Happy Sunday,
White collar job creation stalls. U.S. birth rate lowest since 1979. CFPB Supreme Court case could unleash “flurry” of litigation. Pomelo raises its Series A. Block doubles down on bitcoin. Bloomtech hit with CFPB enforcement action. One rolls out BNPL. Goldman sells its robo. Small banks push back on overdraft rule. Earnings season continues.
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White Collar Weakness
Although the overall labor market remains robust, that strength may hide pockets of weakness. For instance, hiring for white collar jobs in industries like tech, finance, and media has largely stalled out, with some markets seeing material declines amid waves of layoffs in recent years. Even cities that benefit from growth due to looser pandemic-era restrictions, like Austin and Miami, have seen white collar job growth level off.
Meanwhile, the U.S. birth rate hit its lowest level since 1979, with research suggesting economic uncertainty and strain, political polarization, global conflicts, and climate change all playing a role in decisions to delay or forgo having children.
Image: Bloomberg
“Flurry” of Litigation Could Move Forward if Supreme Court Sides With CFPB
The pending Supreme Court case to decide the constitutionality of the CFPB’s funding mechanism is causing a logjam of sorts. The case has slowed or paused a number of the Bureau’s initiatives, including the payday rule that led to the constitutional challenge, a rule on small business lending data collection, and a change to anti-discrimination policy. Nine enforcement actions and five petitions to enforce civil investigative demands have also been stayed, pending a decision in the funding case. Court watchers and industry analysts broadly expect the CFPB to prevail, based on oral arguments in the case last October.
Pomelo Announces $35Mn Fundraise
“Send now, pay later” startup Pomelo, which essentially enables users to send a remittance from a credit card and pay the balance later, announced it has raised a $35Mn Series A. The round was led by Vy Capital, with participation from Founders Fund, A* Capital, Afore Capital, and others. Pomelo also announced that it has extended its debt facility by $75Mn to a total of $125Mn. Rather than a traditional remittance, Pomelo works by enabling a primary user in the U.S. to essentially make recipients authorized users of their Pomelo card. The primary holder can set limits, view spending activity, and pause the cards. More recently, Pomelo added the capability to send funds to GCash, a digital wallet roughly comparable to Venmo or Cash App.
Block Doubles Down on Bitcoin
Block, owner of Square and Cash App, is expanding its bitcoin business. The company announced last week that it completed development of a bitcoin mining chip and was working with a “leading semiconductor foundry” to produce the chip. Part of the goal of producing the chip is to “democratize” access to bitcoin mining by producing a mining rig that is as simple to operate as plugging it in, Dorsey said. In other Block/crypto-related news, merchants on its Square platform can now convert up to 10% of their daily sales into bitcoin via an associated Cash App account, though Block will take 1% cut from such transactions.
BloomTech and Its Founder Hit with CFPB Enforcement Action
BloomTech, a well-known Silicon Valley coding bootcamp that helped popularize income share agreements as a financing mechanism, has entered into a consent order with the CFPB. The order stems from what the Bureau alleges were violations of Dodd-Frank’s prohibition on UDAAP, violations of the “Holder Rule,” and failing to disclose information required by TILA Reg Z. Specifically, the CFPB argued that BloomTech and its founder, Austen Allred, deceived students by misrepresenting how ISAs work and their benefits, describing them as not being loans or creating debt and as being “risk free.” But, the CFPB says, ISAs are loans that create debt, with the finance charge for the typical BloomTech student who successfully completed repayment reaching $4,000. The CFPB also alleges that the company and its CEO mislead students about placement rates, which the company marketed to potential students as being as 86%, while telling investors a more accurate measure of just 50%. The consent order permanently prohibits the company from engaging in consumer lending, bars its CEO personally from engaging in student lending for 10 years, fines the company about $65,000, and fines Allred $100,000.
Walmart’s One Begins Rolling Out BNPL
Walmart’s neobank has maintained a pretty low-profile since the venture got going through its acquisitions of One and earned wage access provider Even Responsible Finance. Now, the efforts of the company, operating under the One name, seem to be bearing fruit. Last week, CNBC reported that One began rolling out BNPL-style financing for larger purchases at some Walmart stores. The move puts One in direct competition with another Walmart partner, Affirm. The move shouldn’t be too surprising, given the aggressive posture Walmart has taken with cobrand credit card partner Capital One, in a move many have interpreted as an effort to get out its exclusive arrangement with Capital One so that One can issue credit cards.
Goldman Sells Robo Accounts to Betterment
Marcus Invest, we are hardly knew ya! In case you forgot or never knew to begin with, Goldman Sachs developed a roboadvisor as part of its ill-fated consumer banking push. The offering, dubbed Marcus Invest, never got much love from the bank, and it’s unclear how many users it had or the size of assets under management. As Goldman continues to dismantle its Marcus business, it has reached an agreement with Betterment to acquire the clients and assets of Marcus Invest. The transition is expected to be completed by the end of this quarter.
Small Banks Push Back on CFPB Overdraft Rule
Even though the CFPB’s overdraft rule is tailored to exempt smaller banks, many still anticipate making changes, should the rule go into effect, a recent IntraFi survey reveals. The rule, proposed in January, would generally limit banks with over $10Bn in assets to charging a maximum of $14 when consumers overdraw their accounts. Still, IntraFi’s survey showed that 44% of smaller banks expected to make a change in response to the rule in order to compete with larger banks constrained by the rule. The findings help explain why the ICBA, a trade group representing community banks, has come out against the CFPB’s overdraft rule, even though its members aren’t directly impacted by it.
Earnings Season Continues
Source: Yahoo Finance
This week more companies reported earnings, with Visa +7.1%, Capital One +6.0%, and Synchrony +1.9% all reporting YoY increases in purchase volume. An increase in purchase volume was likely expected, following bank earnings and retail spend data.
At the same time, consumer loan books grew at Enova (Consumer) +22.1%, Synchrony +11.7% and Capital One (Credit Card) +11.1% on a year-over-year basis as consumers took on greater levels of debt.
Enova grew its originations +29.8% YoY, with consumer originations +43.3% YoY a key driver of its growth. Consumer demand for credit remains strong. With unsecured consumer lenders maintaining tight credit standards, consumers are turning to lenders like Enova, which offer credit at higher interest rates (above 34% APR). Additionally, Enova has increased its marketing spend slightly YoY (from 17% of revenue to 18%) and plans to lean into growth, expecting marketing expenses to be around 20% of revenue in the second quarter. Despite high inflation, it has affected Enova to a lesser extent, as CEO David Fisher explained, “From here, as we’ve said many times before, in some ways, our consumer customers are always in a recession. They are experiencing living paycheck-to-paycheck.”
Navient originated $259Mn in private education loans during the quarter, up significantly from $168Mn a year prior and $223Mn a quarter prior. Its NCOs rose to 2.40%, from 1.63% a year prior, with management attributing saying the increase in charge-offs, “Was primarily related to the resolution of certain legacy loans in bankruptcy that were previously reserved for in the first quarter of 2023.”
Elsewhere, we saw NCOs rise at Capital One (Credit Card) +184bps YoY, Synchrony +182bps YoY, Capital One (Consumer Banking) +47bps YoY, and Enova +30bps YoY.
Consumer delinquencies and NCOs have continued to rise from pandemic era lows and have largely crossed pre-pandemic levels. For reference, Synchrony’s NCOs were +47bps higher in 1Q24 than the average of the first quarters of 2017-2019. And Capital One CEO Rich Fairbank noted that, “The linked-quarter delinquency and charge-off rate trends were modestly worse than what we would expect from normal seasonality. We believe this is largely driven by lower and later tax refund payments to consumers so far in 2024, relative to what we’ve historically observed.”
While Enova’s NCOs remained well below pre-pandemic levels, the company was doing more single-pay lending to consumers in 2018-2019, which carries much higher default rates than the line of credit and installment lending products it offers consumers today.
Wrapping things up, deposits rose at both Synchrony +3.0% and Capital One +0.7% from the fourth quarter. But deposit growth doesn’t come free, as deposit costs rose +23bps QoQ at Synchrony to 4.65% and +6bps QoQ at Capital One to 3.53% on interest bearing deposits.
In the News:
Housing Market Slumps as Mortgage Rates Top 7% (Wall Street Journal, 4/18/2024) High rates continue to put pressure on the U.S. housing market.
FDIC Is Approaching Potential Buyers of Republic First (Bloomberg, 4/24/2024) The FDIC is seeking a buyer for the Philadelphia bank after a $35Mn investment fell through.
Equities platform Midas raises $45M Series A as fintech retains its sparkle in Turkey (Techcrunch, 4/19/2024) Turkish investing app Midas raises $45Mn.
Stripe unbundles payment processing from its other offerings (American Banker, 4/24/2024) Stripe announced it will make its products available a la carte, in a bid to attract more enterprise customers.
Synchrony hikes interest rates on credit cards to offset late-fee rule (American Banker, 4/24/2024) Facing lower late fee revenue, Synchrony hikes rates and other fees.
TabaPay to Acquire the Assets of Synapse Financial Technologies, Inc. (Businesswire, 4/19/2024) TabaPay agreed to acquire substantially all of the assets of Synapse through a bankruptcy process.
Synapse Bankruptcy Filings: What You Need to Know (Fintech Business Weekly, 4/23/2024) Bankruptcy sees Synapse sell assets for $9.7Mn, settle dispute with Evolve.
Nearly Half of Credit Unions Have No Plans for BNPL, Despite Member Demand (PYMNTS, 4/22/2024) Credit union members are nearly twice as likely to want BNPL, but many CUs don’t plan to offer it.
Visa+ expands its availability for PayPal and Venmo users across the US (TearSheet, 4/22/2024) Visa continues to expand coverage for cross-platform P2P payments via Visa+.
Lighter Fare:
This Crater Could Be Where Earth’s ‘Second Moon’ Broke Off the First One (Science Alert, 4/22/2024) An asteroid discovered in 2016 may actually be a chunk that broke off of the moon.