Tag: invest

The question of profitability has long loomed over neobanks. Many grapple with issues such as low retention rates and challenging unit economics. A contributing factor is that many of their customers do not use neobanks as their main accounts. Exacerbated by their dependence on slim interchange fees as the main revenue source, cheaper rates, and no monthly fee payments that cut into their profits, neobanks have historically struggled to become profitable.

However, last year witnessed a performance turnaround as neobanks began expanding their services with a wide range of bundled services. Neobank Dave achieved profitability in the last quarter of 2023, while MoneyLion, initially a neobank but now transitioning into a marketplace-first model, recorded its first positive Adjusted EBITDA in the first quarter of the same year.

MoneyLion acquired two businesses which now function as an embedded banking product platform and an influencer content studio. Last week the firm reported its first-quarter results for this year. It was a strong quarter, with $121 million in revenue, representing a 29% YoY growth, and up 19% from the prior quarter, while the Adjusted EBITDA margin in Q1 was +19.4%.

“The top factor in our results can be attributed to our diversified business model,” Dee Choubey, CEO of MoneyLion told me. “We continued to scale our consumer reach to record levels, further developed our marketplace, and enhanced our personal financial management (PFM) experience.”

Behind-the-scenes strategies

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Love them or loathe them, Buy Now, Pay Later [BNPL] services have cemented their presence in the modern financial landscape. Despite the outcry over its regulation and the growing burden of consumer debts, it’s the ‘consumers‘ who are propelling its momentum forward. 

In fact, Buy Now, Pay Later firms are scaling and adopting a multi-product strategy. They’re shifting away from single product and conventional B2B interactions, and instead, focusing on diversifying their product ranges and fostering direct relationships with consumers. This could also suggest that relying solely on the traditional BNPL model may not be adequate and now needs shoring up, especially considering the increasing cost of capital for non-bank lenders and fintechs — or simply establishing a safety net around the business.

Affirm presents a similar scenario. Expanding its scope beyond lending, BNPL options with various installment plans, Point of Sale (POS) integration at checkout, Affirm also offers savings accounts, a virtual card, and its own Affirm card.

Wednesday saw the release of Affirm’s earnings report for the quarter ending March 2024. Affirm substantially increased its revenue, growing 51% YoY to $576 million, exceeding expectations. This surge was largely attributed to a strong focus on the Affirm card and positive metrics in gross merchandise volume [GMV] that saw a 36% uptick.

“This is the fourth consecutive quarter of accelerating GMV growth for Affirm,” said CEO Max Levchin in the shareholder letter.

While these figures were indeed reported, we delve into some of the recent behind-the-scenes strategies that the firm has likely been and continues to be mindful of, contributing to its successful quarter.

1) Affirm Card: How has it fared over the quarter?

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Litigation and class actions are common in financial services, but, payments firm Block is feeling the heat.

The Department of Justice has launched an investigation following allegations from a former employee regarding widespread compliance failures within Block’s Cash App and Square, stretching back several years.

According to the ex-employee, “From the ground up, everything in the compliance section was flawed,” adding, “It is led by people who should not be in charge of a regulated compliance program.”

The individual has reportedly provided prosecutors with documents indicating that the business’ mobile payments platform, Cash App, and merchant financial services platform, Square, have been deficient in collecting customer information necessary to assess risks. Furthermore, other documents suggest that Square has processed transactions involving countries under economic sanctions, and Block has facilitated cryptocurrency transactions for terrorist groups.

A loop of allegations and class actions
Block is under the legal microscope, adding to a series of investigations the firm has faced in recent years.…

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CEO John Caplan on the firm’s direction 3 years after its SPAC listing.

by SARA KHAIRI

As the global economy evolves into a borderless, digital landscape, small and medium-sized businesses [SMBs] are trying to keep pace and expand their reach on a global scale. Research shows that 72% of these SMBs view cross-border expansion as essential for growing their customer base and revenues.

While embracing digital e-commerce platforms offers a pathway for SMBs to transcend geographical limitations and expand their businesses, tapping into these global networks to access broader markets presents significant challenges, particularly in terms of cross-border payments.

In my recent discussion with John Caplan, CEO of Payoneer, we delved into the hurdles of cross-border payments for SMBs, the dynamics between new and established money transfer firms, and Payoneer’s strategy for penetrating emerging markets.

John, now one year into his role as CEO of Payoneer, comes from a background in global e-commerce, having most recently served as president of Alibaba North America & Europe. At Payoneer, he is focused on scaling the cross-border payments platform to expand into emerging markets.

What obstacles do e-commerce businesses face with cross-border payments, and how do you plan to expand Payoneer’s reach into emerging markets?

John Caplan: If you’re an entrepreneur or operating a small consumer or service business in an emerging market like…

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The dilemma of balancing Net Interest Income & Non-Interest Income

 

by SARA KHAIRI

The predictions of Citi’s Jane Fraser, Morgan Stanley’s Ted Pick, and JPMorgan’s Jamie Dimon for 2024 have (actually) come true.

During the closing quarter of 2023’s earnings season, the three CEOs of America’s leading banks anticipated that ongoing inflation would persist into the new year, potentially prompting a prolonged stance by the Federal Reserve and a continuation of elevated interest rates. This outlook translated into the first-quarter 2024 earnings of major banks, as evidenced by their recent results.

The past quarters saw significant profit gains for most major banks, driven mainly by high-interest rates. However, the scenario with rate hikes is a double-edged sword for banks, and it appears that major banks are stuck between a rock and a hard place due to this issue. Net Interest Income [NII] took a downturn for some of these incumbent institutions, impacting their financial performance in the first quarter of 2024.

Despite JPMorgan’s strong performance in the last quarter and a banner year in 2023 with a record annual profit of nearly $50 billion, the bank saw a 4% decline in NII this quarter compared to the previous quarter, marking its first decrease in 11 quarters. NII rose 11% YoY. NII for the first quarter of this year dropped by 4% and 8% at Wells Fargo and by 6% and 4%  at Citigroup compared to the prior quarter and the same period last year.

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From his AI focus to addressing the elephant in the room: succession plans.

 

by SARA KHAIRI

JPMorgan Chase CEO Jamie Dimon has long been a staunch advocate of AI, hailing it as “extraordinary and groundbreaking” in his 2022 annual shareholder letter, where he predicted its integration into every facet of the bank’s operations.

Dimon’s perspective on AI’s role in banking has remained unwavering and consistent across various occasions since then. Despite being aware of AI’s potential downsides, he continues to maintain a positive outlook on its overall impact.

His vision was recently reaffirmed in his annual letter to shareholders last Monday.

In his letter, Dimon shared his perspectives on a range of subjects, touching on inflationary pressures, the economy’s potential for a soft landing, evolving dynamics between banks and regulators, geopolitical risks, and provided an update on the First Republic deal. 

However, he placed a distinct focus on JPMorgan’s efforts to advance its capabilities through AI.

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Breaking away from its traditional banking methods, JPMorgan Chase has embraced a rather unexpected and contemporary approach by stepping into a market already under the sway of major retailers.

The news: Chase has introduced its newest endeavor, a retail media network named Chase Media Solutions. The launch comes on the heels of the bank’s integration of Figg, a card-linked marketing platform acquired in 2022. The bank has harnessed Figg’s capabilities to establish its own, two-sided commerce platform, incorporating its business clients and banking customers.

Looking deeper: Emerging as a new player with its own media platform, Chase sets itself apart by asserting its status as the only bank-initiated media platform of its kind, granting brands direct entry into its vast banking customer network.

Chase’s digital media endeavor enables advertisers and marketers to leverage the bank’s consumer transaction or spending data, enabling precise targeting of Chase’s customer base of 80 million individuals.

From both the merchants and the bank’s standpoint, a few significant points stand out:

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A victory, but in whose favor?

by SARA KHAIRI

After Visa and Mastercard’s landmark settlement over swipe fees, the sentiment ‘better late than never’ resonates strongly.

If passed, Visa and Mastercard will cut their transaction fees within the United States, a long-awaited development for merchants who stand to reap savings of up to $30 billion in interchange over the next five years. This settlement marks the culmination of a protracted legal battle initiated in 2005 by merchants, who contend that the credit card duopoly charges exorbitant payment processing fees to their detriment.

As part of the revised terms of the networks’ rules, the two largest credit card networks and their issuing banks will also enforce caps on these new lower rates until 2030 and also eliminate anti-steering provisions.

Separating fact from anticipation

While the news is still fresh and unfolding, understanding the degree to which different players —  merchants, banks, or consumers — truly benefit or stand at a disadvantage in the value chain will necessitate clarity once the dust settles.

Currently, it remains an intricate conundrum to unravel.

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After Visa and Mastercard’s landmark settlement over swipe fees, the sentiment ‘better late than never’ resonates strongly.

If passed, Visa and Mastercard will cut their transaction fees within the United States, a long-awaited development for merchants who stand to reap savings of up to $30 billion in interchange over the next five years. This settlement marks the culmination of a protracted legal battle initiated in 2005 by merchants, who contend that the credit card duopoly charges exorbitant payment processing fees to their detriment.

As part of the revised terms of the networks’ rules, the two largest credit card networks and their issuing banks will also enforce caps on these new lower rates until 2030 and also eliminate anti-steering provisions.

Separating fact from anticipation

While the news is still fresh and unfolding, understanding the degree to which different players —  merchants, banks, or consumers — truly benefit or stand at a disadvantage in the value chain will necessitate clarity once the dust settles.

Currently, it remains an intricate conundrum to unravel.

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A victory, but in whose favor?

by SARA KHAIRI

After Visa and Mastercard’s landmark settlement over swipe fees, the sentiment ‘better late than never’ resonates strongly.

If passed, Visa and Mastercard will cut their transaction fees within the United States, a long-awaited development for merchants who stand to reap savings of up to $30 billion in interchange over the next five years. This settlement marks the culmination of a protracted legal battle initiated in 2005 by merchants, who contend that the credit card duopoly charges exorbitant payment processing fees to their detriment.

As part of the revised terms of the networks’ rules, the two largest credit card networks and their issuing banks will also enforce caps on these new lower rates until 2030 and also eliminate anti-steering provisions.

Separating fact from anticipation

While the news is still fresh and unfolding, understanding the degree to which different players —  merchants, banks, or consumers — truly benefit or stand at a disadvantage in the value chain will necessitate clarity once the dust settles.

Currently, it remains an intricate conundrum to unravel.

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Despite consumer business woes, Goldman shines in private credit.

by SARA KHAIRI

Goldman Sachs Asset Management is strategizing an expansion of its private credit portfolio, with aspirations to increase it to $300 billion within the next five years, a rise from its current $130 billion allocation.

According to Marc Nachmann, Goldman’s global head of asset and wealth management, at least one-third of the total investment sum of the $40 billion to $50 billion earmarked for alternative investments this year, will be directed to bolster private credit strategies. 

CEO David Solomon has pinned his hopes on Goldman’s asset management division since the Investor Day last year, considering it a ‘strategic alternative’ to the then deteriorating consumer business. This gradual shift came after the bank weathered eight consecutive turbulent financial quarters, largely attributed to its bumpy venture into consumer banking.

In Q4’23, Goldman distanced itself from those initiatives and redirected attention to its core business. The bank surprised analysts with an unexpected 51% surge in profits compared to the previous year during the final quarter of 2023. While the fee the FDIC assessed on GS was comparatively smaller than those of its peers, having a lesser impact on Goldman’s net income, a significant driver behind its profit increase was the growth witnessed in the asset and wealth management division.

What’s fueling Goldman’s ambition? 

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• how digital adoption is affecting physical branches
• strategies for combating digital fraud
• factors contributing to Erica’s popularity as a digital banking assistant

An increasing majority of Americans are choosing digital banking options with 71% preferring to manage their bank accounts through a mobile app or a computer. 

This trend was also pronounced among major banks such as Bank of America, JPMorgan, and Wells Fargo highlighting the growing preference for digital banking solutions, as evidenced by their financial results of the final quarter of 2023.

Bank of America currently has 57 million verified digital users, with over 35 million opting for digital alerts. The most common alerts last year included updates on account balances, available deposits, and virtual debit card usage. Throughout 2023, clients logged into their accounts a total of 12.8 billion times, with 3.3 billion logins in Q4 alone, marking a 10% YoY increase. They also interacted 673 million times with virtual financial assistant, Erica, reflecting a 28% YoY surge.

I had a conversation with Jorge Camargo, Managing Director, Mobile App, Online Banking and Erica AI at Bank of America, about:

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Looking deeper into BofA’s route to digital banking.

by SARA KHAIRI

An increasing majority of Americans are choosing digital banking options with 71% preferring to manage their bank accounts through a mobile app or a computer. 

This trend was also pronounced among major banks such as Bank of America, JPMorgan, and Wells Fargo highlighting the growing preference for digital banking solutions, as evidenced by their financial results of the final quarter of 2023.

Bank of America currently has 57 million verified digital users, with over 35 million opting for digital alerts. The most common alerts last year included updates on account balances, available deposits, and virtual debit card usage. Throughout 2023, clients logged into their accounts a total of 12.8 billion times, with 3.3 billion logins in Q4 alone, marking a 10% YoY increase. They also interacted 673 million times with virtual financial assistant, Erica, reflecting a 28% YoY surge.

I had a conversation with Jorge Camargo, Managing Director, Mobile App, Online Banking and Erica AI at Bank of America, about:

• how digital adoption is affecting physical branches
• strategies for combating digital fraud
• factors contributing to Erica’s popularity as a digital banking assistant

 

How will digital adoption affect bank branches and customer relationships, particularly for older generations who prefer in-person interactions?

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