Perfecting the skill of analyzing and aligning ‘ability to pay’ with ‘verification’.

by SARA KHAIRI

Amid a backdrop of mounting consumer payment defaults, more stringent regulatory frameworks, and heightened capital requirements particularly affecting major banking institutions, underwriting has experienced a notable contraction. 

This shift has catalyzed a transition within the lending market, moving away from the traditional dominance of established financial institutions toward the emergence of non-bank entities competing for market share. 

FIs are exploring beyond conventional underwriting metrics to improve decision-making processes and risk assessment with the help of artificial intelligence [AI] and big data to catalyze overall business growth. Just over half, 65% of FIs in the US use alternative credit data for 50%-100% of new applicants, with over half of them reporting revenue increases of more than 15%.

Yet, financial institutions grapple with obstacles in navigating the technology and route for credit risk assessment and management, according to a new report by Visa. 

I engaged in a conversation with Carl Rutstein, Visa’s Global Head of Advisory Services, about…

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Robinhood suggests ‘preparing for your golden years’ starting NOW.

 

by SARA KHAIRI

Robinhood is expanding and showing a readiness to explore untapped areas within the industry.

While trading forms the bedrock of Robinhood, the investment platform has embraced the ethos of diversification. Sherwood Media, credit card business, Gold Subscriptions, high APY on deposits, traditional and Roth retirement accounts, and most recently launching services in the EU for crypto trading and the UK for brokerage are key components orchestrating the firm’s expansion through a diversification narrative.

The newest step in driving these efforts forward is the rollout of the Robinhood Retirement For Independent Workers plan. What sets the service apart is its exclusive targeting of gig workers, a group that often perceives retirement as unattainable. Roughly one-third of American workers engage in the gig economy through their primary or secondary employment, totaling an estimated 57 million individuals.

Tearsheet Take: What drove this choice? And the bigger question…

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Back to basics: Banks refocus on small businesses for growth prospects.

 

by SARA KHAIRI

 25% increase in median revenue over the past 18 months and are optimistic for the future. However, this doesn’t discount the fact that they still confront their fair share of challenges.

I had a discussion with Shruti Patel, the Chief Product Officer for the Business Banking Segment at U.S. Bank, regarding:

• the latest trends in the SMB sector 
• whether conditions have improved 
• ways in which financial institutions can strengthen their support for SMBs

Before joining U.S. Bank, Patel served as the Director of Partnerships at Shopify, where she focused on building partnerships and engaging with software development.

What challenges are SMB owners facing today – have things turned for the better stepping into 2024? 

Shruti Patel: Last year, U.S. Bank conducted a nationwide survey of small business owners to study the complexities they are facing today. The small business owners identified their top stressors as obtaining enough funding to support their business (80%), supply chain issues (78%), needing to upskill their workforce (74%), staffing shortages (77%), and competitors in the marketplace (79%).

Small business owners wear a lot of hats to face these challenges and ensure their business runs smoothly. As a result, one of the greatest problems SMB owners face today is lack of time. Although 88% of small business owners said they feel personally fulfilled by their work, 83% felt stressed by their workload and lack of time to do everything they need. 

I believe digital solutions can play a huge role in addressing this dynamic. 82% of small business owners say that investing in digital solutions would reduce stress in their day-to-day life and 42% say digital solutions free up time, allowing them to focus on more strategic responsibilities. There is a need for financial institutions and other providers to help small business owners find innovative solutions through digital tools that can save them time and energy.

How are SMBs finding ways to keep moving forward?

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Jack of all trades (pun intended), master in some.

by SARA KHAIRI

While Gen AI has been the primary focus of discussions quite recently, attention has also shifted to bitcoin after the SEC approved US-listed ETFs. This development has sparked renewed interest and conversation surrounding cryptocurrency within the broader conversation.

Crypto advocates are optimistic that the advent of bitcoin ETFs will likely propel a surge in demand for the asset class and attract a diverse array of investors who had previously been hesitant due to lingering concerns about custody practices and the safety of crypto exchanges.

While this might hold water for novice crypto investors, it doesn’t quite ring true for Robinhood traders who still opt to trade in spot bitcoin rather than bitcoin ETFs. Despite the online brokerage offering all the 11 spot Bitcoin ETFs since January 11, the first day of trading, only 5% of overall trading in crypto has come through the ETF, with 95% still executed via spot trading, according to Jason Warnick, CFO Robinhood. However, this trend could become clearer once the next Q1 2024 results are in.

While trading forms the bedrock of the business, the investment platform has embraced the ethos of diversification.

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Wins and areas for improvement went hand in hand.

 

by SARA KHAIRI

 

As PayPal charts its course, it rides a roller coaster of experiences, new product feature rollouts, layoffs, and earnings fluctuations.

Last week, the payments firm reported its earnings for the final quarter of 2023 with a solid 9% increase in Q4 revenue, reaching $8.0 billion, while FY 2023 revenue climbed 8% to $29.8 billion. The company encountered obstacles, too, such as a 2% decline in active accounts and a 1% decrease in transaction margin dollars to $13.7 billion over the course of the full year.

A couple of weeks before reporting its financial results, PayPal unveiled upgrades to its services, including AI-driven personalizations and checkout experiences for merchants and consumers – something it has been working on for a while. 

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“2024 will be a transitional year,” CEO Anthony J. Noto said.

 

by SARA KHAIRI

SoFi reported its fourth quarter 2023 results this week. Net income came in at $47.9 million, while revenue grew 34% from the prior-year quarter to a record $594.25 million. Breaking through a significant milestone, SoFi turned a profit in the final quarter of 2023, which has been awaited for quite some time.

Why wasn’t it profitable earlier?

Despite SoFi’s delivery of strong quarterly earnings in the past year, analysts continued to harbor concerns regarding the company’s future path and its prospects for profitability since its second-quarter financial results of 2023.

As of July 2023, SoFi Bank offered an APY of up to 4.40%, which has since increased to 4.60%, without any account fees. Additionally, customers qualifying for direct deposits could enjoy a bonus of as much as $250, which has now increased to $300. During the same period, the federal funds rate experienced a shift, touching 5.00% in the early part of the second quarter of 2023, and has since stabilized within the 5.25% to 5.50% range.

While SoFi successfully attracted customers throughout the quarters with enticing high-yield offerings and perks, the backend costs associated with these deposit relationships have been eroding the company’s profit margin.

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Security vs. bad actors: The quest to stay one step ahead in this cat-and-mouse game.

by SARA KHAIRI

Fraud was, is, and will continue to be very much a part of the financial services industry.

As FIs have refined an array of tools to comprehend and thwart fraud over time, there exists an interplay — fraudsters and their tactics evolving in parallel, mirroring the advancements made by banks and firms in their quest to stay one step ahead in this cat-and-mouse game.

In 2023 alone, fraud scams and bank fraud schemes totaled $485.6 billion in projected losses globally. The biggest emerging threat is real-time and digital payments fraud. As consumers want faster transactions, the risk of fraud goes up. With the ability to move money almost instantly, there’s a faster opportunity for scams and fraud, and money flowing to and from mule accounts.

EquiLend, the securities lending platform used by many of the largest brokers, fell victim to a cyberattack that disrupted some of its systems. The firm handles trillions of dollars in securities transactions monthly with board members from top-tier Wall Street banks like Morgan Stanley, BofA, Goldman Sachs, and JPMorgan among others. EquiLend stated that it’s actively collaborating with external cybersecurity firms and advisors to probe the attack and restore online services, which might span several days before normal services are fully reinstated. The full scope of the damage remains undetermined at this time. 

This also prompts the question that even with backing from legacy banks that have abundant resources and big tech budgets allocated to combat fraud, what missteps occurred, and how can FIs refine their strategies to better tackle scams? 

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Unlike his stance on bitcoin, Jamie Dimon actively champions the use of AI in banking.

by SARA KHAIRI

Generative AI (Gen AI) stood out as one of the prominent trends in the previous year, extending its influence across various financial institutions. The trend is expected to segue in 2024 driven by the emergence of novel use cases. 

“In 2024 we expect Gen AI to gradually integrate into the operations and products of financial institutions and merchants globally,” Ken Moore, Chief Innovation Officer and Head of Foundry at Mastercard, told Tearsheet recently. “As challenges like data privacy, information accuracy, and bias are addressed, we anticipate that the range of use cases will expand to include more ambitious and public-facing deployments, like AI-driven financial advisors, conversational bankers, or travel co-pilots.”

While many FIs have integrated advanced AI solutions into their stacks to automate operations, the technology is still untapped at a deeper, internal level by many. This cautious approach stems from concerns about risks to data privacy and fears around the erosion of consumer trust. This is especially evident in the context of the largest US bank by assets, JPMorgan Chase, which is the poster child of taking a measured approach when venturing into unchartered territories.

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What’s the lowdown?

by SARA KHAIRI

Just a couple of days prior to reporting its fourth-quarter 2023 earnings, Citigroup issued a financial disclosure note.

Directed toward colleagues, Citi’s Chief Financial Officer, Mark Mason’s note fostered an air of anticipation regarding what lies ahead amid the challenges that the fourth-largest bank by assets has encountered in recent quarters.

Background: Wall Street banks were on a cost-cutting spree last year. Analogous to its peers, Citigroup took the same route, but there’s more to it. Citi’s last round of layoffs in September 2023 was a notch higher and came off the back of a major organizational shift spearheaded by CEO Jane Fraser. The overhaul involved the dissolution of major divisions, followed by some high-profile layoffs, leaving behind five main divisions: services, markets, banking, wealth management, and personal banking. 

While Fraser labeled these changes as requirements to simplify the bank structure and uplift shareholders’ sentiment, some view them as means to prove her mettle as the bank has stumbled on its goals in the last quarters, especially in investment banking. The bank also attracted analysts’ attention who felt a reverberation around the profit outlook for the Wall Street bank after it painted a grim picture with its second-quarter financial results.

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Revisiting narratives through the 10Q lens.

by SARA KHAIRI

2023 was a rough year for financial firms. But it was particularly tough for publicly listed companies that were subjected to investor skepticism, critical analyses, and the erratic trajectories of stocks in a turbulent market. Despite these challenges, there were glimpses of small wins as some stocks rebounded from losses, as financial firms reworked their strategies and unveiled expansive roadmaps for 2024.

Let’s take a look into both the trials and triumphs of some of the leading public companies over the past year and recent developments that have taken place.

Seeking solutions or attracting more problems?

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