Affirm’s CEO Max Levchin
Photo: Vaughn Ridley/Sportsfile via Getty Images

Interest rates are roiling fintech

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Friday: Affirm and Upstart’s diverging outlooks, the Terra mess, and David Marcus’ bitcoin bet.

Off the chain

Here’s an absurdity of the crypto world: Terra has halted its blockchain for the second time, but you can still trade luna and UST on exchanges like FTX. What those trades mean isn’t clear, because they can’t settle. It’s the kind of Catch-22 you get when you mix decentralized blockchains with centralized trading systems, and a perfect summary of the weirdness of the 2022 crypto crash.

— Owen Thomas (email | twitter)

Rating the rate-hike effect

The Federal Reserve’s inflation fight is not slowing down, with more rate hikes coming. Higher borrowing costs hit fintechs in all kinds of ways, threatening their margins but also possibly tempting consumers into trying new ways of borrowing like “buy now, pay later.” There’s also the macroeconomic effects of higher rates and the economic slowdown that’s likely to come with them: A slowing economy hurts demand. Fears have already struck fintechs in consumer lending hard.

Higher rates are typically bad for the consumer lending business. When interest rates are higher, fewer consumers typically want loans — and fewer can qualify as borrowing costs go up.

  • Online lending company Upstart reported results this week that beat analysts’ expectations, but shares plunged a staggering 56% Tuesday on macroeconomic fears. Upstart pulled in $310 million in revenue for the first quarter, above expectations of $300 million. But it cut its 2022 revenue forecast to $1.25 billion from $1.4 billion.
  • “It's really as simple as when the consumer rates go up, that means on the margin, a whole bunch of people that would have been approved are no longer approved,” Dave Girouard, co-founder and CEO of Upstart, said in a call with analysts. “So there's a whole bunch of loans that never happened at all. And there's a bunch of people that are still approved, but the interest rate is a few percentage points higher, and a certain fraction of them are going to decide that's not the product that they want. They don't need it.”
  • Upstart’s average loan pricing has jumped more than 300 basis points since October 2021, Girouard said.

The “buy now, pay later” business may be pulling away from broader consumer lending. Contagion from Upstart caused a sell-off in Affirm’s shares ahead of its earnings, but the company’s share price promptly recovered after it announced results.

  • Affirm shares soared 33% after markets closed Thursday to nearly $24, bouncing back from the hit, largely due to stronger-than-expected quarterly results and a smaller-than-expected loss.
  • The company brought in about $354.8 million in total revenue, with a net loss of $54.7 million compared to $287.1 million in Q3 2021.
  • Affirm said it hasn’t had to do anything about interest-rate hikes so far. “It is true that as rates go up, there is pressure on the funding side of our business. But it is a mistake to think about that as a full flow-through on a linear basis,” CFO Michael Linford said in its Q3 earnings call. “I think in the very long run, so going out more than a year, you would expect us to narrow in, but that's more of a long-term thing.”
  • “Buy now, pay later” is a different kind of lending, because it’s typically short-term and often subsidized by merchants. Merchants may want to push zero-interest offers to lure in consumers, and pay-later plans may look more compelling when compared to putting a purchase on credit cards as rates rise.

Fears of a possible recession are also weighing on lending. If a recession hits, consumer spending will drop and the lending business will be hit even harder.

  • Upstart has seen delinquencies increase between November and February, which leads to higher interest rates for consumers and lower conversion into business for Upstart, the company said. While that rate has stabilized now, a recession could make defaults worse. The risk of recession as well as general macroeconomic worries caused Upstart to cut earnings expectations.

Further interest rate hikes may force companies to act faster. Perhaps Upstart is just being more realistic about its outlook in the rising interest rate environment, and perhaps Affirm has the benefit of a differentiated business model. But if the Fed presses harder on the brakes, it will be all the more crucial for companies to make sure they’re in the right lane.

— Tomio Geron (email | twitter) and Lindsey Choo (email | twitter)


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On the money

On Protocol: Terra halted its blockchain as luna and UST tumbled, sinking nearly to zero. The sharp drop in the value of luna and UST’s loss of its dollar peg helped feed a crypto crash, spotlighting the risks of stablecoins and digital assets more broadly.

Then, somehow, things got worse. Terra restarted the blockchain after making code changes, then pulled the plug again.

The Chainsmokers are releasing royalty-bearing music NFTs. Royal, founded by DJ Justin Blau, is issuing the NFTs and handling the royalty distributions. The band isn’t charging for the NFTs; instead, it’s giving them away, with frequent concert-ticket buyers getting early access.

Also on Protocol: SoftBank says it’s severely cutting its planned startup investments to reportedly half or even a quarter of last year’s funding spree. It’s the most dramatic sign of a pullback in the VC world.

FTX CEO Sam Bankman-Fried bought a 7.6% stake in Robinhood. In a possible Elon Musk-esque move, Emergent Fidelity Technologies, a vehicle controlled by Bankman-Fried, took a $648 million stake in the investing firm. Robinhood’s shares jumped over 20% following the news.

David Marcus’ bitcoin bet

David Marcus, until recently a top-ranking Meta executive, is back with a new crypto startup that will remind many of his recent work — with some crucial differences.

The Los Angeles startup, Lightspark, has raised series A financing led by a16z crypto and Paradigm, with participation from firms such as Matrix Partners, Thrive Capital, Coatue, Felix Capital, Zeev Ventures and Ribbit Capital. Lightspark declined to disclose the amount, and didn't offer an explanation as to why.

The company is focused on "extending the capabilities" of bitcoin and is working on building technical infrastructure for the Lightning Network, it said. The Lightning Network is a project designed to create faster and cheaper transactions on top of the bitcoin network.

Read the full story on

— Tomio Geron

The chart

Bitcoin peaked in November above $60,000. Then came the Super Bowl ads, Arena and a flood of TikTok influencers promoting the latest altcoin. It wasn’t going to end well, was it? The crypto crash has hit nearly every token and knocked even some stablecoins off their peg. But the carnage hasn’t been even. Bitcoin, ether and even dogecoin proved hardier than newer coins. The question now is when the market will find its bottom.


In order to be successful in Flatiron, a restaurant will need to draw a weekday lunch crowd with healthy offerings and a work-friendly setting for professionals; to stand out among nearly double the restaurants in SoHo, a new restaurant should lean into arts and culture with a design-forward setting.

Learn more

Thanks for reading — see you Monday!

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