Greetings,
The Fed hiked by 0.50%, but says larger hikes are off the table for now. Bankers push back on “junk fees.” Progress on real-time payment networks. Point raises $115Mn for its home equity platform. Affirm integrates with Fiserv. Klarna to begin reporting to bureaus in the U.K. Truist acquires gamified savings app. Student loan forgiveness in the news again.
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Fed Hikes by 50 bps, But Seeks to Calm Markets
With inflation showing no signs of slowing, the Fed increased rates by 0.50%, in line with expectations. Fed Chair Jerome Powell sought to calm markets by clarifying a larger 0.75% increase isn’t something currently under consideration.
Meanwhile, 10-year Treasury yields hit 3%, the highest they’ve been since 2018. Rising Treasury yields have driven rates on everything from mortgages to student loans higher in recent months. Rising mortgage rates have already substantially cooled originations volume.
Finally, job openings edged up in March, to 11.5Mn open positions. The hot jobs market is giving employees the confidence to quit in search of greener pastures. Some 4.5Mn workers quit their jobs in March, breaking the record set in November of last year.
Bankers Push Back on “Junk Fee” Inquiry
The CFPB’s initiative to crack down on so-called “junk fees” is raising the ire of some consumer bankers.
CFPB Director Chopra recently testified at Congressional hearings that he plans to revisit elements of the CARD Act, including rules on credit card late fees and potentially other products.
Trade groups representing banks and credit unions are pushing back. They argue that it’s misleading to group fees on all consumer products together as “junk fees.” There is little evidence to suggest fees are a significant source of complaints, industry advocates say.
Instead, industry representatives say the existing framework of “clear and conspicuous” disclosures, which requires giving customers information about costs and fees upfront, is working as intended.
Slow But Steady Progress on U.S. Real-Time Payments
The Fed has begun onboarding its first test users of FedNow, its real-time payment network. Some 120 organizations are taking part in the trial, with some users already reporting successfully connecting to the service’s test environment and delivering trial messages. Several fintech companies are participating in the trial, including Block’s Square Financial Services and Q2 Holdings. FedNow is on track to roll out next year, according to the Fed’s statement.
Meanwhile, The Clearing House is partnering with banking tech provider Fiserv to expand access to The Clearing House’s RTP network. Fiserv will make the real-time payment network available as part of its NOW Gateway, which enables connectivity to a number of payment networks.
Point Raises $115Mn for Home Equity Platform
Point, a “home equity platform,” announced it has raised a $115Mn Series C. Westpac led the round, with participation from existing investors including Andreessen Horowitz, Ribbit Capital, DAG Ventures, and Redwood Trust.
Point enables users to access equity financing in exchange for fractional ownership in a property. Use cases include at time of purchase and, for existing owners, as a mechanism to cash out home equity. Compared to traditional debt products, like a home equity line of credit, Point lets homeowners access wealth locked in their home, without needing perfect credit or taking on new monthly payments.
Point plans to use the fresh funding to continue expanding its flagship product, which is currently available in 16 states and D.C., and to build additional product offerings.
Affirm Integrates with Fiserv; Klarna Begins Reporting to Bureaus
Affirm and Fiserv announced that the BNPL provider will be the first to fully integrate with Fiserv’s Carat operating system. The partnership will make Affirm available to Fiserv’s enterprise merchant clients later this year.
Meanwhile, in the U.K., BNPL giant Klarna will begin reporting borrowers’ usage to credit bureaus beginning June 1st. Klarna will report to TransUnion and Experian in the U.K. Customers’ scores are expected to be impacted by the new tradeline data over the next 12-18 months. The move comes in advance of plans by the FCA, the U.K.’s banking regulator, to develop rules for the booming sector.
The U.S. is moving in a similar direction, with the big three credit bureaus announcing plans to facilitate the furnishing of BNPL data. Timing – and which BNPL companies will report the data in the U.S. – remain unclear.
Truist Acquires Long Game
Truist, the regional bank formed by the merger of BB&T and SunTrust, has acquired a savings-focused fintech. Long Game is a gamified mobile finance app designed to help users “save, learn, and engage” with their finances.
One feature the app leverages is prize-linked savings, where users are incentivized to contribute towards savings with the chance of winning a lottery-like prize. The technique leverages a cognitive behavioral bias known as variable rewards – the same kind of interaction that keeps gamblers pulling the lever of slot machines or buying scratch-off lottery tickets.
Truist is hoping to use the acquisition to reach a younger, mobile-first demographic the bank has had trouble connecting with in the past.
What Student Loan Forgiveness May Mean for Credit Quality
Student loan forgiveness is in the news again. While the Biden administration has ruled out canceling as much as $50,000 in debt, the administration seems focused on getting something across the finish line before the midterm elections.
“At least” $10,000 of debt forgiveness is the number being bandied about. In an effort to make forgiveness more targeted, some kind of means testing is likely to apply. For instance, the debt forgiveness may apply only to borrowers earning below $125,000.
Debt cancellation could have a slight positive impact on credit quality. The impact of debt forgiveness may be muted, however, considering federal student loan payments have been on ‘pause’ since the beginning of the pandemic, though they are scheduled to resume at the end of August.
However, with the furor over the leaked Supreme Court draft opinion potentially overturning Roe vs. Wade, Democrats’ priorities have abruptly been scrambled – where student loan forgiveness ranks in the hierarchy remains to be seen.
Earnings Season Continues During Whipsaw Week for Broader Markets
The Fed raising interest rates mid-week caused major indices to jump and then sink as investors processed the news. Despite negative days for the markets, Lendingtree (+5.0%) and Block (+0.6)% ended positive, while Enova ((2.2)%), Jack Henry ((2.3)%), Q2 Holdings ((7.0)%), Elevate ((7.5)%), and Curo Group ((13.7)%) all fell.
Source: PeerIQ
Block completed its acquisition of Afterpay during the first quarter, officially adding the BNPL player to its product suite. Block announced that it has begun to roll out the ability for teens to deposit paper money to Cash App at retailers like Walgreens and Walmart, which they hope will drive greater inflows and interaction with Cash App.
In April, Block announced a direct deposit feature allowing customers to be paid in bitcoin. Also during the month, they announced that U.S. customers could send and receive bitcoin via the Lightning Network to anyone with a compatible wallet. This move enables nearly instant transfers of bitcoin.
In more crypto news, Q2 Holdings launched a strategic program with NYDIG to offer a Bitcoin Savings Plan. This new payroll offering will leverage Q2’s Helix platform to bring the benefit program to U.S. employers. The program permits employees to automatically convert part of their paycheck to bitcoin without transaction fees.
Enova and Curo increased their loans receivable balances from the fourth quarter (Enova +14%, Curo +5%), with Enova’s CEO noting particular strength in their SMB and near-prime business. Elsewhere, Elevate saw their loans receivable balances dip (9)% from the fourth quarter, which management said was in line with the seasonal decrease seen in pre-pandemic periods.
Lendingtree announced it had completed its $15Mn investment in mortgage fintech EarnUp’s payments platform. Additionally, Lendingtree expects its first TreeQual (pre approval matching engine) personal loan partner to go live shortly. To manage operating expenses, the lender announced it had recently laid off 75 employees.
In the News:
Crypto Suspicious Activity Reports are Climbing. Here’s Why. (American Banker, 5/2/2022) Reports increased to ~92k in 2021, up from ~43k in 2020.
Dorsey, Saylor, Fidelity and Others Defend Environmental Impact of Bitcoin Mining in Letter to EPA (CNBC, 5/2/2022) The letter likens crypto mining data centers to big tech data centers, rebutting claims from House Democrats that likened the data centers to power generation facilities.
Kevin Raises $65M as it Charges Ahead on Account-to-Account Payments Over Point-of-Sale Terminals (Tech Crunch, 5/3/2022) Accel led the Series A for the Lithuania-based company.
Goldman Sachs Makes Its First Bitcoin-Backed Loan (CoinDesk, 4/28/2022) Goldman offered a secured lending facility that allowed the borrower to use bitcoin as collateral.
A Chip Crisis is Looming for Payment Cards (American Banker, 4/29/2022) The Russian invasion of Ukraine and Chinese COVID lockdowns have led to a chip shortage.
Klarna’s SOFORT Brings Open Banking Payments to Gambling (The Paypers, 5/2/2022) Banks will be able to identify and block payment requests from gambling companies if there is a gambling block in place.
PayPal, Aon Bring Real-Time Digital Insurance Access to SMBs (PYMNTS, 5/2/2022) Customers will be able to buy coverage through Aon’s CoverWallet solution, which is being integrated on the PayPal Commerce Platform.
Bonifii Picks Mastercard as Open Banking Provider (Finextra, 4/29/2022) The partnership enables the addition of consumer-permissioned bank data to inform underwriting.
Citi’s Plans for its $1 Billion Tech Budget in Corporate Banking (American Banker, 5/2/2022) This level of tech spend is 40% higher than Citi’s 2020 budget.
Wall Street Reluctantly Embraces Crypto (Wall Street Journal, 5/1/2022) Money managers want to pay banks to trade, lend, structure and custody crypto.
Banks, Credit Unions Paying Top Dollar to Hire Lenders (American Banker, 5/3/2022) With the jobless rate dropping to 3.6% in March, banks are spending up to hire commercial bankers.
Lighter Fare:
A Total Lunar Eclipse Will Turn the Moon Red the Night of May 15 (Space, 5/3/2022) Keep your eyes on the sky next Sunday night!