October 27, 2022
Photo: Christopher Goodney/Bloomberg via Getty Images
Good morning, and welcome to Protocol Fintech. This Thursday: the marketplace model wobbles, Alphabet feels the fintech pinch, and Binance.US makes a key hire.
Off the chain
The day after my colleague Ben Brody wrote about Square’s growing business of selling access to your inbox, I got a come-on to my work email from the Blue Bottle across the street. The timing seemed a little too perfect. It illustrates the contradiction at the heart of Block: Square brings in the money, while the blockchain spin-offs spend it. Will TBD ever make money? Is it even meant to? Call them experiments, investments, or — ahem — bets: Block’s sidelines put more pressure on Square to deliver. If that means encouraging local businesses to use its email marketing features, you can blame it on bitcoin.
— Owen Thomas (email | twitter)
A warning to the market
LendingClub's earnings on Wednesday offered a worrying sign for fintech lenders — even as the lender-turned-digital bank holds what could be a key advantage during hard times. The San Francisco company’s third-quarter earnings Wednesday of $0.41 per share topped analyst expectations. But the firm's share price was still trading down by nearly 10% in after-market trading, some of which may be in response to gloomy fourth-quarter projections.
The firm sounded a warning to the market. LendingClub originates some of its loans and then sells them to investors, an arrangement often called marketplace lending.
- "As we anticipated, marketplace volumes were impacted by higher funding costs for certain loan investors, driven by rapidly increasing interest rates," CEO Scott Sanborn said in the earnings release. The company reported an 8% quarterly decline in the total value of its loan originations, driven by a decrease in marketplace loans.
- Investors in consumer debt are seeking higher yields and getting pickier as interest rates rise. That has put a squeeze on marketplace lenders.
- LendingClub can reprice its loans to meet those higher funding costs over time, but Sanborn said the company needs to remain competitive against credit card rates, as the majority of its personal loans are people refinancing credit card debt.
- LendingClub is not alone in relying on the marketplace model. Upstart, which reports earnings on Nov. 8, has already described constraints on its funding.
The good news for LendingClub is that it is no longer solely reliant on the marketplace. LendingClub last year completed a $185 million acquisition of Radius Bank, giving it the banking charter required to hold deposits and directly fund its loans.
- While the $2.4 billion in originations that LendingClub sold to investors in the quarter is down about 15% from the three months prior, the $1.2 billion in loan originations that LendingClub is holding onto was a 13% increase.
- LendingClub is now holding onto 33% of its loans, compared to 20% one year ago. The spread between the interest LendingClub is paying depositors and collecting from borrowers, or net interest income, climbed 89% year-over-year to $123.7 million last quarter. "The benefits of our bank capabilities could not be more clear," Sanborn said.
- Still, the company is projecting $255 million to $265 million in revenues for next quarter, which would mark a decrease up to 16% from the $304.9 million it reported in the third quarter. That could be driving the negative initial reaction on Wall Street. LendingClub's share price is down 54% from the start of the year but had shown signs of recovery, climbing 4% over the past month.
- A Wedbush report called LendingClub's quarterly results mixed but maintained an outperform label. "We like the company's new business model following the acquisition of Radius Bank last year, enabling high-yielding consumer loans to be held on-balance sheet funded by lower-cost deposit funding," the report said.
- LendingClub's total deposits of $5.1 billion were up 80% from last year.
Sanborn last quarter compared LendingClub to a car reducing its speed while approaching a curve, with plans to accelerate coming out of it. “We are in the curve right now," he said. "But as we look further down the track, I would note that some of the negative dynamics in today's market will point to future opportunity. Most notably, record high credit card balances at record high interest rates should be a boon to our core refinance business. Our marketplace revenue has a proven ability to quickly rebound."
— Ryan Deffenbaugh (email | twitter)
A version of this story first appeared on Protocol.com. Read it here.
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On the money
Zillow has laid off 300 employees.The total represents about 5% of Zillow’s workforce. The cuts were spread across several lines of business, including its Premier Agent advertising service.
Visa posted a jump in quarterly profit. Visa’s leadership said that it has seen no change in consumer purchasing behavior yet.
The CFPB is stepping up its fight against “junk fees.” Surprise overdraft fees and depositor fees are “likely unfair and unlawful,” the agency said in new guidance.
On Protocol:Seven ideas for how to improve “buy now, pay later.”
Google has been fined again in India over its app store payments.India’s antitrust watchdog hit the search giant with a $113 million fine and ordered the firm to allow developers to use third-party payments processing services for in-app purchases or for purchasing apps.
Overheard
The bursting of the fintech and crypto bubbles has hit Big Tech in a visible way. “In the third quarter, we did see a pullback in spend by some advertisers in certain areas and search ads,” Alphabet Chief Business Officer Philipp Schindler told investors on the company’s quarterly earnings call. “For example, in financial services, we saw a pullback in the insurance, loan, mortgage, and crypto subcategories.”
Moves and hires
BJ Kang is Binance.US's first head of investigations. The FBI agent once called the "most feared man on Wall Street" will help Binance.US investigate and mitigate crime on the crypto exchange.
Michael Patchen is no longer Genesis' chief risk officer. Patchen's exit, reported by Bloomberg, comes after just three months with the company and is the latest in a string of resignations from the crypto broker.
Ripple's lead engineer is stepping down. Nik Bougalis said he'll eventually reveal what's next after a decade at Ripple, but "I am NOT joining another blockchain project/company."
Alexander Hoeptner has stepped down as CEO of crypto futures exchange BitMEX. Chief Financial Officer Stephan Lutz is interim CEO.
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