Fintech Headlines: April 24 - 30, 2023

Tensions between Coinbase and SEC rapidly escalate, Visa and Mastercard beat earnings estimates, LendingClub originations continued to decline, and Nubank passes 80 million customer milestone

This Week in the Markets

In the first quarter of 2023, U.S. Real Gross Domestic Product increased at an annual rate of 1.1%, reported the Department of Commerce on Thursday. In the fourth quarter of 2022, real GDP increased by 2.6%. The reading came in below the expected 2% in a sign that the rising rates are finally slowing the economy.

The Personal Consumption Expenditures price index, the Federal Reserve’s preferred measure of inflation, increased 0.1% MoM and 4.2% YoY in March (0.3% MoM and 4.6% YoY excluding food and energy). This compares to the 0.3% MoM and 5.1% YoY increase in February, and 0.6% MoM and 5.4% YoY increase in January.

The Federal Open Market Committee is meeting on Tuesday and Wednesday next week (May 2-3) and, according to the CME FedWatch Tool, is expected to raise the federal funds rate by another 25 basis points. Inflation is on the decline, but it is still far away from the Federal Reserve’s target of 2%, hence, more hikes.

Many Fintech companies will report their Q1 2023 results next week, including SoFi (NASDAQ: SOFI 0.00%↑) and Global Payments (NYSE: GPN 0.00%↑) on Monday, MercadoLibre (NASDAQ: MELI 0.00%↑), Remitly (NASDAQ: RELY 0.00%↑) and Alkami (NASDAQ: ALKT 0.00%↑) on Wednesday, and Shopify (NYSE: SHOP 0.00%↑), Block (NYSE: SQ 0.00%↑), Coinbase (NASDAQ: COIN 0.00%↑), BILL (NYSE: BILL 0.00%↑) and Shift4 Payments (NYSE: FOUR 0.00%↑) on Thursday.

✔️ U.S. GDP rose at a 1.1% pace in the first quarter as the economy is slowing
✔️ US Economic Growth Slows to 1.1% While Inflation Accelerates
✔️ GDP Growth Is Slowing. Recession Remains a Threat
✔️ Key inflation gauge for the Fed rose 0.3% in March as expected
✔️ US Inflation Pressures Persist, Reinforcing Case for Fed Hike

Tensions Between Coinbase and SEC Escalate

Tensions between Coinbase (NASDAQ: COIN 0.00%↑) and the Securities and Exchange Commission continue to escalate. Coinbase is asking the court to force the SEC to respond to a rulemaking petition that it submitted last year, and issued a fiery response to the Wells notice received from the agency. As a reminder, Coinbase received a formal notification from the agency about its intentions to sue the company over listing crypto assets, which the SEC considers to be unregistered securities. In its response, Coinbase argued that it has not broken any securities laws, does not list securities, and is prepared to go to court to defend its position.

Earlier in the week, the SEC Chairman, Gary Gensler, emphasized that the law is clear for cryptocurrency exchanges, indicating that they should register with the agency if they want to operate legally. In a video posted on Twitter, Gensler highlighted that many digital assets are securities and fall under the SEC's purview. He added that exchanges must comply with investor protection requirements, including disclosure and transparency. Besides registration with the agency, the existing securities laws require a separation of brokerage activities and the exchange, which would be a fundamental change to the business model of cryptocurrency exchanges.

✔️ Coinbase takes another formal step to seek regulatory clarity from SEC
✔️ Coinbase sues SEC after months of silence from federal regulator
✔️ Coinbase responds to the SEC’s Wells notice
✔️ Coinbase rejects U.S. regulator's claim it broke rules on crypto
✔️ Coinbase Warns SEC It Will ‘Exhaust All Avenues’ If Sued
✔️ Gensler says ‘the law is clear’ for crypto exchanges and that they must comply

Visa and Mastercard Beat Earnings Expectations

Visa (NYSE: V 0.00%↑) and Mastercard’s (NYSE: MA 0.00%↑) reported their Q1 2023 results, both beating analysts’ earnings estimates on strong payment volume growth. Thus, Visa’s GAAP revenue increased 11% YoY to $7.99 billion. GAAP Net income increased 17% YoY to $4.26 billion or $2.03 per share, and non-GAAP Net income increased 14% YoY to $4.38 billion or $2.09 per share. Payments volume for the quarter increased 6.5% YoY (10.1% YoY on a currency-neutral basis) to $2.96 trillion. Payments volume growth was driven by International and U.S. credit card spending (up 15.2% YoY and 10.5% YoY on a currency-neutral basis respectively).

Mastercard's GAAP revenue rose by 11% YoY to $5.7 billion, while GAAP Net income declined 10% YoY to $2.4 billion or $2.47 per share. On an adjusted basis, revenue rose by 12% YoY to $5.7 billion, and adjusted net income declined by 1% to $2.7 billion or $2.80 per share. Purchase volume increased by 12.3% YoY (and 17.0% YoY on a currency-neutral basis) to $1.71 trillion. International debit card purchase volume rose by 28.7% YoY on a currency-neutral basis, compared to just 3.7% YoY growth in the U.S. Credit card purchase volume rose by 17.3% internationally and 14.3% in the U.S. Visa and Mastercard shares are up this year 12.24% and 9.64% respectively.

✔️ Visa Sees International Travel Spending Unexpectedly Accelerate
✔️ Visa's payments business helps profit exceed Wall Street estimates
✔️ Visa Beats on Results. Shares Rise
✔️ Mastercard Spending Soars as Consumers Flock to Overseas Travel
✔️ Mastercard Beat Shows Households Are Spending More on Travel
✔️ Mastercard reports U.S. antitrust probe of debit card program

LendingClub Originations Continued to Decline

LendingClub (NYSE: LC 0.00%↑), the pioneer of online lending reported its Q1 2023 results this week. The company reported $2.3 billion in loan originations and finished the quarter with $5.9 billion in loans and leases held for investment and $8.8 billion in total assets. Loan originations were down from $2.5 billion in the previous quarter, but above the guidance of $1.9 - 2.2 billion. Deposits increased 13% sequentially to $7.2 billion despite the turbulence in the market and outflow of deposits to money market funds at other banks. As a reminder, LendingClub became a bank holding company after completing the acquisition of Radius Bank in 2021.

LendingClub reported Net revenue of $245.7 million, down 6.5% compared to $262.7 million in the prior quarter, as “growth in net interest income was offset by lower marketplace revenue.” Net interest income increased 8% from the prior quarter to $146.7 million, while Non-interest income declined 22% from the prior quarter to $99.0 million. Net income for the quarter was $13.7 million, or diluted EPS of $0.13, compared to $23.6 million, or diluted EPS of $0.22, in the prior quarter, reflecting higher provisions and tax expense. The company guided for $1.9 - 2.1 billion in originations in Q2 2023, suggesting a further decline.

✔️ LendingClub Reports First Quarter 2023 Results
✔️ LendingClub Saw Deposits Climb 13% During Regional Banking Tumult
✔️ LendingClub Grew Deposits by $826 Million After SVB Collapse

Nubank Passes 80 Million Customer Milestone

Brazilian Fintech company Nubank (NYSE: NU 0.00%↑) announced that it has reached a milestone of 80 million customers in Latin America. The company, which offers digital banking, credit, and investment products, has seen explosive growth in recent years and has become one of the region's most valuable startups. Nubank, which boasts Warren Buffett’s Berkshire Hathaway among its investors, operates in Brazil, Mexico, and Colombia, and gained popularity by offering an innovative and hassle-free banking experience to its customers.

At the end of Q1 2023, the company had 79.1 million customers, which represents a 33% compared to Q1 2022. “We added around 5 million customers to our base in just over a quarter, always with a great contribution from the Brazilian operation and increasing adherence by Mexicans and Colombians,” commented David Vélez, CEO and founder of Nubank in the company’s press release. While Nubank continues to grow rapidly (and profitably) in Brazil, some analysts started questioning if the company can repeat its playbook in Mexico. Nubank will report its Q1 2023 results on May 15, 2023, after the market close.

✔️ Nubank reaches the milestone of 80 million customers in Latin America
✔️ Higher Default Rate Make Mexico a More Complex Market for Nubank

In Other News

✔️ First Republic most likely headed for FDIC receivership
The Federal Deposit Insurance Corporation is expected to take over First Republic Bank, and asked other banks to prepare acquisition offers should the agency seize the bank. On Monday, First Republic reported its first quarter 2023 results, disclosing that it lost $100 billion in deposits.

✔️ PayPal extending crypto transfers to more than 60 million Venmo customers
Venmo, the popular mobile payment app owned by PayPal, now allows users to transfer cryptocurrencies to external wallets. This move marks a significant shift in Venmo's crypto strategy, as previously it only allowed users to buy, hold, and sell cryptocurrencies within the app.

✔️ Klarna overhauls its app with a TikTok-like discovery feed
Swedish fintech company, Klarna, has announced a major overhaul of its mobile app with the introduction of a new discovery feed, similar to that of TikTok. The move is aimed at enhancing user experience and making shopping more engaging. Klarna is also leveraging AI technology to offer personalized product recommendations and streamlined checkout processes.

✔️ Mastercard seeks to expand crypto card tie-ups
Mastercard is reportedly seeking to expand its partnerships with cryptocurrency card issuers. The company has already collaborated with crypto exchanges and wallet providers to launch debit cards that can be used at merchants that accept Mastercard. This move is part of Mastercard's broader strategy to embrace digital currencies and blockchain technology.

✔️ Cross River Bank Gets FDIC Enforcement Order Over Lending
Cross River Bank, payments and lending infrastructure provider for many Fintech companies, including Coinbase, Upstart, and Affirm, has received an enforcement order from the Federal Deposit Insurance Corporation over “unsafe or unsound” practices related to fair-lending laws.

Cover image source: Coinbase

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.