Despite higher rates and reduced demand, home prices stay high on tight supply. American consumers are still spending liberally. Fed may move to cut some debit swipe fees. Stash raises $40Mn. Nova Credit raises $45Mn. Goldman finally sells GreenSky. Blue Ridge retreats from BaaS.
Despite Headwinds, Consumers Still Spending
Higher interest rates are, unsurprisingly, making it harder to find, let alone afford, a house. With average 30-year fixed rate mortgages hitting 8%, current homeowners who already hold a mortgage have a strong disincentive to sell. This is limiting inventory and driving up prices. For those looking to buy, higher rates translate into higher monthly payments, greater interest expense, and reduced purchase power.
Despite economic headwinds, including rates and continuing inflation, American consumers are still spending liberally. A strong labor market has supported consumer spending, including big-ticket items like cars and vacations. Analysts estimate September spending rose by 0.3% after a robust rise in August, though that was driven in part by higher gasoline prices. Still, there are signs of strain. The consumer-confidence index dropped below 80 last month, in a sign that could signal recessionary expectations. Retail stocks have been in the doldrums. The personal savings rate has dropped to a paltry 3.9%. And delinquencies on consumer debts are rising.
Image: Wall Street Journal
Fed May Move to Lower Some Debit Swipe Fees
“Swipe fees” are in the headlines again. The Federal Reserve is set to reconsider the cap set on interchange fees for banks covered by the Durbin Amendment. Currently, merchants pay $0.21 plus 0.05% for transactions run on debit cards issued by banks with more than $10Bn in assets. The Fed has the ability to adjust that cap, including by lowering it, if it determines the cost for processing debit transactions has declined. The Fed announced it will vote on a proposal this week that would revise the fee cap. According to the Wall Street Journal, the proposal would lower the cap, something big banks are undoubtedly not happy about.
Interchange rates have been a recurring battleground, with merchants pitted against the card networks, sub-$10Bn banks, and larger banks, with each arguing their case. Multiple variants of the issue have been in the headlines lately, including requirements to enable multiple, unaffiliated networks for debit routing and a similar proposal for credit cards. Merchant groups often argue that savings in payment processing costs would result in lower prices for consumers, though historical evidence suggests most of the savings are pocketed by retailers, rather than being passed along to shoppers.
Stash Raises $40Mn, Eyes IPO
Investment and banking app Stash announced it has raised $40Mn in new funding to fuel its “next phase of growth.” The financing was led by T. Rowe Price, with participation from existing investors Union Square Ventures and Goodwater Capital. The company most recently raised $52Mn in debt financing last October. According to the company’s announcement, it has surpassed $100Mn in annual revenue, and is “in sight” of profitability.
In a sign of the heightened compliance expectations for fintechs, and with Stash eyeing an IPO, the company also announced it has appointed industry veteran Amy Butte as its new independent audit chair. Butte will oversee the company’s financial reporting and auditing functions.
Nova Credit Raises $45Mn
Nova Credit, which enables consumers to leverage their credit history in one country when moving to another, announced it has raised a $45Mn Series C. The round was led by Canapi Ventures and included participation from existing investors, including General Catalyst, Y Combinator, Kleiner Perkins, and Index Ventures, as well as new investors Geodesic Capital, Harmonic Capital, and Radiate Capital. This marks the company’s first external funding since 2020.
Nova’s core product, Credit Passport, is delivered through partners’ application flows. The company launched the product with American Express, and has since expanded by adding dozens of partners, including HSBC, Verizon, Earnest, and Scotiabank. The company also offers a cashflow underwriting product, dubbed Cash Atlas.
Goldman Finally Sells GreenSky
R.I.P. Goldman’s consumer credit ambitions. The bank finally offloaded home improvement point-of-sale lender GreenSky, though it recorded a steep loss in doing so. Goldman reportedly turned down a higher offer from a group led by fintech lender Pagaya in favor of a consortium led by Sixth Street. The completion of the deal is another big step towards dismantling the company’s once-ambitious consumer banking dream. Still, Goldman is stuck with Apple, at least for the time being. Despite reports that Goldman was in early talks to offload the partnership to American Express, Apple would need to sign off on any new partner. Given the high charge-offs in the card portfolio, which reached as high as 5.8% on an annualized basis earlier this year, Goldman may have a tough time finding any takers. And while Apple’s Goldman-powered savings feature has proven popular, Goldman is reportedly reluctant to grow the pool of deposits too large, given those deposits could be part of any deal to offload the credit card program. In the meantime, Goldman hired a former Citigroup exec, Bill Johnson, to take a hard look at the card program to determine how to reduce costs and make the unit less of a drag on the firm’s earnings while it looks for a graceful exit.
Blue Ridge Retreats from BaaS
In an effort to get out from under its consent order with the OCC, Blue Ridge Bank is in retreat from its banking-as-a-service strategy. The bank’s new leader, Billy Beale, was hired in May and is refocusing the organization on its community banking roots. At one time, Blue Ridge partnered with more than 70 fintechs. By the time Beale joined, the bank was down to around 40. And now, Blue Ridge is aiming to reduce that to about six to ten fintech clients, though it may take another year to get to that target. Blue Ridge aims to focus on relationships that maximize deposits to the bank with the least risk and compliance overhead.
In the News:
CFPB Proposes Rule to Jumpstart Competition and Accelerate Shift to Open Banking (CFPB, 10/19/2023) At long last, 1033’s proposed rule is here.
Prove Identity raises $40m (Finextra, 10/18/2023) Prove, an identity verification service provider, has raised $40Mn in a round led by MassMutual Ventures and Capital One Ventures.
Fiserv, Plaid partner on consumer bank-data sharing (American Banker, 10/12/2023) Core banking provider Fiserv and Plaid have partnered to bring API-based open banking connectivity to smaller banks.
Banks are at a ‘tipping point’ amid broad shift to nonbanks: McKinsey (American Banker, 10/12/2023) Some 70% of the net increase in financial funds between 2015 to 2022 didn’t end up on banks’ balance sheets.
It’s about to get much easier for consumers to break up with their banks (American Banker, 10/13/2023) The imminent release of 1033 “open banking” rules should make it easier for consumers to switch banks.
Can BNPL reach similar usage levels as credit cards? (Tearsheet, 10/13/2023) According to Experian, 4 out 5 users of BNPL choose it to “avoid credit card debt.”
GoDaddy teams with Early Warning to shape its payments strategy (10/17/2023) GoDaddy is partnering with EWS to make the consortium’s Paze wallet a payment option for the web hosting company’s customers.
Marqeta and Scalapay Team to Expand Europe’s BNPL Use (PYMNTS, 10/17/2023) Scalapay will use Marqeta to issue virtual cards for BNPL transactions in Europe.
Ally Financial CEO Jeffrey Brown to step down (Fintech Futures, 10/17/2023) Ally Financial’s CEO will step down at the end of January, 2024. A replacement hasn’t been named.
Missed the ‘ring of fire’ solar eclipse? An even better one is coming in 2024. (Washington Post, 10/17/2023) If you missed last week’s eclipse, stay tuned for 2024.