Initial unemployment claims dropped for the fourth straight week. Fed officials could begin trimming easy money policies by fall. Retail sales and consumer confidence slide in July. A bipartisan Senate bill would modernize SBA lending. Plaid extends Series D with J.P. Morgan, Amex. Upstart announced a $575Mn convertible note offering. Chime raised (another) $750Mn, and Aspiration plans to SPAC. Albert adds checking. Wells Fargo keeps personal lines of credit, while PayPal scraps BNPL late fees.

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Unemployment Claims Continue to Drop, Setting Stage for Reduced Fed Support

Initial claims for unemployment dropped for a fourth consecutive week, suggesting labor market conditions continue to improve, despite renewed fears from the Delta variant. Continuing claims dropped to 2.8Mn, the lowest since the pandemic began.

Continued improvement in employment metrics sets the stage for the Fed to begin reducing support for the economy. Fed officials are nearing agreement about when to begin scaling back its easy money policies, which could begin as soon as following its September meeting. Some Fed officials are advocating for ending asset purchase programs by mid-2022, which would enable the Fed to raise rates sooner, if needed.

A normalization of Fed policies is inevitable, and would expand its options to better respond to evolving economic conditions.

Retail Sales, Consumer Confidence Slip in July

While the job picture continues to improve, there were some signs of consumers pulling back. Retail sales in July, which measure purchases at stores, restaurants, and online, dropped 1.1% vs. June. Excluding autos, where supply chain issues have constrained supply, the drop was 0.4%. The drop in retail can also be partially explained by a shift in spending to services, like travel, entertainment, and recreation.

The University of Michigan’s consumer sentiment measure dropped by 5.5% vs. June. According to the report, consumers misjudged the pace at which the economy would reopen and rising prices. Consumer sentiment measures can fluctuate considerably month-to-month, and are no doubt impacted by heavy coverage of the Delta surge and inflation pressures.

A recalibration of consumer spending from goods to services shouldn’t come as too much of a surprise. Delta variant notwithstanding, consumers are showing a desire to resume elements of pre-pandemic life, including travel and entertainment. 

While we are on travel, PeerIQ will be at SFIG Vegas in October, and we look forward to seeing you there. Please stop by our joined booth with Cross River at the exhibit hall, or reach out to to schedule time with us. 

Bipartisan Bill Would Expand, Modernize SBA Loans

Last week, a bipartisan bill was introduced in the Senate that would allow fintech lenders to participate in the Small Business Administration’s key 7(a) loan program. The bill would lift a nearly 40-year moratorium on the issuing of the Small Business Lending Company license necessary to participate in the program. SBA Administrator Isabel Guzman signaled her willingness to work with fintech lenders to expand access and distribution of capital.

Fintech lenders were key players in facilitating small business pandemic relief programs. It’s encouraging the SBA recognizes the value and potential for fintech lenders and service providers to participate in lending programs to improve access to capital for historically underserved small and minority businesses.

Biden Cancels Student Debt for Disabled Borrowers

The Biden administration announced plans to automatically cancel $5.8Bn in student loans held by 323,000 disabled borrowers. The debt will be cancelled through the Total and Permanent Disability (TPD) discharge program. The TPD program discharges loans for borrowers who cannot work due to physical or mental disabilities. This is good news for borrowers facing disabilities, as prior to this announcement, they had to submit a formal application, which could be difficult for those with significant health problems.

The DOGE Days of Summer

Robinhood and Jack Henry fell on earnings, despite both beating revenue and earnings expectations.

Robinhood’s stock slid 10.3% on an anticipated slowdown in trading activity and declines in transaction-based equity and options revenues. CFO Jason Warnick described the expected slowdown with, “And for Q3, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than we saw in Q2.”

Robinhood saw a shift in the mix of transaction-based revenue, with the crypto segment leading the way, up 166.1% QoQ; crypto heavy reliance on Dogecoin increased in the quarter (62% vs. 34% in Q1). Management cited this as a risk in the quarterly filing, as decreased trading activity or interest in Dogecoin could substantially affect company revenues going forward. 

The options and equity segments fell 16.8% and 61.0% QoQ, respectively, a potential cause for concern.

Source: Robinhood Filings, PeerIQ

Robinhood’s net revenues increased 8.3% QoQ to $565.3Mn, and net loss was trimmed to $(501.7)Mn, compared to $(1,444.8)Mn in Q1. The company continued to increase Monthly Active Users, up 20.3% QoQ to 21.3Mn.

Citadel is no longer Robinhood’s leading market maker, accounting for 14% of transaction-based revenues, compared to 27% in Q1. Tai Mo Shan Limited (a member of Jump Trading Group) is now the largest market maker for Robinhood, accounting for 29% of transaction-based revenues, compared to 11% in Q1.

Jack Henry reported $450.3Mn in revenue for the quarter, up 3.8% QoQ. Management noted that processing revenue’s increase was primarily driven by a 22.3% increase in card processing. Diluted EPS for the quarter increased 9.5% QoQ to $1.04. 

President and CEO David Foss highlighted the company’s growth, stating, “We are very pleased to report another quarter of record revenue, operating income, and total sales bookings. Among many other successes, our sales teams contracted with 13 new core clients and sold 87 new digital banking systems in the quarter.”

Jack Henry’s stock fell on earnings, and revised operating margin expansion guidance (50bps vs. the original 100bps) but recovered in the next trading day as the company was upgraded by many Wall Street analysts. Robinhood’s stock sunk on earnings, as investors weighed the anticipated slowdown in trading, reliance on Dogecoin, and declines in equity and options-related revenue.

Source: Google Finance, PeerIQ

PayPal Scraps Late Fees on BNPL

In the latest sign that competition in the buy now, pay later space is heating up, PayPal has announced it will no longer charge customers late fees if they miss a payment across all of the markets in which it offers the product. The change will go live in October in the US, UK, and France. The company’s offering in Germany and Australia already didn’t penalize customers for late payments. The move comes as regulators around the world begin to take a closer look at the fast-growing BNPL category,

PayPal’s move may be an opening salvo as BNPL companies jockey for favor with both consumers and merchants — potentially leading to lower prices and margin compression.

Plaid Extends Series D with JPMorgan, Amex Cash

Bank data aggregator Plaid announced that J.P. Morgan Private Capital Growth Equity Partners and Amex Ventures joined the company’s already announced $425Mn Series D. Since the DOJ blocked Visa’s acquisition attempt, Plaid has been on a roll, with the Series D raise, more than doubling its valuation, and launching new products, like its income verification product.

J.P. Morgan and Amex’s participation in the Series D is the latest acknowledgement from the establishment banking sector of the opportunity for value creation in fintech. Through partnerships, mergers and acquisitions, or strategic investments, expect this crossover between traditional banking and fintech to accelerate.

Chime Raises $750Mn in Round Valuing Challenger at $25Bn

Chime announced it has raised another $750Mn in funding, valuing the challenger bank at about $25Bn. The round comes on top of $485Mn raised just last year, with the new funding supporting the company’s continued growth and expansion into new products and services.

New Chime investor Sequoia Capital Global Equities joined to lead the round, with participation from Softbank, General Atlantic, Tiger Global, and Dragoneer. The raise paves the way for the popular banking app to go public in 2022.

Based on recent reports, Chime boasts over 13Mn customers, making it the largest challenger bank in the US by users. Expect Chime to expand its product offerings in an effort to increase average revenue per user and customer lifetime value as it pursues a 2022 IPO.

Aspiration to Go Public via SPAC

Fellow challenger bank Aspiration, which is focused on offering socially-responsible and ESG-themed banking products and services, announced its intention to go public via a SPAC. Recent reports put the company at about 5Mn users. The deal implies a pro-forma valuation of approximately $2.3Bn and will yield about $400Mn in cash on the balance sheet of the combined company. 

Although scrutiny on SPACs has increased in recent months, the Aspiration deal demonstrates it remains a viable fundraising vehicle and path to public markets for fintechs. Congrats to Aspiration co-founder and CEO Andrei Cherny and the entire Aspiration team.

Upstart Announces $575Mn Convertible Note Offering

Upstart, whose earnings we covered last week, announced it is raising $575Mn via a convertible note offering. The bonds, which carry a tiny 0.25% interest rate, mature in 2026, at which point the note holders have the right to convert them to shares at a price of $285.26. Upstart is hedging its exposure via capped call options, with a cap price of $400.36. Upstart plans to use the proceeds for general corporate purposes.

The successful offering is the latest feather in Upstart’s cap. Its share price has been on a tear, up about $170 (+850%) since its successful IPO last December. Upstart’s share price and note offering demonstrate continued investor demand for exposure to high-performing, tech-enabled companies in the financial services space.

Personal Finance App Albert Latest to Roll Out Checking Accounts

Albert, a personal finance app offering budgeting, savings, and investing tools is the latest to get into the bank account game. Last week, the company announced its Albert Cash account, which has no minimum balance requirement, no maintenance fees, and allows customers to get paid two days early. The accounts and accompanying debit cards are offered through popular fintech partner Sutton Bank.

Adding spending accounts is something of a trend lately, with platforms from Robinhood to SoFi to CreditKarma adding spending accounts in an effort to increase customer stickiness and win a greater share of wallet.

Wells Fargo Keeps Line of Credit After Customer Feedback

Wells Fargo, which announced just last month it would shutter its personal line of credit product, is reversing course, after customer complaints and pushback from Capitol Hill. The bank, which is still operating under consent order capping its total assets stemming from its phony accounts scandal, had justified the move by noting many of the accounts were unused, and that consumers have plenty of other financing options. The closure of accounts or reduction in line available could negatively impact users’ credit scores.

In The News:

Who’s Who in the Race-Turned-Marathon to Lead OCC (American Banker, 08/16/2021) Over 200 days into his presidency, Biden has yet to indicate who will lead the OCC full-time.

Bank Of America Is Losing Its Grip On Millennials As Fintechs Reinvent The Checking Account (Forbes, 08/16/2021) Millennials who identified Bank of America as their primary bank dropped from 22% in October 2020 to 13% in July 2021, with fintechs such as Paypal, Current, Dave and Square gaining market share.

Walmart to Hire Cryptocurrency Director (Financial News, 08/16/2021) A recruitment ad indicates that Walmart wants to hire a Sr. Director for crypto strategy.

Figure, New York Community Team Up on Blockchain Projects (American Banker, 08/16/2021) The regional bank plans to use Figure’s distributed ledger tech to increase financial inclusion in banking and credit, reduce the cost of its mortgage business, and create a more efficient payments system.

Walgreens Launches Healthy Rewards Credit Card (Yahoo News, 08/16/2021) Walgreens launches a new credit card program, with two cards focused on pharmacy, health and wellness.

Brex Buys Weav, a Universal API For Commerce Platforms, For $50M (Tech Crunch, 08/17/2021) After first partnering with Weav last summer and launching Instant Payouts for Shopify sellers using Weav’s technology, Brex has acquired Weav.

Mexican Fintech Expanding into U.S. to Finance Cross-Border Trade (American Banker, 08/17/2021) Credijusto, who made news for becoming the first fintech to buy a regulated bank in Mexico this summer, plans to expand into the U.S. market.

Hacker Returns Stolen Cryptocurrency in Heist Reversal (Wall Street Journal, 08/13/2021) The missing assets were valued at $610Mn, putting the hack on par with the infamous Coincheck and Mt. Gox breaches.

Lighter Fare:

Can you Last a Year on Mars? NASA is Recruiting Crew for a Year-Long Analog Mission (Universe Today, 08/16/2021) NASA is looking for applicants to participate in its Earth-based Martian simulation.