Greetings,
Happy Thanksgiving — hopefully you had a chance to relax over the long weekend. If you missed PeerIQ’s Q3 Consumer Lending Review, you can find it here.
This week, unemployment claims hit a 52-year low and spending edges up. Talk of a 36% APR cap is back. Regulators release their “crypto sprint” report, while crypto companies raise capital. Airwallex raises an additional $100Mn. Slope wants to be “Stripe for B2B payments.” Inflation may boost loan demand. Amazon puts pressure on card networks. Klarna offers “Pay Now” option.
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Lowest Unemployment Claims in 52 Years
Initial jobless claims dropped to 199,000 last week — a 52-year low, showing strong demand for labor. The shift in power from employers to workers is showing up in rising wages, with personal income edging up 0.5% in October. In another positive sign, household spending in October rose 1.3%, though uncertainty remains about the persistence of inflation, and if or when the Fed may raise rates to tame it.
Lawmakers Revive Talk of 36% APR Cap
Last week, Congressional Democrats reintroduced the Veterans and Consumers Fair Credit Act, which would extend the Military Lending Act’s 36% cap to all consumers. The MLA restricts the APR for consumer products like payday, auto title, high-cost installment loans and credit cards to 36% for active-duty service members. While passage in the House is a possibility, analysts say, securing the 10 Republican votes necessary for passage in the Senate is unlikely.
Regulators Release Crypto Sprint Report
Multiple federal regulators released a joint statement on their “crypto-asset policy sprint initiative” and next steps. The brief, two-page document outlined efforts the agencies have undertaken to build a common understanding and knowledge base across government. It also highlighted crypto-related activities that banking organizations may be interested in engaging in, including: asset custody, facilitating crypto trading, loans collateralized by crypto assets, payments activities (including stablecoins), and activities that may result in banks holding crypto-assets on their balance sheets. The statement lays the groundwork for more specific regulatory guidance from specific agencies throughout 2022.
Increased regulation of crypto is, at this point, an inevitability. While there are likely to be individual “winners” and “losers” from additional oversight and requirements, the industry as a whole stands to benefit from increased stability and legitimacy.
Crypto Companies Raising Monster Rounds
These startups have something to be thankful for. Crypto companies MoonPay and Gemini both announced monster fundraising rounds last week.
MoonPay, which enables the purchase of cryptocurrencies with traditional payment methods like credit and debit cards, raised $555Mn in its first-ever financing round. The round led by Tiger Global and Coatue, valued the company at $3.4Bn.
Winklevoss twin-founded Gemini also had fundraising news last week. Gemini lets individual and institutional investors trade and store crypto. More recently, the company branched out into NFTs, with its platform Nifty Gateway. It has also acquired Blockrize to launch a Gemini credit card. Gemini raised $400Mn, the company’s first outside fundraising, which values it at $7.1Bn.
The amount of institutional capital flowing into early-stage crypto companies is turbocharging development in the sector and, in a sense, represents a changing of the guard. Some of the most-talked about startups these days are crypto companies — and it’s not just talk. Crypto companies are capitalizing on the buzz and the ability to attract capital and, more importantly, top-tier talent.
Aussie BaaS Startup Airwallex Raises $100Mn
Banking-as-a-Service and cross border payments startup Airwallex announced it has raised an additional $100Mn as part of an oversubscribed $300Mn Series E1. The additional capital brings Airwallex’s total equity funding raised to $802Mn. Australia-based Airwallex has, to date, focused on scaling its operations across APAC and EMEA, but also has the US market in its sights. According to the company, it has begun operations in the US and is gaining momentum in the competitive market.
Slope Wants to Be “Stripe for B2B Payments”
Slope, which enables businesses to offer BNPL-style financing for B2B transactions, announced it has raised an $8Mn seed round. Customers can tailor their payment terms at checkout, and Slope handles underwriting, originations, and servicing/collections. Like the first wave of consumer BNPL companies, Slope is striking deals directly with merchants to offer its POS financing option.
B2B payments, especially at the enterprise level, remains stubbornly antiquated, but that’s beginning to change. Slope recognizes the opportunity and is looking to tap into the huge volume of B2B payments, which is estimated at some $127 trillion globally. B2B payments in the US have been slow to modernize, with 40%+ still being executed via paper check.
Inflation Threat May Boost Loan Demand, History Shows
If there’s a silver lining to rising prices, it may be that it spurs demand for borrowing. Based on analysis of historical episodes of inflation, spikes in prices were found to correlate with increases in loan growth. The mechanism? Fear of rising interest rates. Consumers and businesses accelerate plans to borrow before rates rise. With what was supposed to be “transitory” inflation dragging on, there are signs the Fed is willing to raise rates as soon as mid-2022.
Image: American Banker
There are signs loan demand is already rising. According to KBW, 45% of the banks it covers saw at least 5% year-over-year loan growth in Q3 (excluding PPP loans). That’s up from just 25% of KBW-covered banks seeing 5% or greater loan growth in Q1.
After more than a decade of rock bottom interest rates and facing a glut of deposits driven by the pandemic, the promise of rate increases (even if driven by inflationary pressures) is an alluring one.
Amazon Puts Pressure on Card Networks Over Fees
Amazon isn’t happy about high payment processing fees, particularly for Visa cards, and it’s not being shy about it. In the UK, Amazon has decided to stop accepting Visa credit cards, citing high transaction fees, though it will still accept Visa debit cards.
Dropping Visa credit cards isn’t the only pressure Amazon is applying to card networks. The retailer has been busy developing a number of fintech partnerships to offer customers alternative payment mechanisms. Amazon has recently announced deals with Affirm, to offer BNPL financing, and to accept Paypal’s Venmo as a payment mechanism. While cards aren’t likely to be replaced as users’ default payment choice in the near future, these alliances show that there are alternatives to Visa and Mastercard. Proving that case may give Amazon the leverage it needs to negotiate lower fees.
Klarna to Offer “Pay Now” Option, Physical Payment Card
Buy now, pay now? Klarna is adding the option for shoppers to pay in full when shopping online. While, at first glance, that might not make a ton of sense, it broadens Klarna’s appeal to consumers and merchants. Much like Paypal, Klana’s “Pay Now” option will enable users to complete online transactions more quickly, without having to re-enter payment card information. It extends Klarna from a “financing” platform to a payments platform.
Klarna is also set to roll out a physical payment card in the US. The card will let users make interest-free pay-in-four purchases at any retailer, in-store or online.
The latest feature rollouts buttress Klarna’s relaunch of its app as a “superapp” focused on the end-to-end shopping experience, from discovery to payments to (if needed) returns. The “Pay Now” and physical card options extend Klarna’s presence and enables it to stay top of mind and top of wallet, even when consumers are shopping at merchants that aren’t part of Klarna’s network or when they’re not looking to finance a purchase.
In The News:
OCC to Banks with Crypto Plans: Check with your Regulator First (American Banker, 11/23/2021) The OCC will require banks that want to offer custody or engage in activities related to crypto assets get written notification of their OCC supervisory office’s non-objection.
Stablecoin Advocates Make their Case to U.S. Banking Regulators (American Banker, 11/22/2021) The Fed, OCC and FDIC met with the stablecoin cohort as part of an emerging effort known as the USDF Consortium.
Lee Fixel’s Addition Leads $32M Investment into TruePay, a Brazilian B2B ‘Buy Now, Pay Later’ Startup (Tech Crunch, 11/23/2021) TruePay’s BNPL offering aims to turn retailer’s credit card receivables into purchasing power.
AmEx Pitched Business Customers a Tax Break That Doesn’t Add Up (Wall Street Journal, 11/22/2021) Whistleblower files report that AmEx knowingly persuaded businesses to underreport income and taxes.
El Salvador Plans ‘Bitcoin City’ Powered by Volcano (Financial Times, 11/21/2021) No, this is not a joke. City with no property, income or capital gains tax to launch in El Salvador.
IPOs Keep Jumping Higher. How Long Will the Ride Last? (Wall Street Journal, 11/19/2021) Over 900 companies have gone public this year, driving the number of publicly listed companies above 4,000 for the first time in over a decade.
Europe’s Neobanks Find U.S. Market Tough to Crack (American Banker, 11/19/2021) European fintechs faced steep competition and a hard path to obtain licensing.
Avanti, Crypto Banks Shut Out (LendIt Fintech News, 11/22/2021) The journey toward becoming a legally regulated crypto bank is full of challenges and changes in policy.
Stripe Co-Founder Says the $95 Billion Fintech Giant is ‘Very Happy’ Staying Private (CNBC, 11/23/2021) Co-founder John Collision also says it is “not implausible” the company would start accepting payments in crypto again in the future.
Cion Digital Aims to Bridge the Gap Between Legacy Tech and Crypto (LendIt Fintech News, 11/22/2021) Cion helps entities become fully “crypto ready”, with new compliant payments, finance and lending systems.
Can Banks’ Relationship With FIS, Fiserv, And Jack Henry Be Fixed? (Forbes, 11/22/2021) Banks are frustrated with their core providers’ speed to market and pace of new innovation.
Lighter Fare:
In a First Test of its Planetary Defense Efforts, NASA’s Going to Shove an Asteroid (NPR, 11/22/2021) Not quite as exciting as blowing up asteroids Armageddon-style, but just as important.