Happy Sunday,

July’s CPI print came in lower than expected. Slower hiring and rising oil prices are making the Fed’s life hard. “Novel activities” to get own supervision program. Figure withdraws bank charter app. Banks penalized for employees’ messenger use. Revolut to suspend U.S. crypto features. Knot raises Series A. Petal gets debt facility. Achieve and Cross River partner. PayPal launches stablecoin. Fintechs report earnings.

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July Inflation at 3.2%

The much-watched monthly CPI print dropped last week. The measure reflected a 3.2% increase in prices since last July, which was slightly below expectations but a slight tick up from June. Core CPI came in at an annualized 4.7%, which was also below the consensus estimate. Both measures were up 0.2% month on month. While slower hiring this summer may take some pressure off the Fed to continue hiking rates, rising oil prices aren’t helping matters.

Image: Reuters

Fed to Supervise “Novel Activities”

Last week, the Fed issued two supervision and regulation letters. The first created a new supervision program, dubbed the “Novel Activities Supervision Program.” The letter specifies four areas of “novel” activities that will fall under the program, including “complex, technology-driven partnerships with non-banks to provide banking services,” crypto-related activity (including stablecoin issuance), projects that use distributed ledger technology, and banking organizations with a high concentration of crypto or fintech exposure. Banks subject to the new program will remain in their existing supervisory portfolios, with the program working alongside existing supervisory processes.

The Fed is seeking to incorporate diverse perspectives from across the Federal Reserve system and from outside experts, including academia, banking, and technology into the program. In addition to providing additional oversight of banks involved in novel activities, the Fed intends to use the program to develop new supervisory approaches and guidance for organizations engaged in such activity.

The Fed also issued a supervisory letter regarding state banks seeking to engage in activities related to issuing, holding, or transacting in “dollar tokens,” better known as stablecoins, last week. The letter makes clear that state banks overseen by the Fed must obtain written supervisory non objection before engaging in such activities.

Figure Withdraws Bank Charter Application

Figure, the blockchain-focused company started by SoFi founder Mike Cagney, has officially withdrawn its bank charter application. The company had originally attempted to apply for a national bank charter without deposit insurance. The move was widely interpreted as a sort of work-around after earlier OCC efforts to offer a “special-purpose national bank charter” ran into fierce opposition. Likewise, Figure’s initial charter application encountered pushback, both from consumer advocacy groups and banking trade groups. Ultimately, Figure amended its application to include plans for insured deposit accounts and FDIC insurance. But now, amid a broader pullback in both crypto and fintech, Figure has shelved its application, at least for the time being.

More Banks Face Penalties for Employees’ WhatsApp Use

Employees’ use of unsanctioned messaging apps is continuing to cause headaches for major banks. Both the SEC and CFTC have issued fines to banks for the practices, with at least 11 firms paying penalties related to the matter, including Wells Fargo and Bank of Montreal. The latest round of fines comes after Bank of America, Citi, and Goldman Sachs paid a total of more than $1Bn in fines over similar practices last September.

Revolut to Suspend Crypto Features in U.S.

Citing the uncertain regulatory environment, neobank Revolut is suspending its cryptocurrency services in the U.S., the company said last week. Beginning on September 2nd, American users will no longer be able to buy cryptocurrency in the app. And by early October, selling and holding crypto will be disabled. Per a company statement on the matter, “As a result of the evolving regulatory environment and the uncertainties around the crypto market in the US, we’ve taken the difficult decision, together with our US banking partner, to suspend access to cryptocurrencies through Revolut in the US.” The move will impact less than 1% of Revolut’s global customer base.

Knot Raises $10Mn Series A

Card-on-file switching startup Knot announced it has raised a $10Mn Series A. The round was led by Nava Ventures, with participation from Plaid, and Amex Ventures. The company’s key offering enables card issuing companies to offer users a simple way to update their stored payment credentials at commonly used merchants, including Amazon, Netflix, Starbucks, and Uber. The company also offers a subscription canceler product and is developing account creation and password update capabilities. Knot plans to use the funding to accelerate its expansion of the merchants it supports.

Petal Scores New $200Mn Debt Facility

Cashflow-underwriting credit card startup Petal announced new equity and debt funding last week. The company disclosed it has raised $20Mn in additional equity from existing investors. It extended an existing loan and added an additional $20Mn debt commitment from Trinity Capital. And on top of that, Petal announced a $200Mn debt facility with Victory Park Capital.

Achieve and Cross River Partner

Achieve, a personal lender, and Cross River announced a partnership to facilitate the sale of pass-through certificates backed by the personal loans the company originates. The initial issuance is backed by approximately 1,500 loans with a total principal balance of about $34.5Mn. The certificate enables investors to gain exposure to consumer credit with whole-loan economics. Of the partnership news, Achieve co-founder and co-CEO Andrew Housser said, “Cross River’s partnership will allow us to diversify our investor base and funding sources to further strengthen the Achieve Personal Loans platform, reflecting Achieve’s commitment to innovative strategies that help consumers get on, and stay on, the path to a brighter financial future.”

PayPal Launches Own Stablecoin

PayPal last week announced the launch of its own stablecoin, PayPal USD (PYUSD). The token is backed by U.S. dollar deposits and short-term U.S. Treasuries. PayPal partnered with Paxos Trust Company to develop the stablecoin. The stablecoin will be redeemable for U.S. dollars at any time, as well as facilitating buying and selling of the other cryptocurrencies PayPal supports on its platform, including bitcoin. News of the launch left some in fintech and banking scratching their head and asking why the company needs its own currency. Still, PayPal seems to have succeeded where other major tech players, like Meta, haven’t. With an existing, large network of consumers and merchants, PayPal may be angling to create its own stablecoin-based “payment rail” that isn’t dependent on card networks.

The timing of the launch may be a bit inauspicious, given the multiple regulatory announcements related to increased scrutiny of banks involved in crypto and stablecoin programs. But the market didn’t seem to mind. PayPal shares were up 2.66% on the day of the announcement.

A Volatile Week of Earnings for Fintech Lending Stocks

Source: PeerIQ

This week in earnings, a host of fintechs reported. Originations rose from the first quarter for OppFi +26%, Oportun +19%, Upstart +18%, Dave – ExtraCash +9%, and MoneyLion +9%. On a YoY basis, Upstart (64)%, Oportun (45)%, and OppFi (11)% lagged the prior year quarter, after significantly tightening credit in the second half of 2022.

To tighten credit, Upstart focused on repeat borrowers, with 38% of Q2 originations coming from this cohort. Oportun CFO Jonathan Coblentz explained that the lender has also narrowed its credit box, stating, “I’d also like to point out that we’ve continued to improve the credit quality of our originations. The percentage of underwritten loans with Vantage scores of 660 or greater was 33% for 2Q22, but increased to 40% during 4Q22 and to 47% during 2Q23.”

While Oportun has yet to see its credit tightening impact its NCOs, (annualized NCOs of 12.5% up from 12.1% a quarter prior and 8.6% a year prior), the company has begun to see results in its delinquencies. 30+ day delinquencies fell to 5.3%, from 5.5% in Q1. The company expects Q3 NCOs to fall to 11.7% (+/- 15bps) and disclosed that post-tightening (July 2022) vintages are performing near or better than 2019 vintages.

OppFi’s NCOs as a % of receivables were 47%, down from 62% a quarter prior, as lower quality loans originated prior to credit adjustments midway through 2022 were mostly charged off by the start of the quarter.

Dave’s ExtraCash 28-day delinquencies rose +23bps sequentially, to 2.83%, but much of this may be attributable to seasonality.

Upstart reported its second straight quarter reducing the loans held (sequentially) on its balance sheet (had increased holdings all throughout 2022). The company reported $838Mn of loans, down (15)% QoQ. Core personal loans held on its balance sheet drove the decline, down (29)% QoQ. Management also disclosed that it had completed a $200Mn ABS deal just after the end of the quarter, which was not reflected in the Q2 figures.

Oportun executed two new whole loan flow sale agreements to sell up to $700Mn ($400Mn from Castlelake and $300Mn from Neuberger Berman) in personal loan production over the next 12 months. By the end of July, Oportun had already sold $75Mn of loans through the Neuberger Berman agreement.

Dave’s monthly transacting members (“MTMs”) declined slightly, to 1.9Mn from 2.0Mn a quarter prior because of a “decline in subscribers due to migration off of legacy subscription billing system and onto our newly-built platform”.

While Dave’s CAC did rise to $20, from $16 a quarter prior, CEO Jason Wilk explained, “We made significant marketing investments at the corporate level, including a full website and branding refresh as well as costs to produce TV and radio advertisements that began airing in the third quarter, none of which contributed to actual member acquisition in Q2.”

Pagaya’s network volumes grew by 1% YoY and 6% QoQ, exceeding Q2 management guidance. Importantly, fee revenue less production costs as a % of network volume (“FRLPC”) bounced back, to 3.3% from 2.7% a quarter prior.

There are signs that ABS demand is returning, with CEO Gal Krubiner explaining, “In July, we upsized the deal, an ABS deal from $600 million to $800 million. At the peak of the order book, we had $2 billion of orders.”

Marqeta reported continued total processing volume (“TPV”) growth, up 33% YoY and 7% QoQ. Additionally, the company announced that it had signed a 4-year extension with Block to continue powering its Cash App product (thru end of June 2027). The deal is significant, as Block represents a large chunk of its business. CFO Mike Milotich explained, “What we expect based on this is that our revenue concentration [to Block] is likely to fall sort of in the mid- to high-20s percentage points, and gross profit concentration was likely to fall around 10 percentage points based on this deal going forward.”

Hi all, Cole here. If you’ve made it this far, thank you for being a loyal subscriber to the PeerIQ newsletter. Looking for more updates on the companies covered during earnings season? Follow/connect with me on LinkedIn and join my Discord server for exclusive access to earnings updates, including bullet notes on important info from earnings releases, key quotes from earnings calls, and relevant slides from decks.

In the News:

A Real-Estate Haven Turns Perilous With Roughly $1 Trillion Coming Due (WSJ, 8/7/2023) Multifamily residential real estate may be in for a reckoning as rates rise.

Property Loans Are So Unappealing That Banks Want to Dump Them (Bloomberg, 8/7/2023) Banks trying to reduce their exposure to commercial property loans are finding few willing buyers.

Banks’ Problems Aren’t Over, According to the Bond Market (WSJ, 8/9/2023) Moody’s Investor Services took action on 27 banks’ bond ratings, including downgrading 10 of them.

Relief for Defrauded Student Borrowers Frozen by Court (WSJ, 8/7/2023) A federal appeals court put President Biden’s latest plan on hold amid a challenge from for-profit schools.

SumUp scoops $100 million credit facility for roll out of cash advance product (Finextra, 8/9/2023) London-based POS system SumUp scores a $100Mn debt facility to provide loans to its merchant customers.

PayPal’s merchant-lending woes overshadow revenue gains (American Banker, 8/3/2023) PayPal’s ecommerce sales drove a 7% increase in net revenue in Q2.

As FedNow rolls out, the U.S. has much to learn from India’s UPI (American Banker, 8/7/2023) Examples in Asia, like India’s UPI, show the potential benefits from real-time payments.

Stripe is streamlining tax compliance in push beyond payments (American Banker, 8/4/2023) In a push to move beyond payments, Stripe looks to offer tax capabilities.

Lighter Fare:

First Virgin Galactic civilian spaceflight reaches space (NBC News, 8/10/2023) Richard Branson’s space startup Virgin Galactic took its first tourists to space.