Block sues Visa and Mastercard over interchange fees
Block sues Visa and Mastercard over interchange fees, Coinbases pauses staking in four states, and Wise income soars on higher interest rates
Hi!
Yesterday on Twitter, I briefly discussed how Robinhood's revenue has become less dependent on Payment For Order Flow compared to the past. The company's interest income surpassed its earnings from transactions in the first quarter of this year. The rising rates might have destroyed the valuation multiples, but they surely did help Fintech companies with income diversification.
More on that in today’s newsletter:
Block sues Visa and Mastercard over interchange fees,
Coinbases pauses staking in four states, and
Wise income soars on higher interest rates
Thank you for reading and have a great day!
Jevgenijs
p.s. have feedback? DM me on Twitter
Block Sues Visa and Mastercard
Block Inc. (NYSE: SQ), the parent company of Square, Cash App, and Afterpay, has filed an antitrust lawsuit against Visa and Mastercard, accusing them of conspiring to inflate interchange fees, according to Bloomberg. These fees, which are complex and difficult to calculate, are passed on to consumers, resulting in higher retail prices. Both Visa and Mastercard have faced similar accusations before, and this lawsuit adds to the scrutiny they face over their dominance in the payment processing market. The interchange fee is a fee that card schemes, such as Visa, charge merchants for processing card transactions and is passed to the card issuer.
While I doubt that Block will get anything out of this attempt, I am curious about their motivation. Block's Square charges merchants a fee that includes interchange. A lower interchange fee would allow Square to charge merchants less, which could make them more likely to accept cards. However, Block’s Cash App receives interchange when its customers use their Cash Card. In the first quarter 2023, Cash App generated $973 million in Subscription and services-based revenue, which was primarily driven by the interchange. And lastly, Block pays interchange to other issuers, when Cash App users top up their accounts or Afterpay borrowers repay their loans using a debit card.
Block is not the first company to take on Visa and Mastercard, but the duopoly's business continues to thrive. Thus, in the first quarter of 2023, Visa’s net revenue increased 11% YoY to $7.99 billion, and net income rose 17% YoY to $4.26 billion. Mastercard's revenue increased by 11% YoY to $5.7 billion, while net income declined 10% YoY to $2.4 billion. Both companies will report their second-quarter earnings next week, with Visa reporting on Tuesday, July 25, and Mastercard reporting on Thursday, July 27, 2023.
✔️ Visa, Mastercard Hit With Antitrust Suit Over Credit Card Fees
✔️ Block Sues Visa and Mastercard Over Interchange Fees
Coinbase Pauses Staking in Four States
Coinbase (NASDAQ: COIN) announced that it will pause its staking services in four U.S. states, California, New Jersey, South Carolina, and Wisconsin. The decision comes after the Securities and Exchange Commission sued Coinbase, alleging that it had violated securities laws and classifying Coinbase Earn staking program as an unregistered security. Additionally, regulators from 10 states filed charges against Coinbase, asserting that its staking services qualify as securities under state laws. While existing staked assets are unaffected, customers in the mentioned states will not be able to stake additional assets until the regulatory matters are resolved.
Although Coinbase's revenue will be affected by the pause, the impact will be minimal, particularly considering that it only applies to the new staking of additional assets. In the first quarter of 2023, Subscription and services revenue, which includes income from staking, contributed $361 million, or 49% of the total revenue. However, Blockchain rewards contributed only $73 million, or 10% of the total revenue for the quarter. The largest contributor to the Subscription and services revenue was interest income, which contributed $240 million, a 2200% increase compared to the first quarter of 2022.
✔️ Coinbase to Pause Staking in Four States After Regulatory Crackdown
✔️ Coinbase blog: Why we stand by staking
Wise Income Soars on Higher Interest Rates
Money transfer firm Wise (LON: WISE) published its first quarter fiscal 2024 update yesterday (the company’s fiscal year starts on April 1). The company reported a 33% YoY increase in quarterly active customers, reaching 6.7 million, driven primarily by high customer retention and word-of-mouth acquisition, while transfer volumes increased by 16% YoY to £28.2 billion. Total income increased by 66% YoY to £310.9 driven by a 29% YoY increase in transaction revenue and a 5800% YoY increase in interest income. Wise earned a gross interest income yield of 3.4% on its customer account balances, which grew to £11.5 billion.
In June, Wise released its preliminary results for the financial year ended March 31, 2023, reporting a triple-digit increase in annual profits. The company's pre-tax profits for fiscal 2023 reached £146.5 million, a 233% YoY increase from £43.9 million in the previous year. Wise expects its income to grow by 28-33% in Fiscal 2024, and it anticipates a compound annual growth rate (CAGR) of more than 20% over the medium term. The company also aims to maintain an adjusted EBITDA margin of at least 20% over the medium term, with Fiscal 2024 potentially exceeding the target due to a higher interest income.
✔️ Wise Pls Q1 FY2024 Trading Update
✔️ Wise makes more interest rate hay as income surges 66 per cent
✔️ Wise Reports Triple-Digit Profit Growth
Toast is getting a lot of attention lately. The company’s stock is up 48% year-to-date and up 52% since May 1, 2023, and is outperforming its peers, such as Shift4 Payments (NYSE: FOUR) and Lightspeed Commerce (NYSE: LSPD). Nevertheless, the company’s shares are still down 57% since the IPO in September 2021.
Head of Design, Square Banking
@ Square / Block
🇺🇸 Remote, United States
@ Cash App / Block
🇺🇸 Los Angeles, CA or Remote, United States
Group Creative Director - Afterpay
@ Afterpay / Block
🇦🇺 Remote, NSW, Australia
Senior Product Manager, North America
@ Wise🇺🇸 Austin, TX, United States
Senior Product Manager, Brazil Consumer Products
@ Wise🇺🇸 Austin, TX, United States
Cover image source: Square
Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.