HELOC Balances Grow; Pagaya & OneMain Partner; Payoneer Acquires Payroll Startup

Traders hope for emergency rate cut. HELOC use grows. Dems introduce bill to expand EFTA protections. Bilt, Savvy Wealth, iLex, and Octane announced fresh funding. Pagaya partners with OneMain. Payoneer acquires global payroll startup. Fintechs report earnings.

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Traders Hope for Emergency Rate Cut

Markets plunged last week as the yen carry trade, where investors borrow in yen in order to invest in assets denominated in other currencies, often dollars, unwound. The downward pressure on stock markets coupled with higher-than-expected unemployment numbers and progress on fighting inflation had some calling for the Fed to make an emergency rate cut, prior to its next scheduled meeting in late September. The general consensus, however, is that such a move from the Fed is unlikely.

Higher interest rates are helping to spur use of HELOCs, as homeowners look to tap the equity in their homes without giving up lower mortgage rates. While only $374Bn in mortgage debt was originated in Q2, down from about $900Bn in 2021 and 2022, HELOC balances rose for the 9th consecutive quarter, reaching $380Bn outstanding.

Dem Introduce Bill to Expand EFTA Protections

Democratic Senators Richard Blumenthal (CT) and Elizabeth Warren (MA) introduced a bill that would expand the protections of the Electronic Funds Transfer Act to cover certain kinds of scams, where users are tricked into authorizing a payment by a bad actor. Democratic Representative Maxine Waters introduced a corresponding bill in the House. The proposed measure would mandate shared responsibility for the cost to reimburse users between the user’s bank and the receiving institution, as well as other entities that "materially help facilitate the payments." The proposed bills aren’t limited to Zelle, though the service, offered as a feature on many bank accounts and operated by bank-owned consortium EWS, has caught the most attention from legislators and regulators. For their part, bankers suggested there could be unintended consequences, including encouraging criminal activity and first-party fraud.

Bilt Raises Another $150Mn

Rent rewards startup Bilt announced it has raised a fresh $150Mn in an extension led by the Ontario Teachers’ Pension Plan. The University of Illinois Foundation and Vanderbilt University Endowment also participated in the extension, which saw Bilt’s valuation rise to $3.25Bn. According to Bilt CEO Ankur Jain, the company was profitable on an EBITDA basis in 2023 and is set to remain so this year. While the business model seems to be working for Bilt, it has been less lucrative for Bilt’s card issuing partner, Wells Fargo. Reporting earlier this year suggested the bank may be losing as much as $10Mn a month on the deal and is seeking to renegotiate terms of the partnership.

Savvy Wealth Announces $15.5Mn Raise

Savvy Wealth, a wealthtech startup focused on building a digital-first wealth management platform, announced it has raised a $15.5Mn Series A-2. The round was led by Canvas Ventures, with participation from The House Fund, Thrive Capital, Brewer Lane, Index Ventures, and Alumni Ventures. The new funding brings Savvy Wealth’s total capital raised to date to over $33Mn. The company plans to use the additional funding to continue development of its proprietary platform and to support its marketing and growth efforts.

Loan Syndication Platform iLex Closes $7Mn Pre-Series A

Loan syndication platform iLex announced it has closed on its $7Mn pre-Series A round, bringing its total capital raised to date to $11Mn. The round was supported by MI8, Eileses Capital, QBN Capital, with participation from notable angel investors like Jean Maynier, Matthieu Delamaire, and Jean-Philippe Malé. iLex aims to modernize primary and secondary loan sales by offering a comprehensive and integrated suite of solutions encompassing deal workspaces, investor and market analytics, portfolio management, and private marketplaces. The company will use the new funding to support its product roadmap, including the launch of a new primary syndication solution and growing adoption in EMEA and APAC markets.

Octane Announces $50Mn Series A

Octane, which provides loans for recreational vehicle purchases, announced it has raised a $50Mn Series E round. The inside round was led by Valar Ventures, with participation by Upper90. The company reports that, through its in-house lending arm, it has originated more than $4Bn in loans by working with over 30 equipment manufacturers. Octane plans to use the incremental funding to expand into new markets.

Pagaya Partners With OneMain

Pagaya announced a new partnership with non-prime lender OneMain Financial. The deal will see OneMain’s existing auto lending business leverage Pagaya’s platform to serve more borrowers outside of its existing credit box. The two companies are also working to expand the scope of the partnership into a broader enterprise agreement.

Payoneer Acquiring Global Payroll Startup for $61Mn

Payoneer is buying 5-year old payroll startup Skuad in a $61Mn all-cash deal. Stock grants and incentive payments could see the total value of the deal reach $81Mn, if Skuad hits certain performance targets. The deal is a fairly quick exit for Skuad, which had raised about $19Mn in VC funding from Anthemis, Beenext, Argor Capital, and NMVM. Skuad’s global HR and payroll capabilities are a logical complement to Payoneer’s cross-border payment services, which are already used by some 2Mn business across 190 countries.

Fintechs Report Earnings

This week, we had a host of fintechs report with originations rising at MoneyLion +40%, Dave +37% and OppFi +2% from a year prior. At the same time, Pagaya’s network volumes grew +19% YoY. Originations fell (10)% at Oportun and (6)% at Upstart from a year prior as the lenders maintained tight credit postures. While Upstart’s originations were (6)% lower on a YoY basis and (2)% lower on a QoQ basis, its small dollar originations continued to grow quickly, up +57% from the prior quarter.

As consumers continue to bear the brunt of high inflation, they have turned to short-term cash advances, as offered by Upstart, MoneyLion and Dave. Additionally, consumers have turned to higher-APR (often above 36%) lenders, like OppFi +2% YoY, for personal loans as lenders have tightened credit standards.

In the wake of the CFPB proposing an interpretive rule on paycheck advance products, fintechs that offer short-term cash advances are positioning themselves to protect their business. On Dave’s earnings call, CEO Jason Wilk emphasized that its ExtraCash product is a federally regulated overdraft product, stating, “On the proposed EWA, yes, we did issue a statement that we don’t believe that we are subject to this rule. If it were to become effective, we feel very strongly in our position as an overdraft product similar to traditional banks, albeit at significantly cheaper fees.”

To go along with this, MoneyLion released an 8-K that amended its agreement with partner bank Pathward to offer overdraft protection. However, MoneyLion did not confirm whether it intended to move its Instacash product to that framework, with CEO Choubey saying that the 8-K is just an extension of its relationship with Pathward and the overdraft capabilities will complement existing capabilities.

While MoneyLion amended its relationship with its partner bank, Dave is looking to add a second one. Management revealed that is has been evaluating additional potential sponsor banks since late last year. Dave works with Evolve, which received a C&D from the Fed and is caught up in the Synapse bankruptcy. Despite this, Dave management said its relationship with Evolve remains strong.

Oportun announced a new lending-as-a-service collaboration with Western Union, which it expects to represent a significant lead generation opportunity. In addition, the lender signed a letter of intent to sell its credit card portfolio for 70% of its outstanding receivables balance, either current or up to 29 days delinquent.

Wrapping things up, Pagaya announced that it has added an enterprise relationship with OneMain Financial across auto and personal loans. Pagaya also announced its upcoming acquisition of Theorem Technology which will create a combined credit fund platform exceeding $3Bn in AUM. And the fintech achieved a AAA rating on its recent personal loan deal, its AAA rating for its personal loan program. The rating should result in significant cost savings, with CEO Gal Krubiner explaining, “So in reality, basically 40% of the cap stack is now has moved from what we used to have as a AA to a AAA. You can think about it from a perspective of 50 basis points to 70 basis points of additional saving, because usually spreads around the AAA are hovering around 75 basis points, could be 120 basis points, 140 basis points depending on the structure and the situation.”