“True Lender” Rule Reversal; Plaid’s Valuation Skyrockets to $15 Bn
By Tito Donis
March 29, 2021
Greetings,
Wishing our readers a happy Passover!
This week, we look at the possible reversal of OCC’s “true lender” rule, Plaid’s $15 Bn valuation, and Robinhood’s confidential S-1 filing.
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Unemployment at its Lowest Since last March; Larry Summers Warns of “Fiscal-Monetary Collision”
Filings for unemployment benefits fell to 684,000 last week from 781,000 a week earlier. This is the lowest since mid-March last year, indicating that recovery is coming sooner than many economists expected.
Former Treasury Secretary Larry Summers believes that the U.S. is suffering from the least responsible macroeconomic policy in the last 40 years. The Covid recovery will stoke demand pressure, while loose monetary policy by the Fed and the $1.9 Tn pandemic plan will cause what he calls a “dramatic fiscal-monetary collision.”
Senate Democrats Initiate Reversal of OCC 'True Lender' Rule
Senate Democrats, who have been critical of the OCC’s “true lender rule” arguing that it leaves Americans vulnerable to predatory lenders, have announced plans to overturn it.
The OCC’s rule clarifies that a national bank is considered a “true lender” if, at the time of a loan’s origination, it is named as the lender in a loan agreement or if the bank funds the loan. That means the national bank is responsible for ensuring the loan complies with consumer protection laws, but it also means that state interest rate caps do not apply.
At PeerIQ, we are supportive of the OCC ruling as we believe it enables fintechs to innovate and expand financial inclusion to underbanked households. True lender banks are subject to and are responsible for the regulatory compliance of their fintech partners.
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Upstart Launches Referral Network
Upstart has announced the release of their new platform, Upstart Referral Network, which is an AI-driven system that matches borrowers with banks and credit unions.
Qualified applicants will receive offers that best fit their needs as long as they meet the requirement of Upstart’s bank partner’s credit policies. Borrowers will then transition into a bank-branded experience to complete the process.
Upstart is deploying a capital efficient mechanism to originate loans to bank partners without tying up Upstart’s balance sheet. This represents true innovation and also competition for LendingTree and Credit Karma.
Upstart has had two major announcements within the last four months as a public company. They have had a phenomenal story thus far and we are excited to see what’s next in store. The stock has climbed 23% (last trading at $138.14) since this latest announcement.
Plaid’s $15 Bn Valuation
After the scrapped Visa merger, Plaid, led by CEO Zach Perret, is looking to raise $600 MM in a funding round led by Altimeter Capital that could value the company between $10 Bn to $15 Bn. Altimeter is a hedge fund turned VC firm that has stakes in some of Silicon Valley’s top firms.
The steep rise in Plaid’s valuation since the $5.3 Bn Visa deal was first announced back in January 2020 is indicative of how high fintech valuations have come. In the last few months, Stripe scored a blockbuster $95 Bn valuation and Chime scored an impressive $30 Bn (see our coverage here)
Robinhood Files for S-1, Plans to “Democratize” IPOs
Digital trading platform Robinhood has filed its S-1 confidentially with the SEC, the document will become public once the SEC approves the deal.
Robinhood has seen phenomenal growth in new accounts. Its ability to do commission free trading along with crypto features has made it immensely popular with the younger generation.
The company generates the bulk of its revenue via payment for order flow, which is essentially the compensation a broker receives for routing trades to a high-frequency trading firm for execution. This is generally known to be an opaque process which may not be in the best interest of the investors.
Robinhood plans to build a platform to allow users to directly buy shares alongside Wall Street funds in IPOs. It also plans to carve out a chunk of its shares on offer for its own users, which could potentially boost its valuation.
In the News:
- Powell Says Now is Not the Time to Focus on Reducing Federal Debt (WSJ, 3/25/2021) Fed Chairman Jerome Powell believes that given the low level of interest rates, the level of U.S. government debt isn’t unsustainable, but its growth rate is.
- Three New Candidates Emerge to Head OCC (American Banker, 3/25/2021) Former SEC member Kara Stein, former Fed Board governor Sarah Bloom Raskin, and current Fed of Atlanta CEO Raphael Bostic, have been tabbed as possible names to head the OCC.
- Why U.K.'s Revolut Wants a U.S. Charter (American Banker, 3/22/2021) London-based Revolut, wants to become a full-fledged U.S. bank with 1 million American customers by the end of 2021.
- JPMorgan Chase: The Real Winner of The Fintech Micro-Bubble (Forbes, 3/23/2021) Big banks have the financial resources, user and transaction data, and regulatory approvals to win the “fintech revolution.”
- ‘We Don’t Need to Rush’ on Fed Digital Dollar, Powell Says (American Banker, 3/22/2021) Fed Chairman Jerome Powell wants to take a methodical approach before the central bank rushes to create a fed digital dollar.
- Podcast 290: Stephane Lintner of Jiko (Lend Academy, 3/19/2021) Jiko CEO Stephanie Litner explains why the company is more of a platform than a bank.
- Digital Dollars in Digital Pockets (Forbes, 3/22/2021) The difference between electronic cash and electronic money.
- Neobanks Utilize Balance Sheets to Expedite Stimulus Payments (FinLedger, 3/22/2021) Challenger banks like Cash App and Chime were praised by consumers for having their stimulus deposits available faster than traditional banks like Chase and Wells Fargo.
- Stripe Faces Building Pressure for a Go-Public Strategy (Banking Dive, 3/22/2021) Direct listing, traditional IPO, and a SPAC merger are all options for Stripe, but the method the payments firm decides to go with will determine how much capital it will have for expansion.
- Enova Announces Acquisition of Pangea Universal Holdings, a Next-Generation Payments Platform (Bloomberg, 3/19/2021) Enova, led by CEO David Fisher, has acquired Chicago-based payments platform, Pangea.
- Zopa Raises £20 Million After Exceeding Bank Performance Targets (FinExtra, 3/22/2021) Zopa, led by CEO Jaidev Janardana, raised £20 MM in a round led by IAG Silverstripe, with participation from Augmentum, Waterfall managed Alternative Credit Investments, and Venture Founders.
Lighter Fare
- Twitter Boss Jack Dorsey's First Tweet Sold for $2.9 Million as an NFT (Reuters, 3/22/2021) CEO of Square and Twitter Jack Dorsey sold his first NFT via auction for $2.9 MM in Ether cryptocurrency.