Happy Sunday,

Fed holds rates steady. Job market exceeds expectations. Most Americans get 3% or less on savings. Borrowers struggle to keep up with card payments. Charlie raises $16Mn Series A. Monzo in talks for fresh funding as it eyes IPO. BNPL Zilch scores eBay investment. Synapse is running out of time. Stax makes an acquisition. SoFi and Pagaya report earnings.

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Fed Holds Rates Steady

As expected, the Fed held rates steady at its most recent FOMC meeting. But with unexpectedly strong growth, the central bank is keeping its options open for another rate hike in the coming months. The strength of the economy is evident in the jobs market. Job openings unexpectedly climbed last month, ticking up to 9.6Mn in September.

Most Americans aren’t taking advantage of higher rates on their savings, however. Nearly two-thirds of consumers are earning less than 3% on their primary savings, according to a recent survey. The key factors driving that? Most are either unaware of the rate they’re earning or believe it isn’t worth the trouble to switch banks for a higher rate. Meanwhile, consumers are having an increasingly difficult time staying current on their credit cards. Borrowers who were 30-59 DPD rose to 0.75% of card balances in September. Inflation and higher interest rates continue to challenge household budgets, driving the increase in late payments.

Image: American Banker

Charlie Secures $16Mn Series A

In an increasingly tough VC climate, Charlie’s back-to-back equity raises are certainly noteworthy. The company, a neobank aimed at older Americans, raised a $7.5Mn seed round this past May. Now, the company is announcing it has raised an additional $15Mn in equity as well as $7Mn in debt. TTV Capital led the Series A, with participation from FPV Ventures and Better Tomorrow Ventures. Charlie offers typical fintech banking features, including early access to deposits, including Social Security checks, 3% APY on balances, and no minimum balance requirement or monthly fees. As is typical of the neobank model, Charlie’s primary source of revenue is interchange income. The company partners with Sutton Bank to power its products.

Monzo in Talks for £300Mn

UK neobank Monzo is in talks to raise more than £300Mn, the U.K.’s Sky News is reporting. The financing would value the company at more than the £3.5Bn valuation the company raised funds at in 2021. Unlike most American neobanks, Monzo holds a U.K. banking license, which has allowed it to offer a wider set of products, including lending, and to benefit from rising interest rates. Monzo is also doubling down on its attempt to expand into the United States. While regulators rebuffed its application for a U.S. banking license, the company partners with Sutton Bank to operate in the U.S. 

It’s not all good news for Monzo, though. Monzo, along with Starling and Metro Bank, have been named as the British banks most impacted by “authorized push payment” fraud, in which bad actors trick users into sending them funds. Last year, for every million transactions on Monzo, 141 were reported as this type of fraud.

Zilch Scores eBay Investment

In other U.K. news, buy now, pay later provider Zilch has secured a multi-million pound equity investment from eBay. The investment reportedly values the company at £1.65Bn. While BNPL may have fallen out of favor with investors, particularly in an increasingly tenuous credit environment, consumers remain fans of the flexibility it offers. Some 36% of the British population reported using BNPL services in 2023, which is a 3x increase from 2021. A further 13% say they plan to use BNPL at some point in the future.

Synapse is Running Out of Time

The clock is ticking for Synapse. The company, arguably the pioneer of the “banking-as-a-service” middleware model, is in the midst of a messy breakup with its primary bank partner, Evolve Bank & Trust. According to reporting from Forbes and Fintech Business Weekly, Synapse alleges some $14Mn in funds are missing. Synapse CEO Sankaet Pathak took to Medium, essentially confirming much of the reporting and saying, “We firmly believe that this issue has not only impacted our partnership but has also had adverse effects on our valued fintech customers.” But with the relationship winding down, Synapse and its fintech clients have limited time to find and transition to new bank partners. Per Forbes, the drop dead date is December 31st, giving Synapse clients less than two months to onboard a new bank partner and migrate their customers. Given the current BaaS climate and the heightened attention to diligence many banks are paying, pulling off such a transition in less than two months will be a tall order.

Stax Acquires APPS

In an effort to deepen its relationships with merchants and diversify revenue sources, payment processor Stax has acquired merchant acquirer Atlantic-Pacific Processing Systems (APPS.) The deal will help Stax add additional payment processing capabilities. This isn’t Stax’s first acquisition. The company previously acquired CardX, a platform to help merchants automate surcharging to help offset the cost of payments acceptance. As Stax builds a fuller payment stack, it is increasingly going head-to-head with fintech behemoths like Stripe and Block. 

SoFi and Pagaya Rise on Earnings

SoFi and Pagaya reported earnings this week, both closing higher after beating earnings estimates.

SoFi grew originations 18% from the prior quarter, driven by a bounceback in student loan originations (+132% QoQ) as borrowers prepared to resume student loan payments in October. Additionally, the lender reported record personal loan originations (+4% QoQ) and an increase in home loan originations (+46% QoQ)  “as we began to benefit from the integration of Wyndham Capital Mortgage with improved fulfillment capacity from our acquisition at the beginning of the second quarter.”

Despite the continued growth in originations, SoFi’s delinquencies have remained below pre-pandemic levels, with CFO Chris Lapointe reporting, “Our on-balance sheet delinquency rates and charge-off rates remain healthy and are still below pre-COVID levels. Our on-balance sheet 90-day personal loan delinquency rate was 48 basis points in Q3 ’23, while our annualized personal loan charge-off rate was 3.44%…Our on-balance sheet 90-day student loan delinquency rate was 14 basis points in Q3 ’23, while our annualized student loan charge-off rate was 38 basis points.”

Pagaya’s network volumes of $2.1Bn were up 8% QoQ and exceeded guidance of $1.9-2.0Bn. Consumer demand for loans remains strong, with Pagaya receiving $182Bn in application volume from lending partners, consistent with the prior year quarter. Personal loan delinquencies have remained low for recent vintages, after a slight rise for 2H21 vintages.

Source: Pagaya Earnings Supplement

Turning back to SoFi, the bank grew its deposits 23% sequentially, with nearly all of its deposits FDIC insured (99%) and interest-bearing (98%). SoFi paid an average yield of 4.12% on its interest-bearing deposits, up 26bps from the prior quarter. Despite the increase in yield paid on deposits, paying up has been worth it, as the average rate paid on deposits was 219bps lower than that of warehouse facilities. As such, SoFi has leaned into funding its loans via deposits, with CEO Anthony Noto disclosing that by the end of Q3, over 65% of SoFi’s loans were funded via deposits.

Hi all, Cole here. If you’ve made it this far, thank you for being a loyal subscriber to the PeerIQ newsletter. Looking for more updates on the companies covered during earnings season? Follow/connect with me on LinkedIn and join my Discord server for exclusive access to earnings updates (and archived updates), including bullet notes on important info from earnings releases, key quotes from earnings calls, and relevant slides from decks.

In the News:

Credit Strength Is Baffling Fed Watchers Ahead of Rate Decision (Bloomberg, 10/31/2023) Investors demand for yield has remained low and credit quality higher than many analysts predicted.

Biden issues U.S.′ first AI executive order, requiring safety assessments, civil rights guidance, research on labor market impact (CNBC, 10/30/2023) Biden’s order requires safety assessments and equity and civil rights research on the implications of AI.

Amid payments innovations, Fed’s Barr says old systems need love too (American Banker, 10/27/2023) Despite the recent launch of faster payments systems like FedNow, Barr says “traditional” payment methods are the backbone of the payments system.

UK fintech Railsr gets back on track with $24m funding (Fintech Futures, 10/30/2023) Railsr, acquired by a consortium of VC firms, has raised new funding.

Bread hit by card-spending slowdown, rising delinquencies (American Banker, 10/26/2023) Bread Financial’s results were hit by consumers’ pull back on spending and rising delinquencies.

Navient says losses in CFPB case could be as high as $250 million (American Banker, 10/26/2023) Student loan servicer Navient is close to settling its case with the CFPB, which could cost it as much as $250Mn.

Mastercard CEO slams proposals to alter swipe fees (American Banker, 10/26/2023) Mastercard CEO is not a fan of the proposed Credit Card Competition Act or the Fed’s proposal to lower debit interchange fee caps.

Mastercard expands partnership with travel platform Agoda (Finextra, 10/30/2023) Travel platform Agoda is teaming up with Mastercard to enhance B2B payments in the tourism and travel sector.

NerdWallet explains how its credit card will help vast swath of users (American Banker, 10/30/2023) Nerdwallet announced a secured card to help its users build credit.

Can Elon Musk’s X create a financial super app in one year? (American Banker, 10/30/2023) Elon Musk wants to move fast and build banking. He’s given his employees a one-year deadline to turn X, formerly Twitter, into a banking app.

Intuit Is Closing Personal-Finance App Mint, Shifts Users to Credit Karma (Bloomberg, 11/1/2023) Mint service had 3.6 million monthly active users in 2021.

Lighter Fare:

Michelin’s 2023 Affordable Restaurants List Is Here (Eater, 11/1/2023) Looking to eat well on a budget? This list is for you.