Happy Sunday,

More rate hikes on the horizon. Housing continues to cool. Consumers’ spending habits shift as interest rates, inflation continue to bite. Younger borrowers falling behind on debt. Custodia still wants its Fed master account. CFPB sets sights on card issuers’ reporting practices. Mintoak raises $20Mn for SMB payments-and-commerce platform. Big banks start paying up for deposits (with a catch). Coinbase and Block report earnings.

Keep an eye out, as will be releasing our Q4 Consumer Lending Wrap this week. In case you missed our Q3 edition, check it out here.

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More Quarter-Point Rate Hikes on The Horizon

The minutes of the most recent Fed meeting show “almost all” officials favored a 0.25 point rate increase. “A few” preferred or supported a larger 0.50 point rate hike. Those supporting a larger hike argued it would more quickly bring rates to the level where the Fed believes they will be “sufficiently restrictive.” The minutes strongly suggest another 0.25 point hike at the Fed’s March meeting. St. Louis Fed President Bullard, who is not currently a voting member on rates, said he thinks rates need to get as high as 5.375% as fast as possible in order to rein in inflation.

Meanwhile, data shows rate hikes are continuing to hit the housing market hard. U.S. home sales posted their 12th straight monthly decline, with existing home sales dropping to their lowest level in 12 years in January. Home price inflation has cooled, with the average price notching its smallest annual gain since 2012. Mortgage applications for purchase have hit a 28-year low. Mortgage rates have resumed an upward trend, with the contract rate on a 30-year fixed jumping 23 bps to hit 6.62%.

Image: American Banker

The overall effect of inflation and rate hikes is hitting consumers’ wallets – and purchase decisions. As the overall cost of essential purchases has risen, shoppers are adjusting their habits to focus on quantity over price and quality. Stretched budgets are also showing up in credit quality. Younger borrowers are falling behind more quickly on debt payments. Delinquencies for 20- and 30-year olds have risen slightly above pre-pandemic levels, though there are no signs of “widespread stress.”

Custodia Amends Fed Lawsuit

Crypto-focused bank Custodia isn’t giving up on its quest for a Fed master account. After an unusually long delay, the Kansas City Fed ultimately denied Custodia’s bid to access Fed payment systems.

In the latest development, Custodia amended its existing suit to argue that the Fed has no authority to block them from accessing the central bank’s payment systems. For its part, the Fed argues that its 12 regional member banks have “sole discretion” over granting such access.

CFPB Takes Banks to Task Over Credit Card Data Reporting

The CFPB isn’t happy with how the largest credit card issuers are handling reporting repayment data to the credit bureaus. Chase, Citi, Bank of America, Capital One, Discover, and American Express either never reported customers’ complete payment information or stopped doing so around 2013, according to the CFPB. Instead of reporting borrowers’ actual payment amount each month, the issuers are reporting the minimum payment due and/or the amount outstanding. The bureau argues that this practice could be artificially lowering consumers’ credit scores by as much as 20 points.

In their responses to the bureau’s inquiry, the major issuers explained the practice by arguing the benefits of reporting the data were outweighed by “proprietary interests,” that they didn’t think “the cost of furnishing was worth it,” and that furnishing such data would put them at a “competitive disadvantage.”

Consumer advocacy groups argue this harms borrowers and may be in violation of the Fair Credit Reporting Act.

Mintoak Raises $20Mn

Mintoak, a SaaS-delivered merchant services platform, announced it has raised a $20Mn Series A. The round was led by PayPal ventures with participation from HDFC Bank, Pravega Ventures, and British International Investment.

India-based Mintoak is designed to simplify and integrate merchant access to multiple capabilities, including payments, commerce enablement, analytics, and capital. The platform helps connect banks and merchant acquirers through its white-label solution and on a pay-per-use basis. Mintoak plans to use the fresh capital to continue developing its capabilities and expand its presence from India into the Middle East, Africa, and Southeast Asia.

Big Banks Pay Up for Deposits (with a catch)

Sometimes it’s hard to believe, but banks are actually battling for deposits by raising the rates they’ll pay. Even bigger, bricks and mortar banks are entering the fray – with a catch. PNC, Citi, and BMO are willing to cough up as much as 4.00%, 3.85%, and 4.20% APY, respectively, but only if customers live outside of their branch footprint.

The offerings are notable, as even online-only banks haven’t gone above 4.00% APY for the most part. Goldman Sachs’ Marcus, for example, is currently offering 3.85% APY for its online savings account. Online-only fintechs like HMBradley offer rates as high as 4.20%, but only if users direct deposit more than $500 per month and spend more than $500 on an associated credit card.

Block and Coinbase Report Earnings

Source: PeerIQ

Block reported that Square loans, its SMB financing product, was able to grow origination volume to $1.16Bn. This represents a 2% increase sequentially, still positive but slower growth than in prior quarters.

Management reported GMV growth of 14% YoY for its BNPL program for the fourth quarter. Looking ahead, management guided towards 19% YoY growth through the months of January and February. Additionally, Block plans to increase headcount by 10% over 2023, in contrast to many tech companies that have laid workers off.

Coinbase reported lower trading volume ((9)% sequentially) and assets ((21)% sequentially) on its platform, as crypto prices trended lower in the fourth quarter. The platform’s monthly transacting users (MTUs) declined from 8.5Mn in the third quarter to 8.3Mn in the fourth quarter.

In the News:

US to Cut Mortgage Insurance Costs for Some New Homeowners (Bloomberg, 2/22/2023) Borrowers with mortgages insured by the FHA will see their fees cut by about $800 a year.

Supreme Court Hasn’t Decided Yet to Take CFPB Constitutionality Case (American Banker, 2/21/2023) Depending on how sweeping the decision, the case could threaten to undo CFPB’s past actions and rules.

Mastercard and Visa to Face Another Card Interchange Class Action Suit (Finextra, 2/21/2023) The card companies are set to face another multi billion-pound lawsuit over Multilateral Interchange fees.

Stablecoins Attract Scrutiny in SEC’s Drive to Control Crypto (Wall Street Journal, 2/22/2023) The SEC is investigating whether stablecoins are issued in violation of investor-protection laws, but a lawsuit over stablecoins may not be easy win, as users do not expect profits from owning the tokens.

Wall Street in Line to Reap Benefits of US Crypto Custody Shake-Up (Bloomberg, 2/21/2023) The SEC proposed asking qualified custodians to give assurances that client assets are properly segregated and protected from insolvency, in addition to carrying out annual independent audits and turning over records upon request.

Few Winners to Be Found Among FinTech IPOs Minted During Pandemic (PYMNTS, 2/22/2023) Of the 46 fintech names tracked by PYMNTS, only three trade above their offering price.

Credit Unions Launch Merchant-Funded Gift Card Reward Platform (American Banker, 2/21/2023) Prizeout Partners CUSO (formed by 9 U.S. credit unions) enables credit unions to sell digital gift cards through their institution’s online or mobile banking channel.

JPMorgan Restricts Staff’s Use of AI-Powered ChatGPT Bot (Bloomberg, 2/22/2023) The caution around the new tech is understandable, as U.S. regulators fined banks over $2Bn in total penalties related to their workforce’s unauthorized use of private messaging services from 2021-2022.

Lighter Fare:

Signs of Mars Life May be Too Elusive for Rovers to Detect (Space.com, 2/21/2023) Returning samples from Mars to Earth may be the best way to discover if there is/was life on the Red Planet.