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Data Dive: Disappointment Edition

As baseball legend Connie Mac famously said, “you can’t win them all.” It’s something the Chicago Cubs fans (and fans of “curses” being broken) know well this week, as their team of destiny has decided not to win them all — as of today, they are one game up.

The Cubs, of course, just need one win more. We — like the rest of population not living in Cleveland right now — are pulling for them. And it could happen. Red Sox fans here at PYMNTS vividly remember seeing a more unlikely turnaround when the New York Yankees managed to blow a three game lead in the ALCS, thus pulling off the biggest choke in the history of sports.

But for now, anyway, there are a lot of disappointed baseball fans out there — and with the way the news cycle played out last week — well, at least they weren’t lonely and disappointed.

Because there was lots of disappointment to go around last week.

Disappointed millennials rejected by credit card companies. Disappointed Amazon investors — who were happy to hear about the profits, but wanted more of them — followed by disappointed Amazon execs who watched their share price take a haircut.

And Lending Club — perhaps disappointed with its results of late in its central business — is branching out. To auto loan refinance. And based on how that market is trending, we’re pretty sure that Lending Club auto refinancing will bring disappointment, too, down the road. <haha>.

Ready to live vicariously through the frustrations of others?

Millennials — Once Rejected, Twice Shy

Millennials’ “take it or leave it” attitude toward credit has been well documented over the last several years. In the last 12 months the marketplace has actively wondered if millennials are shunning credit cards, if they are unable to qualify for credit cards or if they’ve just sworn them off entirely.

This week we got something of a combo platter of those theories: Millennials are shunning credit cards because they’ve been denied in the past, and, well, rejection hurts.

D Analytics, a consumer risk management company, released research last week that indicates six out of ten millennials declined for credit are not seen applying again for at least 12 months.

Millennials tends to have shorter credit histories and somewhat lower than average scores, which make denials more prevalent — 63 percent of millennials do not have a credit card. Which isn’t to say they aren’t trying to get them — millennials are applying for credit cards at higher rates than Generation X or baby boomers (35 percent vs. 29 percent vs. 28 percent, respectively).

But while they may be applying for credit, fewer than half of millennials have credit scores that will qualify them for credit accounts with most mainstream lenders.

One-third of millennials cannot be scored by a credit bureau due to their lack of credit history, and of the “scorable” group, two-thirds of consumers under 30 have subprime or non-prime credit scores.

“Traditional credit scores may have served previous generations well, but their lack of visibility into critical modern credit responsibilities, like the payment of cell phone bills, leave many millennials with incomplete or nonexistent histories at the major credit bureaus,” said Patrick Reemts, vice president of credit risk solutions at ID Analytics, in the press release.

“Without a complete picture of millennials’ credit, many financial services companies are turning away good consumers, and the bad news for financial institutions is that only 10 percent of millennials will re-apply to the same lender once they have been declined.”

Amazon – Sometimes Profit Isn’t Enough

It isn’t that Amazon had a weak quarter — Amazon’s earnings were $252 million in the third quarter, a gigundo step up from $79 million a year earlier, sales were $32.7 billion, AWS, Amazon’s internal ATM machine, saw sales jump 55 percent to $3.23 billion and Amazon slightly boosted its revenue guidance for Q4 to $45.5 billion from $42 billion. Analysts were looking for $44.6 billion, according to Thomson Reuters.

So, champagne toasts?

Not so much.

Amazon’s $0.52 cents a share in earnings was a big miss on the $0.79 cents a share that analysts surveyed by Thomson Reuters expected. And while sales were strong, that $32.7 billion was largely consumed by operating expenses, which climbed 29 percent to $32.1 billion. Investments pushed Amazon’s operating margin down to 1.8 percent — a drop from Q2’s 4.2 percent.

And then there is Prime — the membership program that launched scores of imitators — and which is apparently costing Amazon a bundle.

The big bulk of Amazon’s revenue-eating expansions were in growing its eCommerce and shipping capacity through its massive warehouse construction boom. That growth is at the hands of Amazon’s $99/year ($10.99/month) Prime program, which guarantees free, fast shipping on millions of items on its site and access to video content and other perks. As Prime membership grows, Amazon is focused on getting faster — like delivered-within-the-hour faster — and that ran up shipping costs 43 percent in the third quarter to $3.9 billion.

“We acknowledge that’s expensive,” CFP Brain Olsavsky said. But “customers love it.”

“By far, the biggest individual thing [affecting margins] is the investment that we continue to make,” he added.

But Amazon is never afraid of a little loss or a few irritable investors. They are the original “get big, worry about profit later” web tech firm. And investors have learned to love that about them for the last 10 years.

Amazon did make a profit last quarter. The question will be whether the big investments will make for even more impressive ones next quarter.

Lending Club’s New Groove

LendingClub is moving its debt refinancing model — largely applied to consumers looking consolidate credit card debt — to auto loans.

“People think a lot about refinancing their mortgage, but they don’t think much about refinancing their vehicle,” LendingClub Chief Executive Officer Scott Sanborn said in a phone interview.

Maybe there’s a reason for that?

The pitch LendingClub is offering is fairly straightforward: If that five year loan on that three-year-old car has a cruddy interest rate, LendingClub auto refinancing can fix that.

Auto loans are a big new playing field LendingClub is boldly striding on to — currently there is over $1 trillion in auto debt outstanding in the U.S., but only about $40 billion of it is refinanced annually.

But just because a market is big doesn’t mean it is necessarily accessible, and auto lending has some distinct troubles.

The first is that the borrower pool is looking less strong — sub-prime borrowers are falling behind on car payments at the highest rate in six years. And the market is competitive — lenders have lowered prices and loosened their standards in an attempt to attract buyers in a competitive market.

In the year that ended in June, only 5.2 percent of car-loan applications were rejected, according to research from the Federal Reserve Bank of New York. That’s down from 11.1 percent in the 12 months ended in October 2015.

“We’re well aware of those trends,” Sanborn said. “If you look at the overall market, credit has broadly continued to be quite stable.”

The wave of the future – or famous last words? Hard to say. Cars, unlike houses, do not appreciate in value and are much easier for consumers to walk away from than houses if they end up hopelessly underwater.

Which, if it happens enough, could lead to a disappointing outcome for LendingClub auto refinancing.

So what did we learn this week? Disappointment can always get at you – whether you’re Amazon and doing well, a millennial doing less well, Lending Club trying to do well again – or the Chicago Cubs on the hunt for that World Series Win.

Go Cubs!

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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