Cross River IQ

Evolve Hacked; Judge Scuttles Visa/MC Deal; Chime Acquires Salt

Cole Gottlieb, Research Analyst

July 1, 2024

10 min read

Consumer confidence drops. Fed presidents still debating what’s next for rates. Judge scuttles Visa/MC settlement. Verituity, Rainforest, and Payabli announced funding. Chime makes an acquisition. Klarna sells its checkout business. Evolve gets hacked. TransUnion consumer credit data.

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Consumer Confidence Softens

With the job market softening and consumers still struggling with high prices, consumer confidence slipped slightly. The reading edged down to 100.4 from 101.3 in May. Expectations for the next six months dropped about 2 points to 73. Meanwhile, Chicago Fed President Goolsbee said he’s still looking for data to validate that inflation is cooling before considering a rate cut. On the other hand, Fed Governor Bowman said she’s still open to raising rates, if inflation doesn’t improve.


Image: Bloomberg


Judge Scuttles Visa/Mastercard Settlement

In the latest twist in the Visa and Mastercard “swipe fee” suit, a judge officially rejected the settlement, which could’ve been worth as much as $30Bn, last week. The proposed settlement to the twenty-year-long litigation would have allowed merchants to surcharge card payments and steer users to less-expensive payment options. However, large merchants objected to the deal, arguing it didn’t go far enough to address their concerns. The judge in the case has ordered the parties to meet and confer to respond to the ruling to determine the next steps in the case.


Verituity Announces $18.8Mn in Funding

Verituity, which provides verified payout solutions, announced it has raised an $18.8Mn round led by Sandbox Industries and Forgepoint Capital. MTech Capital and Ardent Venture Partners. Verituity builds infrastructure that enables firms to verify the accuracy of payouts by linking banks, payers, and payees. The company plans to use the new funding to expand into additional verticals, including in insurance and banking. The company has previously collaborated with BNY Mellon on its Vaia platform.


Embedded Payments Firm Rainforest Announces Series A

Rainforest, an embedded payments startup, announced it has raised $20Mn in Series A funding. Investors in the round include Matrix Partners, Accel, Infinity Ventures, and others. The company hopes to compete with the likes of Stripe and Adyen and is growing quickly. The company told TechCrunch that it has signed dozens of new clients across a variety of industries and grown payment volume by 17x in the past six months. Rainforest argues that most major processors are built for merchants, rather than software companies, which is the audience the company caters to. The company’s revenue model is entirely usage-based, making it easy for its clients to understand pricing in an industry that can often be opaque in its pricing models.


Payabli Raises $20Mn Round

In other fundraising news, Payabli announced its $20Mn Series A last week. The round was led by fintech VC stalwart QED with participation from existing investors TTV Capital, Bling Capital, and Fika Ventures. Payabli offers its clients a single API to enable software developers to easily create customized payment acceptance and issuance experiences. Payabli also offers payments ops tools for backend management. The company currently works with more than 60 software firms and has grown revenue by 340% in the 12 months leading up to the Series A.


Chime Acquires Employee Loyalty Startup Salt

Neobank Chime announced it’s acquiring Salt, founded by DailyPay cofounder and former CEO Jason Lee, for $173Mn. Most of Salt’s 22 employees will join Chime, including Lee, who will lead a new business unit focused on an employee loyalty offering for enterprise customers. Workers can earn “Salt” for hours worked, which they can bank and eventually redeem for rewards, including a special purchase or savings product. The move by Chime is viewed as part of a runup to an IPO. The acquisition of fast-growing Salt will allow Chime to diversify from a consumer-only interchange-dependent business to a multi-product company serving both consumers and enterprise.


Klarna Sells Checkout Business

BNPL firm Klarna announced it would sell its online checkout business to alleviate a conflict of interest with two key partners, Stripe and Adyen. The platform has strong adoption in Klarna’s home region of the Nordics, with approximately 20% market share. The company is selling Klarna Checkout, which works with merchants to enable them to offer BNPL options, to a consortium of investors for €485Mn (about $520Mn). The deal is set to close this October.


Evolve Bank Hacked by Russian Ransomware Group

In a stunning development, Evolve Bank & Trust confirmed it was the victim of a ransomware attack and data leak. The Russian-linked ransomware group LockBit3.0 had claimed it was going to release data hacked from the Federal Reserve but instead, when the files were posted, it was Evolve’s data that was released. The scope of the breach appears to be extensive, based on reporting from those who have reviewed some of the files. More than 33 terabytes of data have reportedly been posted on the darkweb. Industry analyst Jason Mikula posted on X that files contained unencrypted PII, including SSN/TIN, dates of birth, addresses, and account information. In addition to programs with bankrupt Synapse, Evolve also works with numerous other large and well-known fintech clients, including names like Stripe, Affirm, Dave, Airwallex, and numerous others. It will likely take some time for the full impact of the hack to be known.


TransUnion Consumer Credit Data

TransUnion just released its monthly credit snapshot for May, with data showing that 60+ DPDs declined (MoM) for Bankcard (14)bps and Unsecured Personal Loans ("UPLs") (2)bps, but 60+ DPDs rose for Auto +4bps and Mortgage +1bp. This marks the 2nd month of declines for Bankcard after 7 consecutive months of DPD increases and 4th month of declines for UPL 60+ DPDs in the past 10.

In May, average UPL balances per consumer fell (0.2)% on a MoM basis, to $11,817

Overall, delinquencies remain elevated, though improved from a month prior for bankcard and UPL. UPL’s Q2 2023 vintage continues to perform better than Q2 2022, likely due to mid-2022 credit tightening, and is performing similarly to the Q2 2021 vintage. UPL vintages have performed better as lenders have focused on more prime risk tiers. The UPL portfolio risk distribution held by super prime increased to 15.5%, from 13.7% a year prior.

Looking at bankcard, 90+ DPDs fell (12)bps MoM, for a 3rd straight month, and 30+ DPDs fell for a 4th straight month, down (3)bps MoM. Despite the improvements, Q2 2023 vintage DPDs continue to track higher than Q2 2022 and well above Q2 2018-2021 vintages. At the same time, average bankcard balances grew 0.5% MoM, to $6,229.

Q2 2023 bankcard and auto vintages may be showing some signs of improvement in performance. Q2 2023’s bankcard vintage has continued to perform worse than 2022, but Q2 2023’s auto vintage has performed better than Q2 2022 as of late. Despite this, both bankcard and auto vintages for 2022/23 are performing worse than historic cohorts (2018-2021).


Source: TransUnion

Turning to originations, we got information on UPL origination volume for the February 2024 – March 2024 period (lag due to reporting time). March fintech UPL originations rose for super prime +13.3% and prime plus +3.4%, while prime (1.1)%, near prime (3.4)% and subprime (13.5)% fell on a MoM basis. Super prime originations rose +101.9% YoY and prime plus +2.3% while all other risk tiers remained below March 2023 levels, with prime (23.0)%, near prime (41.9)%, and subprime (43.1)%.

Credit unions reported MoM increases across the board with super prime +14.9%, prime plus +12.2%, prime +2.7%, near prime +5.9% and subprime +22.5%. On a YoY basis, all risk tiers remained below 2023 levels, with super prime (2.1)%, prime plus (10.8)%, prime (10.2)%, near prime (14.4)% and subprime (5.0)%.

Finance companies MoM UPL originations increased across the board with super prime +22.4%, prime plus +1.2%, prime +1.5%, near prime +6.5% and subprime +11.0%. On a YoY basis, originations were also up across the board, with super prime +39.3%, prime plus +44.0%, +prime 41.8%, near prime +31.1% and subprime +9.8% all above 2023 levels.

Banks reported MoM increases across super prime 26.9%, prime plus +6.8%, near prime 5.3% and subprime +15.6%, while prime was the only risk tier to report a decline of (0.4)% in March. Bank originations were lower than March 2023 levels for super prime (30.8)%, prime plus (35.5)%, prime (38.8)%, and near prime (19.9)%. Subprime +1.2% was the only tier above 2023 levels

In March, finance companies maintained their lead in UPL balances, with 29.2% of the total, compared to 28.3% for fintechs, 22.2% for banks and 20.2% for credit unions.

Wrapping things up with fintechs, their UPL prime and below originations remain well below 2023 levels, but prime plus is slightly above 2023 and super prime is more than double 2023 levels. As a reminder, fintechs pursued more aggressive growth from 2021-1H22, expanding credit access to more consumers. At this point, the risk tiers that credit was expanded to (lower tiers) have yet to see those origination volumes return.




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