“To run a global bank, with all the changes going on in the world, it’s important for organizations to refresh.” Morgan Stanley CEO James Gorman
Major banks were first in line to unveil second-quarter results. Among them, Wall Street firm Morgan Stanley’s Q2 profit fell 13% to $2.18 billion amid a one-two punch of weak trading performance and a wave of layoffs that left a hefty severance bill. On the other hand, revenue from its wealth management arm soared to record levels of close to $7 billion thanks to higher interest income, a phenomenon fintechs are benefiting from, too.
Morgan Stanley CEO James Gorman revealed that he’ll be resigning in 2024 after 14 years at the helm. He told Bloomberg it was the right time for him to pass the torch because after running a global bank for this long, especially in a changing global landscape, it’s important for organizations to hit the refresh button. Considering how fast innovation unfolds in fintech, C-suite execs might want to take note.
Image by Bloomberg
Goldman Sachs just reported its lowest quarterly profit since 2020 because of missteps in the consumer banking segment combined with weakness in dealmaking and trading, where the firm generates most of its earnings. Goldman’s results were weighed down by a $1.4 billion write-down that it was forced to make in relation to its fintech lending arm GreenSky, which is focused on the consumer and real estate. The Wall Street firm also suffered credit losses from its consumer lending and credit card segments.
The Federal Reserve, with more competition than ever thanks to digital currencies and P2P payments, has updated the U.S. payment architecture. The central bank has introduced “FedNow, a platform designed to accelerate the time it takes to transfer and settle transactions. This product makes the U.S. more competitive with other economies including the U.K., EU, India and Brazil, all of which have already made strides on digital payments.
FedNow has the participation of more than 40 banks and over a dozen service providers, including the likes of JPMorgan, BNY Mellon and U.S. Bancorp, with plans to expand that roster in the coming months. The service also introduces greater competition to private sector payment platforms, like the Clearing House’s RTP Network.
Image by Axios
Jack Dorsey’s payments company Block has taken aim at Visa and Mastercard. The fintech has sued the card giants for what it claims are inflated interchange fees, also called swipe fees, a Bloomberg report reveals. These fees are charged to member banks each time a customer chooses to pay by credit or debit card.
The Square payments platform uses Visa and Mastercard to support card transactions across its wide network of merchant partners. These types of lawsuits aren’t anything new and will likely persist as long as Visa and Mastercard have a duopoly on the credit card market.
Jack Dorsey | Image by The Economic Times
Block stated in the antitrust complaint, "The effect of these artificially inflated fees — assessed to and paid by Square — is higher retail prices paid by consumers economy-wide.” Block is also miffed at the card companies for raising a fee it pays tied to the number of stores a partner business has.
BNPL consumer loans are getting riskier, according to an assessment by Consumer Reports. The organization published a white paper pointing out the risks tied to online installment plans, especially now that fintech providers are beginning to charge interest on loans. Some rates are as high as nearly 37% over terms as long as five years, with late payments in the ballpark of $30, in some cases pricier than credit cards.
To this end, Australian BNPL company Zip has suffered from bad debts lately in its local market. In the June quarter, net bad debts, “written off as a percentage of total transaction value,” as per Reuters, amounted to 3.1%, the highest it’s been since early 2022. Zip blamed the bad debts on “a combination of controlled TTV, seasonality, increasing softness in the external environment impacting consumer credit more broadly.”
Separately, popular Chinese video app TikTok is venturing into payments. The company will offer BNPL services in Malaysia as it seeks to expand its footprint into e-commerce in the Southeast Asia region.
Kuala Lumpur | Image by Unsplash
Toronto-based Tulip, which specializes in cloud-based retail technology, and financial infrastructure company Stripe are partnering for retail payments. Tulip’s digital and in-store customers will be able to access Stripe’s payment infrastructure, including buy now pay later options.
SoFi: Truist analysts are bullish on SoFi stock, saying that the company is poised to benefit from fragmentation in the banking industry and as consumers shift deposits to digital platforms. The analyst firm has attached a “buy” rating on SoFi stock even after shares have almost doubled year-to-date.
SoFi YTD Stock Chart | TradingView
Block: Analysts at KeyBanc have lifted their price target on shares of payments company Block from $75 to $85, citing strong POS trends among SMBs. The firm kept its “overweight” rating on the stock and remains cautious around discretionary spending.
Shares of Block (SQ) have advanced by 15% year-to-date.
Block YTD Stock Chart | TradingView
The Q2 earnings pendulum is swinging from the major banks to Big Tech as investors wait on pins and needles for the results. Netflix and Tesla had disappointing results, which has dampened investors’ outlook for the rest of the earnings season. Google is on deck this week. Fintech earnings will come later, with major players like Block, PayPal, Marqeta and Affirm set to report in August.
Meanwhile, the Fed will be meeting in late July, and economists expect there could be one more round of interest rate hikes before this hawkish cycle comes to a close. The economy has been resilient in the face of higher rates, led by the consumer, a phenomenon that should continue to benefit the fintech sector.