Cross River Payments Partnership; Upgrade Financing; Quick(en) Route to an IPO

Greetings,

This week, we dig into the May sales data surprise and consumer borrower behavior; highlight acceleration in digital-first financial services; and discuss the fundraising announcements showing that investor demand for FinTech continues.

Let’s get to it.

On the macro front, the Commerce Dept announced a record 18% jump in retail sales in May, rocketing past expectations of an 8% gain.

This latest positive surprise is more evidence of pent-up demand among consumers. That said, with sales down 6.1% YOY, there’s still more recovery ahead.

Source: U.S. Commerce Department, Bloomberg, PeerIQ

Interestingly, much of the gain was driven by auto sales, up more than 44% MOM. And that gain, in turn, has been fueled by the growth in digital auto sales, reports the WSJ.

Autos aren’t the only sector seeing a boost. This week, American Banker digs into the pent-up demand for home improvement projects as homeowners - forced to stare at the same four walls daily during the pandemic - are ready to upgrade their living spaces.

Or maybe just move to a new one: survey data from the National Association of Home Builders shows a jump in confidence among builders as a combination of pent-up demand, low rates, and tight inventory drive increased buyer traffic.

What Does All of This Mean for the American Borrower?

In the early days of the pandemic, amidst peak uncertainty, the roll-out and demand for forbearance programs spiked.

The absolute numbers are high: TransUnion has identified over 100MM accounts enrolled in deferment, forbearance, or other types of relief, as the WSJ reports this week.

As we indicated previously, some data suggests a substantial chunk of this may be “strategic gaming” on the part of consumers.

But that’s not the whole story. Even as forbearance has gone up, DQs have held steady or dropped across mortgage, credit card, and consumer lending programs, notes Liz Pagel, SVP and Consumer Lending Business Leader at TransUnion.

Also, from an investor perspective, delinquency and hardship statistics can only be interpreted hand-in-hand. A lender can “game” or lower delinquency statistics by rolling loans from DQ into hardship.

A true lender risk picture requires a standardized, normalized view of delinquency, forbearance, and loan modifications in one coherent picture. PeerIQ rolled-out a dashboard that does exactly this a few weeks ago - reach out to learn more!

And among the consumers in forbearance, many continue to make complete or partial payments - prioritizing paying down debt, even while taking action to safeguard their cash reserves.

Digital-first Finance Just Keeps Growing

In industry news this week, we see yet more evidence on the accelerating adoption of digital-first financial services by consumers and businesses alike.

Digital bank Current, led by CEO, Stuart Sopp, announced that it had seen rapid customer growth during lockdown, adding more than 100,000 accounts in the last two months. In an interview with CNBC, Sopp noted that the firm had crossed the 1MM active account threshold.

Cross River Announced Payments Partnership

Cross River expanded its offering to include merchant acquiring, announcing a partnership this week with F1 Payments and RS2 to deliver payment processing services across North America.

The NJ-based firm, run by CEO, Gilles Gade, has steadily expanded its suite of digital capabilities over the past few years.

The partnership marks another step towards providing a complete banking-as-a-service platform for clients.

We noted last week that Cross River is a top 10 originator of PPP loans. Click here for more information on how to apply.

Kabbage Enables PPP for Uber Drivers

This week, Kabbage unveiled a program to allow Uber drivers to apply for PPP loans, reports American Banker. According to CEO, Rob Frohwein, Kabbage has partnered with Uber to pre-populate data directly from the ride-hailing company, enabling drivers to apply directly from their phones.

Goldman Increasingly Looking Like JP Morgan

Wall Street Stalwart Goldman Sachs is set to expand its reach, marketing cash management accounts and treasury services to businesses. Operating in stealth mode since last July, the team has amassed 175 clients and more than $20Bn in deposits by pitching a tech-first solution to clients.

Stepping back, the combination of Goldman’s investment in a consumer lending business (Marcus) and its treasury and cash management business means to emulate the largest bank in the land - JP Morgan - with a digital spin.

No surprise there - JPM continues to sport the highest ROE in the land among top 10 banks.

Pagaya Financing - Credit Markets Continue to Thaw

In financing news, Pagaya, led by CEO, Gal Krubiner, raised $102MM in Series D funding. Other investors include Oak HC/FT andHarvey Golub, who are relatively new faces to the FinTech category (Aflac, Siam Commercial Bank, etc.)

The AI-enabled asset manager also brought to market a securitization - a major milestone showing that MPL ABS markets are warming up again. Many asset managers in the MPL space are, not surprisingly, licking their wounds and taking stock of the sector.

Pagaya is focused on growth and increasing deal activity. The movement is an interesting counter-trend and speaks to the power of data & analytics to spot and get after opportunities.

Nature Is Healing (Continued) - MPL and Credit Markets Tighten

Last week, we showed that “nature is healing” and evidenced continued healing in credit markets.

The improvement in MPL secondary markets - especially securitized, but increasingly also seasoned whole loan pools - has been extraordinary in recent weeks.

As ABS investors start to get a handle on forbearance-to-cure roll-rates, we have a path to re-opening the MPL ABS market.

In credit markets more generally, we have a few data points from GS research:

Source: PeerIQ, Goldman Sachs Research

Industry Fundraising - Upgrade Today, Quicken Tomorrow

FinTech lender Upgrade, led by Renaud Laplanche, which Tech Crunch reported, crossed the $1Bn valuation mark this week with a $40MM Series D fundraise, led by Santander’s venture arm.

The cash-flow-positive firm expects to use the investment to grow its mobile banking and credit card offerings. Most notably, Upgrade appears to position itself as a challenger bank rather than a FinTech lender. Challenger banks enjoy much higher valuations than their pureplay lender counterparts.

And Quicken Loans, the largest residential mortgage provider in the U.S., reportedly filed for an IPO. Sources tell CNBC that the firm could potentially be valued in the tens of billions, with the confidential filing pegged to become public as early as July.

We believe there is a lot to learn from Quicken’s model. Quicken has achieved an enduring and leading share of mortgage originations as a non-bank lender. They have paired an origination machine - built on a fully digital customer experience, data driven lead gen, and emphasis on service rather than price/rate - with robust liquidity pipes to lay off risk to banks and GSEs. In many ways, Quicken is the “marketplace” that many FinTechs aspire to build and emulate.

In the News:

• U.S. Retail Sales Rose Record 18% in May (WSJ, 6/16/2020) Retail sales increased following record declines during coronavirus lockdowns.
• Americans Skip Millions of Loan Payments as Coronavirus Takes Economic Toll (WSJ, 6/18/2020) The increase in skipped payments on debts indicates that the layoffs related to COVID-19 have taken a severe economic toll.
• May’s U.S. Jobs Rebound Was Widespread (WSJ, 6/19/2020) Nearly all states added jobs last month as business reopened, which helped most areas of the country recover from huge employment losses endured from the COVID-19 pandemic.
• The Pandemic Has Pushed Car Buying Online. It’s Expected to Stick. (WSJ, 6/20/20) Auto industry efforts to spur digital vehicle sales are finally gaining traction, leading dealers to trim positions in showrooms.
• Fed Invites Lenders to Sign Up for Main Street Lending Program (American Banker, 6/15/2020) Financial institutions can now register to participate in the Fed's Main Street Lending Program.
• Powell says the Fed Doesn’t Want to ‘Run Through the Bond Market like an Elephant’ (CNBC, 6/16/2020) Fed Chairman, Jerome Powell, told a Senate committee that the central bank’s move to buy corporate bonds fulfills a pledge it had made earlier, but it is not an effort to take over the market.
• Small Businesses Get Easier Path to Relief-Loan Forgiveness (WSJ, 6/17/2020) Businesses operating under shutdown orders and other restrictions will be eligible for Relief-Loan Forgiveness, even if they do not rehire all of their employees.
• Eddie the Repo Man Has Time on His Hands: What Happens When Your Debt Is Suspended (WSJ, 6/18/2020) Repo agents, debt collectors, and bankruptcy lawyers usually do well when the economy doesn’t, but these days it’s more challenging.
• Home Improvement Lending Heating Up During Pandemic (American Banker, 6/16/2020) Shelter-in-place orders has given homeowners the time to do more home improvement projects and banks are seizing the opportunity to help them finance.
• Quicken Loans, the Largest Mortgage Lender in the US, has Reportedly Filed Confidentially for an IPO (Business Insider, 6/11/2020) Quicken Loans filed its IPO prospectus confidentially and could make the filings public as early as July.
• Amazon And Goldman Sachs: A Small Business Lending Wake-Up Call For Banks (Forbes, 6/15/2020) Why banks should care about the Amazon and Goldman Sachs partnership.
• Goldman Goes Main Street With Push Into Corporate Bank Accounts (WSJ, 6/16/2020) Goldman Sachs will soon begin marketing new bank accounts for corporate treasurers and chief financial officers to manage and move their cash.
• Digital bank Current Sees ‘Insane’ Growth During Pandemic as Essential Workers Sign Up for Accounts (CNBC, 6/17/2020) FinTech startup, Current, added more than 100,000 customers in the months of April and May.
• F1 Payments, Cross River and RS2 Partner to Offer Payment Processing Services (Cross River, 6/16/2020) Cross River partners with RS2 Software to deliver best-in-class payment processing services throughout North America.
• SynapseFI, the Startup Once Billed as the 'AWS of Banking,' has Cut 'a Number of Employees' and Plans to Move Part of its Workforce to Texas (6/12/2020) FinTech startup, SynapseFI, reduces its staff to shift more of its operations to Texas, in a move to weather the COVID-19 outbreak.
• Credit-Focused Fintech Startup Upgrade Raises $40M After Reaching $100M Run Rate (TechCrunch, 6/17/2020) FinTech lender, Upgrade, led by CEO, Renaud Laplanche, raised $40MM in Series D funding.
• FinTech Pagaya Notches $102M In Funding Round (PYMNTS, 6/17/2020) FinTech startup, Pagaya, led by CEO, Gal Krubiner, raised $102MM in Series D funding.

Lighter Fare:

• For $30, You Can Get a Coloring Book Based on Elon Musk's Tweets (Business Insider, 6/16/2020) A coloring book based on Elon Musk’s tweets is created with designs that are meant to inspire people to dream big.