This week, we look at growing consumer confidence and a potentially record year for mortgage lending, even as unemployment filings tick back up.
We also examine some of the regulatory priorities for an incoming Biden administration; and the “Next Top SPAC” competition continues, with payments platform Paysafe inking a $9Bn deal and industry stalwart, SoFi, reportedly meeting its own SPAC suitors.
Let’s get to it.
Economic Confidence Grows, Even as Unemployment Claims Rise
With winter now upon us and COVID cases rising, there was a notable increase in unemployment filings this week to 853k – a 137k jump from the week prior, though experts warned that the holidays can make the metric volatile.
Importantly, consumers are feeling more confident in the state of the economy as things rebound. New data from the University of Michigan shows a rebound in sentiment through December, driven in part by growing confidence in the economic recovery.
Source: Morning Consult Economic Intelligence, PeerIQ
Record Year Looms for Mortgage Lending
With confidence growing and rates at record lows, consumers are cutting back on their credit cards and instead, are pouring money into new homes. Data released this week by Inside Mortgage Finance shows $2.8Tn of new mortgage lending in the first 9mos of 2020, on pace to break the record columns pre-financial crisis.
Source: WSJ, PeerIQ
Unsurprisingly, it’s the nonbank lenders like Quicken Mortgage that are driving that growth – approaching a nearly 60% share of originations in this potentially record year.
Anticipation Grows for New Administration’s Regulatory Priorities
As the year winds down, focus is increasingly turning to the policy priorities that the incoming Biden administration may bring. With former Fed Chair, Janet Yellen, mooted for Treasury, we’re still waiting to see how other key financial services roles are allocated, but even without knowing the names, some priorities are clear.
This week, LendIt hosted a fascinating discussion including former OCC Head’s Keith Noreika and Thomas Curry and also Cross River CEO Gilles Gade.
Among the takeaways:
- Imperative for the new administration to bring needed clarity and direction to the regulation of FinTech. Recent proposals (such as the clarification around “true lender” rules from the OCC) are helpful, but more guidance is needed.
- Direct engagement with regulators around 3rd party vendor guidance is also essential. That guidance helps ensure standards across the industry, and when appropriately prescriptive, helps bring confidence to investors
- The partnership model between community banks and the tech sector is working. Regulators should acknowledge the successes, and as an industry, we’re excited to work with them to help set appropriate standards and frameworks to encourage continued community bank participation.
Thanks to all the panelists for the insights!
Paysafe in $9Bn SPAC Deal
Paysafe, the payments platform jointly backed by PE giants Blackstone and CVC, announced that it would go public in a $9Bn deal with a SPAC led by veteran investor, Bill Foley. The deal marks a return to public markets for Paysafe, which went private in a 2017 $4.7Bn purchase, and locks in a nearly 3x return for the PE pair.
SoFi Considers Its Own SPAC Debut
FinTech leader SoFi, led by CEO, Anthony Noto, is reportedly in talks to explore going public via a SPAC, reported CNBC this week. The company, which was valued at $4.8Bn in a fundraising round last year, has sought to downplay expectations of an IPO, emphasizing that while a public debut is “in the company’s long-term plans,” it’s not an immediate priority.
Buy now pay later startup, Affirm, is postponing its IPO until January 2021.
- While the reasons aren’t entirely clear, people familiar with the matter cited the extreme first-day pops this past week in the shares of DoorDash Inc. and Airbnb Inc. and delays at the Securities and Exchange Commission amid a flood of listing requests.
- The move comes just a day after the WSJ reported that videogame company Roblox Corp., which was on a similar IPO timetable, put its listing on pause until early next year.
- Both Roblox and Affirm will consider selling a larger portion of their shares and changing the mix of stock to be sold by the company, its employees and shareholders as they seek to mitigate any initial pop, some of the people said.
Check out our write-up of Affirm’s S-1 here. Our crack team of analysts went under the hood and it’s worth a look.
Capital One Changes the Payment Priority for Consumer Loans
Capital One announced this week that it was prohibiting customers from using its credit cards to pay buy-now-pay-later debts, declaring the transactions as an “unacceptable risk.” The move puts the credit card issuer, 3rd largest in the U.S. with more than 62MM accounts, on the opposite side of the growing industry – and other leading FIs such as PayPal, which are rolling out their own installment payment options.
This is a notable development. The company policy pushes installment loans to the bottom of the payment priority. Historically, the priority of what liabilities consumers pay off was a customer decision – driven by rate, convenience, service and other factors. This constraints that decision substantially. Expect other large credit card issuers (many of whom do not have a personal loan offering) and view FinTechs as competitive to follow suit.
Tink Captures $800MM Target
Swedish open banking platform, Tink – backed by PayPal and major European banks BNP Paribas and ABN AMRO, among others – crossed the $800MM valuation mark with a new fundraising round, CNBC learned this week. The firm, which now generates EUR 30MM ARR, expects to use the money to further fuel its hiring, which has already reached 365 people (up from 150 last year).
Cross River Named Company of the Year
And finally, congratulations to Gilles and the team at Cross River, who this week were named Company of the Year by Banking Dive. The group highlighted Cross River’s successes this year, most notably in the PPP program – where the Fort Lee, NJ firm financed $6.5Bn across nearly 200,000 loans, the third largest (by loan count) in the country behind only BoA and JPM.
Congratulations to the group – a well-deserved honor!
In the News:
- U.S. Jobless Claims Jump to Three-Month High Amid New Shutdowns (Bloomberg, 12/10/2020) Unemployment claims increased to the highest level since September for the week of December 5th.
- U.S. Consumer Credit Growth Slows as Credit Card Balances Shrink (American Banker, 12/7/2020) Consumer borrowing increased $7.2Bn in October, which is less than the estimated $15.5Bn by economists.
- Bank CEOs More Upbeat About 2021 as Vaccines Emerge (American Banker, 12/8/2020) With the latest update on COVID vaccines, bank CEOs are optimistic about recovery.
- Wall Street Sees World Economy Surging in 2021 From Rocky Start (Bloomberg, 12/11/2020) Analysts at Wall Street’s big banks are upbeat about the economy in 2021.
- Everything Changed In 2020. Will Fintech Ever Be The Same? (Forbes, 12/9/2020) What to expect from FinTech in a post-COVID world.
- The New Challenger Banks: ‘A lot of These are Going to Fail’ (American Banker, 12/7/2020) Many challenger banks have tried to differentiate themselves from others by having a target audience, but specialization doesn’t assure they will stick around for very long.
- How Bank of America’s Small-Business Strategy Laid Groundwork for PPP Efforts (Banking Dive, 12/8/2020) Bank of America credits its digital and human support infrastructure it had established before the COVID-19 pandemic to its success in delivering PPP loans.
- Is Stripe’s Lending and Payments Platform Move the Future of Banking? (The Financial Brand, 12/10/2020) Stripe Treasury should make traditional financial institutions reconsider in competing for banking-as-a-service.
- Jack Ma’s Ant Group Ramped Up Loans, Exposing Achilles’ Heel of China’s Banking System (WSJ, 12/6/2020) Financial institutions with a fragile risk management system have relied heavily on Ant Group to source their loans.
- AliPay Leads The Way In COVID-19 FinTech – And It’s A Lesson For Other Platforms (Forbes, 12/9/2020) Alipay has made great efforts to continue growth in a post-Covid economy by using a contactless approach with their products.
- Wells Fargo Partners with Bill.com to Automate Bookkeeping for Clients (American Banker, 12/9/2020) Bill.com will power Wells Fargo’s Commercial Electronic Office, which is a digital portal for its business clients.
- Why Square’s Expanding Ecosystem Threatens Banking’s Future (Financial Brand, 12/6/2020) Traditional institutions must improve their account opening capabilities to compete with P2P payment FinTechs like Square.
- Making Sense of Klarna (TechCrunch, 12/8/2020) Klarna CEO, Sebastian Siemiatkowski, believes that non U.S. companies can still experience growth without relocating to Silicon Valley.
- Affirm Postpones its Initial Public Offering (WSJ, 12/12/2020) Buy now pay later startup, Affirm, is now expected to go IPO in January 2021.
- How Tag Became a Professional Sport (Vox, 12/10/2020) The classic childhood game is now a professional sport played by parkour athletes.