This week headlines were dominated by rate cut talk with dovish comments from Fed Chair Jerome Powell. Also this week, moves from “digital banks” – increasingly the new center of gravity for the FinTech market.
First – on rates. While the prospect of rate cuts have stirred animal spirits, history tells a much more sobering story. With the exception of 1967 and 1996, every 50 bps easing of monetary policy by the Federal Reserve has been associated with an oncoming or ongoing recession.
Source: PeerIQ, WSJ
The slowdown in activity that presages a rate cut is confirmed by looking at recent data as well.
Source: PeerIQ, Hussmann
Policy makers are responding to the velocity and breadth of de-acceleration from the post-stimulus high (Q3 2018). Still no recession is imminent, although policymakers would like to take out an insurance policy with easing.
Digital Banks – The Future of FinTech Lending?
Digital banks including N26, Revolut, and Chime appear to represent the latest wave of FinTech disrupting the consumer banking sector.
European fintech N26 launched in the US, further thickening competition in mobile banking. The mobile bank is focusing on allowing anyone the power to instantly sign up for an account, also providing an interface that allows consumers to monitor their spending through categorization and spending limits. N26 now finds itself as a neobank in the US market, along with veteran UK banks like Barclays, MUFG, and HSBC that seek to scale up lending operations.
The lines between FinTechs and the neo-banks are blurring. UK digital lender Zopa, for instance, has for most of its life originated prime unsecured consumer loans. Now Zopa has a license to open a bank and expand its range of consumer banking services. Reports indicate that SoFi, Square and other US-based FinTech lenders may be pursuing a special purpose national bank charter from the OCC. (However, An OCC charter would not by itself grant deposit-taking privileges.).
Nevertheless, the destination of more established FinTechs and newcomer digital banks appear to be the same. The digital banks have access to deposit funding to fund loans and therefore do not rely on capital markets in the ordinary course of business. The digital banks aspire to have a range of checking, savings, cash management, lending and wealth management services.
FinTechs lenders meanwhile are white-labelling banking services to complete the customer product roadmap while awaiting a charter. SoFi Money, WSFS, Radius Bank and its deposit partnerships with FinTechs are great examples of this.
This week, Boston-based Radius Bank is looking to adopt the user-friendly style set forth by the aforementioned European banks. The bank has added onto its massive redesign and partnered with Lemonade to provide a marketplace where consumers can interact directly with insurers. This comes after establishing partnerships with Billshark for bill negotiation and Huddl for investment opportunities.
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- 13 Fintech Lending Companies Upending The Credit Card, Mortgage And Loan Industries (Builtin, 6/4/2019) PeerIQ listed as a disruptor in a intelligent lending
- Amazon at 25: The magic that changed everything (Seattle Times, 6/29/2019) Benjamin Romano reflects on Jeff Bezos’ development of Amazon’s customer experience on its 25th birthday
- Beyond Mobile Money: The Future of Asia’s Fintech (Entrepreneur, 7/9/2019) Fintechs use smartphone data to determine credit of individuals lacking bank accounts in Asia
- Jerome Powell Says Outlook Hasn’t Improved in Recent Weeks, Setting Stage for Rate Cut (WSJ, 7/10/19) Predictions of a rate cut look as if they are about to come true while outlook on trade remains cloudy
- U.S. Stocks Rise to Records Following Powell’s Comments (WSJ, 7/10/2019) Following recent negative comments on our economic outlook, stocks shoot to record highs
- P2P lending returns compressed by rising losses since 2016 (AltFi, 7/8/2019) “Investors in a diversified P2P lending portfolio made up of the largest UK platforms have seen returns after fees and losses fall consistently for three years”
- Funding Circle Debuts First European Private Debt Fund (Crowdfund Insider, 7/5/19) Online platform Funding Circle to provide pension funds and institutional investors with opportunity to invest in a highly diversified portfolio of small to mid-sized German/Dutch SME loans.
- Are Banks Opting for Own Projects Over Libra? (Lendit, 7/8/19) Confusion surrounding banks own futures in cryptocurrency preventing decisive action with Facebook currency Libra.
- European challenger bank N26 launches in the U.S. (Venturebeat, 7/11/19) Mobile-only high speed banking startup launches for US customers on waitlist.
- Zopa gets in-house tech ready for 2019 bank launch (Computer Weekly, 7/11/19) UK Peer-to-peer lending company awaiting restrictions lift later this year to launch bank
- Online bank’s hub strategy borrows from across the pond (American Banker, 7/11/19) Radius Bank looking to establish online marketplace for consumers to interact directly with insurers.
- Emojis are increasingly coming up in court cases. Judges are struggling with how to interpret them (CNN, 7/8/19) Does sending the knife emoji constitute a threat of violence? Probably not, but emoji ambiguity is stumping judges across the nation