Fed raises rates another 0.75%. Coinbase under investigation for unregistered securities. Kraken may have violated Iran sanctions. Mahalo Banking raises $20Mn. Wealth management loans grow. Credit union sues Apple. Shopify trims workforce.
In case you missed it, we released a special edition of our newsletter this past Thursday: summarizing the latest BNPL models, covering new entrants to the space, and examining emerging risks.
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Fed Raises Rates Again, and Markets Rise
The Fed raised rates again. The 0.75% increase matches the central bank’s June rate hike. The Fed has now increased rates in four consecutive meetings. Markets rose on the news, as Fed Chair Powell hinted the pace of tightening may slow. Meanwhile, some investors are betting rates could begin dropping in just six months from now, based on a belief rapid rate increases will push the economy into recession.
For his part, Fed Chair Powell said he doesn’t believe the country is currently in recession. He argued too many areas of the economy are performing too well and pointed to the jobs market in particular.
Crypto Firms Face Securities, Sanctions Scrutiny
As if plummeting prices and insolvent crypto lenders weren’t bad enough, now, multiple firms are facing fresh regulatory scrutiny.
The SEC is reportedly investigating Coinbase over potential securities violations linked to certain tokens listed for trading on the platform. The probe centers around whether the tokens constitute unregistered securities. Outspoken Coinbase CEO Brian Armstrong has been a vocal critic of the SEC. He has argued the agency should provide clearer rules for defining which cryptocurrencies should be treated as securities.
Reports of the SEC probe come fresh on the heels of the arrest of a former Coinbase employee and his associates for allegations of insider trading.
Meanwhile, crypto exchange Kraken is reportedly under investigation by the U.S. Treasury Department for potential sanctions violations. Kraken potentially faces substantial fines for the violation. The company’s cofounder, Jesse Powell, has been a critic of the establishment financial system, arguing against its “weaponization” through mechanisms like sanctions.
Mahalo Banking Raises $20Mn
Mahalo Banking, a technology provider for credit unions, has raised $20Mn to support further developing its product suite. The funding round was led by three credit unions: Superior Credit Union, of Ohio, Part Community Credit Union, of Kentucky, and Federal Credit Union, of Delaware. Mahalo, a credit union service organization, provides software that powers online and mobile banking for credit unions.
Bank of America, Morgan Stanley Show Significant Growth in Loans to Wealthy Customers
Recession? What recession?
That seems to be the sentiment, at least among the richest Americans. Wealth management units at Bank of America and Morgan Stanley posted strong growth in their loan portfolios. Wealthy clients of the banks continued to borrow in the form of mortgages and loans backed by assets. Morgan Stanley saw mortgage originations jump 30% to some $50Bn. Bank of America saw loans in its wealth management business grow 12% vs. the prior year to $222Bn.
Image: Wall Street Journal
Credit Union Pushes Back on Apple Pay Fees
A tiny credit union is pushing back on the fees Apple charges card issuers for Apple Pay transactions. Affinity Credit Union, a $137Mn-asset institution in Des Moines, Iowa, filed an antitrust suit against Apple. The case argues Apple exhibits anti-competitive behavior by effectively prohibiting the use of other digital wallets on its devices. Meanwhile, Apple charges issuers 0.15% of credit transactions and 0.05% for debit. Other device and OS manufacturers, like Google and Samsung, do not charge such fees.
Affinity’s isn’t the only case against Apple on the topic. Banks and regulators in the E.U., Australia, and India have taken issue with a variety of Apple’s business practices related to payments processing and Apple Pay.
Shopify Latest to Trim Workforce
Shopify is the latest company to retrench as some of the pandemic trends that propelled a huge spike in ecommerce activity have reversed. The company’s CEO announced it would layoff about 1,000, or 10% of its 10,000-strong workforce.
The company hired aggressively during the pandemic, making a bet that consumers’ habits had permanently been transformed. But that has turned out not to be the case, with ecom’s share of retail retreating from a pandemic high.
Data: U.S. Census Bureau; Image: Shopify
Earnings Season: Consumers Not Slowing Down
This week, fintech originators and card issuers begin to report, affirming the strength of the consumer. Navient +9.6%, Fiserv +4.3%, Mastercard +2.7%, Amex +1.9%, and Enova +1.9% beat estimates and rose on earnings, while LendingClub (8.8)%, OneMain (6.3)%, LendingTree (3.9)%, Finwise (2.6)%, and Visa (1.0)% fell amidst a volatile week for markets.
Despite worries that we are entering a recession, consumers have continued to open their wallets. While inflation is running at multi-decade highs, a tight job market with low unemployment has helped to maintain strong consumer balance sheets. Michael Mieback, Mastercard CEO, said, “Increasing inflationary pressures have yet to significantly impact overall consumer spending.”
Major card issuers reported solid increases in spending from the first quarter (Amex +13%, Mastercard +7%, Visa +6%), driven in large part by restaurant and travel spend. Amex’s CEO Stephen Squeri highlighted this growth, stating, “The travel rebound in particular has been faster and stronger than anyone expected. Total T&E spending exceeded pre-pandemic levels in April for the first time.”
Visa announced that it had renewed its partnership with Green Dot, noting that fintechs are key to their consumer payments growth.
Mastercard announced a new partnership with U.S. Bank. Through the partnership, they will develop BNPL installment solutions, launch a consumer credit product and a small business credit offering. Mastercard’s Installments product continues to gain traction, adding Saudi National Bank, Cross River, Evolve Bank & Trust, Jifiti, Live Oak, MOCA Financials, and Web Bank in the U.S.
Though fintech valuations have taken a hit, origination volume has grown from the first quarter, with OneMain +32%, LendingClub +19%, and Enova +5% reporting strong borrower demand for personal loans. In addition, Amex grew its average loan book by 6% from the first quarter.
LendingClub expected the origination growth to continue through the third quarter, but soften due to typical seasonality in the fourth. OneMain revised its guidance, anticipating slower growth and higher charge-offs than previously announced.
OneMain did see its charge-offs tick up 38bps from the first quarter, due to the fact that, “in May, we began to see an uptick in early-stage delinquency for certain lower credit quality, lower FICO customers, primarily concentrated in 2021 vintages.” Management said that it has taken significant steps to tighten credit standards so as to control the uptick in delinquencies and charge-offs.
While OneMain saw some softening in its credit, Enova’s charge-offs as a % of average consumer loan and finance receivables fell 40bps from the first quarter, Amex’s card member loan net write-offs fell 20bps from the first quarter, and Finwise’s NCO to average loan ratio fell 50bps from the first quarter. Overall, we have yet to see a broad uptick in consumer delinquencies, but will continue to monitor due to the current economic conditions.
LendingTree has felt the impact of a changing macroeconomic situation, reporting, “Higher interest rates and subdued home purchase activity pressured mortgage search and origination activity at our partners, while the persistently high rate of inflation prevented the recovery in our Insurance segment from growing sequentially.”
In the News:
CFPB’s Chopra: ‘We Will Be Litigating’ (American Banker, 7/26/2022) Highlights from American Banker’s interview with Director of the CFPB, Rohit Chopra.
TransUnion Fights CFPB ‘Groundhog Day’ Lawsuit (American Banker, 7/24/2022) The case is contentious, as TransUnion already paid a fine and restitution to resolve the 2017 order, only to be sued for the same violations five years later.
House Committee Scuttles Plans to Take Up Stablecoin Bill this Week (American Banker, 7/25/2022) The bill that could have imposed federal regulations on the stablecoin sector for the first time will be pushed to September.
Finexio Grabs $14M at $100M Valuation in Series B Funding Round (PYMNTS, 7/25/2022) Finexio is a B2B accounts payable Payments-as-a-Service company.
Visa Reportedly Takes an Interest in Airwallex’s Second Series E Extension (The Paypers, 7/25/2022) Bloomberg reports that Visa plans to invest in Airwallex, who offers a virtual multi-currency business account.
Barclays Expected to Invest ‘Millions of Dollars’ in Copper’s Funding Round: Report (CoinDesk, 7/25/2022) The crypto custodian is valued at $2Bn, and has chosen to become regulated in Switzerland.
KBRA Assigns Preliminary Ratings to Mission Lane Credit Card Master Trust, Series 2022-A (Yahoo, 7/25/2022) The preliminary ratings reflect the initial credit enhancement levels ranging from 28.00% for the Class A notes to 8.00% for the Class C notes.
How Fintechs are Responding to their Falling Valuations (American Banker, 7/25/2022) Fintechs are continuing to roll out new products, even as some trim headcount.
Cardless and AmEx Team on Co-Branded Cards (Finextra, 7/25/2022) The agreement empowers brands to seamlessly launch digital-first cards leveraging the Cardless platform.
Scientists ‘Stumped’ by Mysterious Holes in Seafloor That ‘Look Human Made’ (Vice, 7/27/2022) The neatly arranged holes were found over a mile under the ocean’s surface.