Top Headlines in Fintech #011

“In the months to come, we will add comprehensive communications and the ability to conduct your entire financial world.” Elon Musk on X Corp (formerly known as Twitter)

It’s official. Elon Musk has rebranded Twitter as X Corp as he seeks to deliver what he’s dubbed the “everything app,” including payments. Musk shared that in the coming months, the company “will add comprehensive communications and the ability to conduct your entire financial world.” 

As part of the rebranding, X Corp is lowering ad prices in an attempt to recover lost revenue. The company is also establishing spending minimums that if not reached could see businesses lose their verified status on the social media platform. Musk fully expects that “X will become the most valuable brand on earth.” If he’s right, it could be beneficial for the broader fintech ecosystem. 

Image by Twitter 

The Fed

In what many economists believe will be the last hoorah, the Federal Reserve increased interest rates yet again at its July meeting. With a 25-basis point hike, interest rates are now hovering at their highest level in over two decades to a range of 5.25% and 5.5%. Fed Chairman Jerome Powell believes the economy is bracing for a “soft landing” — meaning no recession — and doesn’t expect another rate increase in 2023. In fact, second-quarter GDP grew at a better-than-expected annualized rate of 2.4%. 

Takeaway: Higher interest rates have served as a tailwind for fintech profits. With the current cycle seemingly coming to a close, rates are still hovering at their highest level in 22 years. However, high rates have also made access to capital more expensive for fintechs seeking to borrow money. Overall, the shift in monetary policy should benefit both fintechs and the consumer. 

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Image by Twitter 

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Big Tech & AI Disruption 

Big Tech companies have unveiled their earnings results, including Google parent company Alphabet and Microsoft. In its earnings report, Alphabet announced that Google CFO Ruth Porat will be taking on a different role, kicking off a search for a new finance chief. 

Artificial intelligence was a big theme, as both Alphabet and Microsoft continue to hunt for ways to integrate the technology into their products and services. Alphabet CEO CEO Sundar Pichai said AI is “driving the next evolution of search and improving” all the company’s services.  

Microsoft, a backer of ChatGPT maker OpenAI, has already built the wildly popular ChatGPT tech into its flagship products. Google and Microsoft management teams mentioned AI on their earnings calls a combined 145 times, as reported by CNBC. 

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Image by Twitter 

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Takeaway: Generative AI also has the potential to disrupt the fintech sector. This presents a great opportunity among fintechs, which know how to take the lead when it comes to tech innovation. A McKinsey report states, “Across the 63 use cases we analyzed, generative AI has the potential to generate $2.6 trillion to $4.4 trillion in value across industries,” from banking to life sciences. As fintechs invest in AI R&D, they should prioritize features such as security, accuracy and transparency, according to Forbes.

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Card Giants 

Visa has reported its fiscal Q3 earnings results, and the company saw higher profits as consumers increasingly flock to credit and debit cards over cash. Visa reported a quarterly profit of $4.2 billion vs. $3.4 billion in the year-ago period. Payments volume climbed 9% higher while transactions processed on the card giant’s network jumped 10%. Much of the growth is happening in the European, Middle Eastern and Latin American markets, while in the U.S. payments rose nearly 5%. 

Mastercard has teamed up with Billtrust for a new B2B automated solution dubbed Mastercard Receivables Manager. The product is tailored to help merchants in the way that they accept virtual payments. Businesses will be able to come to market faster while virtual payments are simplified for suppliers. According to Mastercard, the idea is to replace paper-based processes in B2B transactions in favor of virtual cards. 

Payments Partnership in Southeast Asia 

Payments infrastructure company Stripe is teaming up with Singapore-based lifestyle platform Staytion to facilitate payments in the Southeast Asia region. Staytion harnesses Stripe’s payment subscription technology for hundreds of its merchant partners and their users in the lifestyle spaces near train stations. The partnership is designed to support flexible workplaces for businesses and their employees in hybrid work environments. 

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Singapore | Image by Unsplash 

Takeaway: Working-from-home and hybrid models are beating out the return to the office, experts say. In fact, Stanford Economics Professor Nick Bloom says that “the return to office push seems to have died.” It’s a trend that executives across sectors of the economy should be aware of as they hire and expand.  

Balance Sheets

Fintech company Grounded Technologies, a core deposit, loan and CRA marketplace focused on banks, has introduced a new product alongside BMO.  Grounded, which works with banks with assets in the range of $14 million to $2 trillion, is behind a “deposit marketplace and CFO operating system” that lets banks “access deposits, loans and CRA credit,” the press release states. Among the products that BMO will oversee for the fintech includes payment rails. 

Regional Focus

Jacksonville, Fla.-based rail giant CSX has donated $10 million to the University of Florida to go toward a future health and fintech graduate center in the area. The funds will be delivered over half a decade and are designed to support innovation, economic development and fresh opportunities. The graduate center will prepare the future high-tech workforce in the state of Florida. 

New Hire

Financial services firm Oppenheimer & Co has tapped seasoned fintech banker  Sean Minnihan to lead its financial technology investment banking arm. Oppenheimer is making an expansion push into technology, and fintech is where the innovation is taking place. Minnihan brings more than two decades’ of experience in financial technology across M&A, PE and capital raising globally. 

Stock Spotlight

Block: Shares of Block (SQ) have gained 17% in the month of July so far. Most recently, the stock benefited from positive analyst calls. Among them, Jefferies analysts raised the price target on SQ from $80 to $90 with a buy rating on expectations for better-than-expected second-quarter profits. 

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1 Month SQ Stock Chart | Image by TradingView 

Weekend Reads

• “The Federal Reserve's Lagging Support For FinTech Startups: A Comparative Analysis” - Forbes published an article about the dynamic between the Fed and fintech companies, highlighting how the U.S. central bank is lagging behind other jurisdictions when it comes to tech innovation. 
• “Rapidly Expanding Fintech Industry Brings Unique Compliance Challenges to Mexico” - Latin Lawyer explores Mexico’s financial services industry and the overhaul it has undergone of late, including the disruption that fintech startups have introduced. While this has created opportunities, it’s also revealed vulnerabilities on the regulatory front.
• “14% of Consumers Prioritize the Bills Easiest to Pay” -  PYMNTs published an analysis based on a study about how consumers can be swayed on which bills to prioritize based on the ease in which payments can be made. 

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Now that Big Tech earnings are out, fintechs are up next, starting with SoFi. The personal finance company, which is also an online bank, is widely expected to beat expectations in its Q2 results as profits and sales continue to rise. SoFi is operating on all cylinders, and the company is also exploring how to build AI into personal finances for consumers.  

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Image by SoFi

Stay tuned for more from fintech executives in the coming weeks as they reveal just how well the consumer is doing and how they are looking to make AI a part of the experience.