Mortgage Refis Jump; DOJ Sues Visa; DailyPay Heads to U.K.
Fed Presidents Goolsbee, Kashkari suggest further rate cuts could come before the end of year. Mortgage refinance activity jumps. CFPB accepting comments on FDX as SSO for 1033. DOJ accuses Visa of illegal debit processing monopoly. AtoB announces new funding. Scotia partners with EWA provider ZayZoon. DailyPay heads to the U.K. Five Star Bank to quit BaaS.
Curious about smart ways to fund your company's growth? Check out Cross River's latest ebook with Finley for tips on debt instruments -- credit facilities, forward flows, securitization -- and negotiating terms for your next round. For a step-by-step guide on raising an asset-backed credit facility, see "The Fintech’s Guide to Raising Debt Capital," also by Cross River and Finley.
Keep an eye out – due to Cross River holiday closures, next week our weekly newsletter will go out Monday, October 7 instead of the typical Sunday send.
More Rate Cuts in The Cards?
With a 0.50% point cut in the rearview mirror, FOMC watchers are already asking, what’s next? Chicago Fed President Austan Goolsbee said at an event last week that he thinks rates need to be lowered “significantly” over the next year to protect the labor market. Goolsbee emphasized that, once labor markets began to deteriorate, they typically do so more rapidly than policymakers can provide relief through rate cuts. Meanwhile, Minneapolis Fed President Neel Kashkari said he expects two additional 0.25% point rate cuts by the end of the year. Kashkari told CNBC that, even after the 0.50% point cut, policy is still “in a net tight position.” Falling rates are driving a wave of mortgage refinancings. Refinance applications jumped for the second week in a row, with the Mortgage Bankers Association's refinance index jumping to 20.3% for the week ending September 20th.
CFPB Accepting Comments on Open Banking Standard Setting Orgs
The Consumer Financial Protection Bureau launched the public comment period on the Financial Data Exchange’s bid to be recognized as a standard setting organization for open banking. The CFPB previously outlined five key criteria for becoming a recognized standard-setting body: openness, transparency, balanced decision making, consensus, and due process and appeals. The FDX board is co-chaired by representatives from TD Bank and Finicity. Other board members hail from a wide-cross section of industry, including big banks, like Citi and Bank of America, the three major credit bureaus, and data aggregators like MX and Plaid. To date, FDX is the only plausible organization to seek recognition as an SSO.
DOJ Accuses Visa of Debit Monopoly
The interchange wars continue. Last week, the Department of Justice filed suit against Visa, accusing the network of using its market power to illegally monopolize debit card processing. Visa processes more than 60% of over $4Tr in U.S. debit volume each year. The company realizes more revenue from its debit processing business than credit.
The DOJ alleges that Visa entered into agreements that penalized merchants who sought alternatives to Visa and struck deals with potential competitors, like Apple and Cash App, designed to neutralize the threat they posed to Visa’s core debit processing business. The DOJ’s case reportedly was touched off during the Justice Department’s examination of Visa’s proposed acquisition of open banking infrastructure company Plaid, which was ultimately blocked by the agency.
The suit is the latest development in a string of recent interchange-related news. A proposed settlement in the long-running merchant class action case against Visa and Mastercard was thrown out by the judge in the case. The Fed, for the first time since the Durbin amendment went into effect, has proposed lowering the cap for covered debit transactions, as, their analysis says, issuers’ actual costs have fallen. The prospects for advancing the Credit Card Competition Act, which would require banks with more than $100Bn to enable a network other than Visa or Mastercard on their credit cards, remain low but possible.
AtoB Announces $130Mn in New Funding
AtoB, a payments startup focused on the transportation sector, announced it has raised a $130Mn Series C, composed of a mix of equity and debt. The round was co-led by Bloomberg Beta and General Catalyst, with participation from Mastercard and a number of companies in the trucking and logistics space. AtoB provides a range of solutions, including basic banking services, instant payroll deposit, fraud and expense management, and fleet cards. The company claims 500% growth in revenue in the year leading up to its fundraise, though it didn’t disclose specific figures. AtoB plans to use the funding to continuing growing its team and product capabilities.
Scotiabank Partners With ZayZoon, DailyPay Expands to U.K.
Scotiabank, one of the largest banks in Canada, announced a strategic partnership with EWA provider ZayZoon. The partnership will enable Scotiabank’s corporate and commercial clients to offer their employees earned wage access, without the complexity of setting up their own internal program. ZayZoon integrates with employers’ existing payroll providers and processes to enable employees to deposit accrued but not yet disbursed wages into their bank account.
In other EWA news, U.S. provider DailyPay announced it is expanding internationally. The company said next week it will launch in the U.K., initially providing services to existing DailyPay clients who have operations in the country. The company, though, has ambitions beyond the U.K., with a DailyPay representative telling Payments Dive that the company “will have more countries to announce very soon.”
Five Star Bank to Exit BaaS
Another bank is quitting BaaS. Financial Institutions, Inc., parent company of Five Star Bank, announced in a press release that it would start an “orderly wind down” of its banking-as-a-service partnerships. The bank said such partnerships accounted for only about 2% of deposits and less than 1% of loan volume. Five Star worked with middleware platform Unit, as well as supporting direct partnerships.
Company and bank CEO Martin Birmingham pointed in part to the evolving regulatory environment in explaining the decision to exit BaaS, saying, “Following an internal review that considered many factors, including the contribution of BaaS to our core financial results, evolving regulatory expectations and a proposed rule regarding the re-classification of BaaS deposits as brokered, in addition to the future investments in talent and technology necessary to achieve scale, we are prioritizing our core community banking franchise and intend to begin winding down our BaaS offerings.”
TransUnion Releases August Consumer Credit Data
TransUnion just released its monthly credit snapshot for August, with data showing that 60+ DPDs declined (MoM) for mortgage (5)bps, but rose for Bankcard +13bps, Unsecured Personal Loans ("UPLs") +11bps and Auto +7bps. This marks the 1st month of 60+ DPD increases for UPLs after 5 straight months of declines.
Looking at bankcard, 90+ DPDs increased +9bps MoM, for a 2nd straight month, and 30+ DPDs rose +12bps MoM, for a 3rd straight month. Q3 2023 vintage DPDs continue to track higher than Q3 2022 and well above Q3 2018-2021 vintages. Average bankcard balances rose +0.6% MoM, to $6,344.
Turning to originations, we got information on UPL origination volume for the May 2024 – June 2024 period (lag due to reporting time). Notably, UPL was also the only product to report a YoY decline in serious delinquencies.
UPL’s Q3 '23 vintage continues to perform slightly better than Q3 '22, likely due to mid-2022 credit tightening, and both are performing better than its Q3 '21 vintage. UPL vintages have performed better as lenders have focused on more prime risk tiers. The % of consumers 60+ DPD declined (22)bps from August 2023 – 2024.
June fintech UPL originations declined across the board, with super prime (5.6)%, prime plus (4.4)%, prime (9.1)%, near prime (17.8)% and subprime (18.9)% on a MoM basis. Super prime originations rose +108.8% YoY and prime plus +8.5% while all other risk tiers remained below June 2023 levels, with prime (8.1)%, near prime (30.1)%, and subprime (48.9)%.
Credit unions originations were also all lower on a MoM basis with super prime (2.2)%, prime plus (8.4)%, prime (0.6)%, near prime (5.7)% and subprime (2.2)%. On a YoY basis, all risk tiers were lower with super prime (0.2)%, prime plus (18.1)%, prime (11.6)%, near prime (11.2)% and subprime (10.6)%.
Finance companies MoM UPL originations declined for all risk tiers with super prime (17.5)%, prime plus (8.5)%, prime (6.1)%, near prime (3.4)% and subprime (5.3)%. On a YoY basis, originations were up across the board, with super prime +8.5%, prime plus +15.0%, prime +28.0%, near prime +24.3% and subprime +6.5% all above 2023 levels.
Banks reported MoM increases for all risk tiers (in contrast to the groups above) with super prime +2.3%, prime plus +6.7%, prime +4.3%, near prime +0.9%, and subprime +12.0%. Bank originations were lower than June 2023 levels for super prime (24.6)%, prime plus (24.6)%, prime (32.6)%, and near prime (21.2)%. Subprime +8.4% was the only tier above 2023 levels.
In August, finance companies maintained their lead in UPL balances, with 29.0% of the total, compared to 28.0% for fintechs, 22.3% for banks and 20.7% for credit unions. Average UPL balances per consumer was flat on a MoM basis, at $11,782.
