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Shopify launches credit card for merchants
Shopify launches a credit card for merchants, Mastercard revenue soars on strong consumer spending, and LendingClub’s origination volume continues to decline
I received a good amount of funny looks for calling Shopify a Fintech company. Yet, after the sale of its logistics business, most of Shopify’s revenue will come from payment acceptance and merchant lending. Oh, and now they are in the credit cards business too! More on that in today’s newsletter:
Shopify launches a credit card for merchants,
Mastercard revenue soars on strong consumer spending, and
LendingClub’s origination volume continues to decline
Thank you for reading and have a great weekend!
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Shopify Launches Credit Card for Merchants
Shopify (NYSE: SHOP) has ventured into the credit card industry with the introduction of Shopify Credit, a business credit card exclusively designed for its merchants. The card offers various benefits, including 3% cash back on the top spending category and 1% on other categories like wholesale, marketing, and shipping. Notably, Shopify does not charge any fees for the card, including late or foreign transaction fees. The card is accessible to Shopify Payments users in the U.S., and the application process evaluates merchants based on sales performance rather than credit checks. The card is powered by Stripe and issued by Celtic Bank.
This move reflects Shopify's continued efforts to expand its presence in financial services, complementing its existing services like Shopify Payments, Shopify Capital, and Shopify Balance. In the first quarter of 2023, Shopify reported its Merchant solution segment, which primarily consists of financial services revenue, contributed $1.13 billion, or 75% of the company’s revenue, and $419 million, or 58% of gross profit for the quarter. While the exact number of U.S. merchants using Shopify remains undisclosed, the company claims to work with millions of merchants overall. The company will report its second-quarter earnings on August 2, 2023.
Mastercard Revenue Soars on Strong Consumer Spending
Mastercard reported a higher-than-expected rise in spending, with card purchase volume increasing by 11.2% to $1.84 trillion. This surge was attributed to consumers continuing to travel to overseas destinations and engaging in other entertainment activities. The company's revenue for the quarter rose by 14% to $6.3 billion, leading to a net income of $2.8 billion, or $3 per diluted share, which surpassed analyst estimates. Mastercard's rival, Visa, also beat expectations on purchase volume growth, mainly due to higher volumes associated with travel. Mastercard maintained its previous forecast for adjusted revenue and cost expectations.
A notable recent win for both Mastercard and Visa was the decision by Alipay and WeChat Pay to allow linking foreign credit cards to their digital wallets. Previously, accessing these services required a mainland Chinese bank account and a local mobile phone number. This move comes as China aims to attract foreign investment and boost its economy. With this development, international tourists can now conveniently use mobile payments for various services and transactions across China, where digital payment platforms dominate with a significant market share. Alipay and WeChat Pay, in particular, control a 90%+ market share in digital payments.
✔️ Mastercard Spending Climbs as Consumers Book Overseas Travel
✔️ Visa and Mastercard Are Thriving Again. What Happens if Congress Kills Credit-Card Points
✔️ Visa and Mastercard can now be used on China’s biggest payment apps
LendingClub Originations Continue to Decline
LendingClub (NYSE: LC) reported another quarter of declining loan origination volumes. Thus, the company’s loan origination volume in the second quarter of 2023 was $2.0 billion, representing a 48% decline compared to the second quarter of 2022. Revenue declined by 30% YoY to $232.5 million driven by a 60% YoY decline in non-interest income, which was partially offset by a 26% YoY growth in net interest income. Net income for the quarter declined to $10.1 million, which represents a 78% decline compared to net income a year ago. LendingClub’s stock dropped more than 20% in yesterday’s trading.
During the earnings call, LendingClub’s CEO, Scott Sanborn, pointed out temporary headwinds due to banks selling loan portfolios at discounted prices, which creates an oversupply in the market and puts pressure on loan sales pricing. LendingClub continued to raise interest rates for borrowers in order to deliver the returns required by loan investors in the current rate environment. Looking ahead, over the next 6 months the company plans to launch an integrated mobile app that combines lending, spending, and savings into a seamless user experience, as well as introduce a preapproved installment line of credit.
LendingClub (NYSE: LC) stock is down 8.64% YTD after reporting its second-quarter results. As mentioned above, LendingClub reported a decline in origination volumes, as well as price pressure on loan sales, as banks try to offload their portfolios to shore up capital. These factors should also impact LendingClub’s peers, such as SoFI (NASDAQ: SOFI) and Upstart (NASDAQ: UPST).
SoFi will report next week on July 31, 2023, and Upstart will report the week after on August 8, 2023. As of yesterday, SoFi's stock was up 97% YTD, and Upstart’s stock was up 345% YTD. Let’s see how these companies perform after reporting their second-quarter results.
Vice President, VP Open Banking Lending Services
🇺🇸 Multiple locations, United States
Director, Business Development Fintechs
🇦🇷 Buenos Aires, Argentina
🇩🇪 Frankfurt, Germany
🇺🇸 Remote, Americas
Fair Lending Program Director
🇺🇸 Multiple locations, United States
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Cover image source: Shopify
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.