Business activity jumps in July. Green Dot latest to get an enforcement action. Visa CEO laments settlement dismissal. Coast, Slope, and OCN announce fundraises. Capital One, Enova report earnings.
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Business Activity Jumps in July
Business activity in the U.S. in July accelerated at its fastest pace in more than two years, according to the S&P Global flash July composite output index. The measure increased by 0.2 points to 55, the highest since spring 2022. Stronger services demand drove the increase.
Image: Bloomberg
Green Dot Hit With $44Mn Enforcement Action
Green Dot is the latest fintech-focused bank to be hit with an enforcement action. The Federal Reserve, the bank’s primary federal regulator, issued an enforcement action that included a civil monetary penalty that will see the bank pay a total of $44Mn for alleged unfair and deceptive practices and inadequate risk management. Green Dot allegedly failed to make proper disclosures in the marketing, selling, and servicing of prepaid card products and tax return preparation services. The order also claims that Green Dot hindered users’ access to their prepaid card accounts used for disbursing some state unemployment payments. The action further flagged deficiencies in the bank’s compliance risk management framework, including those regarding anti-money laundering controls. Green Dot president and CEO said it has already and will continue to take “meaningful steps” to address the issues that led to the consent order.
Visa CEO Laments Judge’s Settlement Dismissal
Visa CEO Ryan McInerney expressed disappointment with the judge’s decision to dismiss the settlement agreement Visa and Mastercard had reached in a long-running class action case against the two major card networks. McInerney told analysts on the company’s quarterly earnings call that “We believe that the prior settlement provided meaningful relief to all merchants, and we will continue to work towards another settlement.” Visa has argued the settlement would have brought nearly $30Bn of relief to merchants. The judge in the case, however, disagreed with the structure of the settlement, arguing that it failed to treat merchants “equitably” relative to each other. McInerney told the analysts that the company is pursuing a revised settlement agreement, but that it is too early to speculate about what may change in an updated agreement, if one can be reached.
Coast Raises Series B
Expense management startup Coast announced it has raised a $40Mn Series B. The round was led by ICONIQ Growth, with ICONIQ GP Yoonkee Sull joining Coast’s board of directors as part of the deal. Accel, Insight Partners, Vesey Ventures, and Avid Ventures also participated in the round. The new funding brings the company’s total funding to nearly $100Mn since its founding in 2020. Coast focuses on fleet operators by simplifying authorization and tracking of fuel and related payments. The company says it plans to use the funding to continue its product and partnership development.
Cross River Turns 16; Reflects On Contributions, Challenges Lack Of Regulatory Clarity
Technology infrastructure and embedded finance provider Cross River marked 16 years in business with an introspective look at its contributions to the transformation of the fintech industry. In an opinion piece for American Banker’s BankThink, Founder and CEO Gilles Gade discussed innovation in financial services and the role the bank-fintech model has played in enhancing competition and bringing products to people traditional excluded from the marketplace. He noted the concerning number of enforcement actions against the few key players in the space despite rapid remediation and limited customer impact, emphasizing “that the bank-fintech model is absolutely viable, but it is wrestling with a broken regulatory model.”
Slope Announces $50Mn in Financing
B2B payments startup Slope announced it has raised $65Mn in financing, comprised of $15Mn in equity and $50Mn in debt financing. JPMorgan Chase invested in the company alongside Y Combinator Management. Slope focuses on automating businesses’ end-to-end purchasing and payment processes, including by leveraging artificial intelligence. OpenAI CEO Sam Altman also personally invested in the round.
JPMorgan Chase’s head of trade and working capital for the bank’s payments unit said of the investment, “Working with Slope, our team at J.P. Morgan Payments can help meet client demand by providing access to a financing solution that integrates directly into the point-of-sale, translating into higher conversion rates.” To date, Slope has raised a total of $77Mn in equity and $175Mn in debt financing.
OCN Raises $86Mn
Mexico-based OCN, formerly known as OneCarNow, announced it has raised $86Mn in equity and debt as part of its Series A round. The gig worker-focused company offers car rentals for gig workers and currently operates in 22 Mexican states, as well as in South Florida. The lead equity investors in the round include Caravela Capital, based in Brazil, and U.S. firms Collide Capital and Great North Ventures. New York-based i80 provided the debt capital.
Capital One, Enova Report Earnings
Source: Google Finance
We continue our earnings season coverage with Capital One and Enova reporting. Capital One reported that its credit card average loans HFI rose +8.4% while its consumer banking average loans HFI declined (3.0)% from a year prior.
Consumers continue to feel the effects of high inflation and, as such, consumer demand for credit remains strong. With unsecured consumer lenders maintaining tight credit standards, consumers are turning to lenders like Enova, who offer credit at higher interest rates (above 34% APR). Enova has captured this demand, with its consumer originations growing +22.2% YoY and its average consumer loan and finance receivable (installment loans and RPAs) balance growing +22.0% YoY. Enova continued to grow originations despite a ~120bps YoY increase in its cost of funds. Management raised origination growth guidance for 2024 from “at least 15%” to a range between 15%-20%.
Capital One grew its auto originations +18.2% from a year prior. The company had pulled back on some auto loans in 2022/2023 due to what they believed were artificially inflated credit scores. Management still sees headwinds for the business line, due to high interest rates and vehicle values. Additionally, used auto prices remain elevated relative to historical standards.
Capital One reported a +4.6% YoY increase in credit card purchase volume, but individual Capital One consumers don’t appear to be spending more. CEO Rich Fairbank explained, “The spend per customer is really pretty flat when you see spend growth at a company like Capital One, the purchase volume growth is really being driven by the new accounts.”
Turning to credit, Capital One’s credit card NCO rate rose +159bps YoY to 6.00% and 30+ day delinquency rate rose +39bps YoY to 4.16%. This move is largely in line with broader credit card delinquencies, which have trended higher over the past year. Capital One’s consumer banking NCO rate rose +44bps to 1.87%, while its 30+ day delinquency rate rose +30bps YoY to 5.60%. As a reminder the consumer banking 30+ day delinquency rate is comprised of auto at 5.67% and retail banking at 1.57%.
Enova’s consumer net charge-offs as a percentage of average combined loan and finance receivables rose +10bps from a year prior to 12.8%, while its consumer 30+ day delinquencies fell (50)bps to 6.3%.
Wrapping things up, Capital One’s consumer banking average deposits rose +5.3% YoY and +2.2% QoQ. Its consumer bank reported solid deposit growth, despite many large banks reporting declines or stagnant deposits. Capital One did “pay up” for deposits, with the average interest rate paid on deposits rising +76bps YoY and +7bps QoQ to 3.22%.
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