This week, the employment picture is looking promising and there are signs inflation may be moderating. Fed consensus is shifting towards interest rate hikes as soon as next year. 2021 is a record year for IPOs, and it’s only half over. BNPL and EWA remain hot. Facebook has a new payments initiative. And a Mexican fintech is the first in that market to buy a bank.
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Employment on Track; Signs Inflation Pressures May Be Waning; Interest Rate Rises Sooner than Later
There was a lot of economic news and data out this week, painting a generally positive picture of macro trends as the economy continues to reopen.
Initial unemployment claims unexpectedly rose last week, increasing 37,000 to a seasonally adjusted 412,000. However, the four-week moving average of new claims is moving in the right direction, dropping 8,000 to 395,000.
Hiring should pick up further as 26 states begin to roll back supplementary federal unemployment benefits. Iowa, Mississippi, and Missouri have already ended the extra $300 payments, and 23 additional states are set to do so between June 19 and July 10. According to analysis from Goldman Sachs, these states account for only 29% of pandemic-related job losses, meaning the move won’t fully resolve pressure in the job market.
Unemployment claims in states that have announced they will end benefits have fallen more quickly, suggesting the benefits reduction is motivating those on the sidelines to rejoin the workforce. Goldman’s analysis shows the benefits reduction could yield an additional 150,000 jobs in July and more than 400,000 in September.
We’ll be keeping our eye out for the Labor Department’s August jobs report to better understand how state policies on unemployment impacted the jobs numbers.
Inflation remains a hot topic, with a mixed bag of indicators this week.
Consumer expectations of future price increases rose by 0.6 percent points to 4%, according to a Fed survey. Expectations of inflation further in the future rose as well, with consumers anticipating increases of 3.6% in three years time vs. 3.1% in April’s survey.
In the commodities and housing markets, there are some signs that inflation pressures are easing. Lumber, which saw a huge run up earlier in the year, is down 40% from its May peak as more sawmill capacity comes online. Copper has also eased off its May high, trading below $10,000 a ton.
While the housing market remains hot, indicators like the rising number of homes on the market and a drop in permits for new construction suggest a slight cooling here as well.
Used car and truck prices continue to be a major culprit in the rising headline inflation numbers. According to The Economist, about a third of May’s month-on-month increase in inflation came from used vehicle prices.
That said, investors seem to agree (and so do we) with the Fed’s position that the current bout of inflation will be short-lived, buying up Treasuries and pushing the 10-year yield down to where it stood this February.
All eyes were on the FOMC meeting this week, at which the Fed sharply increased its inflation forecast for the year from its previous estimate of 2.4% for the year to 3.4%. Thirteen members now believe the Fed will increase rates in 2023, with most anticipating two rate hikes that year. Seven committee members expect rates to rise as early as next year.
The Fed is attempting a careful balancing act of promoting a rapid recovery in employment without setting off persistent inflation. We’ll be watching and analyzing indicators for both to understand how that mission is faring.
2021 Already Record Year for IPOs; Robinhood & Didi Chuxing Aim for Debut By Year’s End
In less than six months, 2021 has already exceeded 2020’s record year of IPO fundraising. Last year, the proceeds of IPOs totaled $168Bn; so far in 2021, $171Bn has been raised (this includes SPACs’ IPOs).
Robinhood and Didi Chuxing should add to 2021’s IPO haul, with both planning offerings later this year. Bankers are anticipating as much as $40Bn in US IPO activity from June to August, despite slowing new SPAC formation.
The number of successful fintech exits and the continuing ability to raise fresh capital reinforce the excitement and opportunities for growth in the sector.
Klarna’s Massive $639Mn Fundraising Values it at $45.6Bn
Capitalizing on a hot market, Klarna has raised another $639Mn led by Softbank’s Vision Fund 2 just three months after its last raise. The raise values the BNPL startup at a whopping $45.6Bn, a 47.3% increase over its post-money valuation this March.
Part of that war chest will go towards continuing to expand US operations. Already live with 24 of the top 100 US retailers, Klarna says it has over 18Mn American users.
While an eye-popping valuation, Klarna isn’t out of line with public market competitors on a multiple of gross merchandise volume basis.
We expect to see continued robust activity in the BNPL unless consumer uptake (or repayment) or regulators give investors a reason to take pause.
Want a better understanding of BNPL-related originations volume and performance? Reach out to email@example.com to learn about the data and analytics we have on the sector.
Earned Wage Access Sector Keeps Heating Up
Last week, Clair, an EWA provider focused on gig economy workers, announced it had raised an additional $15Mn in equity. Clair enables HR platforms and gig employers to pay out instance cash advances against accrued earnings.
DailyPay and regional bank PNC announced they’re partnering with The Clearing House to enable workers to receive their earned wages instantly, instead of waiting the typical 1–3 days for an ACH transaction.
We’re encouraged by establishment banks partnering with fintechs, particularly the focus on offering liquidity-constrained consumers faster and better choices to access their pay.
Facebook’s Payments Play
In its latest push into payments, Facebook has rolled out QR-based payment functionality in its Messenger app, putting it squarely in competition with Venmo and Zelle. The key difference compared to Facebook’s previous attempts is that the new functionality is not limited to users who are already connected on the social network. If the initiative gains traction, Facebook could quickly roll it out in other products like Marketplace and Instagram.
The underlying functionality also aligns with Facebook’s stablecoin project, Diem. Diem has faced numerous setbacks, and recently dropped plans to leverage multiple currencies in favor of launching as a USD-linked stablecoin. The QR functionality Facebook is testing in Messenger could form the backbone of a Diem-powered payments network.
With nearly 3 billion users across its platforms, developing viable payments tools, even if used only within Facebook, could turn into a material business for the social network.
Cross River Launches Venture Arm
Cross River Bank, a banking partner to many fintechs, announced this week the launch of Cross River Digital Ventures, its venture capital arm.
Cross River plans to use the initiative to support early-stage startups to develop innovative solutions and to scale more quickly. It has already made a number of investments, including in Innovative Assessments (IA), Lev, and Finix Payments.
Mexican Fintech Credijusto Buys a Bank
Credijusto, a Mexican small business lender, announced its purchase of Banco Finterra, the first case of a Mexican fintech company acquiring a bank. Credijusto plans to leverage the acquisition to better support Mexican companies selling into the US market. Future plans could include offering SMB loans in the US market — and even acquiring a bank there, according to co-CEO David Portiz.
The move is the latest example of fintechs buying or becoming banks, a list that includes SoFI, LendingClub, Square, and Varo.
In the News:
U.S. Retail Sales Fall in May; Producer Prices Increase (Reuters, 06/15/2021) Retail sales dropped 1.3% in May, as reopening shifts discretionary spending towards services, away from goods.
Investors Clamor for a Bigger Piece of Payments Company Stripe (Wall Street Journal, 06/14/2021) Only a quarter of bids were filled in Stripe’s latest tender offer, suggesting shareholders are still very bullish on the payment processing company.
Bitcoin on the Balance Sheet Is an Accounting Headache for Tesla, Others (Wall Street Journal, 06/14/2021) Companies that hold Bitcoin face accounting risk, as they have to record impairment charges when the notoriously volatile cryptocurrency value falls.
As Auto Lending Shifts Online, Credit Unions Feel Squeezed (American Banker, 06/14/2021) Credit unions are making more used-car loans, while new-car loans fell 3.4% in the first quarter.
AmEx Debuts First Checking Account in Push Beyond Business Cards (Bloomberg, 06/14/2021) AmEx hopes to win over small businesses through a checking account that comes with an APY of 1.1%
Stripe Goes Beyond Payments with Stripe Identity to Provide AI-based ID Verification for Transactions and Much More (TechCrunch, 06/14/2021) Stripe expands functionality, offering a tool to verify user identity in an encrypted format.
Marqeta’s CEO: From Digital Card Issuance (At Scale) To IPO … And What’s Next (PYMNTS, 06/14/2021) With its recent IPO, Marqeta seeks to expand its operations and capture more of the $30T in global card volume.
Two More Regional Banks Are Rethinking Overdraft Fees (American Banker, 06/15/2021) Regions Financial and Citizens Financial Group plan to decrease overdraft fees, following the lead in no/low overdraft fees from many neobanks.
Yes, Jeff Bezos Could Buy and Eat the Mona Lisa if He Wanted To (Vice, 06/16/2021) A breakfast fit for Bezos? Thousands sign petition urging Bezos to buy and eat the Mona Lisa.