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Recession Risks; OCC Charter + Big Tech; PeerIQ's Modeling Archive

By Vy Phan

June 23, 2019


This week, bad news is good news again. Asset prices are marching towards record highs with hints of interest rate cuts. Economists' forecasts of recessions climbed sharply this week to 33%.

Weak economic data continue - inflation expectations tumble, manufacturing has moved into recession, and the 10y/3m yield curve remains mildly inverted. Although the FOMC took no rate action this week, dovish signaling has led market participants to expect a 70% chance of 3 or more rate cuts in 2019.

The rate cuts would benefit FinTech lenders that rely on spread markets to finance origination. FinTech’s are facing increasing competition from deposit-funded competitors such as Goldman’s Marcus.

Rising Odds of a Downturn – Highest Levels Since Q4 ‘2011

Source: WSJ, PeerIQ

The 10-year break-even rate, a measure of investor expectations of the average annual inflation rate over 10 years, has dropped below 1.7% from 2% in April.

CPI Since 1879 During Business Cycles

Source: Deutsche Bank, PeerIQ

“Big Tech” on the Sidelines

FinTechs and incumbent banks worried about competition from “Big Tech” can breathe easy - for now. Major tech and fintech companies including PayPal and Google have backed away from exploratory meetings with the OCC on the new special-purpose national bank charter.

Political and litigation risk fears, stand in the way of greater engagement with “Big Tech.”  The charter is also unclear on an applicant’s ability to access the payments system or discount windows. Many fintechs also fear being named in these suits and risk damaging existing relationships with state regulators.

In FinTech financing news, Tally raised a $50 Million Series C . Tally, led by CEO Jason Brown, is focused on providing fully automated debt management and saving strategies. Also, ZeroDown, led by CEO Abhijeet Dwivedi, closed a financing round that, you might have guessed, enables home purchasing with a $10,000 fee per home. What could possibly go wrong? (We kid.) The FinTech aims to increase home ownership by combining the security of ownership with the flexibility of renting.

New product innovation continues. Equifax has teamed up with non-profit Fintech Sandbox to help spark innovation. The action is the latest in a series of moves from Equifax to build its presence in the FinTech sector. Equifax recently launched its Insight Credit Score – based on trended and alternative data – increasing performance and approvals.

PeerIQ’s Modeling Archive

PeerIQ’s Modeling Archive allows users to build their own prepayment and default models to drive investment decisions. The Modeling Archive is derived from TransUnion data going back to 2000.

Do reach out to learn more about our Modeling Archive!

Industry Update:

Lighter Fare: