Security & Fraud

Sizzle Or Fizzle: Payday Loans, Wells Fargo, Chip Cards – And Cybersecurity

April showers are supposed to bring May flowers, but so far, they’ve brought more fizzles than sizzles. This week, in particular, was tough for a few players – and one sector overall.

Sizzle

Wells Fargo
Who said traditional banks can’t be disruptive? On the heels of Lending Club’s fall from grace this week – the day after to be precise – Wells Fargo announced that it would come to the rescue of SMBs by offering fast decisions on small business loans. This online service offers competitive rates and quick (like next day) access to funds. The program, which was piloted in August 2015, is available to SMBs with short-term cash needs who have also been Wells Fargo customers for at least a year. The term of these loans is a year, payments are deducted from the borrower’s business checking account and amounts range from $10K to $35K.

Seems there is more than one way to skin the SMB lending cat: lend to businesses you’ve had the chance to see perform over the last year by watching their bank account balances go up and down – and then get the money to those who look like they’ll pay it back fast – which you can do because you are a bank. Imagine that.

Contactless in the U.K.
Visa Europe reported this week that more than 3 billion contactless transactions have been made Europe-wide over the last year – a tripling in volume. That ignition is thanks to the fact that all Transport of London trains accept contactless cards now – where the report says that 9 in 10 rides are paid for via a contactless card. Couple that with the fact that the purchase limit sans signature has been raised to £30 and you have the number of transactions increase by 300 percent year over year. Tap and pay seems to be finding its way in the U.K. Across the pond, however, it remains a rather different story.

Merchants and Chip Cards
The merchants have spoken – and the ecosystem has responded! EMV is just too slow at checkout and the process needs to be faster.

Last month, both Visa and MasterCard released new specs that enable a “swipe-like” consumer experience such that consumers can insert and remove their chip cards without having to wait for the transaction to be completed. That will reduce the time that the consumer has to interact with the card at the terminal to 2 seconds instead of what seems like 10 minutes when the consumer is staring at a terminal that keeps flashing “Please Do Not Remove Your Card.” Then Cayan launched its ChipIQ solution this week which compresses the time even further by using its secret sauce to reduce the overall transaction time from ~15 seconds to ~3.

And all of these developers can’t come too soon for merchants – many of whom are sweating bullets over long queues in stores over the holiday season and QSRs in particular who don’t think that chargebacks are much of a risk and don’t want the hassle of big lines in their stores.

Lawyers
Lawyers win even if they lose – since a billable hour is a billable hour no matter what the outcome. This week, we saw the legal machines revving up big time to duke it out over allegations of patent infringement (Groupon v. IBM), allegations of consumer harm over not being able to require the use of PINs with Chip Cards (Walmart v. Visa), a variety of retail bankruptcies (Aeropostale and American Apparel) and failed mergers (Staples and Office Depot).

Fizzle

Alt Lending
The whole category has been under a dark cloud for a while, and the news last week of Prosper’s struggles made those storm clouds even darker. It took the resignation of Lending Club’s CEO and the compliance issues flagged before their Monday earnings to cause the heavens to open up and just drench the entire industry.

Lending Club lost 80 percent of its market cap in just 2.5 years — ~35 percent of its value on Monday once the news was made public. OnDeck hasn’t fared much better, even though its model is quite different. As of the closing bell yesterday (May 12), OnDeck lost 75 percent of its market cap and was trading at about 7.5 percent lower than its price the day before on volume that was 2x higher than usual. Not good.

Then there’s the Treasury’s white paper assessing the segment which was released the day after Lending Club’s meltdown. Not surprisingly, it suggests that online lending needs a good dose of regulatory oversight since it’s not clear who now minds that store. Gonna be a long hard road to hoe.

Payday Lending
And you were worried about Big Brother. Google announced on Wednesday (May 10) that it will ban payday ads on its site. In a blog post that appeared on the site yesterday, authored by Google’s head of global product policy, the message was “When ads are good, they connect people to interesting, useful brands, businesses and products. Unfortunately, not all ads are — some are for fake or harmful products, or seek to mislead users about the businesses they represent.”

It went on to point out that last year, Google disabled 780M+ ads for that reason and the impact that financial products have on people’s lives compelled them to take the position they did with banning payday loan ads.

As a result, ads for lending products in which repayment is due within 60 days or with an APR of more than 36 percent will be banned from the site as of July 13, 2016. This, in an effort, they say, to protect users being exposed to the kind of products that cause consumers to default and get in over their heads. Exempt from this provision are Mortgages, Car Loans, Student Loans, Commercial Loans, Lines of Credit or Credit Cards.

We won’t point out that most payday borrowers repay their loans within a few days of taking them out. Or the high rate of default on student loans. And the fact that consumers can also get into big trouble with credit cards. Or the fact that anyone can watch as many Triple X movies as they can stomach on YouTube, a Google-owned property (just by searching Google), and buy as many, adult accessories (if you catch our drift) as you want, too. Harmful and deceptive seems to be in the eye of the beholder, in this case, Big Google. Better watch out.

Apple
We didn’t want to add them to the list this week. We really didn’t. But that was before their stock yesterday hit a new low on news that the iPhone 7 won’t be the mindblower that everyone expects it to be.

Karen Webster wrote on Monday (May 9) that even though it is unreasonable to expect Apple to produce a mind-blowing mobile device every year, they’ve sort of set themselves up for that since they’ve also not succeeded in diversifying their revenue sources enough since Steve Jobs died. At the close of the market yesterday (May 11), their market cap dipped below $500B to $489B and their stock closed at $90 and change, but down 2.24 percent from the day before.

Time to find new revenues.

Sizzle/Fizzle Spotlight | Cybersecurity

Red hot not all that long ago, cybersecurity stocks could use some security of their own.

While the fraudsters ramp up, the sector seems to be plummeting, down double digits overall thus far into 2016.  FireEye has been doused.  Barracuda has fewer teeth.  Check Point has been body checked.  Fortinet couldn’t hold the fort.  You get the idea. 

The latest tech titan to fall, Palo Alto, slipped on Thursday, on less than sanguine analyst coverage that fretted about the company, one of the last firms standing in the segment that has yet to report earnings, but when it does, may echo the gloomy tone of its peers.

Palo Alto is slated to report results on May 26.  The Street has sales growing by 44 percent year over year to $339 million, with EPS growing even more dramatically, nearly doubling to 42 cents a share. And yet the stock is down 7 percent on a day when Piper Jaffray, through an analyst research note, stated that April demand has left something to be desired, and the second quarter guidance that came from peers may be pointing to a rough landscape for cybersecurity firms.

That’s sobering news, as the group has just put up less-than-stellar results for the first quarter, and the Piper note implies that the troubles continue. The Piper analyst, Andrew Nowinski, stated that billings, which indicate future demand, could too high, which in turn means that revenue estimates would be too high.  There have likely been some pushouts in the April quarter that may have hit Palo Alto.  No mere blip, the slowdown, as noted by the analyst, showed resellers (most of these firms sell into the channel rather than to end, corporate cybersecurity users) entering a “digestion phase.”  The phrase smacks of resellers perhaps biting off more than they can chew.  (As a side note, when resellers digest and established players must wait to feed new mouths, private funding may go by the wayside, as Reuters reported earlier this year.  There have been down rounds, and funding has been elongated, with longer times taken to close investing rounds).  

What to make of all this? First, let’s be clear that demand for cybersecurity is by no means falling off a cliff.  Take FireEye, for example, which did beat estimates, at least on the top line, on demand for cloud security services.  But the billings growth rate (again, future demand in the offing here) has slowed to the 20s percentages from north of 50 percent.  FireEye shares have slumped below IPO levels in part because there has been a notable resignation at the top of the firm (ie the CEO).  But there may be another reason the group is toppling.

When growth slows, battling becomes fierce among firms that may have once been busy carving out turf.  Consider the fact that among the selling points of these firms is expertise.  FireEye is focused on moving its products to the cloud, and other firms like Fortinet look toward next-generation firewalls.  But in the end it is the jockeying for position that comes into play, with competitive dynamics as important as the products that get peddled.  To our mind, if price becomes an issue, then bigger players (by revenues, market cap and perhaps margins) that also offer Swiss army knife solutions, like Cisco, may win out.

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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. In the November 2019 AML/KYC Report, Zillow’s Justin Farris tells PYMNTS how the platform incorporates stringent authentication without making the onboarding and buying experiences too complex.

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