Apple Pay Later; Affirm’s Financing Costs Rise; Bipartisan Crypto Bill
Inflation is expected to moderate but remain elevated. Q2 GDP estimates weaken. Consumer credit surges. A bipartisan crypto bill gains steam. Custodia sues over Fed account access. Proper raises $4.3Mn. Apple enters the BNPL wars. Checkout.com to facilitate stablecoin payments. PayPal lets users send and receive crypto. Affirm’s financing costs rise.
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Inflation to Remain Elevated; Consumer Credit Surges in April
Fed Chair Janet Yellen told lawmakers she expects inflation to remain elevated. The Fed is updating its forecast that prices will rise on average 4.7% this year, though Yellen said she expected the number could be higher.
The ABA’s economic advisory committee agrees that the rate hikes should gradually curb inflation. The committee forecasts that the U.S. economy will slow, but that it will avoid recession.
However, indicators from the Atlanta Fed’s GDPNow tracker are showing signs of slowing activity. The measure is forecasting Q2 growth of just 0.9% on an annualized basis, revised downward from 1.3% less than a week ago.
One silver lining on the week? Consumer credit surged as borrowing jumped 10.1% on an annualized basis in April.
Bipartisan Crypto Bill Gains Steam
The Lummis-Gillibrand crypto bill has emerged as perhaps the best chance of passing crypto legislation any time soon. Key components of the bill include making small transactions of less than $200 tax free and the awarding of new regulatory powers to the CFTC. The bill would seek to clarify whether specific crypto tokens are securities or commodities based on the purpose or rights they give holders. The bill would also create a federal framework for stablecoin issuance and regulation.
There is one provision the banking sector isn’t happy about. The Lummis-Gillibrand bill would make it easier for crypto and fintech companies to access Federal reserve accounts and services. It would allow any depository institution with a state charter to access Fed services, regardless of whether they are federally supervised or insured. Bank industry groups oppose the move.
Meanwhile, anti-crypto forces in the banking regulatory establishment are reportedly considering adopting a recent SEC staff accounting bulletin regarding crypto custody. The accounting requirement could apply to every bank and, potentially, every non-bank crypto intermediary. The result would substantially higher capital requirements for intermediaries. The most extreme scenario would make money transmitter licenses, used by many crypto companies, useless, if crypto were to be deemed not “permissible investments.”
Crypto Bank Sues Fed on Master Account Delays
Crypto bank Custodia is tired of waiting. It’s suing the Federal Reserve in an attempt to force a decision on its application for a Fed master account. Access to a master account would mean Custodia wouldn’t need to rely on a banking partner, improving its flexibility and economics.
The suit says that the Fed typically decides such applications in five to seven business days. Custodia’s application has been delayed by 19 months, despite a statutory one-year deadline for such applications.
Proper Raises $4.3Mn
Proper, a startup offering software to aid in accounts reconciliation, has raised a $4.3Mn seed round. Co-founders Kyle Maloney and Travis Gibson are veterans of Marqeta. The impetus for Proper came from experiencing the difficulty of stitching together technology from multiple providers. Proper simplifies organizing and managing data across companies’ tech stacks.
The company plans to use the funding to enhance its offering by building out a no-code financial ops dashboard.
BNPL Wars Heat Up with Apple’s Entrance
Perhaps the biggest news of the week? Apple’s entrance into the buy now, pay later space. The company announced “Apple Pay Later” at its developer conference last Monday. While the eventual launch of an Apple BNPL product was expected, the official announcement contains some additional details.
As is typical in BNPL, Apple Pay Later will enable consumers to split purchases into four interest-free payments over six weeks. There are no additional fees, including for late payments. Apple is working with Apple Card partner Goldman Sachs to access the Mastercard payment network.
But Apple will be taking on a larger role in the product and created a new subsidiary, Apple Financing LLC, for that purpose. Details on the source of financing Apple will tap for the program remain scarce. It’s unclear if Apple will use the cash on its balance sheet, some $73Bn, or arrange a debt facility. Apple also announced a new feature dubbed Apple Pay Order Tracking, which enables merchants to deliver receipt and package tracking information directly into Apple Wallet.
Meanwhile, Klarna is going physical. The Swedish BNPL behemoth is adding a physical payment card to the mix in the U.S. Dubbed the Klarna Card, it will let users shop anywhere, in person or online, and split-pay their purchases.
Checkout.com to Accept Stablecoins in Crypto Push
Payments processor Checkout.com will begin processing stablecoin payments. The new feature will allow companies to accept and make payments in USD coin, a dollar-pegged stablecoin. Checkout.com is partnering with crypto infrastructure company Fireblocks on the capability. One major selling point? It will enable 24/7 settlement, including on weekends and holidays.
PayPal To Let Users Send and Receive Crypto
PayPal, which has been pushing to position itself as a financial “super app,” added crypto trading capabilities last year. But, unlike other wallets and exchanges, users couldn’t send the crypto they held in PayPal to other wallets. That’s changing.
As of last week, users are now able to transfer their crypto to other wallets or exchanges. Conversely, users can move crypto assets from other platforms to PayPal. External transactions will incur blockchain network fees, though PayPal-to-PayPal transfer will be free.
Affirm’s Funding Costs Rise
The cost of funding BNPL credit at Affirm is rising. The company uses a variety of funding sources, including securitization and warehouse lines.
On the securitization side, Affirm pushed back an offering originally scheduled for March. When it finally brought the deal to market, the notes it sold, which mature in May 2027, have a coupon of 4.3% on the main tranche. A similar offering issued in February 2021 had a yield of just 0.89% at the time, though the yield has since risen to 4.01%.
Affirm’s costs are rising on the warehouse side as well, as the underlying benchmarks they are pegged to have jumped as much as 100 basis points this year. The company said it doesn’t expect rising rates to have a “significant” impact on profitability.
In the News:
Will Regulators’ Warnings Chill Lenders’ Use of AI? (American Banker, 6/6/2022) The CFPB warns lenders that use AI in lending decisions that they must be able to explain how customers are approved or declined.
Coinbase Extends Hiring Freeze, Rescinds Some Accepted Offers (Tech Crunch, 6/2/2022) Coinbase stated that the hiring freeze will persist as long as the macro downturn continues.
Citizens Says Buy Now/Pay Later Lending is Best When it Stays in its Lane (American Banker, 6/7/2022) Citizens focuses on higher-ticket purchases in categories like home improvement and electronics.
Raising Zelle: Furious P2P Users Take Banks to Court (American Banker, 6/7/2022) Consumers file class action lawsuits, alleging they weren’t properly protected from scams that use Zelle.
The Potential Banking Impact of Apple’s New ‘Embedded’ BNPL Product (The Financial Brand, 6/8/2022) Apple Pay Later, running on the Mastercard network, will launch as part of iOS 16 “in the fall”.
Stripe Co-Founder Hits Back at Rivals Accusing the Company of Unfair Competition (CNBC, 6/8/2022) Stripe has faced allegations of foul play from competitors Bolt and Plaid.
Polar Bears Continued to Mate with Brown Bears Long After the Species Split 1.5 Million Years Ago (Daily Mail, 6/6/2022) Scientists have found evidence of hybridization in genomes of modern bears.