Happy Sunday,

Slower rate hikes. Home sales pickup, a little. Debt ceiling showdown looms. Fed probes Goldman’s Marcus. Sanctions startup raises $45Mn. B2B BNPL company raises $100Mn. DailyPay announces fresh funding. Banks plan their own digital wallet. Rich customers seek out better rates for idle deposits.

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Slower Rate Hikes on The Horizon

The Fed is debating moderating its pace of interest rate hikes. After four successive 0.75-point hikes, at its last meeting, the Fed increased rates by a more modest 0.50 points. Now, slowing to 0.25-point hikes is on the table. Proponents of the slower pace argue it would give the Fed more time to assess the impact previous rate hikes have had on economic activity and in lowering inflation.

Despite the effect rate hikes have had on demand for mortgages, home sales activity actually picked up in December. Pending sales rose 2.9% on a seasonally adjusted basis, the first such increase since October 2021. The average 30-year fixed-rate mortgage ticked down to 6.15% last week, per Freddie Mac. That’s the lowest it’s been since last September.

However, a showdown over the U.S. debt ceiling continues to cast a shadow over the U.S. economy. The Treasury announced it has begun “extraordinary measures” to be able to continue paying the country’s bills. The Biden administration insists it won’t negotiate, while Republicans plan to use the need to raise the limit to negotiate spending cuts.

Rich Customers Look for Better Rates

As interest rates increase, wealthy customers are looking for better returns on their cash. Despite some deposit flight, money center banks like Wells Fargo, Bank of America, and Chase continue to pay next to nothing for most deposits. That makes for a stark difference with some online-only banks, Treasury notes, money-market funds, and brokered CDs, which are all paying between 4-5%.

Wealthier customers with extra cash are responding by moving funds out of low-yielding bank accounts into other accounts and products. The difference between wealthier customers vs. banks’ more typical ones is illustrated by the drop in deposits in banks’ wealth management units compared to consumer banking. For instance, JPMorgan Chase saw deposits drop 17% in its asset- and wealth-management division vs. a drop of only 1% in its consumer banking unit.

Fed Probing Goldman’s Consumer Business

Coming off the back of a rough earnings announcement, there’s more bad news for Goldman Sachs. The Wall Street Journal is reporting the Federal Reserve is probing the bank’s consumer business. Specifically, the Fed is said to be looking at if Goldman implemented adequate controls as it scaled its Marcus consumer lending efforts. Outcomes for consumers who may have faced issues are a key area of concern.

The matter isn’t Goldman’s only open regulatory issue related to its consumer efforts. It also faces an ongoing CFPB inquiry regarding practices related to its credit card business.

Sanctions Screening Startup GSS Raises $45Mn

Is 2023 (finally) the year of “regtech”? With the tide of VC money for consumer fintechs receding, driving a focus on fraud mitigation, and geopolitical issues like Russia’s invasion of Ukraine, the answer just might be yes.

GSS, a “collaboration platform” for banks and other financial institutions, announced it has raised $45Mn in its first funding round. The platform aims to simplify and reduce costs of sanctions checks by enabling multiple parties to the same transaction to share sanctions screening information. Currently, a complex, cross-border transaction might touch four or more financial institutions, with each applying its own compliance rules. GSS says its platform can increase speed while reducing cost and human errors. The catch? Participants on the platform need to agree on some common minimum level of compliance requirements.

Tranch Raises $100Mn in Debt and Equity

Tranch, a UK-based “B2B BNPL” provider, announced it has raised $100Mn in seed equity and debt capital. The equity portion was led by Soma Capital and FoundersX. The debt facility is provided by Clear Haven Capital Management. The announcement did not specify the amount of equity vs. debt capital.

Tranch enables SaaS platforms and service providers to get paid in-full upfront, while extending their customers flexible payment options in terms of up to 12 months.

DailyPay Raises Additional $260Mn in Funding

Earned wage access platform DailyPay announced an additional $260Mn in funding. The amount includes a $160Mn expansion to its revolving credit facilities from Barclays and Angelo Gordon. There’s also a $100Mn term loan from SVB Capital and Neuberger Berman, which the company will use to continue its production development and drive growth.

Banks Plan Own Digital Wallet

The Wall Street Journal reported last week that a consortium of large banks is planning their own digital wallet to compete with the likes of PayPal and Apple Pay. The initiative will be part of Early Warning Services, which is owned by the nation’s largest banks. EWS operates the Zelle payment network, though reports indicate the new wallet initiative will be separate from Zelle. James Anderson, a former Mastercard exec, will lead the effort, according to American Banker.

Still, banks have an uphill battle here – and a poor track record. Chase launched its own wallet, Chase Pay, in 2015. Six years later, fewer than 1% of online merchants accepted it, and Chase killed off the project in 2021. MCX and its wallet, CurrenC, are a verifiable case study in what not to do when trying to launch a new payment method. Details remain scarce at this point, but you can be sure participants across the industry will be watching closely for what comes of this.

Credit Tightening Leads to Origination Decline

Source: PeerIQ

Capital One and Ally bucked the trend of declining deposits, both increasing their average consumer deposits by 3% sequentially. In contrast to many major banks, Ally and Capital One’s

savings accounts offer yields of over 3%. LendingClub has continued to capitalize on its Radius Bank acquisition, growing deposits by 25% sequentially.

Both LendingClub and Finwise saw their originations fall sequentially ((24)% and (19)%, respectively) as they tightened their credit standards as recession fears have increased. LendingClub CEO Scott Sanborn reported that, “We were proactive to begin tightening early in 2022 and have continued to tighten our underwriting throughout the year.” Prior to reporting, LendingClub announced layoffs of 14% of its workforce (225 employees). In addition to tightening credit standards, LendingClub guided toward retaining 30-40% of loan originations during the first quarter. This represents an increase from the fourth quarter’s 28% of originations retained.

In auto, Ally and Capital One have followed through on their plans to pare back auto loan growth, with auto loan originations falling (25)% and (20)% sequentially. Rising rates have greatly impacted refis across all loan types, and Navient reported a (42)% sequential decrease in private education refi originations.

Consumer net charge-offs rose, though remain largely below pre-pandemic levels, with Capital One +63bps, Synchrony +48bps, Ally +31bps, and Finwise +20bps reporting credit normalization. Amex’s CFO Jeff Campbell expects this trend to continue, stating, “Going forward, we expect delinquency and write-off rates to continue to move up over time, but to remain below pre-pandemic levels in 2023 for Card Member loans.”

Mastercard and Visa reported new partnerships and solutions, expanding their product offerings during the fourth quarter. Notably, Mastercard and JPMorgan Payments announced a pay-by-bank solution that “utilizes the MasterCard open banking platform to modernize existing ACH payments and allow customers to pay bills from their bank account in a frictionless manner.” Additionally, SoFi became the first U.S. bank to launch within the Mastercard Installments program.

Visa renewed partnerships with major banks, including Bank of America, Capital One, Commerce Bank and UBS. Visa management announced new use cases for its transfer solution, Visa Direct. New use cases included seller payouts on Poshmark and card top-offs with GoHenry.

In the News:

Can Banks Issue Stablecoins? (CoinDesk, 1/23/2023) Thomas Hogan argues that there is no law banning U.S. banks from issuing paper or digital private banknotes.

Zelle to Pay: Can Banks Turn Their P2P Network into a Wallet? (American Banker, 1/23/2023) Banks plan to launch their digital wallet in 2H23, with Visa and Mastercard as partners.

Bank Of America’s And Chase’s Digital Wallet Is DOA (Delusional On Announcement) (Forbes, 1/23/2023) Ron Shevlin argues that ApplePay is not the main enemy, as Gen Z and Millennials use PayPal, CashApp and Venmo at a much higher rate.

The New Venture Capitalists: How Community Banks Are Fueling The Growth Of Fintech (Forbes, 1/23/2023) Community banks and credit unions are filling the void created by VCs, making direct investments into fintech startups.

Signature Bank Halts SWIFT Transactions Under $100,000 for Crypto Users, Says Binance (Decrypt, 1/23/2023) Only 0.01% of Binance’s monthly users are served by Signature Bank.

As Retailers Overhaul the Checkout, they Find Fresh Troves of Data (American Banker, 1/23/2023) Cameras and sensors can track shoppers and observe what shoppers buy but also what they stopped short of buying.

35,000 PayPal Accounts Breached in Credential Stuffing Attack (American Banker, 1/20/2023) The hacker gained access to accounts in an attack that exposed names, dates of birth, addresses, SSNs, tax IDs and phone numbers.

Amazon-Stripe Partnership Accelerates Ecommerce and Streamlines Online Payments (Stripe Newsroom, 1/23/2023) Under the new agreement, Stripe will become a strategic payments partner for Amazon (U.S., Europe, Canada) and will process a significant portion of Amazon’s total payments volume.

Even ‘Sam Coins’ Have Soared in Crypto’s Swift $250 Billion Jump (Bloomberg, 1/23/2023) The crypto market has rebounded past $1T from its 2022 selloff.

What Does the Future Look Like for Crypto Lenders? (American Banker, 1/23/2023) In the wake of major crypto lending bankruptcies, some observers still see a viable future for the sector.

Binance Acknowledges Storing User Funds with Collateral in Error (Bloomberg, 1/24/2023) Acknowledged that it mistakenly keeps collateral for some of the tokens it issues in the same wallet as exchange-customer funds.

Lighter Fare:

I Outsourced my Memory to AI for 3 Weeks (Business Insider, 1/24/2023) Will the future of memory and learning be supplemented by AI?