Happy Sunday,

With resilient economic activity (and inflation), the Fed expects two further hikes this year. The Supreme Court blocks Biden’s student debt plan but Biden admin has a “plan B.” Regulators weigh capital requirements. Unit21 announces Series C. Goldman looks to exit Apple deal. Zip lays off 20% of staff. Why fintech is winning the checking account war.

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Fed’s Meeting Minutes Suggests More Hikes to Come

The Fed’s meeting minutes suggest more rate hikes are on the horizon. While all 11 voting members of the FOMC agreed to hold rates steady at its last meeting, the meeting minutes suggest several of the 18 voting and non-voting members would have supported raising rates at the last meeting. “Almost all” agreed that additional tightening will likely be needed this year. Fed officials expect to raise rates an additional two times this year, as inflation and economic activity have remained resilient, despite significant rate increases to date.

Still, there are signs of progress in the inflation fight. Consumer expectations of future inflation are getting closer to pre-pandemic levels. Shoppers expect more modest price hikes in food, gasoline, healthcare, and education expenses in the years ahead.

Image: Bloomberg

The Supreme Court’s decision blocking Biden’s student loan forgiveness plan is likely to have knock-on impacts for consumer lenders. When borrowers finally begin repaying their federal student loans after some three years of “pauses,” some will struggle to balance the payments with other debt obligations. Estimates expect net charge-off rates for unsecured consumer debt could reach 0.85%-1.19% by mid-2024 vs. 0.62%-0.98% in a scenario where debt forgiveness was enacted.

Auto sales and lending remain a bright spot, with new-car sales up 13% in the first half of the year. Analysts point to pent-up demand from years of high prices amid supply chain issues and vehicle shortages.

Regulators Weigh Capital Requirements

Bank regulators are debating the potential impact of potentially higher capital requirements on some banks. While the intention behind such requirements is to improve the safety and soundness of the banking system, some are worried it may have the opposite effect. The concern is that higher capital requirements on banks could push lending activity to less-regulated entities, like debt funds, insurance companies, and other private lenders. Several capital-related initiatives are expected in the coming months, including related to “Basel III endgame” and Fed Vice Chair Barr’s “holistic capital review.”

Meanwhile, the results of some banks’ recent stress tests are out. The four largest banks performed well and indicated they would be allowed to hold smaller capital buffers. But some regional banks, which have faced heightened scrutiny since the collapse of SVB earlier this year, will have to increase the amount of capital they hold. Capital One, Truist, and Citizens all expect their “stress capital buffers” to increase this fall.

Biden Activates “Plan B” For Student Debt Relief

Hope springs eternal for federal student debtors hoping for forgiveness. The Biden administration, seemingly expecting the Supreme Court to block its debt forgiveness initiative, has a plan B. Biden unveiled a new strategy to provide relief under the Higher Education Act as well as a 12-month “on ramp” repayment program to help ease borrowers back into repayment in order to reduce the risk of delinquency and default. Education Secretary Cardona was careful to emphasize the “on ramp” was not a pause and that the department is encouraging borrowers to make their payments. Interest will continue to accrue on borrowers’ outstanding balances. Still, any new approach is likely to incur fresh legal challenges, potentially leaving borrowers in limbo for months or years to come.

Unit21 Announces Series C Fundraise

Unit21, a fraud prevention and compliance platform, announced it has raised a $45Mn Series C. The round was led by Tiger Global and South Park Commons and follows the company’s $34Mn Series B, also led by Tiger Global, that was announced back in 2021. Unit21 plays in a crowded and competitive field, which includes Sardine, Feedzai, SEON, and numerous other startups and incumbents. The company is also attempting to build a fraud data sharing consortium, dubbed the Fintech FraudDAO. It’s in good company: Sardine and Plaid have also announced similar fraud data sharing efforts.

Goldman Looks to Exit Apple Deal

Goldman is looking for the exit from its partnership with Apple, according to news reports. What was once heralded as an example of a big bank ‘getting’ fintech seems to have become an albatross for Goldman, as the bank has dramatically scaled back its consumer efforts. Goldman is reportedly in talks with American Express to take over the partnership, which includes a credit card, savings account, and support for Apple’s BNPL feature, Apple Pay Later. Exiting the Apple deal would basically complete Goldman’s exit from consumer lending. The bank ceased writing new loans under its Marcus brand last year and is trying to sell GreenSky, the POS lender it acquired last year.

Zip Lays Off 20% of Staff as It Restructures

Zip, the Australian BNPL company, is continuing to retrench. Last week, it announced it was laying off 20% of its staff. Its annual report last year showed a head count of about 1,500. The company has been looking to streamline costs by selling off business operations outside of Australia, including in the Middle East, Mexico, the U.K., and India. The move comes amid the threat of new regulation in Zip’s home market of Australia. The government has said it wants to regulate pay-in-four-style BNPL products as credit, which potentially could increase compliance costs and decrease profitability for BNPL lenders in the country.

Why Fintech is Winning the Checking Account War

Market research firm Cornerstone Advisors is out with a new study, and the claims are stark. For Americans opening new checking accounts, nearly half are doing so with fintech players like Chime, PayPal, and Cash App. That growth is coming at the expense of incumbent banks like Wells Fargo, Chase, and Bank of America.

Still, in any given year, only a small percentage of consumers open new accounts. Though the percentage who do is on the rise. Per Cornerstone’s recent survey, 14% of Americans reported opening a new account this year, continuing an upward trend from 2021 and 2020. But how consumers use checking accounts is also changing. Consumers increasingly have more than one account. Just because they’re opening an account at PayPal or Chime doesn’t mean they’re closing an account at an establishment bank.

Image: Cornerstone Advisors

In the News:

Biden Opens Student Loan “On-Ramp” After Supreme Court Ruling (PYMNTS, 7/5/2023) Facing an expected setback on student loan forgiveness, the Biden administration wants to give borrowers time to get back on track.

Tandem secures £20 million capital raise (Finextra, 7/4/2023) U.K. challenger bank announced it has raised new financing after turning in its first full year of “underlying” profit.

Will Amex Gain With Apple Card and Young Consumers Where Goldman Fizzled? (PYMNTS, 7/3/2023) American Express may have an opportunity to gain market share with millennials and Gen Z, if it acquires the Apple business from Goldman.

FIS mulls $15 billion Worldpay Sale (Finextra, 7/3/2023) New FIS CEO Stephanie Ferris is reassessing the financial infrastructure company’s assets.

With the chip shortage fading, in-car payments gain speed (American Banker, 7/3/2023) Major banks are making efforts to enable in-car payments, including taking them ‘beyond the pump.’

Revolut arrives in New Zealand (Finextra, 7/5/2023) U.K.-based neobank Revolut announced its launch in New Zealand.

Visa acquires $1 billion fintech in Brazil to boost digital payments (Fintech Nexus, 7/3/2023) Visa announced it has acquired Pismo, a banking and payment processing platform in Brazil.

JPMorgan Chase using ChatGPT-like large language models to detect fraud (American Banker, 7/3/2023) Chase is looking to use AI tech, including large language models, to protect its customers from fraud attempts.

Lighter Fare:

The ‘It’ Restaurant Order This Summer? A Hot Dog (WSJ, 7/1/2023) This summer, the humble hot dog is getting the royal treatment.