Below are news related to the fintech industry this week.

General News

Inflation Scare or Real inflation?

U.S. consumer price index (CPI) numbers for April were published earlier this week. The CPI was 4.2% higher than the same time last year. Such a rise was previously observed during the 2008 financial crisis when the U.S. was in recession. The April CPI numbers sent the U.S. stock market down. As we wrote in our previous newsletter, the U.S. could only add 266k jobs, the lowest for the year and well below market expectations. So now we are in a situation of low new job numbers coupled with rising prices - causing an inflation scare in the markets.

Now let us review some of the potential causes for the rise in prices,

Decrease in supply

1. Global supply chain shortage and low inventory levels: The pandemic-based lockdowns have caused various industries' supply chain problems. For example, I had to wait five months to replace my dishwasher since all the Box stores had run out of inventory and were waiting for new units to arrive from out-of-country shipments.
2. Unable to add more jobs: In April, employers could only add 266k jobs, which was the lowest number of monthly jobs added in the year. The numbers were way below market expectations. The puzzling situation is that employers had more vacancies that they were not able to fill. One of the arguments for unfilled positions is that new stimulus checks may have caused the companies' difficulties to fill these vacancies.

Increase for demand

1. Recent stimulus checks: The new round of stimulus checks will increase consumer spending and hence increase the demands of goods and services.
2. Increased vaccination drive: The vaccination drive in the U.S has lessened the fear for people to go out, which has increased the demand compared to the lockdown times from last year.

Let's look at this from the classic demand and supply curve. Let's assume D and S are baseline demand and supply curves. And the equilibrium will be at the intersection of D and S, i.e., stable price(P*) in the market for the quantity demanded occurs at the intersection of these curves. Now, as demand increases, for reasons stated above, by the factors other than price or quantity demanded, the demand curve will shift right (i.e., more quantity demanded) instead of moving along the curve. If supply remains the same, the new price will be P*1 . Note that   P*1  > P*.

Now Supply curve moves to the left ,for reasons stated above , i.e less supply of quantity demanded. The intersection between the new demand curve D1 and supply curve S1 will set the new price (P*2) of the quantity demanded.

Now we will have P*2 > P*1  > P* , i.e from the basic demand and supply analysis we can deduce that increased demand and reduced supply will increase the price of the goods in the market.

Used car price (for April 2021 ) rose 10% YoY, with a shortage of chips causing decreased inventory (i.e., supply) of new cars and increased demand to drive due to fear of travel in public transport is an excellent  example. The present unique circumstance is causing folks to buy used cars instead of purchasing new vehicles(lack of new cars) and pushing the used car prices up. Cars which are considered a depreciating asset have turned into an appreciating asset.Few car fleet rental companies are offloading their cars to make short-term profits.

In conclusion, the Fed is not considering the current transitional period as a recession. However, if the upcoming economic data is not favorable, the market may force the fed to increase the interest rates, which may put breaks on inflation but hamper the economic recovery.

Let’s wait and see….

Send money from the U.S to India or Singapore using Google Pay.

As the competition for the fintech “super apps” heats up, vendors continue to add more features to their app platform. Our previous newsletter announced some of the new features in Google Pay related to commute and expense management. In addition, Google earlier this week announced that it has partnered with Western Union and Wise to make “cross border” payments possible using Google Pay.

 In the press release, Google cited a recent “Borderless Payment” study conducted by MasterCard and a U.N. study from 2019 that stated immigrants had transferred $700B to their home countries. The studies highlighted the demand for cross-border payments and the need to make cross-border payments friction-less.

The MasterCard report had some interesting insights, such as close to 49% of people use cross border payments “to support friends and family who live abroad,” and 40% of people use cross border payments “To buy products from abroad.”

The above two categories accounted for approx 90% of use cases for global cross-border payments. The study broke down into specific geographies such as U.K., USA, Saudi Arabia, U.A.E, South Africa, China, Singapore, India, USA, Canada, and Mexico. The global top two trends dominated the local geographies as well. The study also highlighted the gaps in current cross-border payment solutions for consumers and small businesses. For cross-border consumer payments, areas of improvement were around.

1. Speed: 70+% of people responded that they would make more online payments if it were faster. Almost the same percentage of people wanted a real-time experience to make them comfortable using cross-border payments.
2. Security: Majority (80+%) of people felt secure performing cross-border transactions from a trusted brand, and other limiting factors were fear of entering wrong information and fraudsters causing unwanted damage.
3. Certainty: most people wanted faster confirmation and expressed they would get anxious when there was a delay receiving confirmation.
   

Elon musk stops accepting Bitcoin payments for Tesla.

Elon musk earlier this week reversed his position of accepting Bitcoin as a payment option to purchase Tesla cars, which he had announced earlier in the year.  He said that bitcoin infrastructure is a very energy-intensive operation.  According to researchers at the University of Cambridge Centre for Alternative Finance (CCAF), the Bitcoin operation consumes a total of 0.69% of the world's electricity.  To give some perspective, the annual electricity consumption of the country Sweden is lesser than the electricity required to mine and maintain Bitcoin transactions. The majority of the Bitcoin hubs use coal as their primary source of energy which is not an environmentally friendly source of energy.

"Tesla has suspended vehicle purchases using Bitcoin. We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment. Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.” - Elon Musk

Tesla earlier this year had purchased $1.5B worth of Bitcoins. However, they have not expressed any interest in selling those coins and plan to "hold" those digital currencies.

Facebook continues to make strides with "DIEM."

Our earlier newsletter mentioned the progress made by the "DIEM" project and their plans to do some early prototypes with their organization headquartered in Switzerland. However, the Journal earlier this week reported that "DIEM" is moving back to the U.S.

"DIEM" group also announced a partnership with Silvergate Capital Corp., a La Jolla, Calif., bank, which will issue "stablecoin." DIEM group plans to run its payment network and "stable coin." This move will fasten the adoption of digital currencies for Facebook applications.

Regulators have expressed concerns about Facebook's ability to handle consumer financial data and are also concerned about money laundering activities that can potentially occur using these new digital currencies.

DIEM group has expressed that the secure and robust crypto "blockchain" infrastructure that will power the new platform will help mitigate the risks associated with privacy, traceability, and any concerns with money laundering activities.

Fintech New Venture and IPO

• Relay, Toronto based  digital banking platform for small business ,raised $19.4 in equity funding.
• Pomelo,Argentina based fintech - as -service platform for LatAm, raised $9m in seed funding.
• Collective,a San Francisco based back-office platform for self-employment,raised $20m in series A funding.
• Planck,a New York based data platform for commercial insurance ,raised $20m in equity funding
• Stampli, California based software platform for corporate invoice management, raised $50m in Series C funding.
• Treasury Prime, a San Francisco based banking-as-a-service,startup raised $20m in Series B funding.
• Sanlo,a San Francisco based financial tool-kit for app and gaming publishers,raised $3.5m in seed financing.
• Lili,a New York based mobile banking solution for freelancers ,raised $55m in Series B funding.

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