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Firstcard Raises $4.7Mn; Brokered Deposit Use Surges; Divvy Lays Off 94 More

By Cole Gottlieb

September 17, 2023

Happy Sunday,

CPI for August came in higher than expected. Officials remain optimistic about a soft landing. Treasury4 announces $20Mn Series A. Firstcard raises $4.7Mn seed. SoFi offers users Instacart IPO access. Brokered deposit use surges. Divvy lays off 94 more. Affirm’s funding costs rise.

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Disappointing Inflation Numbers

A jump in energy prices pushed inflation to the highest level in more than a year. Overall CPI rose 0.6% in August vs. the month prior. Core inflation, which excludes volatile food and energy prices, increased by 0.3% month over month. Despite the disappointing CPI print, consensus remains that the Fed won’t hike at its meeting later this month. But the central bank is keeping its options open for a rate hike in November or December.

Still, officials remain optimistic about the prospect of a soft landing. Treasury Secretary Yellen said she’s “feeling very good” about containing inflation without major damage to the job market. Although unemployment has recently ticked up, the jump wasn’t caused by significant layoffs. Rather, the labor force participation rate rose, hitting levels not seen since February 2020.

Not everyone agrees, however. More than half of the respondents in Bloomberg’s recent Market Live Pulse survey expect personal consumption to shrink in 2024, and an additional 21% expect a reversal to happen even sooner. Consumers are increasingly concerned about their ability to access credit, which could portend a spending slowdown.

Image: Wall Street Journal

Treasury4 Announces $20Mn Series A

Treasury4, which offers legal entity and cash management solutions for finance teams, announced it has raised a $20Mn Series A. The funding round was led by WestCap, with participation from Fortson VC, Voyager Capital, Kick-Start Seed Fund, WTB Financial Corporation, and Cowles Company. Treasury4 powers financial planning and risk management capabilities, delivered via API. In conjunction with the funding round, WestCap’s principal, Sean Duncan, and partner, Jeff Mullen, will join the Treasury4 board.

Firstcard Raises $4.7Mn Seed

Firstcard, a credit-building card for college students, announced it has raised a $4.7Mn seed round. Started by an immigrant who moved to the U.S. to attend college, the company is focused on the approximately 50% of students who do not have a credit card. The company partners with Regents Bank to offer the credit builder card, a debit card, and a savings account. Firstcard offers a relatively paltry baseline 1.25% APY on savings, though students can earn up to 4.25% with a Firstcard “Plus” account. Cardholders can also earn up to 15% cashback at more than 29,000 local merchants.

SoFi Offers Users Instacart IPO Access

In its quest to move beyond student loans, SoFi is joining 19 other banks in underwriting Instacart’s forthcoming IPO. The offering, which, in total, could raise as much as $616Mn, will be SoFi’s first. The company is notifying users that they are eligible to submit requests for shares. Premium SoFi members get “preferred” access to the IPO allocation. The IPO is a significant step for SoFi, whose business has remained largely driven by student loan refis and personal loans. The company expects to turn a profit for the first time by the end of this year.

Brokered Deposits Rise In Popularity

In the wake of the turmoil earlier this year, banks have been loading up on brokered deposits. While often viewed as a quick way to shore up a bank’s balance sheet with additional deposits, they are often much more expensive than typical retail deposits. Some regulators and critics describe brokered deposits as “hot” money that may flee a bank at the slightest sign of trouble, as the underlying depositor doesn’t have a direct relationship with the bank. Use of brokered deposits was up sharply at banks like Citizens, Ally, M&T, KeyCorp, and Comerica. Ratings agency Fitch said it views brokered deposits as “lower quality,” and S&P Global and Moody’s pointed to them as a factor in downgrading certain regional banks earlier this year.

Image: Wall Street Journal

Divvy Lays Off 94 More

Once high-flying rent-to-own startup Divvy Homes announced its third round of layoffs in less than a year, cutting 94 more employees. The company, once valued at as much as $2.3Bn and with backers that include a16z and Tiger Global, has fallen on hard times as interest rates have increased dramatically. The company’s business model relies on buying homes and then renting them to customers for several years while they build up the savings needed to purchase the home. The company and its model haven’t been without controversy. Analysis by Fast Company and the New York Times suggested Divvy charged higher rent than for comparable properties, took an aggressive approach to evicting its clients, and could be slow to make repairs.

Affirm’s Funding Costs Rise

Funding costs are likely to be a headwind for Affirm, the company said recently. Rising interest rates are to blame. Rising costs of funds squeeze a critical KPI for the company, revenue less transaction costs. Affirm’s VP of Finance, Rob O’Hare, said the company has been making heavier use of warehouse facilities, which are more expensive than other forms of funding.

In the News:

CFPB's Chopra defends his agency's mortgage rules in high court case (American Banker, 9/12/2023) Director Chopra defended the agency’s legitimacy while speaking at an event commemorating the 15th anniversary of the collapse of Lehman Brothers.

FDIC admits missteps in First Republic oversight (Banking Dive, 9/11/2023) Although First Republic doubled in size, examination hours declined by 11%.

Square’s outages will have global impact (Electronic Payments International, 9/11/2023) Some Square merchants were unable to accept payments for as long as two days.

Alloy's Annual State of Compliance Benchmark Report 2023 (Alloy) Compliance trends in 2023 and predictions for 2024.

Banking crisis is 'gift that keeps on giving' for deposit firms like R&T (American Banker, 9/8/2023) Deposit networks like IntraFi and R&T are having a moment as banks seek to manage deposit flows.

JPMorgan Is Exploring Blockchain-Based Deposit Token for Payments, Settlements (BNN Bloomberg, 9/7/2023) JPMC hopes to use digitized deposits to speed up cross-border settlement.

The Bitcoin ETF Trade Is Increasingly About Bitcoin Itself (Wall Street Journal, 9/10/2023) With a spot bitcoin ETF looking possible, the discount of Grayscale Bitcoin Trust has compressed.

Xbox Teams With Mastercard to Unveil First Credit Card (PYMNTS, 9/11/2023) Microsoft’s Xbox unveiled a co-brand credit card.

A 3% Mortgage Rate in a 7% World? This Startup Says It Can Do That (Wall Street Journal, 9/13/2023) Loan assumptions are gaining in popularity in the current rate environment.

‘Almost All Loans Are Bad’—Why Banks Aren’t Lending (Wall Street Journal, 9/13/2023) Rising rates and weakening demand for loans mean slow growth for credit.

Lighter Fare:

NYC landlord asking $20K a month in rent — and offering $20K credit at posh restaurant downstairs (NY Post, 9/11/2023) This apartment might be expensive, but it comes with an unusual perk.