Data Dive

Transitions Edition: Sofi, Chipotle And Equifax

Data Dive: Intuit, Zillow And Amazon

Friday officially arrived last Friday – although that was likely a bit more noticeable if you spent your weekend west of the Rockies, where the average temperature was sub-60. Back east, summer determinedly held on for another weekend – it was almost 80 in Maine – but it’s only a matter of short time before sweaters have replaced sandals from coast to coast.

Quite a few players have started their own fall transitions. For SoFi, that will involve resetting their ambitions to be a bank. Chipotle bailed on chorizo in favor of cheese sauce … and Equifax, well, they better figure out how to transition real soon.

Ready for a deeper dive…

SoFi Says So-Long To That Bank Plan

There’s an old proverb, reportedly originated by Julius Caesar, who divorced his second wife over a scandal: Caesar’s wife should be above suspicion.

It’s usually taken to mean that people in positions of authority should avoid even the appearance of impropriety at all times.

It is perhaps one the team at SoFi should have had written down somewhere.

The sexual harassment scandal – which has already led to SoFi’s CEO stepping down – seems to have also cost it the banking charter it sought.

That’s according to reports, citing an adviser and former SEC chairman, that the departure of co-founder, chairman and chief executive Mike Cagney has killed its bank application.

“This departure of Mike makes that a very questionable attainment,” said Arthur Levitt, Jr., a former chairman of the SEC who began advising the company two years ago.

In truth, SoFi’s odds were probably never incredibly strong – the FDIC has turned down this type of application multiple times in the past.

“So, for a company as aggressive as SoFi, I think the chances of that happening were slim. Now, they become almost impossible,” Levitt noted.

SoFi is currently defending two lawsuits in which plaintiffs have alleged sexual harassment and unfair work practices. As a result of those accusations, Cagney announced in August he would be stepping down as CEO by the end of 2017. But then after more reports surfaced, alleging that Cagney was engaged in even more inappropriate conduct, SoFi announced late last week that the CEO would leave immediately.

Cagney was replaced by Tom Hutton, a board member, on an interim basis, reported Reuters.

“The FDIC won’t act in a vacuum,” an unnamed source told Reuters. “For most regulators, management is the single most important issue.”

SoFi had been seeking a special charter known as an industrial loan company, which enables it to engage in most banking services, such as making loans and insuring deposits. Square is currently seeking a similar charter.

That charter excludes it from supervision by the Federal Reserve and subjects it to the Bank Holding Company Act.

Easy come, easy go.

Chipotle Cuts Chorizo Loose

They can’t all be winners. This week, Chipotle announced that its under-performing protein Chorizo sausage will be taken out to the woodshed, and replaced by the more popular queso sauce.

“When we decided to move forward with the national rollout of queso, we opted to replace chorizo on the line with queso, so chorizo is going away,” Chris Arnold, spokesman for Chipotle, told CNBC via email. “While we really liked the chorizo, and many customers did, too, the efficiency of our model has always been rooted, in part, in doing just a few things so we can do them really well.”

The people have spoken, and they just don’t really like chorizo on the burrito: The meat only accounted for 3 percent of Chipotle’s protein sales.

Queso, on the other hand – which is so far in early pilots in West Coast locations – has proven to be favored by customers.

“How much that sticks is yet to be seen,” notes BTIG analyst Peter Saleh.

Chorizo’s problem, according to the experts? Not mainstream enough.

“Chorizo didn’t sell as expected, as it isn’t a mainstream American consumer ingredient,” Darren Tristano, a Technomic advisor, told CNBC via email. “Chorizo is a more authentic flavor, and Chipotle serves the more ‘Americanized’ and pop marketplace. Queso is very popular and has likely had good results with consumers.”

Good results – but, we should note, not incredible results. Among those who’ve had it, some of the Twitter reviews have been less than stellar. Specific complaints have involved the words “grainy” and “oily.”

“A very negative reaction to the queso launch suggests [Chipotle] launched a product that is not meeting consumer expectations and, as a result, missed a potentially significant opportunity to add queso as an incremental add-on,” Karen Holthouse, a Goldman Sachs analyst, wrote in a research note on Monday.

Holthouse, did note, however, that as queso has gained popularity as a trending Twitter topic, she does expect to see traction for the product with fuller rollout.

Banks To Equifax: Get It Together (Or Else)

Equifax has been the Bad News Bears of financial services lately. First there was the massive data breach that sent the personal information of most of the U.S. adult population to the dark web for exploitation. Then there was the fake phishing site to which the credit rating agency accidentally referred a bunch of recently breached people, as they could not distinguish their own site from a cloned version of it. Thankfully, that site was actually set up by a security researcher to illustrate a flaw, not a real cybercriminal – but still, it hasn’t been a good fortnight for Equifax.

And now the banks – i.e. the lenders who supply credit rating agencies like Equifax with the data they need to feed their scoring model – are making loudly discontented noises in Equifax’s direction.

Like telling them to shape up, lest they be shipped out.

“If we don’t feel that they can do the job, then we will obviously look at whether we want to continue to do business with them,” an executive at a large bank, who declined to be quoted by name, told Reuters this week.

Now, it may be possible that Equifax is safe merely by its being so ingrained in the system: Government-backed mortgage finance companies Fannie Mae and Freddie Mac, as a matter of policy, check all three scores, and government agencies don’t much like to change their policies. According to reports, that could be enough to make Equifax too enmeshed to fail, even if their banking partners are feeling very fed up.

“Given the level of interdependence between lenders and these data providers, they have a vested interest in there being more than two, and would like Equifax to still exist,” said James Thomas, an analyst of corporate credit at Standard & Poor’s.

Plus, in dropping Equifax, banks and financial services institutions become more dependent on the other two credit rating agencies: TransUnion and Experian.

“If there’s only two players, then they have less ability to play them against one another” in negotiating prices for credit reports, Thomas said.

But the willingness of lenders to support Equifax is damaged by the firm’s handling of the hack so far, which has failed to impress anyone.

“Most of the major financial institutions learned about it through the media,” one banker said. “And their responsiveness to customers has been slow and unclear as well. We would go down to two [bureaus] if we ultimately get to the point where we think that is necessary.”

Equifax said in a statement that it was supporting any customers who may have been impacted by the hack: “We value our banking customers and have been in close communication with them.”

But not close enough to please, apparently.

Says Karen Webster in her piece last week, let the innovation begin. It’s out with the old and in with the new ways of giving consumers control over the data that Equifax – and the other two agencies – have been keeping on consumers for decades, and bitterly complaining about to the CFPB since 2012.

So, what did we learn this week?

Sometimes there is just no margin for error, whether you are trying to become a bank, make a burrito or safeguard the personal data for a few hundred million people. In these cases, it pays to heed the immortal words of Ariana Grande: Almost is never enough.

Have a good week!



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.