation drop to $30Bn. That’s a decline of more than a third from the close to $46Bn valuation it achieved in a Softbank-led funding round just last June.
Sources: PeerIQ, Wall Street Journal, altfi
In a nod to changed priorities, Klarna CEO Sebastian Siemiatkowski says the business will refocus from rapid growth to ‘short-term profitability.’ Part of that pivot is layoffs. Siemiatkowski announced the business would reduce headcount by 10%, which equates to about 700 workers.
Klarna is far from the only fintech slowing hiring or making layoffs. Troubled one-click checkout firm Bolt is planning to layoff 250. Coinbase, which previously planned to triple its headcount this year, is temporarily freezing new hiring.
YC-Backed Pebble Offers 5% APY via Stablecoins; a16z-backed Eco Says It Stole Their Idea
Y Combinator-backed Pebble is offering users a 5% yield on their savings. The catch? Those deposits are converted in stablecoins, before being lent out to other companies and institutions. Stablecoins have come under intense scrutiny in recent weeks, with the TerraUSD “algorithmic” stablecoin collapsing, and Tether briefly losing its peg to trade at $0.95. Pebble insists it’s safer, as it uses the fully-reserved USDC stablecoin, and because the loans it makes are overcollateralized.
The launch isn’t without some drama. CEO of a16z-backed Eco, Andy Bromberg, is claiming Pebble is “copy-and-pasting” its business. Bromberg says the Pebble team impersonated YC investors in order to ask detailed questions about Eco’s infrastructure and backend systems.
Crypto Exchange FTX Shopping for a Brokerage Acquisition
FTX, which has already begun expanding into stock trading, is on the hunt to acquire a brokerage startup. CNBC is reporting that Bahamas-based FTX has approached at least three private brokerage startups to discuss an acquisition – Webull, Apex Clearing, and Public.com.
The move is somewhat the inverse of Robinhood’s path. While Robinhood began life as a no-fee brokerage, lately, it’s made a pivot into the crypto/web3 space. It recently launched a standalone crypto wallet that enables users to self-custody their crypto as well as interacting with decentralized apps.
In the News:
Inflation, Rising Rates Curb Global Economic Growth (Wall Street Journal, 5/24/2022) The PMI was 53.8 in May, down from 56.0 in April and the weakest growth in four months.
Wall Street Says a Fed Digital Dollar Spells Destruction for Banks (CoinDesk, 5/23/2022) The ABA predicted that a digital dollar could mean “deposits accounting for 71% of bank funding are at risk of moving to the Federal Reserve”.
Openpay Raises USD 18.25 mln (The Paypers, 5/23/2022) Openpay, operating as Opy in the U.S. will use the funds to acquire new merchants and enhance their tech and platform.
From Superstore to Super App: Walmart’s Next Steps in Finance (American Banker, 5/20/2022) Already, about 90% of those who visit Walmart to load prepaid cards, cash checks and buy money orders go on to shop for other products in the store.
How Smart Banks Are Retooling Overdraft Fees to Stay Competitive (The Financial Brand, 5/23/2022) Smaller banks rely more heavily on overdraft fees than larger competitors.
The U.S. Fintech Subscription Economy: $13 Billion ARR And Growing (Forbes, 5/23/2022) Fintechs have recast traditional financial institution fees as subscription charges, or premium membership fees.
Credit Unions Seek to Attract New Members Amid a Choppy Economy (American Banker, 5/23/2022) Credit union membership growth significantly declined in the first two months of 2022, with much of the growth at the top end of the asset spectrum.
OnDeck Announces New Strategic Partnership Initiatives to Increase Small Business Equal Access to Working Capital (PR Newswire, 5/24/2022) OnDeck is teaming with SoFi and LendingTree to provide more options for small businesses seeking funding.
Neobanks Strengthen Customer Service to Set Themselves Apart (American Banker, 5/24/2022) Neobank users are more likely to be dissatisfied with poor customer service than traditional bank users.
Embedded Finance Platform Alviere Signs with Marqeta (Finextra, 5/24/2022) The partnership will enable Alviere’s enterprise clients to issue branded cards to their customers in the European Economic Area and U.K.
Splitit and BlueSnap to Simplify Buy Now, Pay Later for Merchants (The Paypers, 5/24/2022) BlueSnap’s gateway and payment processing will support the processing of Splitit installments.
Volcano Eruption Beneath Pacific Ocean Continues ‘Sharkcano’ Fame (New York Post, 5/22/2022) Kavachi is dubbed “Sharkcano” due to species of sharks that live within the active crater of the submarine volcano.