The S&P 500 capped off its best week since 1974 and the Dow posted its best week since 1933. Equity and credit risk assets rallied due to another round of Fed market interventions, despite a staggering 6.6MM in new unemployment claims. 

Peter Renton and PeerIQ CEO Ram Ahluwalia Discuss COVID-19 & FinTech

This week, we recommend taking a listen to Peter Renton and Ram speaking about the impact of COVID-19 on the FinTech sector on the Lend Academy podcast

We discussed the lending market, securitization, managing risk today, the PPP, Fed balance sheet’s own exponential curve, unlikely winners, and more. 

Second Rule of Fight Club: Don’t Fight the Fed

Corporate bonds surged as the Fed expanded the TALF shopping list to include ETFs of junk bonds, AAA-rated CMBS, and leveraged loans. The Fed rolled out a new facility called the “Main Street Lending Program,” which should benefit FinTechs with staff over 500.  

Unemployment Claims Increased Another 6.6MM this past week

The latest numbers bring the total number of applications to nearly 17MM over the past three weeks. 

Continuing claims – a measure of Americans receiving UE benefits grew from 4.4MM to a record 7.5MM. This eclipses the record of 6.6MM set during the financial crisis.

States are still processing backlogs. Expect to see continued large numbers in the weeks ahead.

Leading Indicators Continue to Crash…but Seems Priced in

The OECD reported leading indicators that flag the biggest monthly drop on record. That said, the predictive value of leading indicators are useless today. The sole explanatory variable shaping output is the indicator ‘Lockdown (TRUE/FALSE)’ .

The OECD estimated that each month major economies spend in lockdown will knockdown 2 percentage points off their annual growth. 

Similarly, the  ECRI now expects a ‘nasty, short, and bitter recession’. Their index shows the steepest drop ever in the history of the post-WWII index.

The good news? Markets are resilient and appear to be shaking off “new old news”.

Banks Now at the Center of Economic Stimulus

Funds from the small business Paycheck Protection Program (“PPP”) are finally making their way to small businesses. 

Community banks flooded with applications were seeking a takeout due to limited balance sheet capacity.

The Fed delivered. The latest facility offers a 100% advance rate charging 30 bps, as compared to the loan interest rate of 1%. The loans can earn banks an origination fee of up to 5%, have zero risk weight, and no penalty on leverage ratios (wow, what else is there to ask for?).

This is a major incentive for banks to pump PPP dollars into the real economy. Unlike the 2008 crisis, where banks were reeling from mortgage write-downs, banks are the transmission mechanism radiating stimulus out to the broader economy.

Regulators also rolled out an application for FinTechs to originate loans directly. One of the first lenders out of the gate was Intuit’s Quickbooks. We expect that this should be a big win for OnDeck, Kabbage, Fundera, Apple Pie Capital, Funding Circle, and other small business lenders that are approved. 

Fed Starting “Main Street Lending Program” – First Direct Lending since the 1930s

The central bank said it will make as much as $600Bn in loans through the Main Street Lending Program (“MSLP”), which consists of two different emergency-lending facilities. 

Many FinTech lenders that have large servicing staffs would likely qualify for the program.

The program is different from the PPP, which is administered through the SBA and offers forgivable loans for businesses with fewer than 500 employees.


  • The program is designed for businesses with as many as 10,000 employees or as much as $2.5Bn in 2019 revenues. 
  • Small businesses will apply via banks to obtain loans
  • How is this different from the Paycheck Protection Program? The PPP is being administered through the Small Business Administration to provide forgivable loans for businesses with fewer than 500 employees, so that they can pay up to eight weeks of payroll costs.
  • How will the program work? The Fed is creating two different lending facilities – one for new loans and another for existing loans. Businesses can obtain financing only from one of the two facilities.

Chart of the Week: Fed Balance Sheet Goes Exponential

Source: Refinitive, Federal Reserve, PeerIQ

Point of Sale Product Launch from Upgrade and Goldman

In company news, Renaud Laplanche’s Upgrade has rolled out a contactless card at a time when consumers and retail employees are doing all they can to avoid physical contact.

The card can be added to some popular mobile wallets and is meant to help customers avoid handing cards to cashiers or touch point-of-sale terminals that might have droplets of the novel Coronavirus on them.

The product is a hybrid between a credit card and a loan. However, rather than issuing individual loans, the Upgrade card lumps all of a customer’s payments into one monthly sum.

Customers make purchases with the card on a website or in a store the way they would with a regular credit card. The product, in some ways, resembles the point-of-sale loans offered by FinTech companies such as Affirm, Afterpay, Klarna, and Sezzle. 

ApplePay, GooglePay, PayPal(Pay?), AmazonPay…Now MarcusPay

Goldman Sachs has launched a new point-of-sale installment loan product with JetBlue as their initial partner called MarcusPay. The offering allows for loans from $750 to $10,000 to be paid over 12 to 18 months with APRs ranging from 10.99% to 25.99%. There are no upfront fees or deposits required. 

M&A Resumes – SoFi Scores a Deal

SoFi announced that it is acquiring Galileo Financial Technologies for $1.2Bn. Payment companies are hot, and the acquisition arguably makes SoFi attractive to a Visa/MC – the top bidders in the FinTech market, or American Express (who is big on payments and may see value in the lending business as well).

Galileo processed over $53Bn of annualized payments volume in March 2020, up from $26Bn in September 2019, with accelerating growth. 

The structure of the deal is a major win for SoFi and their CFO, Michelle Gill. The deal was reportedly financed with:

  • SoFi stock ($875MM) represented the bulk of transaction value in a world where valuations are collapsing.
  • Debt in the form of seller financing ($250MM) – This is very clever. SoFi has also effectively issued a form of corporate debt in the middle of the COVID-19 pandemic. The cash flow from the assets purchased are used to finance the purchase.
  • $75MM in cash. Cash is scarce today and comprises less than 10% of a $1Bn transaction.

CEOs with rich pre-COVID-19 private valuations are going to ask their bankers, “can we do what SoFi did?”

Next week, we will focus on the roll-out of loan deferment and forbearance programs across the FinTech and banking landscape. Let’s make it a great week.

Industry News

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