Square Becomes Block; Amex Partners with Opy; Capital One Ditches Overdrafts

PeerIQ Analytics Platform
7 min readDec 6, 2021

Greetings,

Shopping, inflation, and monetary policy. Cordray being considered for Fed post. Fundbox raises funds. Square becomes Block. A New York bank is minting its own stablecoin. Amex taps Opy for BNPL. Are credit cards back? Capital One ditches overdraft fees.

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What do Shopping, Inflation, and Monetary Policy Have in Common?

The holiday shopping season is looking a bit different this year, due not only to the continued pandemic, but also ongoing supply chain troubles. Foot traffic in stores on Black Friday was up 48% from last year’s levels, but still lagged pre-pandemic levels by 28%.

Inflation is expected to stay higher, longer, the OECD says. The group is now forecasting an average increase in prices of 4.4% in 2022, up from its previous forecast of 3.1% in September. The potential impact of the Omicron COVID variant on inflation is not yet known.

On the one hand, it could dampen demand, causing prices to decline, as they did when COVID first emerged. On the other, tightened travel restrictions could cause continued supply chain disruptions, exacerbating shortages and putting upward pressure on prices.

Amidst continuing inflationary pressures, Fed Chair Powell has said the central bank is prepared to accelerate the pullback of accommodative monetary policy to pave the path for interest rate hikes as early as the first half of next year.

Cordray Being Considered for Top Banking Regulator Post

Richard Cordray is reportedly being considered to succeed Randal Quarles as the Fed’s vice chair of banking supervision. Cordray, who won confirmation as the first CFPB director on a 66–34 vote back in 2013, may face a tougher confirmation fight this time, if he’s officially nominated for the post.

The role, created by Dodd-Frank, has a large say in the Fed’s regulatory agenda. The Fed has a number of policy issues to tackle, including how it counts deposits held at the central bank in banks’ leverage ratio.

SMB-focused Fundbox Raises $100Mn

Fundbox announced its Series D. The $100Mn round values the company at $1.1Bn. Its product offerings focus on credit and payments to help small businesses meet their working capital needs. Its core segment is SMBs that sell to other SMBs — think local food suppliers or cleaning firms. These “B2B SMBs” have historically been underserved by the banking sector and have had difficulty accessing credit.

The company surpassed a $100Mn revenue run rate earlier this year, though it is currently unprofitable as it is focused on growth.

Fundbox is one of a slew of fintechs building for the SMB market. By focusing on a defined segment (SMBs selling to SMBs) and solving their key pain point (cashflow / working capital), Fundbox can create meaningful differentiation vs. its competitors.

Jack Dorsey Resigns as CEO of Twitter; Square Becomes Block

Jack Dorsey has had the rare distinction of simultaneously being CEO of two publicly traded companies: Twitter and Square. Now, it looks like he has picked a side. Last week, he resigned as CEO of Twitter. CTO Parag Agrawal will replace Dorsey as CEO, effective immediately. Dorsey will remain on the board through the end of his term in 2022.

The move will free up Dorsey’s time to focus on Square, which announced its new name last week: Block. Block says it is focused on building tools to increase access to the economy. And, for the company, those tools increasingly include crypto. It has rolled out bitcoin trading, has a business unit “dedicated to advancing Bitcoin,” and a division focused on building and managing decentralized financial services, called TBD.

Taken together, it appears Dorsey is doubling down on crypto. Square (I guess Block, now?) has already realized meaningful revenue gains from adding bitcoin trading to Cash App. But the rebrand signals there is a longer-term vision that Dorsey wants to build. Block has significant advantages as it pushes further into crypto-world, including ~40Mn monthly Cash App users, ~2Mn Square merchants, and an ILC bank charter.

Why A New York Bank is Minting Its Own Stablecoin

New York Community Bancorp is working with Figure to mint a new stablecoin. USD Forward (USDF) will operate on Figure’s Provenance blockchain. USDF will enable lenders and investors to settle transactions on Provenance instantly. NYCB and Figure are hoping other banks will join, increasing the utility and driving positive network effects.

How does it work? Someone looking to conduct transactions on the Provenance blockchain can open an account at NYCB, with standard bank KYC and compliance processes. They would then pay traditional US dollars into that account. In turn, NYCB would place an equivalent amount of USDF in a Figure digital wallet, which could then engage in transactions on the blockchain.

Banks entering the stablecoin space makes total sense, especially considering the recent President’s Working Group report, which called for bank-like regulation of stablecoin issuers. In that sense, NYCB and Figure may have a meaningful regulatory advantage vs. popular stablecoins like those issued by Circle or Tether. Still, to unlock its full potential, USDF will need to reach a critical mass of adoption.

Amex Taps Opy for BNPL

American Express announced it will work with Opy, the US subsidiary of Openpay, to offer buy now, pay later-style financing for larger ticket healthcare- and automotive-related purchases. Amex already allows customers to convert smaller purchases into installments using its “Pay it Plan it” feature. The new offering will allow Amex customers to borrow up to $20,000 at rates of 9.99% or lower, to be paid back in periods up to 24 months.

Given the non-stop buzz around BNPL, Amex’s move to expand its offerings to include some larger purchases makes sense. What’s less clear is why Amex decided to partner with Opy on the offering, particularly given that Amex already offers personal loans on similar terms to what Opy will offer.

Credit Card Apps Hit Pandemic High

The share of Americans applying for credit cards in the prior 12 months hit a pandemic peak of 26.5% in October after hitting a low of 15.7% last year. The rebound in card demand comes amidst an uneven recovery, and may signal consumers are becoming more comfortable taking on additional debt, after a pronounced shift to debit cards at the beginning of the pandemic (note the data pre-dates the Omicron variant). Despite rebounding card applications, total card balances remain $123Bn lower than at the end of 2019.

Credit cards are dead, long live credit cards? While only a single data point, this speaks to the enduring appeal of credit cards. Numerous narratives have been crafted about the decline of credit cards — millennials are debt-averse, the superiority of BNPL, the pandemic — but, so far, the utility and near-ubiquitous acceptance of credit cards suggest they aren’t likely to disappear anytime soon.

Image: Wall Street Journal

Capital One Latest to Ditch Overdraft Fees

Last week, Capital One became the largest bank to ditch overdraft fees. Nixing the fees, which have come under increasing scrutiny from lawmakers and regulators, will cost Capital One about $150Mn in annual revenue. Customers will still be eligible for a free overdraft protection service, dependent on account activity like recurring direct deposits.

Don’t expect Capital One to be the last large bank to get rid of overdraft fees. With the combination of competitive pressure from challengers like Chime, regulatory pressure, and ‘peer’ pressure, some other large banks may follow suit, sooner or later.

In The News:

Chopra Distances CFPB from Trump Era in Settlement with Consumer Groups (American Banker, 11/30/2021) The CFPB settles a lawsuit brought against fmr. Director Kathy Kraninger that alleged she violated the Federal Advisory Committee Act.

The Infrastructure Bill Cracks Down on Crypto Tax Reporting. What Investors Need to Know (CNBC, 11/29/2021) The bill calls for mandatory tax reporting from digital currency brokers starting in January 2023.

Senate Banking Panel Chair Seeks Stablecoin Issuer Feedback (Banking Dive, 11/29/2021) Sen. Sherrod Brown sent letters to 8 stablecoin issuers and exchanges, asking them to describe processes their customers undertake related to stablecoins.

How Klarna’s Broadside to the Payment System Could Impact Banking’s Role (The Financial Brand, 11/29/2021) In a “war of the pay buttons”, BNPL is just one component of the payment and loyalty network.

Temenos Launches Open Marketplace for Connecting Banks and Fintech Solutions (finLedger, 11/29/2021) The marketplace will connect fintech providers with access to over 3,000 of Temenos’ banking clients.

From Neobank to National Bank: Was Varo’s Quest Worth It? (The Financial Brand, 11/30/2021) Since becoming the first fintech to be granted a national banking charter, Varo has become one of the larger neobanks, but still trails MoneyLion, Dave and Chime in number of accounts.

Early Wage Access Brings Financial Inclusion to the Underbanked, Underserved (finLedger, 11/29/2021) Profile of B9, who offers early access up to 100% of a user’s paycheck early.

Buffett-Backed Nubank Considers Cutting IPO Valuation (Bloomberg, 11/29/2021) Nubank is weighing trimming its proposed $10–11 price range following a global rout in tech stocks.

No Credit Score? No Problem! Just Hand Over More Data. (New York Times, 11/29/2021) Alternative credit scoring, based on transaction data from bank accounts, spending habits, details of one’s college degree, can be used to help get a loan.

PayPal Saw Use of its Buy Now, Pay Later Option Soar Nearly 400% on Black Friday, CEO says (CNBC, 11/30/2021) PayPal completed ~750k BNPL transactions on Black Friday alone.

Lighter Fare:

World’s First Living Robots Can Now Reproduce, Scientists Say (New York Post, 11/30/2021) The “xenobots”, created from stem cells of the African clawed frog, can move and self-heal.

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PeerIQ Analytics Platform

PeerIQ, a Cross River company, offers online Software as-a-Service risk analytics for owners and operators of consumer credit risk.