Market turmoil as war erupts in Ukraine. Regulators scrutinize BAML on benefits fraud. Groundfloor raises $118Mn. Chime delays IPO. Is BNPL losing its luster? Circle delays SPAC, doubles valuation. SoFi acquires Technisys. Banks partner for crypto custody. Small businesses still struggle to access credit.

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Market Turmoil as Russia Invades Ukraine

Russia’s invasion of Ukraine brings fresh uncertainty and, with it, more macro volatility. Equities and crypto have seen punishing drops, and commodities have spiked, with oil reaching as high as $105 a barrel. Countries around the globe have begun announcing sanctions, adding to the sense of uncertainty about the potential economic impacts of the crisis. The unfolding war and Western response have the potential to cause fresh disruptions to supply chains and interruptions in oil and gas supplies, potentially exacerbating inflationary pressures further.

Regulators Scrutinize BAML Benefits Fraud

Bank of America is under scrutiny from the OCC and CFPB over how it handled fraud in a COVID benefits program it helped administer for the state of California. Bank of America was the exclusive provider of prepaid debit cards for California unemployment, disability, and pandemic benefits. Regulators are in the late stages of investigating allegations the bank failed to respond to cardholder complaints of unauthorized transactions that ultimately drained their accounts. Legitimate beneficiaries also complained of access to their accounts being blocked.

The regulatory scrutiny and numerous class-action lawsuits over the matter highlight potential risks and costs that should be factored in when considering government contracts.

Groundfloor Raises $118Mn in Debt & Equity

Real-estate investing marketplace Groundfloor has raised a fresh $100Mn in debt capital and $18Mn in equity. The company’s platform allows both accredited and non-accredited investors to invest in short-term, high-yield real estate debt. Think of it as a peer-to-peer lender for “fix it and flip it” real-estate projects. The debt capital raised will be used to fund loans on the platform alongside individual retail investors. Equity funding will be used on product development and to scale customer acquisition.

Chime Delays IPO

Has the IPO window closed? It sounds like Chime thinks so.

With recently public fintech stocks down by as much as 40%, the U.S.’s largest neobank by customers is reportedly delaying its IPO plans. Chime had been planning a March IPO at a valuation of $35-$45Bn. Now, the company is aiming for an IPO in the back half of the year, likely in Q4, according to Forbes. In the meantime, it plans to focus on rolling out new features, such as investing or lending, though, with a user base that skews lower income and lower credit score, it’s not clear how revenue-accretive either product offering would be.

BNPL: Is the Party Over?

Some of the shine has worn off in the red-hot BNPL sector this earnings season.

Affirm and PayPal, two U.S.-based leaders in the sector, have seen their share prices hammered amid slowing growth rates and the threat of compressing take rates. Despite an impressive 75% growth in GMV, Affirm saw its shares slide to $37, a 76% drop from its peak. PayPal, facing its own problems with ‘illegitimate’ accounts from incentivized signups, saw its share drop 56% to $103 over the same period.

Both are pivoting to a “super app” strategy. PayPal has added a savings account, stock and crypto trading, bill pay, and shopping to its core payment functionality. Similarly, Affirm has added a savings account, browser extension, and is planning a decoupled debit card, Debit+, that will enable users to use Affirm’s BNPL offering with their existing bank account at essentially any retailer that accepts card payments.

The success of these super app strategies will depend both on execution and on giving users a reason to use them.

Circle Delays SPAC, Doubles Valuation

SPACs are dead, long live SPACs.

While the SPAC market has mostly fizzled lately, Circle’s deal to combine with Concord Acquisition has been delayed and renegotiated to account for Circle’s growing importance in the crypto ecosystem. The revised deal will see Cicrcle’s enterprise value double from $4.5Bn to $9Bn.

Circle is the crypto company behind the number two stablecoin by market cap, USDC, which has grown dramatically in recent months. The amount of USDC in circulation has risen from about $26Bn last July to more than $52Bn as of last week.

SoFi Acquires Technisys

SoFi is adding to its banking stack. The student loan refi player turned bank is acquiring core banking software provider Technisys. The all-stock deal is worth about $1.1Bn, which would comprise about 10% of SoFi’s market cap. 

The move builds on SoFi’s acquisitions of issuer-processo Galileo and Golden Pacific Bancorp. The acquisition is designed to enhance SoFi’s ability to offer a “one-stop shop” for financial services. And, although SoFi hasn’t positioned it this way, it sets SoFi up as a potential serious player in the hot fintech infrastructure/Banking-as-a-Service space.

U.S. Banks Partner for Crypto Custody

Establishment interest in crypto continues to increase. BNY Mellon plans to hold, transfer, and issue Bitcoin and other cryptocurrencies for its clients. BBVA is now offering Bitcoin custody and trading services in Switzerland. And U.S. Bank announced plans for crypto custody services for institutional investors. 

As they endeavor to offer more crypto-related services, established banks are looking to expert partners for help. For instance, U.S. Bank will work with NYDIG as its sub-custodian. NYDIG now partners with more than 35 banks and credit unions to provide crypto capabilities to end consumers.

As crypto and “TradFi” increasingly intersect, leveraging partners with best-in-class crypto infrastructure and domain expertise is a logical way to get to market quickly while mitigating execution risk. Expect to see more of these kinds of tie-ups in coming months.

GoDaddy Enables Sellers to Accept Payment via QR

GoDaddy, best known as a discount domain name registrar, also offers payments capabilities. Most recently, the company launched a QR-based payment mechanism that lets small businesses accept payments on their phone via the GoDaddy app. The cost? A very reasonable 2.3% plus $0.30.

While the ability to accept card payments in person without a ‘dongle’ could be seen as an improvement vs. mainstay Square, GoDaddy may be too late. Apple is slated to roll out ‘tap to pay’ functionality later this year through partner Stripe, which will enable acceptance of any contactless-enabled credit or debit card without the need to scan a QR code or enter payment information manually.

Fed Survey: Small Biz Still Struggle to Get Loans

According to new research from the Fed, small businesses still have a hard time accessing credit. The study found that in 2019, about half of small businesses were able to secure the amount of financing they were seeking. But that number dropped to just 30% last year amidst the ongoing economic disruption of the pandemic. The research also found stark racial differences in access to credit. Only about 14% of Black and Asian small business owners and 19% of HIspanic owners received all the funding they sought last year, compared to 34% of white business owners.

Image: American Banker

Divergent Week of Earnings Amongst Volatile Week for Equities

A roller-coaster ride of a week for equities, triggered by Russia’s invasion of Ukraine, set the backdrop for our week of earnings. Block, LendingTree, Rocket Companies, and Finwise ended positive after posting solid earnings and guidance, while Coinbase, Oportun, and Green Dot stumbled, largely due to softer than expected guidance for 2022.

Source: PeerIQ

Block stopped the bleeding on its over (60)% drop in stock price from last August, surging 26.1% on an earnings beat and on guidance that its gross profit would grow each quarter of 2022.

Block introduced a new feature in December that allowed customers to send fractional stock and bitcoin to friends and family for free. In January, the company launched Cash App Taxes, a free tax filing service that offers customers their tax refunds up to two days early if deposited through Cash App. 

Block officially completed their acquisition of BNPL Afterpay in January, to signs of early success, reporting “we’ve already seen over 100,000 leads going out from Cash App to Afterpay merchants since late December when we enabled this.”

LendingTree’s consumer segment reported a 102% YoY increase in revenue for the quarter. Personal and small business loans drove the growth, both returning to 2019 levels, while credit card loans have led a slower rebound.

LendingTree hopes TreeQual, their automated pre-approval platform, will help drive greater business. TreeQual has gone live with three credit card issuers and the company has a couple lenders testing the platform for personal loans. 

In December, Rocket Companies completed their acquisition of Truebill, a personal finance app that helps manage subscriptions, improve credit scores, track spending and build budgets. The acquisition brings Rocket millions of existing clients who “are actively working to improve their finances in anticipation of future large purchases like home or auto.”

Finwise and Oportun reported strong quarters of origination growth, posting sequential increases of 26.4% and 30.6%, respectively.

Oportun expanded its AI and digital capabilities by closing their acquisition of Hello Digit (“Digit”) during the fourth quarter. Digit is a digital banking platform that provides automated savings, banking and investing tools.

Oportun also partnered with Sezzle in January, representing Oportun’s first digital-only Lending-as-a-Service partner. The partnership will allow them to offer consumers more financing options at Sezzle’s 44k online merchant partners.

While Coinbase management guided to a softer first quarter with fewer monthly transacting users, there were many positive partnerships and product launches during the quarter.

Coinbase expanded or added partnerships with Anheuser-Busch, Brex, Enfusion and Franklin Templeton, as well as added custody for 14 assets and trading support for 36 assets.

Coinbase expanded the services they offer customers, launching a payroll product that allows employees to take a % of their paycheck in crypto and launching Coinbase Tax Center, that gives users the option to receive their tax refund in crypto or USDC when filing with TurboTax.

Additionally, Coinbase recently launched a service for users in the U.S. to send crypto to users in Mexico and be converted to fiat at a cheaper rate than traditional solutions. Looking forwards, management has indicated that they are, “Excited to expand support for Layer 2 blockchains”.

Green Dot highlighted its partnership with Walmart that enables customers to access their bank or credit union accounts without having to visit a branch. As more and more bank branches close, this move helps further financial inclusion for the 150Mn customers who transact with Walmart every week.

In The News:

Fed Adopts Sweeping Trading Curbs After Ethics Scandal (American Banker, 2/18/2022) New restrictions come following the resignations of three top officials after unusual trading activity in 2020.

Sequoia Launches $500 Million Fund To Invest In Crypto Tokens As Silicon Valley Throws Billions At Blockchain (Forbes, 2/17/2022) Sequoia continues push into crypto, building upon its prior investments into Bitcoin, Ethereum, Deso and Filecoin.

5 Trends Sweeping Digital Banking Now (American Banker, 2/18/2022) Trends on consumer’s use of online, mobile, and smart speakers for banking activities.

M&T, People’s United Postpone Merger Deadline till June (American Banker, 2/18/2022) Several large bank deals are pending approval from the Fed.

How One Traditional Bank Has Become a BaaS Powerhouse (The Financial Brand, 2/22/2022) Meta Financial is one of the top fintech partner banks, a partner to MoneyLion, Clair and others.

Consumer Lenders Stand by their Upbeat Outlook for 2022 (American Banker, 2/17/2022) Executives believe strong consumer spending habits will help increase card borrowing, and that delinquencies will only gradually increase, at a slow pace.

Klarna Launches Rewards Programme and Pay Now in Nine Markets (The Paypers, 2/22/2022) Klarna will launch the programs in Canada, New Zealand, Australia, and a host of European countries.

Revolut Lets Users Book Trips Now, Pay Later (PYMNTS, 2/23/2022) Revolut Stays will let UK and EU consumers make a reservation and pay on arrival.

The Future of ‘Banking as a Service’ (The Financial Brand, 2/17/2022) BaaS has become increasingly attractive for banks, who can make more efficient use of their tech stacks.

Lighter Fare:

The Weather on this Exoplanet Includes Metal Clouds and Rain Made of Precious Gems (CNN, 2/21/2022) The ultrahot Jupiter-like planet, 855 light years away from Earth, is deformed in the shape of a football due to the strong gravitational pull of the star it orbits.