Fintech Headlines: October 3 - 9, 2022

FTX partners with VISA to offer debit cards in 40 countries, Affirm is testing a rewards program to compete with credit cards, and crypto exchanges cut fees to gain market share

This Week in the Markets

This was another week of crushed investor expectations: the major U.S. stock indices rallied at the beginning of the week on the expectations that the September employment data, which was due on Friday, would show signs of economic weakness (and force the Federal Reserve to stop hiking interest rates). Bad news for the jobs market was expected to be good news for the stock market.

However, the Labor Department report showed that the U.S. job market is still strong, with the unemployment rate falling to 3.5% (versus the forecasted 3.7%). The U.S. economy added 263,000 jobs in September, which, while still lower than the 315,000 jobs added in August, was above the estimates. The indices gave up most of their weekly gains on Friday following the release of the report.

🚀 Stone (NASDAQ: STNE) shares gained +22.15% during the week on no particular news. Brazil held the first round of presidential elections, and while the polls suggested one round will suffice to elect the president, the presidential front-runners, Luiz Inacio Lula da Silva and Jair Bolsonaro, will have to face each other again at the end of October. Somehow this made Brazil’s stock market rally.

🚨 Inter (NASDAQ: INTR) shares continued the decline from the last week, which, most likely, was triggered by the stock downgrade. As a reminder, last week JPMorgan’s analyst lowered the company’s target share price and forecasted losses for Q3 2022 citing the negative impact of deflation on the company’s performance. Somehow election results didn’t help Inter stock.

Next week the big banks will kick off the Q3 2022 earnings season: Wells Fargo, JPMorgan, Citi, Morgan Stanley, and PNC will report their results on Friday before the markets open. Their results, guidance, and management comments can provide invaluable insights into the actual state of the U.S. economy and consumers' health.

✔️ U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases
✔️ Unemployment rate falls to 3.5% in September, payrolls rise by 263,000
✔️ September job gains affirm that the Fed has a long way to go in inflation fight
✔️ September’s Strong Jobs Report Shows That the Fed Can’t Slow Down
✔️ There Are Too Many Jobs for the Fed to Stop Raising Rates
✔️ Stocks Slump but Hold On to Weekly Gains
✔️ Brazil Elections: Opinion Polls Fall Short in Predicting Depth of Bolsonaro’s Support
✔️ Brazil markets post best day since 2020 as Bolsonaro outperforms polls

FTX Partners with VISA to Offer Debit Cards

FTX, one of the world’s biggest cryptocurrency exchanges, partnered with VISA to issue debit cards in 40 countries, including Latin America, Europe, and Asia. The debit cards will be directly linked to customers’ FTX accounts, allowing them to pay for purchases with their cryptocurrency balances. Cards linked to crypto accounts are nothing new (i.e. Coinbase offers such cards, and so does Binance), and most likely the “partnership” simply means that FTX selected VISA instead of Mastercard.

However, what caught my attention was the scale of the planned rollout. Card issuing is a heavily regulated activity with the licensing requirements varying greatly across countries. For instance, Coinbase had to partner with MetaBank, an FDIC-insured bank, in the United States, and Paysafe, a licensed Electronic Money Institution, in Europe and the U.K. Now imagine how many partners FTX would need, to implement a 40-country rollout. Or perhaps, FTX has quietly received all the needed licenses to operate a global card-issuing business?

✔️ FTX and Visa Expand Global Partnership
✔️ Visa partners with FTX in a bet that shoppers still want to spend cryptocurrencies
✔️ Crypto Exchange FTX's Token Surges 7% After Visa Partnership Report
✔️ FTX Targets Latin America With Visa Debit Card - With Europe and Asia Next
✔️ New Mastercard Tool Will Help Banks Block Problematic Crypto Exchange Purchases

Affirm is Testing a Rewards Program

According to the latest media coverage, the future (and present) of the Buy-Now-Pay-Later industry looks really dark: mounting losses, regulatory attention, and layoffs. However, the leading companies in the BNPL industry keep shipping new products and signing new partnerships. This autumn alone, Affirm partnered with Amazon in Canada, and Afterpay launched an integration with Square, signed up Sephora Canada, as well as introduced a longer duration financing.

This week, Fast Company reported that Affirm is testing a rewards program to take on credit cards. Max Levchin, founder and CEO of Affirm, mentioned the upcoming rewards program at the company’s latest earnings call. Affirm aims to provide a fairer alternative to credit cards and the lack of a rewards program made it difficult at times to compete. Contrary to a typical card rewards program, Affirm will reward repayments, not spending, which I believe aligns well with the company’s mission.

Image source: Fast Company

✔️ Affirm is testing a points-based rewards program to take on credit cards
✔️ Affirm targets offline growth
✔️ Affirm and Amazon Introduce Pay-Over-Time Option to Customers in Canada
✔️ Afterpay’s New Monthly Payment Solution Gives Consumers More Ways to Pay
✔️ Square Lets Sellers in Canada Offer BNPL Through Afterpay
✔️ Afterpay and Sephora Canada partner to bring prestige beauty to Canadian shoppers

Crypto Exchanges Cut Fees to Gain Market Share

A story in Wall Street Journal caught my attention: the author argues that cryptocurrency exchanges are cutting fees to gain market share, a technique they are borrowing from Wall Street. The most notable example is Binance, which eliminated fees for trading Bitcoin in July, and fees for trading Ether before the “Merge”. As the charts below illustrate, cutting fees further boosted Binance’s already-dominant position.

Coinbase, which is notable for charging its customers premium rates, has a lot to lose as the trading fees compress. Retail trading fees are the key revenue source for Coinbase, and while the company has been able to maintain its premium rates, a combination of a bear market, decreasing market share, and market-wide trading margin compression will eventually cut into the company’s revenue.

Image source: Quarterly Market Report by Kaiko

✔️ Crypto Exchanges Cut Fees to Gain Market Share From Rivals
✔️ How Uniswap Is Taking Aim at Coinbase and Binance
✔️ Coinbase has no plans to go to zero fees
✔️ Coinbase Expands Services in Australia, Calling Country a ‘Priority Market for Us’
✔️ Coinbase Hires Ex-Goldman Executive for Derivatives Push
✔️ Coinbase CEO announces documentary on cryptocurrency and exchange

In Other News

✔️ Shopify is quietly becoming a power player in offline retail too
✔️ Shopify to change procedures over illegal practices of traders, EU says
✔️ Uber Partners with Marqeta, Mastercard, and Branch to Launch New Uber Pro Card
✔️ Nasdaq to Wait for Regulation Before Launching Crypto Exchange
✔️ How JPMorgan Chase allots its $14B IT budget
✔️ Bad Time for Markets Has Been Good for Brokerages
✔️ Binance Estimates $100 Million Was Stolen in Blockchain Hack
✔️ Block Is Facing a Tough Economy. Why Analysts Still Like the Stock.

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.