New unemployment claims continue to drop though employers are still struggling to hire. The CFPB proposes a data collection rule for small business loans. Gary Gensler says banning payment for order flow is an option. API stock platform Alpaca raises $50Mn. Banks eased underwriting criteria at a record pace in Q2. Affirm partners with Amazon. PayPal may add stock trading. Square launches a paid invoicing product. Klarna expands its partnership with Global-e.
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Macro Picture Steady Despite Delta Headwinds
Initial claims for unemployment dropped last week to 340,000, despite a continuing surge in COVID-19 cases from the Delta variant. Meanwhile, ADP is estimating that private sector jobs increased in August by just 374,000 vs. a forecast of 600,000, indicating employers are still struggling to hire employees.
Workers on the sidelines may have some additional motivation to return to the workforce. Federal unemployment programs providing an extra $300 per week and support for typically ineligible gig and self-employed workers is set to expire on Monday.
Though the increase in COVID cases doesn’t appear to be driving layoffs, it is denting consumer confidence. The measure fell to a six-month low in August amid concerns about the Delta variant and higher inflation, with consumers less inclined to make big-ticket purchases.
The increased uncertainty from renewed COVID fears is certainly a headwind for the economy, but it doesn’t appear to be an insurmountable one. The employment picture remains strong and dips in consumer confidence and spending are likely to recover as the wave recedes.
CFPB Advances Rulemaking on Small-Business Lending Data Collection
The CFPB has proposed a new rule designed to bolster transparency in the small business lending sector. According to the release, the measure, required by Dodd-Frank, would require lenders to collect and disclose information about applicants for small business loans in order to allow community groups, researchers, and lenders to better understand and support small businesses’ borrowing needs.
The proposed rule would require lenders to collect 23 data points about applications, including loan amount, approval status, pricing information, and the race, ethnicity, and sex of the small-business loan applicant.
There is some concern from the industry, particularly smaller community banks, that the rule could be too broad. The current proposal applies to any lender originating 25 or more small-business loans per year. The Independent Community Bankers of America, a trade organization, argues that the increased data collection and reporting requirements would be a burden for community banks and harm small-business lending.
Additional data on small-business lending provides an opportunity for banks and fintechs to identify potential gaps or underserved communities in order to responsibly expand inclusion and access to credit for small businesses.
Payment for Order Flow Ban “On the Table,” Causing Robinhood Stock Drop
SEC Chair Gary Gensler fired a shot across Robinhood’s bow this week when he told Barron’s that a complete ban of payment for order flow is “on the table.” Gensler described the practice of selling retail traders’ orders to market makers as having “an inherent conflict of interest.” The SEC is in the process of reviewing PFOF practices and could come out with proposals governing or even banning it in the coming months.
Robinhood’s stock was down as much as 9% on the news, though it regained some of those losses. 81% of Robinhood’s first quarter revenue was derived from selling its customers’ stock, options, and cryptocurrency trades to high-speed trading firms, a significantly greater proportion than traditional brokerages.
Robinhood deserves credit for driving the wider “no fee” brokerage revolution, but it may have become a victim of its own success to some extent. Expanded access to trading and investing opportunities is a positive, but it shouldn’t come at the expense of investor and consumer protections.
Banks Ease Underwriting in Search of Growth
According to data from the Fed and estimates from UBS, U.S. banks relaxed underwriting standards at a record pace in the second quarter as they competed for loan volume. UBS analysis suggests that 25% of banks loosened lending requirements for consumer and corporate loans to small companies. Interest rates are likely to remain low, enabling borrowers to take on additional debt, and typically supporting lower default rates.
The move to loosen credit policy comes after an earnings season where banks posted strong profits powered by releases of loan-loss reserves, but disappointed with the lack of growth in their loan books.
Image credit: Financial Times
Non-bank fintech lenders have been faster to recalibrate their risk tolerance, posting large increases in origination volume vs. their pandemic lows.
Looking for the latest on fintech lending originations volume and performance? Reach out to firstname.lastname@example.org to learn about the data and analytics we have on the sector.
Affirm and Amazon Partner on BNPL
Affirm saw its share price soar as much as 48% on news the lender is partnering with Amazon to offer a buy now, pay later option for its customers. According to the announcement, Amazon users spending more than $50 will have the option to split the cost into monthly payments using Affirm, with no late or hidden fees.
Amazon is by far the biggest prize in BNPL providers’ land grab for merchant partners. The ecommerce giant is expected to do $367.19Bn in sales in 2021, accounting for an astounding 40.4% of all US ecommerce sales. Congrats to CEO Max Levchin and the entire Affirm team on the partnership.
PayPal Looking to Add Stock Trading
PayPal may be late to the party, but it’s reportedly exploring adding stock trading to its features to capitalize on resurgent interest from retail investors. The move comes after repositioning the service as a financial “super app” and adding cryptocurrency trading and buy now, pay later services last year. PayPal has hired Rich Hagen, co-founder of TradeKing, which was acquired by Ally Invest, to lead the effort.
PayPal, a fintech from the early days of the web, is navigating a rapidly evolving consumer services landscape with offerings from establishment banks (Zelle) and newer startups (Cash App) encroaching on its territory. Its “super app” strategy may allow it to increase revenue from existing customers and attract new ones with additional functionality.
Square Launches Invoices Plus Offering
Square has long offered free invoicing software, which it monetized through associated transaction processing fees for accepting card or ACH payments. The company is now preparing to launch a paid tier for the product, dubbed Invoices Plus.
The paid tier will include a variety of features, including some that had previously been available in the free product. Paid features include custom invoice templates, custom invoice fields, multi-package estimates, the ability to automatically convert accepted estimates into invoices, and the ability to build milestone-based schedules. The introduction of a paid tier brings Square’s invoicing product in line with other offerings from the company, like Square for Retail and Square for Restaurants.
Square continues to drive innovation and launch products at an impressive clip. With the pending acquisition of Afterpay and various crypto and defi projects in the works, expect Square to keep up the pace as it looks to build on its strong SMB and consumer base.
Klarna Expands Partnership with Global-e
Klarna and ecommerce platform Global-e announced an expansion of their partnership. Klarna’s BNPL options will now be available to all merchants on Global-e’s platform in the US, UK, France, Spain, Italy, and Australia. Global-e’s platform facilitates ecommerce transactions in over 100 currencies and 25 languages, with localized shipping options and return processes.
Alpaca Raises $50Mn for Trading-as-a-Service
Alpaca, which offers an API-first platform for equity trading, has raised a $50Mn Series B. The round was led by Tribe Capital, with participation from existing investors Spark Capital, Portage Ventures, and Social Leverage.
Alpaca’s original focus was on offering trading APIs to investing groups. It has expanded to offer embeddable trading functionality for consumer fintech apps. The move appears to be paying off, with the startup reporting a 1,500% increase in the number of brokerage accounts its technology supports.
Like Robinhood, Alpaca generates revenue from payment for order flow, which it intends to share with partners that embed its API. Such a move can make offering stock trading via a partnership with Alpaca a revenue generator rather than cost center. Alpaca also hopes to develop additional revenue sources by supporting international customers and expanding into crypto offerings.
Alpaca’s expansion into offering APIs that power trading for consumer fintech is representative of two major trends at the moment: “embedded fintech,” where companies deliver functionality via API for use in others’ products, and explosive growth of interest from retail investors, dating to the early days of the pandemic.
In The News:
Fed Faces New Challenge Spelling Out Employment Goals (Wall Street Journal, 08/29/2021) Covid has complicated the Fed’s determination of when the economy has reached max employment, making it more difficult to predict figures such as how many people who left the workforce last year will return.
Regulators Urge Banks to Assess Risk in Teaming with Fintechs (08/27/2021) The Fed, FDIC, and OCC release guide as a resource for banks to consider when partnering with fintechs.
U.S. Banks Give Embedded Finance a Whirl. Will it Catch On? (American Banker, 08/30/2021) Accenture estimates U.S. banks could generate an additional $230Bn from embedded banking.
Slowing Car Sales Put Brakes on Lenders (Credit Union Times, 08/27/2021) Tight semiconductor supply has led to slowing sales putting more pressure on credit unions that are struggling to produce loans.
Barclays Buying $3.8 Billion Gap Card Portfolio From Synchrony (American Banker, 08/27/2021) Barclays expands its presence in the U.S. consumer market with acquisition of portfolio from Gap
Banco Inter Acquires FinTech Startup USEND (PYMNTS.com, 08/27/2021) The Brazilian digital bank will buy fintech USEND, which offers foreign exchange transactions, payment wallets, debit cards and bill payments to over 150k customers, most of which are Brazilians living in the U.S.
Neobank Nerve Co-founder: New Era of Community Banking (Lendit Fintech, 08/31/2021) Are community focused neobanks the future? Nerve, a neobank for musicians, launches Sep. 15.
Plaid Partners with Astra to Offer Money Movement Service (finLedger, 08/31/2021) The partnership will enable automated ACH transfer to over 11,000 financial institutions and 5,000 digital financial service companies.
Revolut Plans 2021 Credit Card Launch in Bid to Crack US Market (Financial News London, 08/31/2021) Revolut’s launch will mark the first time the digital bank has launched a credit card outside select European countries, where it is able to passport its Lithuanian banking license.
Overall Rankings for 2021 PPR Fantasy Football Leagues (08/27/2021) Ahead of Thursday Night’s NFL kickoff, brush up on fantasy rankings to dominate your office’s fantasy league.