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Upstart & Elevate Earnings; BlockFi’s $100Mn Settlement; New Neobank Features

By Cole Gottlieb

February 20, 2022


SMBs are passing along rising prices. Account-to-account payments are gaining steam. Amex partners with a spend management startup. Non-prime originations increase. Fintech neobanks add new features. BlockFi’s $100Mn settlement. Upstart, Elevate, and Q2 report earnings.

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Small Biz Feels Inflation Pinch

Small businesses are feeling the pinch of inflation. And they’re increasingly passing that along to consumers. 47% of small businesses said they’re increasing prices to compensate for increasing costs of materials and wages, up from 39% in Q4 2021. Over 80% of SMBs expect inflation to still be a problem six months from now.

Still, it’s not all bad news. US retail sales grew at a 3.8% clip in January, far faster than the expected 2.1% increase and the fastest monthly gain since last March.

Banked Banks $20Mn for A2A Payments Software

Banked, a U.K.-based provider of software that powers account-to-account payments, has scored a $20Mn Series A. The round was led by Bank of America and Edenred Capital. Banked’s capabilities include an API for businesses to embed A2A as a payment option on their website and a P2P app for end consumers.

Banked charges a mere 0.1% payment processing cost, which is far lower than traditional card schemes. Banked plans to use the proceeds to continue developing its platform and to expand into the US market.

Amex Invest In, Partners with Airbase

Corporate spend management startup Airbase has secured a strategic investment from American Express. More importantly, Amex is working on a pilot to offer Airbase’s service to select customers of the card giant.

While Amex has long been the preferred issuer for company cards, from big corporates to SMBs, numerous startup competitors have emerged, targeting various customer segments that historically may have used Amex. Startups like Brex, Ramp, Bluevine, and Novo are seeking to offer banking and credit services to various types of SMBs. Amex’s deal to partner with Airbase could be interpreted as an effort to shore up its business offerings against this onslaught of competition.

Mainstream & Fintech Lending Go Further Into Non-Prime

As the impact of government stimulus measures has waned, consumer demand for credit has picked back up. This is particularly true in non-prime segments, who are more likely to have depleted any savings built up earlier in the pandemic.

Fears of a wave of defaults, which led to tighter credit policies earlier in the pandemic, didn’t come to pass, thanks to generous stimulus. Credit quality has deteriorated somewhat, according to TransUnion data, but delinquencies remain low compared to historical norms.

Data & Table: TransUnion

With lenders searching for growth, there has been noticeable pickup in non-prime accounts origination across credit categories (with the exception of auto).

Inflation remains a wild card. As increasing prices put more pressure on consumers’ budgets, it’s not yet clear what impact this may have on non-prime borrowers' repayment habits. If push comes to shove, what bills will get paid and which will be deprioritized remains to be seen.

Fintech Companies Step Up Their Offerings As Banks Clap Back

Lately, it seems establishment banks are taking a page from the fintech playbook. Beyond rollbacks of overdraft and NSF fees at many major banks, which have garnered plenty of coverage, incumbents are adopting more popular fintech-like features, including two-day early direct deposit and small-dollar lending.

But fintechs are responding by pushing the envelope further with new features of their own. Features consumers can find in fintech offerings that they typically can’t at an establishment bank include credit builder offerings, like those from Chime and Varo, and credit options designed for those with limited credit history, like card startup Petal. Generous high-yield savings options, like those from HMBradley, and Current’s recently launched 4% APY offering, are unlikely to be copied by establishment banks.

The winner in all this? Consumers. Despite concerns about bank consolidation impacting consumer access and choice, with the plethora of fintechs competing for consumers’ attention, arguably consumers have more choice now than ever before.

BlockFi Pays $100Mn in Settlement with SEC, States

Crypto firm BlockFi has reached a $100Mn settlement with the SEC and state securities regulators over its BlockFi Interest Account. The penalty is among the highest ever paid by a crypto company. Regulators argued that the accounts, in which users’ crypto assets are pooled and lent out, with users earning a yield in return, constituted unregistered securities. 

In its announcement stating it had entered into the settlement agreement, BlockFi announced its intention to register a new product with the SEC, to be called BlockFi Yield, to enable users to once again earn interest on their crypto assets.

Discover Partners on A2A Initiative

In other account-to-account payment news, Discover announced it is partnering with Buy It Mobility on an A2A solution. The partnership will enable merchants to more easily offer A2A as a payment method to their customers. While Discover is accepted at some 11.2 Mn merchants in the US, it accounted for only 2% of card transactions in 2020 vs. Visa’s 65% market share. In that sense, Discover has less to lose by getting behind A2A, which costs merchants substantially less and is likely to cannibalize card volume, should it gain meaningful adoption among consumers.

Some merchants are giving shoppers reason to try A2A payments. Shell and Phillips 66 gas stations are charging users $0.25 a gallon less if they pay with A2A vs. a debit or credit card.

Upstart Surges on Strong Volume, New Business Lines, Elevate Slowdown

This week, we gained greater insight into the nonbank lender space, with Upstart soaring 35.7% as it crushed earnings estimates and Elevate slid (12.0)% following the settlement of its lawsuits and slowdown in new customer loan originations. Q2 Holdings, the provider of virtual banking and lending solutions, closed close to flat (0.2)%. 

Source: PeerIQ

Upstart reported fantastic transaction volume of $4,098Mn for the quarter, representing an over 225% increase year-over-year and 30% increase sequentially. As a reminder, Upstart’s transaction volume represents the volume of originations from its bank partners.

Upstart has continued to work on expanding its auto loan business, growing its dealership footprint 41% sequentially, to 410 locations. Moving forward, Upstart looks to launch small dollar and business lending products this year, with mortgage lending to come to market in 2023.

Although other fintechs, such as LendingClub and SoFi, have acquired and become banks, Upstart CEO Dave Girouard has made clear that Upstart will not follow in their footsteps, stating, “choosing not to become a bank was the right decision for Upstart and it's central to our world view…in short, our goal is to become a technology partner to all the world's great financial institutions.”

Coming off the $3.75Mn settlement from a lawsuit alleging Elevate violated D.C.’s interest rate cap, Elevate sunk on earnings, despite beating expectations.

Investors may have viewed Elevate’s sequential decline in new customer originations with some concern. New customer originations dropped (34.3)% from the third quarter, though management explained that it had purposely slowed down growth in the fourth quarter, “to optimize the mix of new versus repeat borrowers in originations…we took the opportunity to moderate the growth with a high mix of repeat customers that have lower CAC and better credit performance.”

As a result of the shift in focus, roughly 70% of Elevate’s originations were from new customers, compared to 80% in 3Q21. Repeat customer originations grew 2.9% from the third quarter.

NCOs as a % of revenues increased to 52%, from 29% in 4Q20, driven by an increase in charge-offs in Elevate’s Rise (installment loan) and Elastic (line of credit) products.

Elevate management voiced optimism over its partnership with Central Pacific Bank to launch Swell, a fintech company that will help Central Pacific Bank offer personal lines of credit at APRs under 24%.

Q2 announced numerous banking and lending contract signings, most importantly the multiyear renewal of its largest customer, Credit Karma. Other notable developments include the signing of three Tier 1 banking contracts and a strong quarter of cross-selling between its lending and banking solutions.

In The News:

New York’s Top Bank Regulator Pledges Focus on ‘Kitchen Table Issues’ (American Banker, 2/14/2022) Adrienne Harris announced an emergency action that will prevent a large hike in fees for consumers who use check-cashing services.

Unfair Lending with AI? Don’t Point Just at Us, Fintechs and Online Lenders Say (American Banker, 2/14/2022) Fintechs agree that AI isn’t perfect, as it is designed by humans, but that it can often be less biased than human loan officers.

Why Central Banks Got Serious About Digital Money (Washington Post, 2/15/2022) Modern tech and the pandemic have pushed consumers to go cashless, and central banks do not want to fall behind.

Votes on Fed Nominees Delayed Over GOP Objections to Raskin (American Banker, 2/15/2022) Republicans criticized Raskin’s stance on addressing climate risk in the banking sector.

Partisan Divide Over Stablecoins Widens (American Banker, 2/15/2022) Dems increasingly worried about consumer protection while GOP praises the potential for innovation.

Consumer Financial Protection Bureau Launches New Way for the Public to Petition the Agency for Action (CFPB, 2/16/2022) The public will be able to petition the CFPB directly, instead of needing to hire a lawyer or lobbyist.

Spain's BBVA Buys Additional 21.7% Stake in Neon Payments for $300 Million (Reuters, 2/14/2022) Neon Payments owns 100% of the Brazilian digital bank Neon Pagamentos.

MoneyGram to Be Bought by Madison Dearborn for $1 Billion (Yahoo Finance, 2/15/2022) The private equity firm will purchase MoneyGram, with remittances to most regions increasing last year.

What Should be in a Finance Super App? (Lendit Fintech News, 2/14/2022) 20 features that Peter Renton wants to see in his ideal super app.

The Coming Boom In Metaverse Lending For Banks (Forbes, 2/14/2022) One-third of the digital economy may shift to the metaverse.

Will the Super Bowl Supercharge SoFi’s Growth? (American Banker, 2/14/2022) SoFi is paying $600Mn over 20 years for the stadium sponsorship and naming rights.

Marqeta Partners with Plaid (The Paypers, 2/15/2022) Marqeta cardholders will be able to initiate ACH transactions, and verify and link external accounts faster.

Mastercard adds Crypto, Open Banking and ESG Consulting Services (Finextra, 2/15/2022) The move comes after Visa announced it was expanding its consulting services to include digital assets.

Lighter Fare:

The Best Super Bowl 2022 Commercials: The Ads that Scored a Touchdown (New York Post, 2/14/2022) In case you missed out at your Super Bowl party, see the best commercials from the Super Bowl.