MonJa’s Digital Banking and Lending Monthly Roundup | July 2022

In Commercial Lending, Industry News, Small Business Loan Underwriting, Underwriting Automation by Rebecca WilliamsLeave a Comment

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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!


07/25/22 Credit union loans increased 2.3% in May (Credit Union National Association)

According to CUNA’s latest Monthly Credit Union Estimates, credit union loans outstanding jumped 2.3% in May, compared to a 1.9% growth in April 2022. Other mortgage loans dominated loan growth for the month, increasing 3.5%, followed by unsecured personal loans, which rose 3%. Credit union savings holdings fell -by 0.7% in May after increasing 0.8% in April 2022. The loan-to-savings ratio rose to 74% in May, up from 71.7% in April. Total credit union membership grew by 0.2% in May to 133.5 million. The overall capital-to-asset ratio of the movement increased to 9.0% in May from 8.9% in April.

07/24/22 Yield Curve Sounding ‘Loudest Alarm’ Over Recession, Analysis Suggests (CU Today)  

Over the past 50 years, every U.S. recession has been preceded by a short-term rate inversion, in which the shorter-term rate rises above the longer-term one. The yield for two year treasuries is at 3.23% versus 3.03% for 10 year notes. A year back, the yield on10 year notes were 1% higher than 2 year notes. On the other hand, investors are growing concerned that the central bank would go too far and significantly slow the economy, triggering a devastating downturn. Falling longer-dated Treasury yields, such as the 10-year, which provide more insight into investors’ growth projections, reflect this anxiety.

07/22/22 Small Iowa Credit Union Sues the World’s Largest Tech Company (Credit Union Times)  

The first plaintiff mentioned in a planned class action antitrust case against Apple was the $137 million Affinity Credit Union in Des Moines, Iowa. The lawsuit aims to represent a class of credit unions and other financial institutions in the United States that provide payment cards that may be used with Apple Pay. The lawsuit against Apple claims that the tech company charges card issuers who use Apple Pay exorbitant fees for a service that is free on Android smartphones. In 2015, Hagens Berman law firm obtained a $560 million settlement from Apple and publishing companies for e-book price fixing. Now, this is the firm’s third antitrust lawsuit against Apple that aims to obtain restitution for payment card companies who have paid Apple Pay fees, as well as injunctive remedies to stop Apple’s practices.

07/22/22 Capital Planning: A Top Priority With a Resource Hidden in Plain Sight (Credit Union Times)

According to the NCUA’s Quarterly Data Summary, total industry deposits hit $1.85 trillion on March 31, up 9.3% year over year – and by a stunning 40.3%. These funds have mostly been invested into loan portfolios’; just as net interest margins are returning to more typical levels. However, the major problem right now is that net worth levels (Net Worth/total Assets) are at historical lows. Credibility is involved since strong capital and financial security is historical industry bragging rights with both Congress and the public. Capital planning and stress testing are crucial components of risk management for every credit union. Lower net worth levels reduce a credit union’s ability to cushion future credit loss, which is becoming more likely as the Fed tightens monetary policy. The sale and leaseback of owned facilities is a potent capital improvement instrument. Many credit unions have been running facilities with steadily declining carrying values on their books. However, in actuality, the market value of these facilities is increasing. Profit, cash, and capital that would otherwise be trapped/invisible on the credit union’s records are released via this structuring.

07/21/22 MBA Trims Mortgage Forecasts as Recession Chances Are Now a ‘Coin Flip’ (Credit Union Times)

A “coin flip” risk of a recession prompted the Mortgage Bankers Association (MBA) to slash its prediction for originations in the second half of this year and, to a lesser extent, through the entirety of next year. According to the MBA’s economic and mortgage estimates released on July 18, refinances and second-half buy originations will decline by 7% and 80% from a year earlier, respectively. As per its June 10 projection, originations of refinance loans fell by 77% and purchases by 5% for the second half. Mortgage applications for brand-new homes declined by 12% in June compared to the same month last year. As per the July 18 forecast, Refinances dropped by 70% to $706 billion this year. The MBA anticipated that buy originations will increase 2.5% to $1.70 trillion in 2023, while refinances will decline by 24% to $540 billion. It also predicts that the unemployment rate will begin to creep upwards by year’s end and into the following year, crossing the 4-percent threshold by the second half of 2023. Inflation is anticipated to decline over the upcoming year as a result of Fed rate hikes.

07/20/22 House Bill Passes CDFI & CDRLF Funding for FY 2023 (Credit Union Times)

The United States House of Representatives has approved a package of six government spending legislation for the fiscal year 2023. Funding levels for the Community Development Financial Institutions (CDFI) Fund and the Community Development Revolving Loan Fund (CDRLF) were also part of the package. With this funding, the COVID-19 emergency’s long-lasting consequences on people’s and small companies access to credit and essential financial services would be lessened. However, Brad Thaler, NAFCU Vice President of Legislative Affairs, in a letter to the House, addressed particular concerns, such as certification delays and changes to the certification process; several credit unions have claimed protracted delays of more than a year in responding to their certification applications; many credit unions are currently no longer eligible for the CDFI Fund and have lost their status as a CDFI as a result, with no opportunity to take corrective action and re-qualify and small and MDI credit unions will probably find it more challenging to become accredited as a result of changes being made to the CDFI Fund certification procedure.

07/12/22 Why Regulation Will Help The Buy Now, Pay Later Giants (Forbes)

The buy now, pay later (BNPL) business is facing a future clouded by economic conditions and regulation. Currently, there’s no federal-level regulatory framework specifically designed for BNPL, as it is already covered by state and federal laws. And since the federal CFPB opened an inquiry last year, regulation has generally been framed as a threat to the BNPL industry’s growth. But a deeper look suggests regulation could actually benefit the leaders in the American BNPL sector and could actually help the industry grow. In the majority of U.S. states, BNPL firms require a patchwork of state laws to secure lending licenses, imposing requirements w.r.t disclosure and limiting fees and interest payments. Also, BNPL providers are banned from employing UDAAP under the 2010 Dodd-Frank Act, giving federal regulators plenty of leeways to crack down on misleading BNPL lending. Regulatory attention given to BNPL will lead to an overhaul of how purchases factor into the credit reporting process – a potential plus for the industry and customers. A standardized system for factoring BNPL into credit files and FICO scores would benefit the industry. While American regulation could ultimately help the BNPL giants, the industry still faces its share of challenges.

07/11/22 Klarna-confirms $800M raise as valuation drops 85% to $6.7B (TechCrunch)

Over the last month, rumors have been circulating that Sweden-based “buy now, pay later” service provider Klarna is seeking to raise funds. Klarna was valued at around $15 billion, a significant decrease from its original $45.6 billion valuation one year ago. Due to the new investment, Klarna announced that its current valuation has decreased by 85% from the amount reported in June 2021 to $6.7 billion. This meltdown is considered temporary by market players but highlights the risk of growth-at-any-cost business models. 

07/08/22 US Treasury Develops ‘Framework’ for International Crypto Regulation (CoinDesk)

The U.S. Treasury Department has published a fact sheet outlining how it could work with foreign regulators to address the cryptocurrency sector. It is the first report published by the department as a result of President Joe Biden’s executive order on crypto. The framework’s policy objectives include consumer, investor, and business protection, the safety of the global financial system, and interoperability, along with reducing the potential use of crypto for illicit finance. The framework would be an important step for bring clarity for traditional financial institutions on how to deal with crypto from an international perspective. 

07/05/22 How Banks Can Compete In The Post-Neobank Era (Forbes)

The “hard fork” in banking is a good representation of the current situation in the financial sector. The Holy Trinity of a bank’s strategy, who does it sell/deliver to? where does it find customers, sell to them, and deliver services? are increasingly becoming “invalid,” requiring banks to “upgrade to the latest version of the protocol.” The shift away from “branch as attractor and point of delivery” is also downplaying the importance of geography. For banks with an already strong customer experience, incremental improvements are unlikely to produce strong returns on investment. Banks must therefore choose between an embedded fintech or an embedded finance strategy. When banks use embedded finance techniques, their ROA and ROE are higher than other banks. Meanwhile, embedded fintech incorporates fintech goods and services into websites, mobile applications, and business processes. Pursuing one of the two strategies forces a bank to revisit the holy trinity of a bank’s strategy.

 

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