Unemployment numbers remain steady and inflation ticks down. Median household income dropped in 2020, excluding some stimulus measures. Pagaya will go public via a SPAC. Goldman buys POS lender GreenSky. Chase and Capital One consider BNPL offerings. Square deepens merchant-consumer integration. QED raises $1.05Bn for fintech investments. Oportun gets a new credit facility. Stripe may go public next year.
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Unemployment Steady as Inflation Cools (Slightly)
Initial unemployment claims rose slightly last week but remain near pandemic lows, despite fears of a slowing economic recovery from the surging Delta variant.
Inflation in August cooled slightly, with prices rising a seasonally-adjusted 0.3% from July. On the flip side, consumers’ expectations of future price increases rose to their highest level since 2013. Consumers’ expectations about inflation are important, as they can lead to demands for higher wages, potentially helping to spur a wage-price feedback loop.
Conventional wisdom continues to be that current price increases are transitory and caused by a combination of stimulus and disruptions to the supply chain. If inflationary pressures continue to wane, consumers’ expectations of future inflation should follow suit.
Excluding Some Stimulus Measures, Household Income Declines
For the first time since the fallout of the 2008 financial crisis, median household income declined in 2020. According to US Census data released last week, the measure dropped to $67,500, a decline of 2.9% from the year prior. The income calculation includes unemployment benefits but doesn’t account for income and payroll taxes, stimulus checks, or non-cash benefits like food support programs.
The news of a decline in household income feels at odds with news over the past year of consumer deleveraging and increasing bank deposits, but makes more sense given what is being measured. The continuing economic recovery, especially reductions in unemployment, should help reverse this trend.
Pagaya to SPAC in $8.5Bn Deal
Pagaya Technologies announced its intention to combine with SPAC vehicle EJF Acquisition Corp. in a deal that values the company at approximately $8.5Bn. Pagaya offers proprietary AI technology and a network for evaluating credit applications for originators and connecting them with institutional funders like asset managers, pension funds, and banks.
Pagaya operates across multiple products, including unsecured consumer lending, credit card, point-of-sale, auto, and real-estate. The company plans to expand to include solutions for mortgages, insurance, and related products. Pagaya has processed over 17Mn applications in the past 12 months.
Congrats to co-founder and CEO Gal Krubiner and the entire Pagaya team!
Goldman Buys POS Lender GreenSky for $2.2Bn
Goldman Sachs is doubling-down on consumer lending by scooping up specialty point-of-sale lender GreenSky for $2.2Bn. The acquisition complements Marcus’ existing online customer acquisition channels with GreenSky’s strong merchant network. GreenSky has focused on partnering with home improvement vendors, like contractors, suppliers, and retailers such as Home Depot, to offer loans to consumers at the point-of-sale. The lender’s distribution model also includes doctors and dentists, targeting consumers looking to finance elective procedures or costs not covered by insurance.
Goldman will pay about $12 per share to acquire the specialty lender. The $2.2Bn price tag is 55% higher than GreenSky’s valuation before the deal was announced, but still represents an approximately 50% decline from its IPO valuation of $4Bn.
Chase, Capital One Weigh BNPL Offerings
Big banks aren’t oblivious to evolving consumer preferences and fintechs competing for share of wallet. Marianne Lake, co-CEO of consumer banking at Chase, acknowledged last week that consumers are looking for more flexibility in how they pay. Lake understands the threat posed by fintechs and the need to innovate, which could include a BNPL-style offering. Lake isn’t concerned about Chase being a late-comer to BNPL, given the bank’s sheer size and breadth of payment and lending capabilities. Her comments echo CEO Jamie Dimon’s expectation of “tough, brutal” competition from fintechs.
Capital One may be feeling the pressure too. It announced its own BNPL test last week. CEO Richard Fairbank revealed the company’s plans to roll out a “beta version” of its BNPL by offering point-of-sale loans via a select group of merchants it already works with. The test is intended to help Capital One better understand the needs of consumers and merchants in order to design products that appeal to both groups.
The twin moves from major banks like Chase and Capital One confirm that establishment lenders are cognizant of the threat BNPL may pose to their business and are taking steps to evolve their product offerings and features in response. Time will tell if they respond strongly and quickly enough to defend their share of wallet from upstart competitors.
Square Deepens Merchant-Consumer Link with In-Person Payments
The merchant and consumer sides of Square have long operated fairly independently. That’s clearly changing as Square looks to capitalize by deepening connections between its merchant customers of Square’s point-of-sale terminal and its consumer base using Cash App.
In the latest sign of this, the company announced last week that users of Cash App will be able to make in-store payments at Square merchants by scanning a QR code or tapping a button in the app. The move follows the integration of Square’s merchant loyalty programs into Cash App and the acquisition of BNPL company Afterpay.
Competition across consumer and SMB merchant segments continues to intensify. Square is well-positioned to serve both sides of the equation and is looking to capitalize on its existing assets through further integration.
VC Heavyweight QED Raises $1.05Bn for Fintech Deals
Storied fintech investment firm QED announced last week that it has raised two new funds totalling $1.05Bn to make early- and growth-stage investments in fintech companies. QED has a track record of success in fintech, having made early investments in firms like Credit Karma, Klarna, SoFi, and Current. According to founding partner Frank Rotman, fintech will remain the firm’s “north star.” The firm plans to make investments in 40-50 early stage companies and 20-25 growth stage companies.
Congrats to Nigel Morris, Frank Rotman, and the entire QED team. We’re looking forward to seeing the next generation of financial innovations powered by your investments!
Oportun’s New $600Mn Warehouse Line
Oportun, a fintech lender offering personal loans up to $10,000 and credit cards with lines up to $1,000, announced a new $600Mn warehouse facility backed by Morgan Stanley, Goldman Sachs, Jeffries, and JPMorgan. The new facility enabled Oportun to redeem already issued, more expensive securitizations and replaces a previous $400Mn debt facility. Oportun’s successful close of the new warehouse facility demonstrates continued investor appetite for quality assets with yield.
Looking for the latest on fintech lending originations volume and performance? Reach out to firstname.lastname@example.org to learn about the data and analytics we have on the sector.
Stripe in Talks to Go Public in 2022
Payments company Stripe is reportedly having early conversations about a potential direct listing or IPO next year. The company raised $600Mn, valuing it at $95Bn, earlier this year. Several high-profile companies have pursued direct listings, which provide liquidity typically without raising new capital, in recent years, including Spotify and Wise (TransferWise).
In The News:
CFPB Small-Business Data Plan Scares Banks. Activists Say it Should. (American Banker, 09/12/2021) Bankers worry the new reporting criteria for lenders is too broad.
Why Some Backers of Student Lending Product Welcome CFPB Crackdown (American Banker, 09/13/2021) The CFPB’s regulatory tightening for ISA products could give the education finance sector greater legal clarity.
E-commerce Rewards Becoming Essential in Digital Banking Game (American Banker, 09/10/2021) E-commerce rewards are the latest battleground for rewards, with most banking customers expecting some form of loyalty program.
Banks Are Arming to Win the Digital Lending War With Fintechs (The Financial Brand, 09/13/2021) Banks move to increase online/mobile loan applications, speed up application process to keep up with fintechs.
With Loyalty App, Walgreens Has the Look of a Neobank (American Banker, 09/10/2021) Walmart unveils new rewards app that offers 5% on debit and 10% on certain credit card purchases.
Pre-IPO Marketplace Forge Global to Go Public in $2 Billion SPAC Deal (Wall Street Journal, 09/13/2021) The SPAC deal with Motive Capital Corp would be the first dedicated trading platform for private shares to go public.
MoneyLion Intros Crypto Trading with $1M Prize Before SPAC (PYMNTS.com, 09/13/2021) The fintech introduces in-app BTC and ETH trading, ahead of its planned Sep. 22 SPAC.
Coinbase to Raise $1.5 Billion in Bond Sale (Bloomberg, 09/13/2021) Coinbase received at least $2.4Bn of demand from investors by early afternoon, with the bonds rated BB+ from S&P and Ba1 from Moody’s, one rating below investment grade.
A New Company With a Wild Mission: Bring Back the Woolly Mammoth (New York Times, 09/13/2021) Colossal has received $15Mn in funding to bring back thousands of woolly mammoths and place them in the Siberian Tundra.