Greetings,
US payrolls rose by just 75k in May and average hourly earnings rose by 3.1%. Both figures were below economists’ expectations. The results, together with continued weak inflation and softening in leading indicators, continue to suggest a slowing economy. Fed officials are setting market expectations up for 1 or 2 potential rate cuts this year – a remarkable about face from 12 months ago.
GDP, the product of labor and labor productivity, remains structurally constrained by full employment and low productivity growth. Layering on trade risk, policy errors, and uncertainty in the election season creates potential for more risk.
Source: Bloomberg, PeerIQ
In fintech financing news, Possible Finance, a small-dollar lender, has raised $10.5 Mn in a round led by Canvas Ventures. The company plans to use the funds to expand its operations and increase headcount. Biz2Credit, led by Rohit Arora, a small business lending platform, has raised $52 Mn in a round led by WestBridge Capital. The proceeds will be used to expand their white-label Biz2X offering. Biz2Credit currently offers its white-label Biz2X platform to HSBC and Popular Bank.
Banks Revaluating Technology Initiatives
JP Morgan has pulled the plug on its digital bank Finn. Finn’s users will be transitioned to Chase’s mobile app. The bank has been aggressively spending on technology and will focus on developing the Chase mobile app and bulking it up with technology developed for Finn. JPM is also betting on a larger physical presence and is opening 400 new branches in the next 5 years.
The challenge for JPM and other established banks have is a classic Innovator’s Dilemma. How does a large incumbent create and product that is superior to its own core offering without cannibalizing its P&L, or jarring the customer experience? For instance, online only banks offer much higher rates than branch-based depositories – offering a competitive online-only rate (1.5 to 2.25%) requires a much higher payout than the average payout for banks with heavy brick-and-mortar (.25 to .5%).
Citigroup is reported to have pulled out of the Apple co-brand deal as the bank thought that the portfolio would not make money. JP Morgan, Barclays and Synchrony also bid on the Apple card business, but Apple eventually partnered with Goldman Sachs. The deal might make more sense for GS who is looking to expand into the consumer space by adding a credit card product to its portfolio.
GS CEO Solomon told employees that Marcus does not get credit from investors for the progress it has made. Marcus has ~$48 Bn in deposits and ~$5 Bn in loans, and the argument is, that as a Silicon Valley startup, Marcus would be highly valued. The lending side of Marcus appears to be smaller than LendingClub (market cap of ~$1.3 Bn) from an originations perspective. GS does not provide segment-level performance for Marcus.
You can read our analysis on banks’ technology initiatives and how they are helping boost earnings growth here.
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PeerIQ Mentions:
- Marketplace Lending News Roundup (Lend Academy, 6/1/19)
Industry Update:
- Payrolls Rise 75,000, Missing Forecasts as Wage Gains Cool (Bloomberg, 6/7/19) U.S. employers last month added the fewest workers in three months as wage gains cooled.
- Fed Inches Toward Rate Cut as Trade War Frays Patience (Bloomberg, 6/5/19) Powell, Clarida assure markets and buy time for more data.
- A Goldman Sachs rival pulled out of the Apple Card deal on fears it will be a money loser (CNBC, 5/28/19) Citigroup was in advanced negotiations with Apple for the card but pulled out amid doubts that it could earn an acceptable profit on the partnership.
- Fifth Third seeks national bank charter to accelerate expansion (American Banker, 5/31/19) Fifth Third is looking for a national charter to compete with its larger peers.
- JPMorgan Scraps New App Service for Young People (WSJ, 6/6/19) Finn was hybrid, offering digital banking, as well as some branch access.
- Goldman CEO: If Marcus were a Silicon Valley start-up, people would be ‘throwing money at us’ (CNBC, 6/6/19) Goldman’s Marcus brand has begun to win over consumers, but that hasn’t helped the bank’s stock yet, which trades at a discount to rivals.
- Alternative Lenders Continue to Steal Business From Banks (The Financial Brand, 6/3/19) By not developing customer-centric digital lending platforms, traditional lenders have now also allowed digital players to steal significant loan customers.
- SoFi Loses Three Top Executives (WSJ, 6/7/19) SoFi is bringing in new talent to backfill its senior executive staff.
- Early LendingClub investor leads $10.5M round for small-dollar loan provider Possible Finance (geekwire.com, 6/5/19) Possible Finance raised $10.5 Mn in a round led by Canvas Ventures.
- Biz2Credit Raises $52M In Funding To Expand (pymnts.com, 6/4/19) Biz2Credit, a small-business lending platform, has raised $52 Mn in a round led by WestBridge Capital.
Lighter Fare:
- The Moon keeps flashing us and we have no idea why (Popular Science, 6/6/19) Astronomers are trying to understand the bursts of light seen on the lunar surface and think that they may be caused by the impact of meteorites.