A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
Private Credit Is the Newest Bubble Waiting to Pop
What happened: Interest rates and fees rose, and the so-called private credit market has tripled in the past few years to $1.5 trillion. Experts think it could get to more than 20 times that size very soon.
Why it matters: It’s like private equity, but instead of a pool of investors taking part of a company they lend to it. Private credit used to be isolated to branches of established private equity behemoths. But now that more traditional financiers like Apollo and Fidelity are bootstrapping their own private credit departments, experts warn that the unseen risks are multiplying.
What’s next: Higher interest rates are putting a ton of stress on private credit loan books. One survey found that 75% of private credit executives expect defaults to be higher next year. Anyone with any experience in restructuring is getting hired, but demand far exceeds supply and because of that many expect a lot of “pain” in the near term. (By Laura Benitez, Bloomberg)
Short Seller Says African FinTech Darling Is Total Scam
What happened: Short Seller Hindenburg Research, most famous for revealing that electric vehicle truck maker Nikola pushed its prize vehicle down a hill instead of driving it, just released a report on Nigerian-based Tingo.
Why it matters: Hindenburg is famous for going after prominent names, like the richest man in India and famed corporate raider Carl Icahn. Tingo was an African success story. It claimed to distribute branded phones to farmers to make loans and other forms of financing more accessible. Its owner even had a recent failed bid to buy UK football team Sheffield United. The report didn’t just drop the stock’s price 60%–it also potentially exposed that due diligence in developing nations is still far behind where it needs to be.
What’s next: Expect a lot more scrutiny. Short seller reports are often used as a jumping off point for traditional media. Sure enough, after the report was published the Financial Times visited Tingo’s offices in Lagos “where the company’s Nigeria CEO and his chief technology officer struggled to answer basic questions, including on the identity of their banking partner.” (By Akila Quinio, The Financial Times)
Colorado’s New Lending Law Could Have Ripple Effects Throughout Finance
What happened: A new Colorado law takes aim at what’s broadly known as the “rent-a-bank” strategy: partnerships that allow lenders to charge high rates in states, even when they have a hard cap.
Why it matters: Colorado is now only the second state to opt-out of a federal law that allows high-cost lenders to operate nearly everywhere. Iowa, a much smaller state, was the first. High-cost lender lobbyists are trying to raise alarm bells that this will harm consumers while consumer advocates are saying the opposite: that Colorado’s approach should be copied by all states.
What’s next: An expensive battle for legislative hearts and minds. Plus, a search for loopholes, one of which (where a loan originates may matter more than where it’s offered) may have already been found. (By Polo Rocha, American Banker)
Congress to Crypto: OK, Here’s How It MIght Be Possible for You to Exist
What happened: Two influential Republican lawmakers introduced a bill that seeks to clarify regulatory authority over digital securities.
Why it matters: We’re at Peak Crypto Regulatory Lack of Clarity. Lots of people expected the SEC to sue Binance and Coinbase. Now they have. The path forward remains muddy, which is why Reps. Patrick McHenry and Glenn Thompson seem to want to where the SEC and CFTC’s authority begins and ends.
What’s next: A lot of mark-ups and small technical changes. But mostly, a lot of support from exchanges like Coinbase that have made their frustrations, and legal questions, with the US’s regulatory infrastructure very public. (By Rohan Goswami, CNBC)
Binance May Be Bigger Than FTX In One Very Bad Way
What happened: In its lawsuit against crypto exchange Binance, the Securities and Exchange Commission claims that the company may have redirected as much as $12 billion in customer funds to accounts and entities controlled by founder Changpeng “CZ” Zhao.
Why it matters: Part of crypto adoption depends on the trust established by existing brands. Binance is, or was, by some measures the world’s largest exchange, and therefore one of its biggest brands. If the allegations of commingling and “pass-through” accounts prove true, it could be a doomsday event for the exchange and set back the crypto movement for years to come.
What’s next: Binance won’t talk. CZ says he won’t come to the United States to testify. The SEC admits it still doesn’t know exactly why billions in customer money went through an elaborate series of CZ-controlled entities. If the FTX and SBF saga is any indication, the criminal charges should follow close behind. (By Colin Wilhelm, The Block)
