PayPal’s Power, Americans’ Wealth, BofA’s Premature Rate Call (Future of Finance | Week in Review)

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.

Bank of America’s ’Smart’ Bet Is Costing It Big Time

What happened: Bank of America is the worst performing bank of its size over the past few years and the reason is pretty clear: a bet on rising interest rates by CEO Brian Moynihan came too early during the pandemic, and before the actual rise happened.

Why it matters: The rate surge was unexpected enough to kill off smaller, regional banks that were unprepared. Less destructive is what’s happening to BofA, but it is driving investors crazy. “All major lenders suffered setbacks tied to their bond holdings, but BofA stands out for the sheer size and impact. Among the four biggest banks, its securities portfolio is the largest and the lowest-yielding, and it’s concentrated in debt that comes due after 10 years. As for its value, those holdings could erode again if the Fed follows through on another potential rate rise.”

What’s next: Some of BofA’s money will get unstuck soon. But in a world where cash gives you 5%, yields that are half that size mean your stock will suffer. (By Katherine Doherty, Bloomberg)

Crypto Is Caught Financing Terrorism, Again

What happened: A review of terrorist-linked wallets in the year leading up to last Saturday’s deadly attack in Israel shows that three separate organizations with some role in planning and executing the raid received tens of millions of money laundered through crypto.

Why it matters: It wasn’t that long ago that Binance’s compliance people were caught on Slack joking about allowing laundered funds to move to Hamas. The open secret nature of crypto money laundering doesn’t make this story a surprise. It just heightens the pressure on an entire industry to do better, lest the pressure from regulators and law enforcement gets even bigger.

What’s next: Terrorists move away from Bitcoin wallets and addresses that they’d broadcast for fear of exposing their donors. Now use stablecoins like Tether that are, for the moment at least, more anonymous. (By Angus Berwick, The Wall Street Journal)

The Four Craziest Moments of the FTX Trial So far

What happened: Alameda Research CEO and on-again, off-again girlfriend and co-conspirator of Sam Bankman-Fried finished testifying this week. It was nuts.

Why it matters: SBF and Ellison’s relationship provided a window into SBF’s personality, or lack thereof. (He told her at one point that he felt nothing for anyone, ever.) His ambitions — he said there was a small but decent chance he would one day run for president and win. And a near limitless window into his ability to lie, cheat, and steal, especially when it came to customers funds. 

What’s next: An absolutely bonkers trial may have hit its nadir. Then again, maybe it hasn’t. (By Jie Yee Ong, The Chainsaw)

PayPal’s Low-Cost Strategy to Dominate the Payments Business

What happened: PayPal has a new CEO and a new strategy to take over payments. In just a year, revenue from its low-cost option Braintree jumped 30% and put it on a possible path for industry domination.

Why it matters: PayPal, Adyen, and Stripe are all involved in a pricing war. PayPal’s Braintree success has had a huge impact on Adyen, whose stock is down 40% on the year. But it’s unclear if a battle to keep costs as low as possible will actually lead to adoption of other, higher-margin PayPal products. WIthout that sort of cross-company close, everyone risks losing in the end.

What’s next: Consumers will continue to not think twice about who benefits when they click to pay. Yet someone out there will make a fortune by cornering the market. (By Emily Mason, Forbes)

Americans Are Basically Three Times Richer Than Experts Thought

What happened: Somehow experts undercounted the excess savings rate in America by a third, assuming $400 billion in savings when it’s probably closer to $1.2 trillion.

Why it matters: “Sockin reckons that households have about $1 trillion in excess savings remaining — a tally in line with a growing number of estimates. That still-large stockpile, some 3 1/2 years after the first fiscal rescue package, may offer a cushion for the economy in the face of headwinds including a surge in bond yields that’s raising borrowing costs for households and companies.”

What’s next: An even more nuanced “will there be a recession” discussion that is informed by these figures. (By Rich Miller, Bloomberg)