Fintech Headlines: October 10 - 16, 2022

Big banks report mixed earnings, Apple to launch savings accounts, PayPal's plan to fine users for misinformation backfires, Google partners with Coinbase to accept crypto payments

This Week in the Markets

The U.S. Bureau of Labor Statistics reported September inflation data on Thursday. The Consumer Price Index (or CPI) increased 0.4% MoM (vs. expected 0.3%), and 8.2% YoY. Core inflation (CPI excluding the cost of food and energy) accelerated even faster, at 0.6% MoM (vs. expected 0.4%), and 6.6% YoY. CPI data indicates that inflation is not slowing down despite the rate hikes, which, coupled with a strong labor market, gives the Federal Reserve a green light to continue increasing the rates.

Higher-than-expected inflation should have caused a stock market decline (like it did last month); however, for some wicked reason, which nobody understands, the markets rallied on Thursday after opening deeply in the red. According to CNBC, “Thursday marked the fifth largest intraday reversal from a low in the history of the S&P 500”. Nevertheless, on Friday, the reality settled in and the markets gave up the gains, finishing the week in the red. Crazy week.

🚀 Shares of Payoneer (NASDAQ: PAYO 0.00%↑), a cross-border payments company, continued to advance this week on no particular news. Payoneer, which went public in June 2021 through a SPAC merger with Olympus Acquisition Corp., is the only Fintech stock that is in green this year (YTD performance: +1.63%), and one of the few SPACs that is delivering on the pre-merger promises.

🚨 Shares of Blend (NYSE: BLND 0.00%↑), a software company serving mortgage lenders, declined 9.30% on Friday and 28.83% during the week, on no particular news. The reason might be the rising mortgage rates and the slowdown in mortgage originations. For instance, Wells Fargo, one of Blend’s largest customers, reported a 59% decline in its mortgage originations from a year ago.

The earnings season continues, and next week we will hear from Bank of America (NYSE: BAC 0.00%↑), Goldman Sachs (NYSE: GS 0.00%↑), Charles Schwab (NYSE: SCHW 0.00%↑), and American Express (NYSE: AXP 0.00%↑).

✔️ Dow Closes More Than 800 Points Higher in Volatile Day
✔️ Dow closes 400 points lower to end a wild week of trading
✔️ Stocks Drop After Wild Surge on Wall Street
✔️ Inflation increased 0.4% in September, more than expected despite rate hikes
✔️ Inflation Is Unrelenting, Bad News for the Fed and White House
✔️ Here’s the inflation breakdown for September 2022 — in one chart
✔️ Core Inflation Climbs to a 40-Year High

Big Banks Report Mixed Earnings

JPMorgan Chase (NYSE: JPM 0.00%↑), Wells Fargo (NYSE: WFC 0.00%↑), Citigroup (NYSE: C 0.00%↑), and Morgan Stanley (NYSE: MS 0.00%↑) reported their Q3 2022 earnings on Friday. It was a mixed bag of earnings with two dominating themes: banks beat interest income estimates as the rates increased, but had to make sizeable provisions for bad debts on the expectations of the worsening economic conditions. According to the CECL methodology, banks provision for bad debts based on the expected, not actual, losses.

As WSJ noted, another observation from the banks’ earnings was that “consumers are leaning more on their credit cards.” Thus, JPMorgan Chase, Wells Fargo, and Citigroup all reported double-digit growth in credit card spending compared to a year ago. Despite historic levels of inflation, retail sales are not declining, as apparently, consumers are ready to take on more debt to continue spending. Let’s see what Fintech lenders, such as LendingClub (NYSE: LC 0.00%↑) and SoFi (NASDAQ: SOFI 0.00%↑), will report concerning their customers.

Image source: J.P. Morgan

✔️ JPMorgan Chase tops estimates as bank reaps more interest income than expected after jump in rates
✔️ JPMorgan Chase Earnings Show: Economy Is Resilient, but Jamie Dimon’s ‘Hurricane’ Looms
✔️ JPMorgan Tops Estimates, Easing Worries of Economic Slowdown
✔️ Wells Fargo’s Net Interest Income Beats Estimates. Thank Higher Interest Rates
✔️ Citigroup Earnings Offer More Signs Turnaround Is On Track
✔️ Morgan Stanley’s Investment Banking Business Crumbled. There’s More Bad News
✔️ Retail Spending Was Flat in September Amid High Inflation

Apple to Launch Savings Accounts

Apple (NASDAQ: AAPL 0.00%↑) announced a plan to launch interest-bearing savings accounts for its Apple Card holders. Similarly to the Apple Card, savings accounts will be powered by Goldman Sachs (NYSE: GS 0.00%↑). According to CNBC, which cites an Apple representative, the savings account will “offer an interest rate that’s competitive, with the best rates available.” Goldman’s own savings account, offered through its consumer arm Marcus by Goldman Sachs, offers a 2.15% annual percentage rate.

What is interesting (besides Apple gradually building its financial services muscle), is that earlier in the week Bloomberg reported that Goldman Sachs is scaling down its ambitions in the consumer banking arena due to mounting losses. Thus, the company will reportedly reposition Marcus by Goldman Sachs, including the upcoming checking account and the robo-advisor, Marcus Invest, towards its wealth management and corporate clients. The bank will continue its credit card partnerships, but “will be very selective about adding to the list.”

Image source: Apple Newsroom

✔️ Apple, Goldman Sachs introduce interest-bearing savings accounts as rates rise
✔️ Apple, Goldman Sachs to Offer High-Yield Savings Accounts
✔️ Apple Card will soon let users grow Daily Cash rewards while saving for the future
✔️ Under Pressure, Goldman CEO Ditches Dream of Consumer Domination
✔️ Goldman Sachs to pare back consumer ambitions
✔️ Goldman Sachs Faces Fed Scrutiny of Money-Losing Marcus Consumer Unit

PayPal’s Plan to Fine Users Backfires

PayPal's (NASDAQ: PYPL 0.00%↑) new Acceptable Use Policy, which was supposed to go into effect on November 3, 2022, included the company’s right to charge users with a $2,500 fine for “sending, posting, or publication of any messages, content, or materials that promote misinformation.” The planned policy change backfired, resulting in a PR disaster and an investigation by the company’s regulator, the Consumer Financial Protection Bureau.

PayPal reversed the course, admitting an error and even apologizing “for the confusion this has caused.” The company’s management, pressured by the activist investor, Elliott Investment Management, committed to increasing net active users by 10 million in 2022. In the first two reported quarters of the year, the company added just over 3 million users, and I believe it would be fair to say, that fighting misinformation won’t help it with getting the remaining 7 million to reach the target.

Image source: Block Tempo

✔️ PayPal says policy to fine customers for 'misinformation' was an 'error'
✔️ ‘Delete PayPal’ searches spike after $2,500 misinformation fine controversy
✔️ PayPal Apologizes for Threat of Fines Over ‘Misinformation’
✔️ CFPB investigates PayPal’s ability to fine customers
✔️ PayPal Launches its All-In-One POS Solution for Small Businesses in the U.S.
✔️ Why PayPal Stock’s Selloff Could Be Overdone

Google Partners with Coinbase

Google Cloud and Coinbase (NASDAQ: COIN 0.00%↑) announced a strategic partnership “to drive Web3 innovation”. Within the scope of the partnership, Google Cloud will use Coinbase Commerce to enable select customers, “starting with those in the Web3 ecosystem”, to pay for Google Cloud using crypto, and will use Coinbase Prime for custody and reporting. In addition, web3 developers will get access to Google’s BigQuery crypto public datasets via Coinbase Cloud’s Node.

Most likely, the partnership will not have an immediate impact on the company’s bottom line, but it builds on Coinbase's foray into institutional client space. Earlier in the year, Coinbase announced a partnership with BlackRock and Meta Platforms. Coinbase is trying to diversify its revenue stream, as its retail business faces severe headwinds from lower trading volumes, increasing competition, and pressure on fees, and the partnership with Google is another step in that direction.

Image source: Announcing Coinbase + Google Cloud

✔️ Google and Coinbase Launch New Strategic Partnership to Drive Web3 Innovation
✔️ Google Partners With Coinbase to Accept Crypto Payments for Cloud Services
✔️ Google selects Coinbase to take cloud payments with cryptocurrencies
✔️ Google’s Partnership With Coinbase Is ‘Validation’ for the Crypto Industry
✔️ Coinbase Stock Pops on Google Deal To Accept Crypto for Cloud
✔️ Coinbase Stock Is Rising. The Crypto Platform Has a Partner in Google Cloud.

In Other News

✔️ Mortgage Rates Hit 6.92%, a 20-Year High
✔️ ‘Buy Now, Pay Later’ Is Still a Credit-Score Blind Spot
✔️ Affirm Unveils Consumer Spend Report Ahead of This Year’s Holiday Season
✔️ Get out the Red Bull, 24/7 stock trading is coming, market execs say
✔️ Crypto Exchange Uniswap Labs Raises $165M in Polychain Capital-Led Round
✔️ Coinbase Gets Singapore Digital Payment Token License
✔️ Toast Could Be Profitable by 2023, Says Analyst. The Stock Is Upgraded to Buy.
✔️ Toast Launches Invoicing to Help Restaurants Grow Catering and Events Business
✔️ Galileo’s Issuer Processor Platform Receives Visa Ready Certification
✔️ A Revolution in Brazil’s Financial System: Hedge Funds Now Offer Credit Products
✔️ Nubank’s CEO David Vélez and His Partner Mariel Reyes Launch Philanthropy Platform

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.