Overdraft Fees Up 64% from COVID Lows
Goldman Hiring Hints at New Products, CFPB Investigates Oportun, BlockFi At $3 Billion, BNPL Is Everywhere
Hey all, Jason here.
President Joe Biden signed the $1.9 trillion American Rescue Plan Act on Thursday - arguably the most consequential piece of economic legislation since FDR’s New Deal. Stimulus payments could already be hitting Americans’ bank accounts by the time you read this.
The bill has far-reaching implications beyond the direct payments on how American families will work, save, and spend — and sets up a future political showdown to renew what are sure to be popular benefits, like the monthly $300 per child payments to most families.
In the near term, keep your eyes on consumer spending, bank account balances/usage (especially Cash App, Chime, Varo), debt loads, and investments/asset prices (including crypto) — all areas likely to be impacted by the stimulus.
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Bank Overdraft Fees Rebound Sharply from COVID Lows
The economic impacts from the pandemic and the accompanying economic dislocations have played out quite differently than many would’ve guessed a year ago.
While job losses have arguably been catastrophic, particularly in the lower wage service sector, that hasn’t translated into a wave of defaults (yet?) - thanks largely to unprecedentedly large government stimulus in the forms of expanded unemployment and direct payments.
As consumers’ bank balances swelled and with few places to spend, bank account service charges, especially overdraft fees, plunged.
But from a low in Q2 last year, that trend has sharply reversed, with overdraft fees spiking 64% from their COVID low, according to analysis by S&P Global Intelligence.
Looking at bank-specific data reveals just how dependent some institutions are on service fees as a source of revenue.
While big banks may be top of mind when thinking about overdraft practices, they actually tend to be less dependent on service fee revenue than some small institutions. For instance, Chase derives 2.2% of its operating revenue from fees, which is in line with the overall industry average of 1.4%.
Some large institutions are even intentionally moving to reduce overdrafts by rolling out small-dollar credit products aimed at meeting consumers’ need for short-term borrowing without relying overdrafts. For instance, Bank of America’s Balance Assist product allows users to borrow up to $500 for a flat $5 fee.
The move makes sense; as consumers’ options multiply, this punitive fee revenue is at risk. Chime and Varo offer no-fee accounts with access to up to $100 of overdraft/advance (though not all users may qualify). Earned wage access providers provide users with liquidity at no or minimal cost. Services like Brigit, Dave, and MoneyLion offer account monitoring and loans/advances that help users avoid overdrafts.
This may all add up to trouble for institutions like Woodforest National and First National Bank Texas that derive approximately a third of their operating revenue from this type of fee income.
Goldman Hiring Hints at US Invoice Factoring, UK Roboadvisor
If you want to know what a company is up to, watch the job postings.
Small Business Invoice Financing / Factoring
At least two roles are currently open for product managers within Goldman’s recently launched transaction banking unit (often referred to as “TxB”) focusing on financing products for small and middle-market businesses, including invoice factoring, merchant cash advances, and term loans. A job description states:
“The Invoice Financing/Factoring Product Manager role will drive the end to end experience for TxB’s invoice financing and invoice factoring products. This role will define our origination, servicing, customer distress and portfolio management capabilities for the product.”
Goldman already offers up to $1 million lines of credit to 3rd party sellers on Amazon and Walmart’s platforms under its Marcus brand.
These job postings are notable because they sit within TxB — one of the underlying services that power Stripe’s Treasury product; suggesting that, eventually, these products may be distributed via Stripe and embedded in other companies’ offerings.
Companies and startups focused on SMB financing, like BlueVine, American Express (acquired Kabbage), and Enova (acquired OnDeck), should be watching carefully.
Marcus Invest for the UK?
There are a plethora of investment-related roles listed in Goldman’s London office; but there are some key indicators that Marcus Invest for the UK may be in the works.
This role, within Consumer and Wealth Management, which houses Marcus, is listed as “Digital Investing - DAS Ops.” Within Goldman, “DAS” appears to stand for “Digital Advisory Services” — aka roboadvice.
There are also UK roles listed for digital investment fraud strategy and a product design role, which states:
“You will be instrumental in defining the user experience for key features and journeys within a major new digital platform in the wealth management area of our business.”
It’s possible though unlikely that these London-based roles could be supporting Marcus Invest in the US. More likely, given Goldman’s strong showing with its UK savings product, is the UK launch of its roboadvisor product, Marcus Invest.
Oportun Under Investigation by CFPB for Aggressive Collections Practices
Oportun, a lender focused on Latinx borrowers, revealed it received a civil investigative demand from the CFPB related to its collections practices from 2019-2021 and the hardship plans offered in response to COVID-19.
ProPublica detailed the company’s aggressive habit of suing its customers among other questionable practices in an investigation last August.
The investigation is the latest black eye for the upstart lender, which is in the process of pursuing a national bank charter — an application which has been met with resistance from consumer advocates like the Center for Responsible Lending and the Woodstock Institute.
Experts I spoke with said that while the CFPB investigation wouldn’t inherently disqualify Oportun from receiving a charter, it would be a major red flag, and that the OCC is unlikely to grant a charter before the matter is resolved or at least conferring with the CFPB about the materiality of the issues.
How the OCC views the issue will likely be shaped by who is appointed as Comptroller — and Mehrsa Baradaran, a favorite of consumer advocates, emerging as a front-runner may be bad news for Oportun.
It’s Not Your Imagination - Buy Now, Pay Later *Is* Everywhere
If you thought you heard “buy now, pay later” mentioned on EVERY earnings call lately, you’d be correct.
Quartz did a great overview of the sector (including citing some analysis from yours truly!) that is worth a read if you’re unfamiliar with the product category.
Crypto Startup BlockFi Raises $350 Million
BlockFi announced it has raised a $350 million Series D, valuing the company at a reported $3 billion.
The startup offers “interest accounts,” where users can store various crypto assets and earn as high as 8.6% APY. It achieves this by lending out users’ stored crypto to others, such as hedge funds, traders, and institutional investors, who pay interest for borrowing the asset… almost like a… bank!
BlockFi also offers USD loans against crypto assets, allowing users to use upside gains in crypto they hold without having to liquidate their positions (basically, securities-based lending); they’ve also announced a USD credit card that earns 1.5% cashback — in Bitcoin.
For more on BlockFi, check out this interview I did with their VP of Business Development, Shayne Mullen, late last year.
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