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MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?
Digital banking and lending are evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem, empowering lenders to process loans faster and smarter. In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance, while also you can improve your finance by learning online trading, as there are resources like trade fx that help you with this. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!
05/31/22 CU Economist Puts Odds Against Recession (Credit Union Times)
According to CUNA Chief Economist Mike Schenk, the likelihood of a recession by the end of 2023 are minimal. The start of a recession is usually defined by two consecutive quarterly declines in GDP. Schenk believes that economic growth will pick up in the second quarter and will be significant. Consumer expenditure on imported items spiked in the first quarter, while inventories dropped from an incredibly high level in the fourth quarter, adding to the first quarter’s drop. The Fed will continue to raise the federal funds rate this year as it is taking its foot off the accelerator, and next year’s hikes will be like slamming the brakes. In that situation, the possibility of a recession becomes much more apparent, and concerns soar considerably. The economy, according to CUNA, will continue to hum along as there are a lot of unmet needs in the marketplace. Despite rising interest rates, CUNA expects to see an overall increase in spending.
In a letter to the Consumer Financial Protection Bureau (CFPB), CUNA presented recommendations for monitoring some nonbanks and FinTechs based on risk assessments. While credit unions encourage financial innovation, it has become evident that the expansion of FinTechs and other nonbank players has exceeded appropriate regulatory control, and this imbalance might eventually result in consumer harm, as stated in the letter. The letter also states that while the CFPB could supervise a CUSO under its risk-based supervisory authority, it highly recommends the Bureau should focus its supervisory resources on influential FinTechs and other institutions that are not currently subject to the control of a federal banking regulator.
Both CUNA and NAFCU have expressed their support for HUD’s notice of proposed rulemaking, which would authorize mortgagees to alter a Federal Housing Administration (FHA)-insured mortgage by redefining the total outstanding loan for a new term limit of 40 years in order to cure a borrower’s default. Allowing a long-term mortgage loan will have no impact on the housing finance system or the credit union system’s safety and soundness. The increase in the term, according to credit unions, will be a useful tool for assisting credit union members who are having trouble making their mortgage payments and will allow credit unions to apply the same opportunities to modify their mortgage to members who are dependent on FHA-loans, especially low and first-time homebuyers.
05/27/22 U.S. Consumer Sentiment Falls to Fresh Decade Low on Inflation (Credit Union Times)
Consumer confidence in the United States fell to a new decade low in late May as rising inflation fears dampened the economy’s prospects. This recent dip was mostly driven by consumers’ persistent pessimism about present buying circumstances for houses and durables, as well as their expectations for the economy in the future, owing to fears about inflation. Also, inflation is exceeding salary growth, putting a strain on Americans’ wallets and leaving them with less discretionary spending after paying for increasing food and gas prices. While employees have benefited from a robust job market, there are indicators that wage growth has reached its limit. President Joe Biden and his Democratic colleagues are keen to lower inflation ahead of the midterm elections later this year, but Americans seem to be disappointed with their efforts.
05/26/22 CFPB Issues Warning to Lenders Using AI for Credit Decisioning (Credit Union Times)
The CFPB reminded lenders that under the Equal Credit Opportunity Act (ECOA), rejecting a loan application or taking any adverse decision against an applicant must be followed by a justification to the applicant as to why the action was taken, even though advanced algorithms were utilized by the lender to make the credit decision. The CFPB also highlighted that firms that issue a credit to consumers must follow all federal consumer financial protection regulations, including the ECOA, irrespective of the technology they use. NAFCU will continue to educate the bureau about how new underwriting tools help customers and how the agency can encourage credit union innovation as these technologies expand and mature.
05/19/22 SoftBank-Backed Fintech Giant Klarna Looks for New Funds at Lower Valuation (The Wall Street Journal)
Klarna Bank AB is looking to raise funding at about a third less than the $46 billion valuation it had almost a year ago when it raised finds from SoftBank . Investors in public and private markets are now questioning the consumer inroads achieved by Klarna and other buy-now-pay-later companies. Despite adverse market conditions, several fast-growing tech businesses are pushing ahead with their fundraising plans, under pressure to expand internationally and release new products to fuel their sustained growth and earn profits. Because tech companies and investors are unsure how long the present downturn will endure, some believe that now is the best moment to raise capital before things worsen.
05/12/22 How Higher Interest Rates May Upend The Fintech Business Model (Forbes)
The Fed raising rates by 0.5% or possibly 0.75% in back-to-back meetings this spring and summer could negatively impact the business strategies of both FinTechs and banks. The cost of funds for digital credit providers who have funded themselves at low cost in the wholesale markets will rise sharply in lockstep with the federal funds rate, while the banks’ more diversified funding mix may mean their cost of funds rises much more steadily, putting mono-line lenders at financial disfavor. To maximize their cash return, customers want to move their savings around with just a few taps on their phones. There are already companies like maxmyinterest.com dedicated to making that optimization simple, as well as a slew of new stablecoins promising a rapid 5% return if customers store their money with them. Irrespective of what the rate sensitivity turns out to be, retail bankers should start thinking hard about liability product design, rate tiering, and how to proactively guide consumer decision-making via mobile apps before they are forced to react on the fly to real money in motion. The terrible irony of the next several years may be that, after educating consumers on the convenience of digital banking, VC-backed FinTechs will have the most difficult time surviving in a rate environment with steadily rising rates.
05/11/22 US Treasury Secretary Janet Yellen pushes for stablecoin regulation by end of year (TechCrunch)
According to U.S. Treasury Secretary Janet Yellen, stablecoin regulation would be highly appropriate by the end of 2022 because there are considerable hazards involved with this category of cryptocurrencies. While every stablecoin (not considering algorithmic stablecoins), in circulation is protected by a reserve of $1, several stablecoins have recently been questioned concerning their legitimacy. Although UST has nearly recovered from its severe dip on May 9 and is now trading at around $0.91, it is still not back to its “stable” form. In March 2022, the overall market value of stablecoins had risen to around $180 billion, with the three largest stablecoins — USD Coin (USDC), Tether, and Binance USD – accounting for over 80% of the total market value.
05/05/22 Fed raises rates: inflation hurting non-prime consumers (Fintech Nexus News)
Jerome Powell, the chairman of the Federal Reserve, stated that the Fed would raise interest rates by half a percent, the highest increase since 2000, to combat post-pandemic inflation. The Fed also said that it would trim the fat from its $9 trillion asset portfolio next month in an effort to combat 8.5% inflation and a shaky labor market experiencing the impact of the Great Resignation. In the latest analysis, TransUnion reported that even though a lengthy period of high inflation would hurt many consumers, serious delinquency rates will not rise above levels seen before the epidemic, even in the worst-case inflation scenarios. Despite the increase in debt responsibilities, the study also found that in Q1 2022, more customers were making excess payments than before the pandemic; subprime borrowers, in particular, started paying more than the minimum.
05/05/22 Fed, Biden Administration Float New Lending Rules for Lower-Income Areas (The Wall Street Journal)
As lenders increasingly offer financial services online, top US regulators have proposed reforming how banks lend hundreds of billions of dollars yearly in lower-income neighborhoods, the first substantial revision in more than two decades. If auto loans account to a considerable amount of a large bank’s operations, in addition to mortgages and small-business loans, the plan would subject them to more scrutiny. However, Nonbank lenders, who write a substantial portion of consumer loans, are not included in the proposal. The proposal attempts to make laws more apparent and objective, potentially making it easier for banks to comprehend their regulatory obligations, albeit increased reporting requirements may be imposed. If the proposal is finalized in the next few months, it will attempt to spread the activities of online banks across the country. Although some states, such as Illinois and New York, have enacted nonbank reinvestment rules, Congress would need to take action to broaden federal requirements.