Fintech Headlines: November 21 - 27, 2022

White House extends student loan repayment moratorium, U.S. household debt surpasses $16.5 trillion, Shopify merchants break Black Friday sales record, Nubank launches savings accounts in Mexico

This Week in the Markets

It was a slow week, as the U.S. markets were closed on Thursday for Thanksgiving and had a shortened day on Friday. On Wednesday, the Federal Reserve released the meeting minutes of its latest FOMC gathering that took place earlier in the month. The meeting minutes indicated that “a substantial majority of participants judged that a slowing in the pace of increase [of the interest rates] would likely soon be appropriate”. That was enough to send the indices into the green territory.

🟢 Dave (NASDAQ: DAVE 0.00%↑): shares of neobank Dave advanced 41.38% during the week on no particular company news, other than the company’s CEO stating that the company is “alive and kicking” in an interview with CNBC. The company’s chief argued that the company has sufficient cash to survive this downturn, so it is too early to write it off. Shares of the competing neobank MoneyLion (NYSE: ML 0.00%↑) also advanced 20.59% (I guess, investors decided that MoneyLion is as alive and kicking as Dave).

🔴 Blend Labs (NYSE: BLND 0.00%↑): shares of Blend, a company that helps mortgage lenders streamline their loan application and origination processes, declined 24.59% this week, most likely, following the publication of the SCE Credit Access Survey results. The survey concluded that the application rate for mortgages declined from 8.5% in Q3 2021 to 6.7% in Q3 2022, and the application rate for mortgage refinancing declined from 21.4% in Q3 2021 to 8.9% in Q3 2022 (application rate is a % of survey respondents saying they applied for i.e. a mortgage).

🔴 PagSeguro (NYSE: PAGS 0.00%↑): shares of the Brazilian payments processor declined 18.14% following the publication of Q3 2022 earnings results. The company’s revenue grew 45% compared to Q3 2021, but both gross profit and Adjusted EBITDA showed moderate growth of 7% YoY and 4%YoY respectively. The company results missed analysts’ estimates for both revenue and EPS, and that is something that is not tolerated this year.

🔴 SoFi (NASDAQ: SOFI 0.00%↑): shares of Fintech lender SoFi declined 11.20% during the week on two events. First, as a reaction to the collapse of FTX, senators on the Senate Banking Committee urged federal regulators to look into the company’s cryptocurrency trading activity (SoFi has a national banking charter through the acquisition of Golden Pacific Bancorp). Second, the White House extended the student loan repayment moratorium (again), which should challenge the company’s growth in 2023 (read more on that below).

✔️ Dow closes more than 150 points higher. Stocks notch gains for holiday week
✔️ Stocks End Winning Week With Rate Outlook in Focus: Markets Wrap
✔️ Most Fed Officials Seek to Slow Pace of Interest-Rate Hikes Soon
✔️ Fed Minutes Show Most Officials Favored Slowing Rate Rises Soon
✔️ Risk Appetite Is Surging Again in Markets Seduced by Fed Hope
✔️ New-Home Sales Rose in October, Boosted by Higher-Priced Homes
✔️ Mortgage demand rises 2.2% as interest rates decline slightly
✔️ Brazil’s PagSeguro Sees Revenues Rise 45% in Q3
✔️ ‘We’re alive and kicking’: CEO of banking app Dave wants to dispel doubts

White House Extends Student Loan Moratorium

In August, President Biden announced a student loan relief program, and the “final” extension of the student loan repayment moratorium until January 1, 2023. Under the relief program, low income borrowers would be forgiven up to $20,000 in federal student debt. Nevertheless, the legitimacy of the relief program was challenged in courts, so the White House decided to extend the repayment moratorium through June 30, 2023. As a reminder, the student loan repayment moratorium was introduced at the onset of the pandemic in March, 2020, and the relief program impacted only federal loans with borrowers having to satisfy certain income criteria.

As noted earlier, extension of the student loan repayment moratorium is a problem for SoFi, which used to be one of the leading private student lenders. In Q3 2022, SoFI originated $457 million in student loans, down 81% from the pre-moratorium peak of $2.44 billion in Q4 2019. Student loan relief program does not impact SoFi’s loan portfolio directly (only federal loans were to be forgiven); however, indirectly, it hinders the demand for loan refinancing, which used to be the bread and butter for the company. SoFi used the forced timeout for scaling its personal lending and brokerage businesses; nevertheless, the extension of the moratorium will be a headwind for the company’s growth in 2023.

Read my take on SoFi’s Q3 2022 earnings results:
👉🏻 SoFi Q3 2022 Earnings Review: the last lender standing

✔️ White House to Extend Student-Loan Payment Pause to June 30
✔️ Student loan repayment pause extended through June 2023 by White House
✔️ SoFi stock slides after receiving letter from Senate Banking Committee
✔️ Democratic senators urge regulators to monitor SoFi trading activity, expressing concern during crypto meltdown

U.S. Household Debt Surpasses $16.5 trillion

Speaking of debt…earlier in the month the Federal Reserve Bank of New York published its Q3 2022 Household Debt and Credit Report. According to the report, the total outstanding U.S. household debt reached $16.51 trillion, up from $15.24 trillion at the end of Q3 2021, and $16.15 trillion at the end of Q2 2022. Sequential growth was driven by a 2.5% QoQ growth in mortgages, a 1.3% QoQ growth in auto loans, and a 4.5% QoQ growth in credit card balances. Student loans were the only category that declined compared to the previous quarter.

Source: Federal Reserve Bank of New York

Credit card debt ($0.93 trillion) gets special attention from media and analysts, despite being a much smaller component than mortgages ($11.67 trillion), student loans ($1.57 trillion) or auto loans ($1.52 trillion), because it provides an insights into consumer spending behaviour. Thus, the credit card debt returned to its pre-pandemic peak that was registered in Q4 2019 (see the chart above), and per SCE Credit Access Survey the demand for credit cards is not slowing down, as suggested by the application rates. Consumer rely on their credit card limits to continue spending despite rising pricing and higher interest rates.

✔️ Household Debt Touches $16.51 Trillion in Q3, Led by Mortgages
✔️ Credit Card Applications Rise Despite Slowdown in Broader Credit Demand
✔️ US Household Debt Jumps Most Since 2008 Even as Credit-Card Rates Surge
✔️ For Better or Worse, Americans Are Using More of Their Credit
✔️ US Consumers Are Still Applying for Credit Cards Despite Higher Rates

Shopify Breaks Black Friday Sales Record

Shopify (NYSE: SHOP 0.00%↑) reported that its merchants broke the Black Friday sales record booking $3.36 billion in sales (sales via Shopify Platform from the start of Black Friday in New Zealand through the end of Black Friday in California). The new record represents a 17% increased compared to the previous record set in 2021. The company reported the peak sales of $3.5 million per minute at 12:01 PM EST, with the most popular product categories being apparel and accessories, followed by health and beauty, and home and garden. Adobe reported that U.S. consumers spent a record $9.12 billion online on Friday, up 2.3% from last year.

Source: U.S. Census Bureau via Federal Reserve Bank of St. Louis

Black Friday, and the fourth quarter overall, is an important season for offline and online retailers, as well as Fintech companies serving those retailers, such as Shopify (NYSE: SHOP 0.00%↑), PayPal (NASDAQ: PYPL 0.00%↑) and Square (NYSE: SQ 0.00%↑). Just take a look at the spikes on the chart above to understand the importance of the fourth quarter for these companies. However, the results of this holiday season are getting even greater attention, as analysts are looking for the signs regarding the state of the economy, and how it is reacting to the historically-high level of inflation, and rapid pace of interest rate hikes by the Federal Reserve.

Read my review of Shopify’s Q3 2022 results:
👉🏻 Shopify Q3 2022 Earnings Review: hiding behind revenue growth

✔️ Shopify Merchants Break Black Friday Records with $3.36 Billion in Sales
✔️ Consumers are being more intentional with their purchases, says Shopify
✔️ Black Friday Sales Were Strong. Shoppers May Spend More Than $9 Billion Online
✔️ Black Friday online sales to hit new record, expected to top $9 billion
✔️ Online Sales Mostly Flat Ahead of Black Friday, Adobe Says
✔️ Why Black Friday Shoppers Aren’t Finding Door-Buster Deals This Year
✔️ Deep Discounts Fail to Lure Crowds: Black Friday Update

Nubank Launches Savings Accounts in Mexico

Brazil’s Nubank (NYSE: NU 0.00%↑) started rolling out savings accounts in Mexico in a move to expand its product range and secure customer deposits. Earlier in the year the company boasted becoming the largest credit card issuer in both Mexico and Colombia, and the launch of the savings account replicates the strategy that drove the company’s success in Brazil. At the end of Q3 2022, Nubank reported a loan portfolio of $8.2 billion, which was solely funded with customer deposits, eliminating the company’s reliance on external funding in this volatile environment.

Nubank started its expansion into Mexico in March 2020, and in September, 2021 the company acquired a local lender lender Akala to fasttrack the launch of new products in the country. In April, 2022, Nubank also secured a $650 million line of credit from Morgan Stanley, Citigroup, Goldman Sachs and HSBC, to support its expansion in Mexico and Colombia. The company’s customer base in Mexico quadrupled over the last twelve months reaching 3 million customers at the end of Q3 2022.

Read my review of Nubank’s Q3 2022 earnings results:
👉🏻 Nubank Q3 2022 Earnings Review: when tailwinds are gone

✔️ Brazil's Nubank rolls out Mexican savings accounts, debit card
✔️ Brazilian Nubank introduces savings accounts, debit cards to Mexican market
✔️ Mexican Customers Switch from Banks to Fintechs, But Penetration Remains Low
✔️ Fintech Nubank nets $650 mln credit line for Mexico, Colombia expansion

In Other News

✔️ Tech’s reality check: How the industry lost $7.4 trillion in one year
✔️ Maybe Winning Is Quitting in Tech Right Now
✔️ JPMorgan expects to keep growing in Latin America with improved outlook
✔️ Morgan Stanley Downgrades Brazilian Stocks, Sees Risk to Brazil’s Fiscal Stability
✔️ JPMorgan maintains status as world’s most systemically important bank
✔️ Investors Have Lost Faith in Crypto Exchanges. JPMorgan Sees an Opportunity
✔️ Klarna CEO says firm was ‘lucky’ to cut jobs when it did, targets profitability in 2023
✔️ Fintech Giant FIS to Cut Thousands of Jobs as New CEO Targets Costs
✔️ Cathie Wood Goes On Coinbase Buying Spree as Wall Street Sours
✔️ Coinbase Debt Was ‘Canary in the Coal Mine’ for Crypto Meltdown
✔️ Coinbase worth less than $10 billion for the first time
✔️ Crypto Bank Silvergate Battles FTX Contagion Fears
✔️ DEXs Gain Market Share As Faith In Centralized Crypto Players Erodes
✔️ Bank deposit rates lag changes in Fed policy rate, NY Fed analysts say
✔️ Biden Officials to Target Nonbanks for Tougher Oversight

Disclosure & Disclaimer: despite rocky performance in 2021 and 2022, I own shares in most of the companies that I write about in this newsletter, as I am extremely bullish on the transformation in the financial services industry. However, none of the above is financial advice, and you should do your own research.