Categories: Data Dive

Prosper Falls, Uber Gets Credit And Charge-Offs Keep On Climbing

August is officially upon us, and fall will be here before we know it. Is it really only a matter of weeks before the legions of pumpkin spice-flavored products start rolling back onto shelves nationwide?

But before everything starts smelling too much like pumpkin, there are a few weeks left to go to the beach, bask in the sun and relax with some prime reading material.

And what could be better to pack for those trips than the Data Dive — where we have all the drama of the local blockbusters, for none of the cost. We have stunning reversals, surprising new moves in commerce and even a clock that may be slowly ticking down toward disaster.

Sounds exciting — better start reading.

Proper’s Price Drop

The last time Prosper Marketplace raised funds from investors, it snagged about $165 million in a round led by Credit Suisse Group AG’s Next Investors. With that capital raise, Prosper found itself well within unicorn territory with a valuation scraping $2 billion.

That was 2015.

Things are looking quite different two years later, as Prosper Marketplace is starting to seem a bit less potentially … well, prosperous to potential investors.

According to reports last week, Prosper is contemplating a financing round that would likely drop its valuation to somewhere around $550 million. Not chump change, to be sure — but it’s a far cry from the $1.9 billion valuation Prosper commanded in 2015.

The deal would see Prosper collect about $50 million from Chinese conglomerate Linca for a 10 percent stake, effectively shaving two-thirds off Prosper Marketplace’s valuation.

Prosper, like many marketplace lenders, has struggled in the last 18 months, as the appetite for marketplace loans from money managers and investors has diminished.

Prosper has struggled to adjust to that situation. In March, the company reported a 2016 annual loss of $118.7 million, compared with a loss of $26 million in 2015.

The firm’s newly minted CEO, David Kimball, took over the top spot in December and has named profitability as the firm’s driving goal. In February, Kimball agreed to sell $5 billion worth of Prosper’s loans to a consortium of investors over the next two years, along with warrants to purchase shares representing 35 percent of the company. That deal — which includes player like Soros Fund Management LLC and investment bank Jefferies LLC — helped Prosper stabilize.

The investment from Linca would be designed to provide Prosper with capital to fund future investments.

At quite a big price.

Uber and Lyft Want Some Credit (Cards)

The two most popular ridesharing apps in the U.S. — Uber and Lyft — will reportedly be getting into the card payments game with branded credit cards of their own.

According to news reports, Uber will be working with Barclaycard, a unit of Barclays, the credit card issuer.

“This partnership represents a unique opportunity for Barclaycard to work with a globally recognized disrupter,” a spokeswoman for Barclaycard said in the report.

Details on what Lyft is working on are a bit more sparse, past some “people familiar with Lyft’s plans” offer assurances that the firm is working on a credit card — but not much more than that.

The Uber credit card, on the other hand, is reportedly due out this fall and will likely be powered by the Visa network. The move comes as Uber has lost some market share to Lyft of late, and Lyft is looking to capitalize on that weakness by raising additional funds to take on Uber more efficiently.

The payments card will be designed to work outside Uber, and though rewards are expected to be a part of the offering, what exactly they might look like remains unknown. At present, a handful of card companies are already offering rewards that can be “cashed out” on Uber. American Express, of example, offers $200 a year in free Uber rides for its card members.

Stayed tuned — it looks like Uber and Lyft may have found a whole new commerce track to race on.

The Coming Credit Crunch?

Charge-offs are never good news in the credit business, and a rising rate of them is decidedly worse.

Which is why the news this week that card-based charge-offs have hit a four-year high — after several months of consistently rising — is making a lot of market watchers nervous.

“We’ve seen an inflection point in credit,” said Charles Peabody, managing director at Compass Point Research & Trading LLC. “It is going to get worse from here.”

If those “winter is coming” pronouncements sound a bit grim, they derive from the fact that as of Q2, credit card defaults had increased to 3.29 percent, the highest level seen in the last four years, according to Fitch Ratings.

The second quarter of 2017 also marked the fifth consecutive year-over-year increase in the charge-off rate, indicating something of an ongoing trend at this point.

And, unlike previous quarters where the losses were found more at banks specializing in subprime issuing, all eight of the nation’s largest issuers — including JPMorgan Chase & Co., Citigroup Inc., Capital One and Discover Financial Services — saw increases. And those increases picked up notably during the first half of the year, meaning that consumer pullback may be on the way.

There is good news — or at least there is a lack of horrible news that is still part of recent memory. In 2010, credit card defaults hit 10 percent, and no one is concerned about that level of total instability returning. In fact, many view this situation — though sub-ideal — as a course correction after years of abnormally low numbers of charge-offs.

Others are less confident.

“The overall environment is deteriorating,” said David Nelms, chief executive at Discover, in an interview. It is “not quite as favorable as it was over the past few years.”

The massive credit card defaults in 2010 led to something of a credit freeze — one that only began to thaw in 2014 when banks began loosening their standards in pursuit of higher yield with lower credit score customers.

Over the last 12 months, card balances nationwide rose 6 percent, a growth rate that is up from about 1 percent four years ago, according to the Federal Reserve.

Also credit cards are not alone in looking weak — auto loans have also seen default and late payments rates climb; though the effects have been limited to sub-prime borrowers in that category.

And both of those species of credit weakness are concerning to economists because unemployment in the U.S. is presently at record low levels. Should the job markets take a turn for the worse, already tenuous-looking credit markets could begin to look genuinely alarming.

“That’s a little concerning,” said Michael Taiano, a director at Fitch Ratings.

So what did we learn this week?

Diamonds might be forever. Unicorn status in Silicon Valley on the other hand, is not. Uber and Lyft continue to show that great minds think alike — often when involved in an aggressive competition for market share. And watch those consumer loan defaults. If those canaries start looking any more sluggish, you might just want to rethink hanging out in the coal mine.

Have a good week.

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