The Feds’ Interest Rate Cut: A Wolf in Sheep’s Clothing
The recent interest rate cut by the US Federal Reserve is being hailed as a victory for fintechs, particularly those that rely on loans for cash flow. But is this benevolent act of monetary policy or a cleverly disguised attempt to prop up a flailing industry?
Fintechs: The Unlikely Beneficiaries
Corporate credit card providers like Ramp and Coast are rejoicing, as their loan terms have just become more favorable. But at what cost? The merchant fees they charge are just a small part of the equation. The real prize is the interest on the loans themselves, which they can now charge at a lower rate.
Buy Now, Pay Later (BNPL) Companies: The Canary in the Coal Mine
Affirm, a buy now, pay later company founded by PayPal mafia member Max Levchin, is a prime example of the struggles faced by fintechs in a high-interest rate environment. Its stock price plummeted from $162 to under $50 a share since February 2022, a stark reminder of the devastating impact of rising interest rates on these companies.
The Real Winners: Short-Term Lenders
Caribou, a car loan refinancing company, is poised to benefit from the rate cut, as it can now offer lower interest rates to borrowers. GoodLeap, a provider of solar panel loans, and Kiavi, a lender specializing in loans for "fix-and-flip" home investors, are also expected to see a surge in loan origination volume.
Mortgage Fintechs: The Sleeping Giant
The mortgage industry is expected to see a massive refinancing wave if interest rates continue to fall. Rocket Mortgage and Better.com, two mortgage fintechs, are set to benefit from this surge in demand. But what about the new mortgage tech startups that will inevitably emerge? The possibilities are endless, and the VC dollars will surely follow.
A Wolf in Sheep’s Clothing?
The Fed’s interest rate cut may be a cleverly disguised attempt to prop up a flailing industry, rather than a genuine act of kindness. The real winners here are the fintechs that can now charge lower interest rates, while the rest of the industry continues to struggle. The real question is: what’s the true cost of this "generosity"?
