Visa Crypto Coming; Barclays Offers BNPL; LendIt Highlights

Greetings,

This week, we look at our LendIt FinTech Conference highlights, Visa’s push into crypto payments, and Barclays’ entry to the BNPL party.

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GDP Growth is Scorching Hot

Unemployment claims dropped by 13,000 to 553,000 in the week ended April 24. This is the third consecutive week that unemployment fell to a pandemic-era low.

Meanwhile GDP increased to a seasonally adjusted 6.4% in Q1. The economy is now within 1% of its peak reached in late 2019, just before COVID reached the U.S. The ramp up in vaccinations coupled with stimulus payments disbursed in March were the main drivers contributing to the increase in growth.

…Inflation is Coming

Inflation might be approaching and there’s evidence in the commodities markets. We’re seeing evidence that small businesses and restaurants are having difficulty rehiring staff, due to competition from stimulus checks.

…But That’s Not Stopping the Fed

Despite the strength of the economy and impending higher inflation, the Fed has decided to keep short-term interest rates near zero as it buys at least $120 Bn of bonds each month. Fed Chairman Jerome Powell said the recovery is “uneven and far from complete.”

OCC Allows Crypto Firm, Paxos, to be a National Bank

NYC-based crypto firm, Paxos National Trust, has received preliminary conditional approval for a national trust charter by the OCC. In its approval letter, the OCC stated that Paxos will be an uninsured national bank and its operations will be limited to those of a trust company.

The OCC granted Paxos a charter even though a replacement has not been named since Brian Brooks stepped down as OCC Comptroller in January. Great to see the OCC pushing forward in granting special purpose FinTech charters. Great for innovation and the industry ecosystem.

Our LendIt FinTech Conference Highlights

Our CEO Ram Ahluwalia joined a LendIt panel this week to discuss the “marriage” between Fintechs and community banks. He reiterated our strong belief in the importance of direct distribution of whole loans from fintech originators to community banks. The pandemic offered yet again a tangible example of the reliable partner that community banks can be. This is especially true for fintechs when ABS markets dry up.

At PeerIQ we are heads down delivering the best tools for community banks to confidently tap into fintech originators. If you missed the event and would like to hear more, reach out to sales@peeriq.com.

Crypto Payments are Coming

On Visa’s earnings call this week, CEO Al Kelly described the five crypto payment initiatives Visa is “leaning into in a very, very big way”:

  1. Enabling consumers to purchase crypto with Visa cards
  2. Enabling digital currency cash-outs to fiat, allowing it to be used at Visa merchants
  3. Providing financial institutions and fintechs a crypto option for their customers
  4. Supporting digital currencies as an additional settlement currency on the Visa network
  5. Partnering with central banks on accelerating acceptance of central bank digital currencies

Al Kelly said, “Central bank digital currencies could end up being…quite valuable in countries where the infrastructure to distribute cash is either unavailable or limited”. This is great for the expansion of financial inclusion.

Visa jumping in on the current crypto craze in such a big way is a good sign for the eventual maturation of this dynamic market. Cryptocurrency holders should be excited for the impending ability to spend their holdings directly at 70 million Visa merchants soon.

Barclays Jumps on the BNPL Bandwagon

Barclays plans to encroach the BNPL space by partnering with Amount. Amount, led by Adam Hughes, is a bank infrastructure fintech that was spun out of online lender Avant in 2020.

In 2019, we noted that the future of fintech is “Function-as-a-Service.” Banks are renting fintech infrastructure to compete with fintechs. (Part of the same theme of nCino, Q2, etc. equipping banks to compete with other lenders).

Competition is clearly growing for the increasingly crowded BNPL space. Will the competition lead to missed growth forecasts for publicly traded lenders: PayPal, Affirm, GSKY — plus a flotilla of startups?

Where it Began: Teen Neo-Banks. How are They Doing?

Two neo-banks initially focused on teens, Current and Greenlight, announced new financing rounds on the same day this week. Both of them are led by Andreessen Horowitz (a16Z).

Current, led by CEO Stuart Sopp, raised $220 MM in Series D funding, tripling the company’s valuation to $2.2 Bn. The company announced a new focus on cryptocurrency, which will include an educational component. Crypto fits into Current’s vision of democratizing access to financial systems to the underserved.

Greenlight, led by Co-Founder and CEO Tim Sheehan, raised $260 MM in Series D funding. The company now has a $2.3 Bn valuation after tripling revenue year over year in 2021 and doubling customers on its platform to 3 million. The company also recently launched an educational investing platform for kids.

Great to see these neo-banks focused on specific communities (e.g., families, immigrants, landlords, freelancers, etc.) continue to gain traction. We are also eager to see if neo-banks can make money away from credit/debit interchange fees. If not, then aren’t neo-banks simply a way of delivering a card to a specific audience with a better experience? Let us know your thoughts.

Brex Valued at $7.4 Bn

Brex, led by CEO Henrique Dubugras, raised $425 MM in Series D funding. Tiger Global led the round. Other investors included TCV, GIC, Baillie Gifford, Madrone Capital Partners, Durable Capital Partners LP, Valiant Capital Management and Base10.

The new funding round values Brex at more than $7.4 Bn, up from its last valuation of $3 Bn in 2020. Brex grew its customer base by 80% in Q1 and monthly customer additions jumped by 5 times.

Credibly Receives Second ABS Offering of $65.77 MM

More evidence that ABS markets have fully recovered from Covid. Credibly, led by Ryan Rosett, announced its second offering of ABS from three classes of notes totaling $65.77 MM. This transaction marks the first ABS within the SMB lending space since the pandemic started and will reduce Credibly’s cost of funds compared to its existing ABS.

“Only a handful of companies in the SMB lending space have completed and maintained an asset-backed securitization, and the latest transaction reaffirms Credibly’s position as the leader in risk analysis”, said CFO Michael Senesk.

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