MoneyLion & Dave Q2 Earnings: 5 Key Take Aways
Fed To Supervise "Novel Activities," PayPal Launches Its Stablecoin
Hey all, Jason here.
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MoneyLion & Dave Q2 Earnings: Five Key Take Aways
We’ve been following neobanks Dave and MoneyLion for quite a while now.
The two companies have taken somewhat diverging paths, with Dave continuing to focus on a fairly narrow set of banking and cash advance features. MoneyLion, meanwhile, has more aggressively expanded its own product portfolio to include credit-building loans, crypto, and investing; MoneyLion has also acquired creator content studio Malka Media and affiliate marketplace Even Financial, rebranded as Engine by MoneyLion.
MoneyLion’s more aggressive strategy appears to be paying off, at least in comparison to Dave, as the company has made better progress on key performance metrics.
1. MoneyLion Outpaces Dave on Revenue Growth
MoneyLion grew top-line revenue by nearly 14% QoQ to $106.5 million, driven primarily by an increase in subscription and service revenue. Dave saw a significantly more modest approximately 4% increase in revenue, to $61.2 million in revenue for the quarter. Dave posted a $2.4 million increase in service and subscription revenue, but a slight decline in transaction-based revenue.
2. Dave’s Expenses Grew Faster Than Revenue
On the expense side of the P&L, Dave saw its operating costs increase more rapidly than MoneyLion. Dave’s OpEx increased by 15% QoQ to about $82.2 million, driven by growing loan-loss provisions and higher marketing expenses.
MoneyLion’s OpEx increased a bit over 11% to about $108.3 million, driven primarily by higher loan-loss provisions and somewhat higher direct costs.
3. MoneyLion Makes Progress Towards Profitability, Dave Does Not
Bottom-line results for the companies are continuing to diverge.
Both recorded net losses on a GAAP basis, but, excluding other expenses/income, MoneyLion has narrowed its quarterly loss to about $1.7 million. Including a non-cash goodwill impairment of $26.7 million, taking its goodwill to zero, MoneyLion recorded a net loss of about $27.7 million. MoneyLion posted adjusted EBITDA of $9.2 million, which excludes the goodwill impairment, stock-based compensation, one-time expenses, and other charges.
The picture for Dave isn’t as promising. Its net loss before other expenses/income increased by 61.2% from about $12.5 million to nearly $21 million. Net loss on a GAAP basis was slightly higher, at $22.6 million. On an adjusted EBITDA basis, which excludes $6.6 million in stock-based compensation, Dave still posted a $13.1 million loss for the quarter.
4. CAC & ARPU Illustrate Diverging Strategies
The difference in MoneyLion and Dave’s strategies particularly stands out when looking at number of users, user growth, and cost of acquisition vs. average revenue per user.
Differences in strategy also lead to differences in the definition of a user (“customer” for MoneyLion and “member” for Dave.)
MoneyLion, which saw its total user count increase by nearly 27% to 9.9 million, defines the metric as (emphasis added):
the cumulative number of customers that have opened at least one account, including banking, membership subscription, secured personal loan, Instacash advance, managed investment account, cryptocurrency account and customers that are monetized through our marketplace and affiliate products. Total Customers also include customers that have submitted for, received or clicked on at least one marketplace loan offer.
Dave, on the other hand, does not offer third-party products through affiliates. The company saw its user base increase by a more modest 5.7% QoQ to 9.2 million. Dave defines its total “members” metric as:
the number of unique Members that have either connected an existing bank account to the Dave service or have opened a Dave Banking account, less the number of accounts deleted by Members or closed by Dave, as measured at the end of a period.
Keeping the above definition in mind, both MoneyLion’s cost of acquiring users and ability to monetize those users, inclusive of those using third-party products, appears to be substantially superior to Dave’s. MoneyLion’s “enterprise” (affiliate) segment is growing more quickly than its consumer business: enterprise revenue rose 31% QoQ to $37 million, while consumer revenue rose just 6% to $70 million.
MoneyLion had a CAC of approximately $3 vs. an ARPU of $43.04 (annualized), whereas Dave’s CAC was about 10x at just shy of $30, while its revenue per user was significantly lower than MoneyLion’s at $26.64 (annualized).
CAC computed as reported marketing spend for Q2’23 divided by change in total users vs. Q1'23. ARPU computed as total revenue for Q2’23 divided by total users and annualized.
5. Both Dave & MoneyLion See Market Cap Growth And Multiple Expansion, But Lag Wider Fintech Market
Both companies have seen their valuations rise since last quarter, thanks in part to the multiple expansion most publicly-traded fintechs have seen — though they still both lag other fintechs and the wider market. MoneyLion’s market cap rose by just shy of 75% to $166 million, with its price/sales multiple increasing to 0.3673x. Dave’s market cap grew by almost 60% to $89 million, with its price/sales multiple rising to 0.3717x.
Fed Announces New Program To Supervise “Novel Activities”
Last week, the Federal Reserve announced a new program to supervise what it dubbed “novel activities” at banking organizations supervised by the Federal Reserve. The additional layer of supervision will apply to all banks overseen by the Fed, notably including those with fewer than $10 billion in assets.
The program outlines four categories of “novel” activities:
“Complex, technology-driven partnerships with non-banks to provide banking services,” which seems to be describing “banking-as-a-service” relationships — though it is not immediately clear if this enhanced supervision will apply only to relationships intermediated by BaaS platforms like Synapse, Unit, and Treasury Prime, or also include direct bank-fintech partnerships
“Crypto-asset related activities,” including custody, crypto-collateralized lending, facilitating crypto trading, and stablecoin issuing
projects that use distributed ledger technology (DLT), better known as blockchains
and banking organizations that have a high concentration of crypto and/or fintech services
It’s interesting that the types of activities included in the new supervision program implicitly equate the risks of crypto and blockchain with those of bank/fintech partnerships and banking-as-a-service.
It’s worth revisiting some of the recent history that may have spurred the Fed to create this program. On the crypto side, the concentration of uninsured deposits tied to crypto platforms is widely seen to have contributed to the failures of Silvergate and Signature Bank. There are, of course, a myriad of other potential risks posed by crypto and blockchain, including BSA/AML risks, operational risks, tech risk, and so on.
This is somewhat distinct from the most prominent known regulatory issues BaaS has recently faced, as evidenced by Blue Ridge and Cross River’s respective consent orders. Blue Ridge’s issues stemmed primarily from BSA/AML/KYC compliance issues, while Cross River’s were related to fair lending issues.
As far as I’m aware, there haven’t been any situations to date where a non-crypto fintech/BaaS partner program has posed a liquidity or solvency risk to its bank partner — not to say that this couldn’t happen, but rather that the types and severity of risks, to date, have been different.
For its part, the Fed provided the following background context in the letter outlining the new supervision program, giving a glimpse into how it is thinking about the matter (spacing adjusted and emphasis added):
Financial innovation supported by new technologies can benefit the U.S. economy and U.S. consumers by spurring competition, reducing costs, creating products that better meet customer needs, and extending the reach of financial services and products to those typically underserved.
Innovation can also lead to rapid change in individual banks or in the financial system and generate novel manifestations of risks that can materially impact the safety and soundness of banking organizations.
Given the novelty of these activities, they may create unique questions around their permissibility, may not be sufficiently addressed by existing supervisory approaches, and may raise concerns for the broader financial system.
Key Parameters Of Novel Activities Supervision Program
Like many aspects of the regulatory world, the supervision program will be “risk-based,” with the “level and intensity” of supervision depending on the “level of engagement in novel activities” a bank is participating in.
Other key parameters of the new program include:
entities being supervised under this program will not move to a new supervisory portfolio; rather, the program will work within the existing portfolio structure alongside existing supervisory teams
the program will be staffed by teams from around the Fed system and will engage with external experts from academia, banking and finance, and technology
the program will inform development of supervisory approaches and guidance for banking organizations engaging in novel activities
the Fed will periodically evaluate and update which organizations should be subject to supervision through the program; banking organizations subject to the program will be notified in writing
Program May Support More Clearly Defined, Consistent Regulatory Treatment
While many in the financial industry reflexive decry incremental regulation, I’m cautiously optimistic the Fed’s program will help improve clarity and standardization of regulatory approaches for banks engaging in banking-as-a-service and crypto/blockchain.
Alongside other regulatory initiatives, like the OCC’s recently launched Office of Financial Technology and the CFPB’s rebranded Office of Competition and Innovation, it indicates regulators get that the US banking and financial system is undergoing a period of significant change — both from a technological and business model perspective.
Given the fragmented nature of US banking regulation, with the Fed, OCC, and FDIC serving as primary federal regulatory depending on a bank’s charter type and Fed membership status, achieving a “same activity, same risk, same regulation” approach will be critical to avoid charter/regulator shopping.
The Fed’s statement on the program takes a balanced approach, acknowledging the opportunities in “novel activities,” including improved competition, reducing costs, and meeting the needs of underserved consumers, while reinforcing that such activities may introduce new risks that need to be addressed. The Fed also committed to incorporating feedback from banking, finance, and technology industry stakeholders as it seeks to develop appropriate supervisory approaches.
The program does appear to entail incremental regulatory supervision and obligations, which is likely to add compliance costs to banking organizations that engage in such activities and thus serve as a disincentive to do so.
But the reality is, supervision of these activities was likely already happening before the creation of this program — but, perhaps, on an ad hoc basis. If this new program leads to clearly defined, codified supervisory approaches for BaaS, crypto, and blockchain, it should help ensure more predictable and consistent regulatory treatment of these activities.
PayPal’s Stablecoin: “Watershed” Moment, Or Useless Distraction?
Perhaps the biggest story in fintech last week was PayPal’s launch of its own stablecoin, PayPal USD (PYUSD). Issued by Paxos Trust Co. and operating on the Ethereum blockchain, PYUSD is fully-backed by US dollars, Treasuries, and cash-equivalents. One PYUSD can always be bought or sold for USD $1 through PayPal.
Reading coverage of the news from across the fintech/banking and crypto landscape presented two distinct pictures.
In crypto world, the news was hailed as a sign that the stodgy world of “TradFi” (traditional finance) is slowly but surely understanding the risk of disruption from crypto and blockchains and reacting accordingly.
Crypto news site Blockworks described the news as more significant than if a bitcoin ETF were to finally be approved. A writer for Coindesk declared it a “watershed moment for finance.”
Coverage recycled typical crypto-world tropes about trustless-ness and decentralization (spacing adjusted and emphasis added):
PYUSD brings us back to the original promise of blockchain: the ability of a two-legged human, anywhere in the world, to send value to another two-legged human without having to trust or pay a bank (or worse, interminably long string of correspondent banks) to facilitate their transactions.
This sort of platform erodes monopolies over time, allowing people to form their own financial connections without the need for centralized counterparties to control them. It returns the power over money to the people.
But this rose-tinted view ignores the realities that PYUSD is currently only available in the US, will not be listed on outside crypto exchanges (though it can be sent to non-PayPal Ethereum wallets), and, by definition, involves highly centralized actors — PayPal, Paxos, and the underlying banks that hold the assets backing PYUSD.
The consensus opinion in banking and fintech felt like something along the lines of, I’m not quite sure who or what this is for. Analysts at Bank of America are skeptical of any meaningful adoption, at least in the near-term.
With stablecoins still lacking any federal legislative or regulatory framework, some in Congress have already decried PayPal’s decision to launch its own stablecoin.
This may be a reflection of my own information availability and other biases, but I’m inclined to subscribe to the fintech/banking point of view: I’m not sure who would want to use this or why.
According to PayPal itself, the current capabilities of PYUSD include:
buying and selling PYUSD.
converting (trading) PYUSD for other cryptocurrencies PayPal supports — a relatively small selection that includes Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.
paying — sort of. When shopping at merchants that accept PayPal, you can choose to pay with PYUSD, and PayPal will convert your PYUSD back into USD to facilitate the transaction.
sending PYUSD to others in the US on PayPal or to external Ethereum wallets
Given the constraints — the few cryptos PayPal supports and that it is US-only — this seems unlikely to appeal to “crypto-native” users.
And for “normies,” I struggle, at least at the moment, to see any meaningful utility in PYUSD.
Users can already easily send and receive funds, without first converting them to PYUSD, with PayPal’s own Venmo service, Cash App, or Zelle.
Users can already pay merchants without adding the steps of converting funds into PYUSD only to have PayPal convert them back in to USD to make a payment.
And with interest rates on typical online savings accounts, certificates of deposits, and money market funds over 5% APY, it’s not clear why anyone would want to hold significant funds in PYUSD either.
FT Partners: August Update
FT Partners is out with its August fintech update, and July’s funding total came in at the new (old) normal — an aggregate $3 billion across some 212 reported deals.
While it’s likely there is still pain ahead, both for fintechs that struggle to raise and VCs marking down their portfolios, things seem to have stabilized — at least for the moment.
Other Good Reads
When Banking Problems Don’t Look Like Banking Problems (Fintech Takes)
PayPal’s Stablecoin Is Just The Beginning (Fintech Brainfood)
With 27 Million Set to Resume Payments, Many Student Loan Borrowers Already Managing Increased Debt Since Pre-Pandemic (Transunion)
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