This week, we zoom in on the American borrower, and the progress on curing loans in forbearance; more evidence of the accelerating shift towards digital-first finance; and finally, a few words on the Colorado decision that seems to set up a clear conflict with the OCC’s recent “Madden fix” final rule.
Fed Chairman Powell’s conference on Wednesday reminded us that full recovery of the economy would take time. Nothing particularly shocking – but it did lead to a spike in volatility. The VIX ended the week at 36 (50% higher than just a week prior).
We don’t claim to be able to read market gyrations – and readers, you have more than enough sources of opinion on that front! Since the end of May, our view on risk assets is “expect more downside volatility ahead” as markets make sense of it all.
Moving away from Wall Street to Main Street, the FT reports this week on positive signs that borrowers will keep their loans current after short-term forbearance programs expire this month.
Nature is Healing; Credit Card ABS Spreads Near Recovery
While bank executives have pointed to positive outcomes across a range of credit products, this has been especially true for credit cards; Synchrony, for example, noted that 75% of the customers taking payment holidays have already been able to return to “current” status. We can see that in the AAA spread data below.
Source: JPMorgan, PeerIQ
Latest on Loan Modifications in Hardship
We’re seeing that steady recovery flow through in our own data.
Source: PeerIQ Analytics Platform
Here at PeerIQ, we’ve been tracking the rate of loans in hardship programs on our platform, and this week we saw that rate fall by 59bps – the second week-on-week decline since the beginning of the COVID-19 crisis.
Source: PeerIQ Analytics Platform
We’ve also been watching closely how quickly loans in forbearance recover to being current. On May 21st, for example, only 2% of the loans that had been in forbearance the prior week converted to current. By June 11th, that weekly conversion rate had nearly tripled to 5.7%.
Yes, it’s far from a complete recovery, but the steady moves in a positive direction are encouraging!
Mnuchin Makes the Rounds for More Stimulus
Looking ahead, Secretary Mnuchin this week told lawmakers that another round of fiscal stimulus would be needed, and argued for targeted assistance for industries particularly hard-hit by COVID-19, such as travel, retail and leisure. Noting that only 16% of the 2MM jobs lost by retailers in April had returned, Mnuchin argued that “[W]e are going to need another bipartisan legislation to put more money into the economy.”
Cross River’s Platform for PPP Loans
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According to the SBA, Cross River is one of the top PPP lenders in the nation, originating more loans than Square and PayPal.
Source: SBA, PeerIQ
In FinTech industry news, as we slowly start to open up, a couple stories this week highlight the continued shift to digital first finance that the lockdown has only accelerated.
On the consumer front, use of early wage access platforms has surged during the crisis, as Tear Sheet reports. These businesses (including DailyPay, PayActive, Dave, Earnin, and others) offer users access to their earned wages early, without having to wait for a biweekly payday to arrive. COVID-19 has accelerated the demand for these tools – DailyPay, for example, saw a 400% increase in March, mainly to buy essential goods, said Chief Innovation and Marketing Officer, Jeanniey Mullen.
As many outlets have reported, even before COVID-19, American workers at times struggled to pay their bills between wage payment periods. Great to see FinTechs stepping into that gap, and finding ways to support consumers during the crisis.
GS Adds Amazon to Its Quiver
On the small-business front, Amazon this week revealed a partnership with Goldman Sachs to provide Amazon merchants with revolving credit lines. Offered through Goldman’s Marcus brand, the accounts carry fixed interest charges of 6.99% to 20.99%, and are another way for Goldman to accelerate its expansion into Main Street banking.
GS now has two major partners – Apple and Amazon – in its quest to transform into a consumer bank. Left unclear however, the P&L give-up (“winner’s curse”) to win these partners in a competitive environment. Is the juice worth the squeeze?
Regulation – Two Steps Forward, One Step Back
On the regulatory front, Colorado state courts ruled this week that under state law, non-bank purchasers of loans are prohibited from using Section 27 of the Federal Deposit Insurance Act to benefit from an out-of-state bank’s interest rate exemption.
While certainly worth a closer look, its impact may be limited as the ruling appears to conflict with other CO decisions upholding “valid when made.” Furthermore, it sets up a potential conflict with the OCC’s recent final rule to clarify questions around loan assignments arising from the Madden ruling. Clearly more to come on this, as these conflicts will need to be resolved.
In other regulatory news, we saw positive steps this week by the New York State’s Department of Financial Services. American Banker reports that the regulator, a key partner to many of us in the industry, is expanding a pilot program to help FinTechs and other startups navigate regulatory issues. The program, known as DFS FastForward, creates an avenue for innovative businesses to engage directly with DFS staff and get compliance questions sorted quickly.
Given the increased reliance we all have on FinTechs during this crisis, we’re glad to see DFS taking steps to streamline the compliance process and help FinTechs help consumers.
A few fundraising announcements to highlight this week.
Payments platform Trustly, led by CEO Oscar Berglund, crossed the $1Bn valuation mark this week thanks to a new investment round led by BlackRock. The Swedish startup provides infrastructure to execute payments via bank transfer, a preferred method of payment in many European countries, and one the CEO expects to grow as millennials seek closer control over the finances through a wide range of payment options.
Also, congratulations this week to Chicago-based M1 Finance. The digital financial management firm, led by CEO Brian Barnes, raised a $33MM Series B this week, bringing their overall fundraise to $54.5MM.
In the News:
- Mnuchin Backs New Stimulus Targeted to Stragglers in Reopening (Bloomberg, 6/10/2020) Treasury Secretary, Steve Mnuchin, said that a fourth round of fiscal stimulus should include help for travel, retail and leisure businesses, and maybe even more cash for American families.
- US Lenders See Hopeful Signs in Loan Repayments (Financial Times, 6/7/2020) U.S. banks expect many borrowers to recommit to their normal payment schedules once their forbearance deals expire later this month.
- Early Wage Access Providers See Usage Spike During Pandemic (Tear Sheet, 6/9/2020) During the COVID-19 pandemic, some early wage access platforms are reporting increased activity as consumers cover unforeseen expenses.
- Determination of the February 2020 Peak in US Economic Activity (National Bureau of Economic Research, 6/10/2020) The fact that the monthly peak of February occurred in the middle of Q1 2020, while the quarterly peak occurred in Q4 2019, reflects the unusual nature of this recession.
- Market Pulse: State of the Mortgage Industry and the Road to Recovery (Equifax, 6/11/2020) Equifax webinar on macroeconomic overview of the mortgage industry.
- ‘Banks are the Infrastructure’: OCC Leader on Pandemic, Recovery, CRA (American Banker, 6/7/2020) Acting Comptroller of the Currency, Brian Brooks, believes that financial institutions are needed more than ever to “sustain existing businesses” and help entrepreneurs rebuild.
- BankThink Bankers Need to Walk the Walk on Equality (American Banker, 6/9/2020) How banks can do more to support their minority employees and customers.
- Are Banks Doing Enough to Fight Unemployment Benefit Fraud? (American Banker, 6/8/2020) Banks and prepaid card providers have played an unintentional role in scams that have stolen billions of dollars from state unemployment insurance programs.
- The World’s Best Banks: The Future Of Banking Is Digital After Coronavirus (Forbes, 6/8/2020) Digital technology is revolutionizing the global banking market.
- New York State Expands Feedback Program for FinTech Startups (American Banker, 6/9/2020) The Department of Financial Services is going live with DFS FastForward, which aims to help innovators in finance, healthcare and insurance consult directly with regulators on specific compliance issues.
- Amazon Unveils Small Business Credit Line with Goldman in Latest Tie-Up Between Tech and Wall Street (CNBC, 6/10/2020) Amazon partners with Goldman Sachs to launch a new digital credit line for U.S.-based merchants.
- Square: Why Its Stock Is Soaring And How It’s Threatening Banks (Forbes, 6/8/2020) The impact of COVID-19 has hurt Square, but longer-term trends bode well for the company.
- Upgrade CEO Renaud Laplanche: Fintech is About Using Online or Mobile Devices to Streamline Access to Financial Services (Crowdfund Insider, 6/9/2020) Upgrade CEO, Renaud Laplance, believes that FinTech’s role during the COVID-19 pandemic is to “help customers stay healthy while giving them access to the products and services they need in their daily lives.”
- HSBC Offers Customer Service Through Apple Messages App (American Banker, 6/8/2020) HSBC has added Apple’s iMessaging feature to its suite of customer service channels.
- Third Point Hedge Fund Seeks to Raise More Than $500 Million (Bloomberg, 6/11/2020) Third Point wants to raise more than $500MM for a new hedge fund to wager on structured credit markets, which imploded during the COVID-19 market turmoil.
- BlackRock Backs Trustly, Bank Transfer Payments Platform Now Valued at Over $1B (Tech Crunch, 6/10/2020) BlackRock invested in Swedish Payments FinTech startup, Trustly.
- M1 Finance raises $33M Series B as it reaches $1.45B AUM (TechCrunch, 6/10/2020) M1 Finance, led by CEO, Brian Barnes, raised $33MM in Series B funding to double-down on its product focus.
- Titan Moving Away from Saturn Faster than Expected (AstronomyNow, 6/8/2020) Saturn’s largest moon is drifting away faster than expected.