Fed Sounds Upbeat; CFPB’s EWA Guidance; Is Consumer Fintech Back?

Fed officials sound more upbeat about possible rate cut. Retail sales rebound. CFPB releases EWA guidance. Matera raises $100Mn. Revolut seeks secondary sale. Sequoia deal could value Stripe at $70Bn. Synapse bankruptcy update. Is consumer fintech back? Capstack makes an acquisition.

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A Cut Could Be in The Cards

Fed Reserve Governor Adriana Kugler expressed “cautious optimism” that inflation is returning to the Fed’s long-tern 2% target. Kugler pointed to easing pressures in goods, services, and now housing. Moderating pricing pressures are opening the door to a rate cut, with Fed Governor Waller saying the central bank is now “closer” to being able to reduce rates. New York Fed President Williams echoed that sentiment, saying a cut could be warranted in the coming months. Finally, retail sales rebounded, rising the most in three months, though auto sales declined due to a cyber-attack impacting auto dealers.

CFPB Releases EWA Interpretative Guidance

Last week, the CFPB released long-rumored guidance that could have far-reaching impacts on the earned wage access, or EWA, space. The interpretative rule would clarify that the CFPB believes many costs associated with both “employer-integrated” and “direct-to-consumer” EWA products, including certain tips and expedited funding fees, are finance charges under TILA and Reg Z. The guidance also says that borrowers must receive “key disclosures” that make clear these finance charges. If required to compute certain tips and expedited funding fees as an APR, many EWA products, especially direct-to-consumer offerings, could have APRs that exceed some state usury caps. Trade groups representing released statements critical of the proposed interpretative rule and legal challenges are almost certain, especially in the wake of the Supreme Court case ending Chevron deference.

Matera Raises $100Mn

Brazil-based Matera announced it has raised a fresh $100Mn from Warburg Pincus. Matera provides instant payment tech, including QR capabilities and core banking functionality, to financial institutions in the country. The company has benefited from the roll out and rapid growth of Brazil’s instant payment service, Pix. The service is estimated to be used by about 75% of the Brazilian population, or some 153Mn people, and is accepted everywhere from major retailers to street merchants. Matera says it has grown its revenue 4x since the introduction of Pix in 2020, achieving a top line of $77Mn in 2023. Now, with fresh funding, the company is setting its sights on North America, where it will need to complete with incumbents like FIS and Fiserv, as well as numerous startups focused on the bank tech infrastructure market.

Revolut Could Be Valued at $40Bn in Secondary Sale

U.K.-based neobank Revolut is reportedly negotiating a $500Mn secondary share sale that would value the company at as much as $40Bn. Tiger Global Management, which jointly led an $800Mn investment in the company in 2021, is reportedly looking to lead the secondary. Such a transaction wouldn’t raise new funds for the company, but would provide liquidity to existing shareholders, including cofounder and CEO Nik Storonsky, who reportedly could sell tens or even hundreds of millions worth of shares in the transaction. The deal would also provide much-needed affirmation for valuations in fintech in general, which have rebounded from their lows but are still significantly lower than the frothy peaks reached in 2022.

Sequoia Deal Could Value Stripe at $70Bn

In other fintech funding news, Stripe investor Sequoia has architected an interesting deal to provide liquidity to its LPs. Stripe investor Sequoia has reportedly emailed LPs for funds it raised between 2009 and 2011, offering to buy their shares in the payment processing behemoth. The buyers would be investors in more recent Sequoia funds. The deal, if it comes together, would value Stripe at $70Bn, its most recent 409(a) valuation. That would be below Stripe’s peak value of $95Bn but up significantly from 2023, when the company raised $5.5Bn at a $50Bn valuation.

Synapse Case Grinds On

The Synapse bankruptcy case ground on last week, with little progress for long-suffering end users. A mere $3.3Mn of additional funds were released by one of Synapse’s former bank partners, AMG, with the bulk of remaining funds being held at Lineage and Evolve Bank & Trust. According to status reports filed with the court, Lineage and Evolve appear to be undertaking separate efforts to reconcile the funds they each hold with records obtained from Synapse’s databases. Evolve’s status update said it expected such work to take approximately two months, once it has obtained and verified the accuracy of the data it needs.

Is Consumer Fintech Back?

Is the tide turning in consumer fintech? Two stories last week suggest that might be the case. Aven, a sort of HELOC-and-credit-card, raised a $142Mn Series D at a $1Bn valuation. The company now boasts 33,000 customers across the 32 states it operates in, with a total of $1.5Bn in credit lines extended. The company says its annualized revenue exceeds $100Mn (though, we’d note, revenue isn’t the best metric to assess the health of a lending business.)

In other card startup news, Atlas, a charge card catering to millionaires, has a waitlist of over 30,000 users. The company has eschewed paid marketing, instead relying on word of mouth, thus benefiting from significantly lower CAC than many consumer fintech startups. The company’s investors include Valar Ventures, Day One Ventures, YC Continuity, and Breyer Capital. Atlas aims to provide an Amex Centurion-like experience, with personalized service and concierge access to amenities like hard-to-get restaurant reservations.

Capstack Acquires Edge Tradeworks

Capstack, a startup that aims to offer a marketplace for banks to trade assets and liabilities, announced it has acquired Edge Tradeworks. The acquisition will enable Capstack to facilitate the trading of whole loans and participation stakes. The platform will enable banks to enhance their diversification, risk mitigation, and access to liquidity, founder Michal Cieplinski says.

Earnings Season Coverage

We kick off earnings season with several financial institutions reporting. Consumers continued to spend, with spend volumes up +5.6% at Discover, +3.4% at Bank of America (combined consumer debit + credit spend), and +3.3% at Amex, while Synchrony reported a (0.9)% decline in spend on a YoY basis.

Consumer loan books grew, helped by record levels of credit card debt, with average loans at Discover +10.2% YoY, Synchrony +9.7%, Citizens – Consumer +2.5%, Bank of America – Consumer +1.8% YoY. PNC’s average consumer loans declined slightly, down (1.2)% YoY.

Ally reported $9.8Bn in auto originations for the quarter, down from $10.4Bn in 2Q23 and flat from 1Q24. At the same time, the retail weighted average FICO on those originations improved, up 11 points YoY and 8 points QoQ to 712.

Turning to charge-offs, net charge off rates rose for most institutions with consumer NCO ratios rising +167bps at Synchrony, +161bps at Discover, +10bps at Ally, +10bps at Citizens, and +8bps at PNC on a YoY basis. Synchrony noted that its NCO ratio came in 62bps higher than its second quarter 2017-2019 average. While Synchrony’s NCO ratio has risen to 6.42% (above its long-term underwriting target of 5.5% - 6.0%), management has taken credit actions to remedy this. Improvements in its 30+ day delinquency rate point to signs of improvement.

Bank of America’s consumer division reported a (54)bps improvement in its NCO ratio from a year prior, but its credit card NCO ratio did rise +128bps YoY. These figures follow the larger trend that we’ve seen in rising consumer delinquencies, particularly consumer credit card delinquencies.

Wrapping things up with deposits. Average consumers deposits grew at Discover +1.2% and Citizens +0.4% from the quarter prior. Amex and PNC reported stable deposits on a QoQ basis while Synchrony (0.5)%, Ally (0.4)% and Bank of America (0.3)% reported QoQ declines in consumer deposits. Over the past year, we’ve seen consumer deposits decline at large banks as consumers spend down excess savings and pursue yield-seeking behaviors.