Fed Rate Hike; Celsius Freezes Withdrawals; Chase Leverages Data
The Fed raises rates by 0.75%. Officials acknowledge unemployment may rise. Abra partners with Amex on crypto card. Crypto lender Celsius freezes withdrawals. Coinbase and BlockFi do layoffs. Chase leverages data advantage. TD gives customers more repayment options. Affirm partners with Agoda. PayPal expands Pay Later options.
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Biggest Rate Hike Since ‘94
Last week, the Fed raised rates by 0.75 percentage points, making for its largest single hike since 1994. New forecasts show all 18 Fed officials who participated in the meeting expect rates to hit 3% this year, with half expecting rate to rise to 3.375%.
As Fed priorities shift, officials are signaling higher unemployment may be a consequence of efforts to tamp down on inflation. The comments implicitly acknowledge the challenge of engineering a “soft landing” and the elevated risks from a faster hiking cycle.
Signs of Stress Continue Throughout the Crypto Ecosystem
Celsius, a bank-like crypto lender, has frozen all customer withdrawals. The company holds some $11 Bn in assets for its 1.7 Mn users. Many were attracted to the platform by promises of yields reaching nearly 19%. Now, they find themselves unable to access their money. Celsius has hired attorneys who specialize in restructuring to advise on raising additional financing from investors or, if needed, a financial restructuring.
It’s not just crypto investors who are feeling the pain. As trading activity has slowed in recent quarters, crypto exchanges saw revenue drop. Now, that’s being compounded by significant price drops and a palpable sense of fear as the market enters a so-called “crypto winter.”
Back in April, Robinhood, which has been pushing into the crypto space, laid off 9% of its workforce. Now, BlockFi, a crypto trading and lending platform, announced it is cutting 20% of its workforce. BlockFi CEO, Zac Prince, cited a “dramatic shift in macroeconomic conditions,” which have driven a negative impact on growth.
Coinbase, which recently made news for rescinding job offers that had already been accepted, is making cuts too. The company will cut 18% of its full-time staff, or about 1,100 people. CEO Brian Armstrong pointed to the need to manage costs and said the company “grew too quickly” during the bull market.
Coinbase and BlockFi join a growing list of fintech and crypto companies that have begun trimming costs and headcounts as uncertainty intensifies. They’re unlikely to be the last; crypto hedge fund Three Arrows Capital is rumored to be facing solvency concerns.
The recent turmoil in the sector is likely to invite additional regulatory scrutiny, particularly in regard to how firms safeguard customer funds.
JPMorgan Chase Using Payments Data to Attract Merchants
JPMorgan Chase is looking to capitalize on its mammoth scale by offering something smaller competitors can’t: insights gleaned from its huge stores of card transaction data.
The firm is combining data from its consumer payment cards and its merchant acquiring business to offer its small business customers a new resource, Chase Customer Insights. The service will let SMBs benchmark their customers’ demographic details and shopping behavior with nearby rivals. Possible use cases include making inventory, pricing, and staffing decisions based on local trends and performance.
The move comes as Chase faces increased competition, both on the small business banking side and payment processing. Competitors include companies like FIS’ Clover, Square, and Stripe.
Abra and Amex Partner on Crypto Card
Abra, a crypto trading platform, has announced it is teaming up with American Express to offer a credit card with crypto rewards. According to a blog post from Abra CEO, Bill Barhydt, the offering will be the first crypto rewards card on the American Express network. Cardholders will pay no annual or foreign transaction fees and will earn crypto rewards on any purchase category and amount.
BNPL Battles for Market Share Continue, Despite Market Turmoil
No week goes by without new entrants and large deals in the BNPL space.
Affirm announced a partnership with Agoda, a business unit of Booking.com, to offer financing options for transactions over $50. Both biweekly “split pay” financing and longer-term loans will be available, depending on the transaction size.
TD Bank is adding a BNPL-like option for eligible credit card customers. The new feature will let customers pay for qualifying purchases over $100 in 6, 12, or 18 equal monthly payments. TD says the new feature, dubbed “TD Payment Plans”, gives customers more choices and more control over their budgets. The feature resembles capabilities long offered by Chase (My Chase Plan) and Amex (Pay It Plan It), which let cardholders convert transactions into installment-like plans after the fact.
PayPal is expanding its “Pay Later” options. Previously, the service could be used to split payments over a six-week period. Now, PayPal is announcing that Pay Later can be used to finance transactions up to $10,000 for periods of 6–24 months. Risk-based pricing will run from 0% to 29.99% APR. The addition of longer-term, interest-bearing financing brings PayPal’s offerings more closely in line with those from other major competitors like Affirm and Klarna. As product offerings converge, the battle for distribution will continue. BNPL companies’ efforts to win “share of wallet” include shopping apps, browser extensions, and physical payment cards.
This week’s announcements came at an increasingly tenuous time for the BNPL industry. Company valuations, like elsewhere in fintech and the market broadly, have cratered. Risks of increased regulation loom. And the rapidly changing macro environment’s impact on consumers’ ability to pay remains top of mind.
In the News:
What the End of ‘Chevron Deference’ Could Mean for Banks (American Banker, 6/12/2022) Striking down the “Chevron Deference” could limit the government’s ability to respond to financial innovation and systemic risk.
Should the Fed Decide Who Gets a Master Account? (American Banker, 6/10/2022) Fintechs have had difficulty obtaining a master account to this point, with only one fintech granted a master account (and later its access was reportedly taken away).
How Apple Pay Later’s Self-Funding Model Cuts its Costs (American Banker, 6/10/2022) Apple’s strong balance sheet means it could easily fund its loans in-house at no cost.
Mastercard Announces New Crypto Partners for its NFT Payments Service (The Block, 6/10/2022) Mastercard announced partnerships with Immutable X, Candy Digital, The Sandbox, Mintable, Spring, Nifty Gateway and MoonPay to enable NFT commerce.
When Will Depositors Start Shopping for Higher Rates? (American Banker, 6/13/2022) Rising inflation and interest rates may cause depositors to demand greater yield, which could offset some of the increase in interest income banks expect to generate.
Buy Now, Pay Later Will Get More Than One Bite at the Apple (Wall Street Journal, 6/13/2022) Fintechs that provide BNPL services stocks’ have sharply underperformed S&P financials as of late.
Fintech Nexus USA 2022: Who Will Rule the Future of Fintech? (Fintech Nexus News, 6/14/2022) Interview with Cross River’s Gilles Gade and Custodia Bank’s Caitlin Long.
Don’t Miss Celestial Show as Five Planets Align With the Moon for All to See (Good News Network, 6/13/2022) Keep your eyes on the night sky this month for an alignment not seen in 18 years.