Wishing our readers a happy Easter!
This week, we look at SoFi’s launch of IPO investing, Visa vs PayPal in crypto, Stripe vs Brex in spend management, and the acceleration of digital banking due to Covid.
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Strong Jobs Report; Broad Gains Across Sectors
Nonfarm payrolls increased by 916,000 in March, best since last August and beating economist’s expectations. Importantly, this recovery is more broad based than before, with most sectors reopening.
While the jump was led by leisure and hospitality as expected, construction activity also picked up significantly after dipping in February due to severe winter. Education climbed as more schools reopened and manufacturing saw the biggest advance since September.
Consumer Bankruptcies Lower Despite Covid; Loan Performance Strong
Consumer bankruptcy filings fell sharply last year. Filings under chapter 7 were down 22%, while those under chapter 13 were down 46%. Federal moratoriums on evictions, home foreclosures, and student loan obligations have helped limit consumer bankruptcies. In contrast, commercial bankruptcy filings increased 29%.
Our take: Throughout Covid, originators and investors alike have been worried about significant downside risks to consumer loan performance. The pendulum actually swung to the other side, as stimulus payments combined with conservative underwriting led to record growth in deposits significantly outpacing loan growth, causing a scramble for whole loans, as we highlighted here.
On our platform, we see that consumer loans continue to perform well across the spectrum (prime/near-prime/non-prime), as charge off rates stay depressed and prepayment rates climb higher (see chart below).
Source: PeerIQ Analytics Platform
Get in touch if you want to perform similar analysis on your portfolio and learn more about the PeerIQ platform.
Visa Allows USDC for Payments; Paypal Launches Crypto Checkout
Visa will now allow cryptocurrency USD Coin to be used on its payments network. Typically, if consumers use crypto to make purchases, the digital currency held in a crypto wallet is converted into fiat money for settlement. However, Visa’s latest step would use ethereum blockchain (note: without mentioning Ethereum) to strip out the need for this conversion.
PayPal also announced that it will launch a crypto checkout service. Customers who hold bitcoin, ether, bitcoin cash, and litecoin in their PayPal digital wallets will now be able to convert their holdings into fiat currencies at checkouts to make purchases. The service will be available at all of PayPal’s 29 MM merchants in the coming months.
Our take: Paypal has a “walled garden” approach to its digital wallet. Arguably, the PayPal news may be bigger since USDC has about $10 Bn in outstanding, whereas PayPal opens up transactions to tens of millions of customers and merchants.
If you want to dig in deeper, our CEO Ram Ahluwalia has written a substack article titled “Payment Wars: Visa’s Uneasy Dance with Crypto”. Check it out!
These announcements come two weeks after Tesla said it would accept bitcoin as payment for its cars, and that it intends to hold the bitcoin it receives as payment.
Online Payments Jump 41% Due to Covid
Covid has dramatically accelerated the adoption of digital payments in real-time, with online payments surging 41% last year. Global mobile payments also rose to a historic high of 46% in 2020, up from 40.6% in 2019 and 18.9% in 2018.
Countries with robust digital payment systems in place have fared better in weathering the pandemic’s economic impact. Although real-time payments are relatively new to the U.S., the real-time payments share of all transactions doubled for the country in 2020.
SoFi to Allow Users to Invest in IPOs
SoFi will now allow its users to invest directly in IPOs. This news comes after Robinhood stated that it is working on a platform for its users to buy into IPOs, including its own. SoFi’s new IPO product offering can be used by anyone who has a “SoFi Active Invest” account and at least $3,000 in total account value.
SoFi CEO Anthony Noto said, “IPO Investing reflects our continued effort to make investing more accessible, by pioneering fractional shares, offering commission-free trading, creating unique SoFi-branded ETFs, and now, IPO investing.”
nCino Earnings Highlights
Market cap $6.4 Bn, stock up 4% post earnings, last traded 69.38, P/S ratio 31.3x
- Revenues for Q4 2020 at $56.6 MM, up 47% YoY; for FY 2020 at $204.3 MM, up 48% YoY
- Key partnerships
- Closed a large expansion deal with their first enterprise client in Europe – a $500 Bn bank in the Netherlands
- Added a new logo with one of the largest banks in the Baltics
- Record retail go-lives in Q4 2020
- Up 100% from Q4 2019
- Key customers who went live include the U.S. arm of a $50 Bn bank, a $30 Bn U.S. regional bank, and a $12 billion-asset Canadian credit union.
Much of nCino’s impressive growth has been driven by the pandemic. Last year, many banks and financial services firms were scrambling to get their operations up to speed in order to adapt to a new digital era. nCino’s operating system helps speed up banking functions and makes remote work more feasible — things desperately needed as the industry’s status quo gets disrupted by fintechs.
Stripe Invests in Brex and Divvy Competitor Ramp
Ramp led by CEO Eric Glyman is close to securing two rounds of funding that will value the spend management platform at $1.6 Bn. D1 Capital Partners led the first round with participation from Stripe and Goldman Sachs. Stripe is now leading another round for $50 MM to increase its stake.
This deal is another example of the recent trend of hedge funds and private tech investors buying stakes in early stage companies in the hopes of earning high returns.
In the News:
- OCC, CFPB, FDIC, NCUA and Federal Reserve Join in Request for Information on Artificial Intelligence and Usage in Financial Services (Crowdfund Insider, 3/29/2021) Financial regulatory agencies announced a consultation pertaining to the usage of AI and machine learning in the financial services sector.
- SEC Warns of Risks to Private Companies Merging with SPACs (Finance Feeds, 4/1/2021) The SEC pointed out that if a SPACs is listed on a national securities exchange, the combined company must satisfy quantitative and qualitative initial listing standards upon the finalization of the merger.
- Where Goldman, Citi, JPMorgan are Putting FinTech Investment Dollars (American Banker, 3/29/2021) Big banks are investing their venture capital dollars in fintech startups involved with capital markets, wealth management, and “future-proofing.”
- The Impact of NFTs on Fintech (Lend Academy, 3/29/2021) The combination of NFTs and DeFi is where the innovation for fintech will arise in the near future.
- US Fed’s Digital Dollar Initiative Might Affect Revenue of Wall Street Giants, but Digital Currency May Take Several Years to Launch (Crowdfund Insider, 3/29/2021) Big banks are concerned because the Fed’s digital dollar might change the way US consumers interact with money.
- Moven and StrategyCorp Form Challenger Bank Alliance (FinExtra, 4/1/2021) Moven and StrategyCorp’s partnership will help banks and credit unions not only build new digital banking solutions, but drive revenue as well.
- H&R Block Eyes Digital Banking Market (Banking Dive, 3/29/2021) H&R Block wants to offer digital banking solutions for its consumers and small business customers.
- Affirm Teams with Vacation Platform Vrbo (PYMNTS, 3/31/2021) Affirm partners with vacation platform Vrbo, to offer interest-free financing for future travel plans.
- Mastercard Partners Up to Advance Digital Economy Via Financial Inclusion (PYMNTS, 4/1/2021) Mastercard partners with Liberty Tax to encourage more tax filing and bring more people into the digital economy.
- Morgan Stanley Files to Add Bitcoin Exposure Across a Dozen Institutional Funds (The Block, 4/1/2021) Morgan Stanley stated in a regulatory filing that a number of its institutional funds may gain exposure to bitcoin in the form of cash-settled futures or a Grayscale’s Bitcoin Trust.
- Goldman Sachs Looks to Offer Bitcoin Investment Vehicles in the Second Quarter (The Block, 3/31/2021) Goldman Sachs seeks to educate its private wealth clients about blockchain technology and the digital assets ecosystem in order to offer bitcoin and other crypto investment vehicles.
- That Night 46 Million Grasshoppers Went to Vegas (NY Times, 3/30/2021) Ecologists document the impact that the world’s brightest city has on the insect population.