Wishing all of our readers a very happy and healthy new year! Lots of news to kick off 2021 – SoFi looking to go public via SPAC; OCC’s groundbreaking guidelines on cryptocurrency for banks; our partner, Cross River in the next round of PPP; and, Affirm’s continued sprint in 2021.
Let’s get to it.
Stimulus Bill Passed, Unemployment Remains Elevated
The second round of stimulus payments was passed last week. The $900Bn COVID relief deal includes $284Bn for PPP loans for struggling small businesses, direct payment checks of up to $600 per adult and child, and $300 per week for enhanced unemployment insurance benefits.
It’s expected that the new Congress will pass additional stimulus measures, including relief for state & local governments.
Unemployment claims remain elevated, holding at about four times their pre-pandemic average through the fall and into winter. Interestingly, imports of consumer goods reached the highest level on record in November, primarily cell phones, appliances, jewelry, and toys – giving further credence to the K-shaped recovery concept.
Source: WSJ, Labor Department, PeerIQ
Cross River to Participate in the Next Round of PPP
Cross River, led by CEO, Gilles Gade, has announced that they will be participating in “Round B” of PPP.
In the previous round, Cross River provided more than $6.5Bn in relief to nearly 200,000 small businesses, with an average loan size of $33,000. In addition to building its own comprehensive lending platform, Cross River partnered with over 30 leading technology companies to allow thousands of additional businesses to apply for and receive funding safely and efficiently. This tech-first approach vaulted Cross River to the top of the leaderboard alongside banking giants JP Morgan and Wells Fargo.
OCC’s Allows Banks to Use Stablecoins to Conduct Payments
The OCC, led by former CoinBase executive, Brian Brooks, has released Interpretive Letter 117. The letter states that banks may use stablecoins to streamline consumer payment transactions.
It opens up the possibility that banks will use INVNs and stablecoins to transfer funds between financial institutions faster and without the need of a government intermediary.
Why is this a big deal?
It opens up the possibility of an alternative channel to payment networks, ACH, and wires. That might mean close to zero transaction fees and instant settlement (including over weekends).
The winners are consumers and tech-forward banks/neo-banks who could adopt this technology and skip traditional payment mechanisms. Over the long run, the incumbents with most to lose are Visa/Mastercard and card issuers reliant on debit and interchange income.
This is a notable win from the OCC’s commitment to keep pace with the changing technology and landscape.
Separately, JPMorgan is optimistic about Bitcoin and believes that the cryptocurrency can reach a $146,000 price target.
OCC vs CFPB Turf War?
A task force appointed by the CFPB is recommending that Congress consider authorizing the bureau, and not OCC, to issue federal charters to FinTechs.
The report favors putting the authority in the hands of the CFPB because of its bent toward consumer protection and, it says, the OCC’s interest in protecting the rival national bank charter.
The OCC, while agreeing with the conclusion that nonbank FinTechs that offer similar products and services as banks should be able to operate under the same rules, pushed back against the recommendation that CFPB should issue the charters.
Our take? The proposal will create confusion in the already complex depository regulatory environment.
SoFi to go Public via SPAC, Observations on Upstart’s Crackling Debut
SoFi, led by CEO, Anthony Noto, is set to go public by merging with a blank-check company, Social Capital Hedosophia Holdings Corp V., run by Chamath Palihapitiya.
This deal will value SoFi at $8.65Bn, and is expected to provide up to $2.4Bn in cash proceeds.
Palihapitiya has been credited for kicking off the SPAC craze. These SPACs include Virgin Galactic and announced agreements with two others, Opendoor and Clover Health.
SoFi is the fourth such deal. The news, along with an ebullient reception for Upstart’s IPO, represents a dramatic turnaround in fortunes for FinTech investors.
Key highlights from SoFi’s investor presentation:
- Targeting high earners not well served (HENWS), ages 22+ predominantly earning $100,000+
- Leveraging the financial services productivity loop (“FSPL”), where building trust and a relationship in the 1st product drives success in the next, resulting in higher LTV and lower CAC
- Three business segments – Lending, Technology platform (Galileo), and financial services
- SoFi has received conditional approval from OCC for bank charter; key benefits include durability, lower cost of capital, increased NIM from holding loans longer, and enables increased growth in lending
- Accelerating member growth, 1.7MM as of Q4 ‘20 (up 75% YoY)
- Net revenue ‘20E at $620MM (up 38%YoY), forecasting 5y CAGR of 43%
- Adj EBITDA ‘20E -$66MM or -11%
Source: SoFi, PeerIQ
We await to see how SoFi and Affirm perform in their upcoming public debuts, given Upstart’s success.
Note that Upstart’s market cap is now $4.1Bn. The stock is now at $54 (up from IPO price of $20). See the review of their S-1 here.
Overall, the news should buoy investors in LendingClub. Additionally, we would expect boards of FinTech lenders to consider how to reposition their businesses to tap into the FinTech craze.
Affirm Seeks to Raise Nearly a $Bn in IPO
Momentum for “Buy now, Pay Later” continues to stay high.
As evidenced by Affirm’s S1-A filing, where they seek to raise ~$935MM, they plan to sell 24.6MM shares priced between $33 – $38 each.
At the top of that price range, Affirm would have a market value of $9.22Bn based on the outstanding shares listed in its filing. Including employee stock options and restricted share units, Affirm would have a valuation of more than $11Bn.
The company expects to make its trading debut on January 13th, said a person familiar with the matter who asked not to be identified because it wasn’t public.
In its S-1 filing, Affirm reported net revenue of $509.5MM for the fiscal year that ended on June 30, 2020, up 93% YoY. See our deep dive into Affirm S1 here.
BBVA Shutting Down Banking App, Simple
Some consolidation is underway in the world of challenger banking apps. BBVA, which had acquired the pioneering mobile and online banking app Simple in 2014, is planning to shut it down and move its accounts to BBVA USA.
In the News:
- Fed Officials Fretted Over Virus Surge at December Meeting (WSJ, 1/6/2021) The Fed’s outlook on an economic rebound in 2021 depends on the success of the COVID vaccines and the path of the pandemic.
- Fed Had a Loan Plan for Midsize Firms Hurt by Covid. It Found Few Takers. (WSJ, 1/4/2021) Many potential borrowers for the Main Street Lending Program had their business impacted by the COVID-19 pandemic, which caused banks to hold back on participating.
- How will SEC Complaint Affect Banks’ Relationships with Ripple? (American Banker, 12/29/2020) The SEC filed a 71-page complaint against Ripple, which may impact the payments startup’s relationships with big banks.
- Fed’s Evans Calls for Possible Revamp of U.S. Financial Regulation (Reuters, 1/5/2021) Chicago Fed President, Charles Evans, requested an overhaul U.S. financial regulation.
- FinTechs Shouldn’t be Granted Easy Outs on CRA (American Banker, 1/4/2021) Many FinTechs do like the idea of complying with the CRA since their main focus is already on low and middle class households and small businesses.
- Wells Fargo Released from one Enforcement Order, Still has 10 to go (American Banker, 1/5/2021) The OCC has put a stop to a 2015 anti-money laundering consent order to Wells Fargo, but the big bank still has ten more public enforcement actions left.
- The Winners And Losers in Fintech and Banking in 2020 (Forbes, 12/28/2020) Forbes’ list of the most accomplished and most challenged FinTechs in 2020.
- Money Stuff: SPAC Magic Isn’t Free (Bloomberg, 1/8/2021) Special purpose acquisition companies are a faster way for private firms to go public.
- Oportun’s Bid for Bank Charter Meets Resistance (American Banker, 12/31/2020) Consumer advocacy organizations like the ProPublica investigation, have pushed to have the OCC reject Oportun’s national bank charter application.
- SimpleNexus Secures $108 Million in Series B Funding (HousingWire, 1/5/2020) SimpleNexus, led by CEO, Matt Hansen, raised $108MM in Series B funding.
- Silicon Valley Bank to Buy Boston Private for $900M in Wealth-Management Push (Banking Dive, 1/5/2021) Silicon Valley Financial Group will acquire Boston Private, which would increase Silicon Valley Bank’s assets under management by $16.3Bn.
- Divvy Raises $165M as the Spend Management Space Stays Red-Hot (TechCrunch, 1/5/2021) Divvy, led by CEO, Blake Murray, raised $165MM in Series D funding.
- Lend Academy Podcast 279: Jerry Wang of Haitou Global (Lend Academy, 12/31/2020) Jerry Wang, CEO and founder of Haitou Global talks emerging market debt investing and why some of the best investment opportunities today are in far flung places.
- Earth is Whipping Around Quicker Than it has in a Half-Century (LiveScience, 1/6/2021) Earth is experiencing the fastest 28 days since 1960.