Lots to cover this week as we look at the moderate growth in the US GDP, SoFi’s SPAC performance, Upgrade’s new rewards checking account, Coinbase’s plans to go public via direct listing and highlights from this week’s earnings.
Let’s get to it.
Moderate Growth in US GDP, Unemployment Continues to Fall
In macro news, the US GDP expanded at an annualized rate of 4%.
This moderate growth in GDP reflects conservative consumer spending after the boost it had in Q3. Consumer spending, the number one driver of the economy, increased at a mere 2.5%.
Unemployment claims dropped by 67,000 in the week ended January 22nd to 847,000, but are still at four times over pre-COVID levels.
Upgrade Rewards Checking Account
Upgrade, led by CEO Renaud Laplanche, launched a unique rewards checking account that offers 2% cashback on debit card purchases. The offer is notable especially since debit rewards cannot typically compete with credit card rewards (due to lower interchange rates earned per Dodd-Frank).
The fintech lender is also innovating by incentivizing customers to change their primary bank account via a 20% reduction on Upgrade interest rates.
In addition, Upgrade’s new checking account provides zero account fees and reimbursements of ATM fees on up to five withdrawals a month.
Over the past two years, Upgrade has moved from being a pure consumer lender to a neo-bank.
Back in 2019, the company launched the Upgrade card, which is a hybrid between a personal loan and credit card.
SoFi Valued at $21Bn?
The mania in equity markets continues with SoFi’s SPAC performance. Although the deal has not closed, the SPAC (ticker: IPOE), led by Chamath Palihapitiya, is up 2x+.
What does that mean for the implied value of SoFi?
Generally SPACs trade at par value (or slightly above in anticipation of a deal). Par value is $10/share.
The market value of SPAC pre-announcement tracks the net asset value of the SPAC. Post deal announcement, public investors value the SPAC based on their expectations of future net asset value.
The SPAC is reverse merging and valuing SoFi at $8.65Bn.
However, public markets have bid IPOE to $25/share. This implies that public markets are valuing SoFi at ~$21Bn – over 2.5x the deal value! After the deal closes, the SPAC is expected to further increase in value.
GME Creates National Unity? RobinHood Jumps as a Top Downloaded App
The trading craze in stocks like GameStop have led to a surge in interest in the RobinHood app with over 3MM downloads in January.
Robinhood raised $3.4Bn in the last two weeks to support its growth and meet clearing house deposit requirements. Ribbit Capital led the new round, with participation from Iconiq Capital, Sequoia, Andreessen Horowitz, Index Ventures, and NEA.
Equity Mania: Margin Debt at All-Time Highs
More and more investors are borrowing against their investment portfolios to enter into riskier positions such as concentrated positions, options, and leveraged ETFs.
In the past, margin debt peaks have generally indicated the marginal buyer is tapped out and might be approaching a market top.
FINRA Margin Debt and the S&P 500 Real Values (Adjusted to Present-Day Dollars)
Source: Advisor Perspectives, PeerIQ
Earnings Season Continues – Debit Wins Over Credit, Visa’s Approach to Crypto
Earnings season continued this week with AXP, COF, LOB, MA, V, and SYF.
One interesting theme we noted this week is that debit card issuances are significantly higher than credit cards
Visa – Credit card volume decreased by 3.4% YoY. Debit card volume was up 17%.
Visa CEO Al Kelly’s comments on cryptocurrencies, “Our strategy is to work with wallets and exchanges to enable users to purchase these currencies using their Visa credentials, or to cash out onto a Visa credential to make a Fiat purchase at any of the 70 million merchants where Visa is accepted globally.”
Our take? Visa sees crypto payments as an alternative network and in our view, an existential threat to the interchange model that card issuers rely on.
Mastercard – Credit card volume was down 6.7% YoY ($237Bn in Q4 2020 vs $254Bn in Q4 2019). Debit and prepaid card volume was up 12.7% YoY ($291Bn in Q4 2020 vs $254Bn in tQ4 2019)
We think that the primary reason for this recent divergence between debit vs credit is that stimulus payments directly hit the bank account, and debit cards are an easy way to access those funds. The broader theme is that millennials and Gen-Z prefer debit cards to credit cards to keep their debt in check.
Other notable highlights from earnings presentations this week:
Synchrony Financial – Loan growth was down 6% YoY. SYF reported $82Bn for the quarter compared to $87Bn in Q4 2019. Why? Underwriting tightening or market share?
Deposits were down 4% YoY. SYF reported $63Bn for the quarter compared to $65Bn in Q4 2019. Allowance for credit losses went up $119MM QoQ. Reported $10.27Bn for the quarter compared to $10.15Bn in Q3 2020.
Source: Synchrony Financial, PeerIQ
American Express – Loan growth was down 17% YoY. Delinquencies were down 52.3% YoY, while balances in financial relief programs were up 77% YoY.
Capital One – Consumer banking loans were up 10% YoY and deposits were up 17%, in line with the trend we highlighted last week on liquidity build.
Navient – Private Education refinance originations were down 31% YoY. Originated $1.1Bn in Q4 2020, compared to $1.6Bn in Q4 2019. Loan delinquencies >30 days were down 29%, while forbearances were up 7%.
Live Oak Bancshares – Originations were up 35.8% YoY. LOB originated $808MM in Q4 2020 compared to $524MM in Q4 2019. Loan loss reserves were up 17.3% QoQ.
Coinbase Makes its Market Debut Via Direct Listings
Crypto currency exchange Coinbase, has announced that it will make its market debut by way of direct listing. The San Francisco-based fintech filed its S-1 with the SEC in December. Making a public debut via direct listings would allow Coinbase to list its outstanding shares available for sale in the market. To date, Coinbase has raised over $540MM in funding.
We note that CoinBase is another fintech powered by Cross River. Other recent IPOs including Affirm, Upstart, and Quicken are powered by Cross River.
Nubanks Secures $400MM in Series G Funding
Nubank, led by CEO David Velez, raised $400MM in Series G funding, in a round led by GIC, Whale Rock, and Invesco. Nubank’s current investors, Tencent, Dragoneer, Ribbit Capital, and Sequoia also participated in the round. The challenger bank will use the funding to further expand its operations in Mexico and Colombia.
Nubank has remarkably grown its customer base from 12MM in 2019 to 34MM today. The new funding round brings the company valuation to an astounding $25Bn, making it the fourth most valued financial institution in all of Latin America.
In the News:
- Employers are Using Fintech Startups to Power Faster Employee Payouts (Forbes, 1/26/2021) Earned wage benefit startups are being leveraged by tech companies like PayPal
- Jack Henry Introduces Digital Consumer Lending (Finextra, 1/27/2021) Jack Henry is enabling community banks to originate consumer loans creating additional competition for FinTechs
- Citizens Bank Rebrands Citizens Pay: Will More Banks Enter Into Buy Now, Pay Later? (TearSheet, 1/25/2021) With the launch of Citizens Pay, the bank has been able to expand into more retail verticals such as home improvement and fitness retailers.
- Will Cash Wither Once Central Banks Support Digital Currencies? (The Financial Brand, 1/27/2021) How central bank digital currencies will impact the banking industry.
- Stilt Gets $100M Debt Facility From Silicon Valley Bank (FinTech, 1/27/2021) FinTech that offers loans to immigrants and the undeserved, received a $100MM debt facility from Silicon Valley Bank.
- Roostify Raises $32M Series C For Home Lending Amid Hot Real Estate Market (Crunchbase, 1/26/2021) Roostify, led by CEO Rajesh Bhat, raised $32MM in Series C funding, which the company will use to invest in artificial intelligence and to expand its team.