Fintech Headlines: December 12 - 18, 2022

Goldman Sachs to exit consumer lending, SEC aims to change order execution rules, SoFi launches a Buy Now Pay Later offering

This Week in the Markets

This was an eventful week! On Tuesday, the U.S. Labor Department reported CPI data for November, which came in below expectations. Thus, CPI rose 0.1% compared to October on a seasonally adjusted basis (vs. an estimated 0.3%) and 7.1% compared to a year ago (vs. an estimated 7.3%). The markets rallied on the news of the inflation slowing down. On Wednesday, the Federal Reserve raised the fed funds rate by 50 basis points to 4.25 - 4.50% (as expected), but signaled that the rates might go above 5% (unexpected). The markets reversed the course and finished the week in the red. Investors seem to be (still) waiting for the Fed to pivot, but the Fed is staying the course of fighting inflation.

🟢 SoFi (NASDAQ: SOFI 0.00%↑): shares of the Fintech lender advanced 6.91% during the week on the news that the company’s CEO, Anthony Noto, spent $5 million buying the company’s shares. During December 9 - 13, Anthony Noto bought 1.13 million shares at an average price of $4.42. The company also launched a BNPL offering (more on that below).

🔴 Paysafe (NYSE: PSFE 0.00%↑): shares of the online payments company declined 19.64% during the week following a reverse 1-for-12 stock split that the company completed on Tuesday. Paysafe had to execute a reverse stock split, as its stock price was approaching the $1 minimum required by the NYSE to maintain the listing.

Shares of Blend (NYSE: BLND 0.00%↑) and Katapult (NASDAQ: KPLT 0.00%↑) moved on no particular company news.

✔️ US Core Inflation Slows, Giving Fed Some Breathing Room on Rates
✔️ Consumer prices rose less than expected in November, up 7.1% from a year ago
✔️ Fed Raises Rate by 0.5 Percentage Point, Signals More Increases Likely
✔️ Powell Says Fed Still Has a ‘Ways to Go’ After Half-Point Hike
✔️ US Economy Shows Signs of Cooling Even as the Labor Market Holds Strong
✔️ Retail Sales, Manufacturing Declines Point to Slowing Economy
✔️ Dow closes out its worst day in three months, falls more than 700 points

Goldman Sachs to Exit Consumer Lending

Bloomberg reported that Goldman Sachs is planning to restructure its consumer business, Marcus by Goldman Sachs, eliminating hundreds of jobs and halting consumer loan originations. Later in the week, The Wall Street Journal reported that the restructuring at the company might not be limited to its consumer division. Goldman Sachs briefed investors about the upcoming changes during its Q3 2022 earnings call. The company realized that building a consumer business is a tough endeavor, and decided to repurpose the consumer products it built over the years to employees of its corporate clients.

Image source: Marcus by Goldman Sachs at Google Play

I remember attending the LendIt Conference (now Fintech Nexus) in 2015. Back then the conference was very much focused on peer-to-peer lending, and everyone in the industry was concerned with Goldman Sachs entering the space (consumer lending was the first product of Marcus, launched in 2016). Goldman had an engineering muscle and unlimited access to capital, so the industry players expected a strong competitor. Seven years later, LendingClub and Zopa, the peer-to-peer lending pioneers, are still around (though both became banks), but Goldman Sachs is exiting the space. The end of an era.

✔️ Goldman to Cut Hundreds More Jobs as Consumer Unit Scaled Back
✔️ Goldman to cut 400 jobs, end Marcus consumer loans
✔️ Goldman Sachs to stop making unsecured consumer loans
✔️ Goldman Sachs Plans Thousands of Layoffs, Expects to Eliminate Some Bonuses
✔️ Goldman Sachs is planning to cut up to 8% of its employees in January

SEC Aims to Change Order Execution Rules

The Securities and Exchange Commission made four new rule proposals aiming to increase competition for and improve disclosures around stock orders that are executed by wholesalers and dark pools. The practice of bypassing stock exchanges and sending stock orders of retail investors to specialized trading firms, such as Citadel and Virtu, got its spotlight during the meme-stock mania at the beginning of 2021. Brokers, like Robinhood and Charles Schwab, receive rebates for such orders, known as Payment for Order Flow, which, in theory, might result in brokerages not acting in the best interests of investors, but which made commission-free trading possible.

Image source: WealthManagement.com

The SEC is not aiming to ban Payment for Order Flow, but rather proposes a set of rules that are supposed to ensure that orders are executed in the best interests of individual investors. For instance, one of the proposed rules will require brokers to expose an order to a competitive auction instead of executing it “internally” through one of the trading venues. “Today’s markets are not as fair and competitive as possible for individual investors — everyday retail investors. This is in part because there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges,” said SEC Chairman, Gary Gensler, in the press release.

✔️ SEC Proposes Rule to Enhance Competition for Individual Investor Order Execution
✔️ Wall Street Stock Trading Set for Overhaul in New SEC Plan
✔️ SEC Proposes Rules That Would Squeeze Stock-Market Middlemen
✔️ SEC Proposes Biggest Trading Reforms in Decades

SoFi Launches Buy Now Pay Later Offering

SoFi started rolling out its Buy Now Pay Later offering, Pay in 4. The product allows SoFi clients to split their purchasers into four, interest-free payments. Interestingly, the company did not develop a custom solution and partnered with Mastercard. Thus, eligible SoFi members will receive a one-time use digital Mastercard card, which can be used for both online and in-store purchases. Per the company’s press release, the “Pay in 4” product “cannot be used for everyday purchases in categories like groceries, restaurants, bars, and gas stations; it is meant for larger purchases like flights, hotels, electronics, clothing, and home improvement.”

SoFi continues to strengthen its personal loan offering, which became the company’s key revenue driver after the U.S. government introduced the student loan payment moratorium at the onset of the pandemic. SoFi student loan originations peaked at $2.44 billion in Q4 2019, representing 68.3% of the total company’s origination volumes. At the end of November 2022, the White House decided to further extend the moratorium as it is fighting in courts on the legitimacy of the student debt forgiveness program. In the meantime, SoFi’s personal loan originations reached $2.81 billion in Q3 2022, representing now 80.7% of the total originations.

✔️ SoFi Begins Rollout of Buy Now Pay Later Product
✔️ SoFi Launches Early Access to Pay in 4
✔️ SoFi partners with Mastercard for BNPL foray
✔️ SoFi stock rockets after CEO buys $5 million in shares
✔️ White House to Extend Student-Loan Payment Pause to June 30

In Other News

✔️ PayPal Working With Crypto Wallet MetaMask to Offer Easy Way to Buy Crypto
✔️ Small Banks Warn They Might Have to Drop Zelle Over Scam Payment Costs
✔️ Shopify’s $118 Billion Rout Slows Canada’s Stellar Stock-Market Run
✔️ Monetizing Venmo’s customer base is key for PayPal’s stock, says Piper Sandler
✔️ Why Square is 'the ultimate victim' of crypto, according to an analyst
✔️ Block Stock Is a Buy. It’s ‘Very Well Positioned’ to Generate Growth, Analyst Says
✔️ The Crypto Ice Age Is Here. It Could Get Even Worse.
✔️ Coinbase debtholders sweat as bonds trade near 50 cents on the dollar
✔️ Cathie Wood Is Back to Buying Coinbase. Wall Street Is More Muted on the Stock
✔️ Robinhood’s Near-Term Outlook Is ‘Mixed.’ FTX Fallout Is One Reason
✔️ Citi Downgrades Robinhood, Says FTX Fallout Will Weigh on Crypto Revenue
✔️ Robinhood’s appeal to younger investors presents room for additional growth
✔️ Visa to invest $1 bln in Africa over 5 years to cash in on e-payments boom
✔️ Shift4 Processes First European Transactions Through SkyTab & VenueNext
✔️ Adyen brings unified commerce to Japan with the launch of in-person payments
✔️ Retail Investors Clash With Pros Over Best Stock Trade Before the Fed Decision
✔️ Recession-Ready Bank Stocks Can Rally 50% Next Year, Wells Fargo’s Mayo Says
✔️ ING Germany Partners With Paysafe to Strengthen Its Consumer Offering
✔️ EQT Private Equity Completes Acquisition of Billtrust
✔️ Citigroup to Pull Out of Consumer Banking in China
✔️ Microsoft Buys Stake in London Stock Exchange

Disclosure & Disclaimer: I own shares in several companies that I write about in this newsletter, as I am bullish on the transformation in the financial services industry. However, the information contained in this newsletter is intended for 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.