October inflation hit 6.2% year over year. Sen. Toomey urges caution on stablecoin regs. ID verification startup Socure raises $450Mn. UK BNPL Zilch raises $110Mn. Zip and WebBank partner on a BNPL card. Ocrolus and Blend partner to automate mortgages. Bill pay goes real time. Santander expands no-fee overdraft. Klarna’s on a tear. Robinhood hacked.
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Unemployment Down, Inflation Up
Unemployment claims continue to edge down, but consumer prices jump — a lot. Monthly CPI rose 0.9% vs. 0.6% forecast, making the year over year change a whopping 6.2%. Despite increasing nominal wages, inflation means real wages actually fell by 0.5% from September to October.
Meanwhile, Fed governor and vice chairman for bank supervision Randal Quarles announced he would resign at the end of the year. The opening will give Biden four seats to fill on the seven-member board. Current Fed chair Jerome Powell, a Republican, is widely viewed as the front-runner to be re-appointed to his current role.
Toomey Pushes Back on Stablecoin Report
Sen. Pat Toomey (R-PA) pushed back on aspects of the recent working group report recommendations to more tightly regulate stablecoin issuers. The report called for bank-like regulation of entities issuing stablecoins, including chartering and deposit insurance. Toomey acknowledged the case for more transparency and disclosure about the assets backing stablecoins, but cautioned against overly aggressive regulation inhibiting innovation, saying “I think we have to really think long and hard before we put some onerous regulatory regime on a new technology.”
Given their potential risk to consumers, the financial system, and incumbents, stablecoins are likely to remain a lighting-rod across the political spectrum. Some use cases for stablecoins, particularly in payments, are becoming increasingly clear. Responsible regulation should ensure consumer/investor protections and financial stability, while encouraging innovation and competition.
ID Verification Startup Socure Raises $450Mn
Socure, which offers identity verification technology, announced it has raised a $450Mn Series E led by Accel and T. Rowe Price. The round increases the company’s valuation from $1.3Bn this past March to $4.5Bn. Socure’s “identity resolution engine” leverages AI and machine learning to verify good identities and detect attempted fraud. Its customers include banks, fintechs, crypto exchanges, and gaming companies like Stash, Public, Voyager, and DraftKings.
If we had one take away from Money2020, it was the accelerating “fintech infrastructure” ecosystem. If the early waves of fintech were about taking offline products and processes and putting them online or improving UX, fintech is progressively moving ‘down the stack,’ with new, API-first solutions coming to market. The upshot? Building a financial services company, with best-in-class tech, is cheaper and faster than ever before.
BNPL Zilch Raises $110Mn, Quadruples Valuation
UK BNPL provider Zilch has raised an additional $110Mn as its valuation quadrupled. Zilch’s founder and CEO, Philip Belamant, said the company has seen about 30-35% month-on-month growth since its most recent funding round in March, making the company about 8x bigger than just eight months ago. Zilch plans to use the fresh funding to expand into the crowded and competitive US market.
Zilch’s decision to raise a war chest to expand to the US is an interesting one. While the size of the US market gives it obvious appeal, entrants in another popular consumer fintech category — neobanking — haven’t seen much success. Zilch is a bit late to the party, and there are already early signs of consolidation (Zip/Quadpay, Square/Afterpay, Alliance Data/Bread, etc.) and downward pressure on MDRs (PayPal).
Looking for the latest on fintech lending originations volume and performance (including in BNPL)? Reach out to firstname.lastname@example.org to learn about the data and analytics we have on the sector.
Zip Partners with WebBank on “Zip Card”
In other BNPL news… Australia-based Zip, which previously operated in the US as Quadpay, announced its partnership with WebBank to launch “Zip Card.” The physical Zip Card adds to Zip’s existing distribution channels for its BNPL offering, which include virtual cards, Chrome extension, Zip app, and merchant partners.
The competition in BNPL is moving (or expanding, at least) from ecommerce check out to the browser (Chrome extension), beginning of the shopping journey (BNPL apps), and to bricks and mortar retailers. While there are multiple ways of enabling BNPL “IRL,” a physical payment card makes a play for share of wallet, literally, while giving users the flexibility to use at any merchant.
Ocrolus and Blend Work to Automate Mortgages
Document automation company Ocrolus and cloud banking provider Blend announced they’ve inked a deal to use Ocrolus’ tech to improve automation of digital mortgage applications. Initially, Ocrolus’ software will be used to classify and capture data for mortgage applications, with the possibility for future expansion into other areas of the business.
The home buying and mortgage process is the most complicated transaction most consumers will conduct in their lifetime. The opportunity to simplify and shorten that process through automation will pay obvious dividends. Still, automated document scanning, even if intelligent, feels like a stopover on the way to more comprehensive “open banking”-like API-based solutions.
Banks and Merchants Make Bill Pay Real Time
Big billers like Verizon are looking to make it easier for their customers to pay them. Banks are responding by enhancing payments infrastructure. Citigroup and Bank of New York Mellon recently announced support for Request for Payment (RfP) messaging as part of The Clearing House’s Real-Time Payments (RTP) network. This enables institutional clients of the banks to send electronic bills to customers, who are able to pay immediately or at a future scheduled date.
Other banks offering the RfP functionality including JPMC and PNC, but dozens of other large banks and countless small banks don’t support the functionality. Plans are in the works for a consortium of large banks and core providers Fiserv and Jack Henry to roll out support, which could boost coverage to as high as 40% of consumer accounts.
The payments space is seeing an immense amount of innovation. Big banks seem to understand this — and the risks to their existing businesses. Adopting functionality like real-time payments and RfP is a smart move to defend lucrative relationships with some of the largest businesses.
Santander Expands No-Fee Overdraft
Overdrafts, which garnered intense scrutiny from legislators during the height of the pandemic, have been out of the headlines lately. Feeling the pressure from the Congressional spotlight, upstart competitors offering fee-free accounts, or both, a number of major banks announced fee reductions or features designed to help consumers avoid punitive fees.
Now, Santander has joined the party. Last week, the bank announced “Santander Safety Net,” which raises the threshold for fee-free overdraft to $100, which it claims is the highest of any ‘traditional’ bank in the US. According to Santander, the move will eliminate overdraft fees for nearly a third of its customers who have recently overdrawn their accounts.
Santander’s expansion of its no-fee overdraft capabilities is the latest example of pressure on banks’ fee income. If we’ve learned anything from previous attempts to rein in non-interest income, it’s that banks usually find a way to compensate for fee revenue they give up. While overdraft fees are shrinking or disappearing, what new fees might pop up in their place?
Klarna’s Hoping to Finance a Big Holiday Season
Klarna has inked a number of partnerships in recent months, hoping to put itself squarely in front of consumers whatever they’re shopping for this holiday season. The Swedish BNPL juggernaut struck a partnership with Stripe, dramatically expanding its potential online distribution. It has entered into deals with mall operator Simon Property Group and commerce platform FreedomPay, making Klarna available in-store at retailers using FreedomPay’s platform, including mall classics like Jo-Ann Stores and Foot Locker.
The company also recently announced the ability to split pay quarterly or annual subscription and membership payments. Subscriptions go far beyond gym memberships or magazines. The category has seen explosive growth, driven by the popularity of ecommerce and direct-to-consumer brands, with recurring subscriptions available for everything from make-up to wine and steaks.
If BNPL is a land grab, Klarna is playing to win. It has been on a streak of product and feature expansion, partnerships, and acquisitions to steadily grow its business.
No-fee brokerage Robinhood has been attracting a lot of the wrong kind of attention lately. It’s been the subject of numerous regulatory inquiries and Congressional hearings, covering topics as varied as its PFOF-based business model to its now-retired ‘confetti’ when users executed trades.
The spotlight is on the company again, as it reveals a major data breach last week. Email address of about 5Mn Robinhood users were exposed, which potentially opens them up to phishing attacks or other scam attempts. More extensive data was compromised on about 300 users.
The attack leveraged another of Robinhood’s weak points: customer service. The company has come in for criticism for its lack of live phone support and slow turnaround times — something it’s been working to improve by hiring more customer service reps and expanding availability of phone support.
The latest incident is bound to draw additional criticism and scrutiny from regulators and legislators.
Amazon, Crypto and Originations Define this Week’s Earnings
While this week marks the end of our quarterly earnings coverage, the finale did not disappoint, with companies posting double-digit earnings swings on new partnerships, and revenue/earnings estimate beats and misses.
Affirm made headlines with its announcement of an expanded partnership with Amazon, which, coupled with a revenue beat, sent its stock up 13.7%. While we already knew Amazon would be offering Affirm’s installment loan product on purchases over $50, the amended agreement stipulates that Affirm will serve as Amazon’s sole third party, non-credit card, BNPL option in the U.S. through January 2023. As such, Affirm will have over a year to gain market share and recognition from working with the largest e-commerce platform on Earth. In a testament to the strength and demand for loans, Affirm announced that it had completed a $247Mn securitization of its long-duration 0% APR POS installment loans during Q3.
PayPal also announced a partnership with Amazon, which was overshadowed on its earnings call by their lowering of revenue guidance and the lingering effect EBay’s migration to other payment processors continue to have on overall payments, sending the stock down (10.5)%. PayPal’s partnership with Amazon means that starting in 2022, its customers can make purchases on amazon.com using their Venmo accounts. While Amazon has not yet allowed users to checkout with PayPal, the option of using Venmo is a big win for PayPal, who has worked to increase Venmo product features.
Another way PayPal is adding to Venmo’s features is through Cash Back to Crypto, “a new way for Venmo Credit Card customers to automatically purchase cryptocurrency from their Venmo account using cash back earned from their card purchases.” PayPal hopes to take advantage of the surge in interest in crypto, expanding their crypto product offerings (buy, hold, sell) to customers in the U.K.
PayPal isn’t the only company who reported this week to pursue new crypto initiatives, with SoFi introducing 7 new crypto coins during the quarter. This addition brings the total number of crypto coins supported to 28, up from 5 at the beginning of the year. While crypto does not currently make up a large portion of SoFi’s current revenue, SoFi likely is looking to cross sell to existing customers who may be interested in or hold crypto accounts on other platforms.
SoFi continued the trend of origination volume growth for alternative lenders, with originations up 49.0% YoY and 15.5% QoQ, even as their student loans continue to be depressed by the CARES Act moratorium on federal student loan payments. SoFi reported that the moratorium has caused student loan refinancing volumes to remain at 50% of pre-CARES Act levels. However, strong growth in its personal lending segment, bolstered by a new partnership with Pagaya drove overall origination volume growth. SoFi has been able to increase its cross-selling ability, with average products per member up to 1.45 for the quarter, compared to 1.37 a year prior and 1.43 in the second quarter. SoFi has seen success from its acquisition of Galileo, with CEO Anthony Noto saying, “acquiring Galileo not only allows us to innovate faster on our products, but also positions us prominently among integrated tech platforms that service financial and non-financial institutions.” Galileo accounts have grown 80% YoY, to 89Mn, and the company signed 13 new clients during the third quarter, bringing 2021’s total to 35.
While Jack Henry stock ended the day slightly down, (1.3)%, it reported positive metrics for its digital banking platform Banno, with CEO David Foss saying, “We also continue to see great success signing clients to our Banno digital suite, with 35 new contracts in Q1. Speaking of our digital suite, we are continuing to implement new financial institution clients on the Banno platform at a similar pace to recent quarters. At the end of Q1, we surpassed 6 million registered users on the platform, and that number is growing at about 125,000 users per month.” Additionally, the company was able to grow its new card processing solution, signing 6 new debit processing clients and 1 new credit client during the quarter.
Source: Google Finance, PeerIQ
In The News:
Fin VC Raises $400 Million To Be A Full-Stack B2B Fintech Investor (Forbes, 11/8/2021) Fin VC launched in 2018 to focus on investments in B2B SaaS fintech companies.
Case Study: Coinbase Brings Crypto-Backed Card to Reality (Marqeta Blog, 11/2/2021) Overview of the Coinbase Card, used to make purchases with crypto from consumers’ Coinbase wallets.
Coinbase’s Shiba Gamble, NFT Plan Fuel Wall Street Optimism (Bloomberg, 11/8/2021) Record highs for BTC and ETH, paired with Coinbase’s new offerings fuel share price growth.
Google Strikes $1Bn ‘Cloud’ Deal with Exchange Operator CME Group (Financial Times, 11/4/2021) CME will begin to move its data and clearing services to Google Cloud next year, as part of a 10-year deal.
BlueTape Offering Buy Now, Pay Later on Building Supplies (PYMNTS.com, 11/9/2021) The construction sector lender will offer a BNPL feature to allow payment over 30 (with no fee), 60, or 90 days.
Brex and Ramp Want to Take On Amex. First, They’ll Fight Each Other (The Information, 11/5/2021) Brex faces threat from two-year-old copycat Ramp in the corporate card space.
Payments Tech to Draw $40B Next Year: Forrester (Payments Dive, 11/3/2021) Research firm Forrester’s 2022 projections include new regulations on BNPL, banks moving aggressively into BNPL and for Stripe and Klarna to go public.
It’s Beginning to Look Like a Good Christmas for Credit Card Lenders (American Banker, 11/9/2021) With card debt rising ~2% YoY and household debt hitting a record high during the quarter, credit card lenders see light at the end of the (COVID) tunnel.
Can Plaid Succeed Where Card Giants Fall Short? (American Banker, 11/10/2021) Plaid’s ecosystem of corporate partners include Silicon Valley Bank, Circle, Railsbank, Dwolla, and Currencycloud.
Heinz Grew “Martian” Tomatoes that are Good Enough for Ketchup (Quartz, 11/9/2021) Heinz works with “The RedHouse” lab, to grow tomatoes in a simulated Mars environment.