Interest rates and fintech: how Affirm and Upstart reacted

Hello and welcome to Protocol Fintech. This Friday: the divergent perspectives of Affirm and Upstart, the Terra mess and David Marcus’ bitcoin bet.

out of the chain

Here’s some nonsense from the crypto world: Terra shut down its blockchain for the second time, but you can still trade luna and UST on exchanges like FTX. The meaning of these transactions is unclear, as they cannot be settled. It’s the kind of Catch-22 you get when you mix decentralized blockchains with centralized trading systems, and a perfect encapsulation of the weirdness of the 2022 crypto crash.

—Owen Thomas (E-mail | Twitter)

Assessing the effect of the rate hike

The Federal Reserve’s inflation fight isn’t slowing down, with more rate hikes coming. Higher borrowing costs are hitting fintechs in all sorts of ways, threatening their margins but perhaps also prompting consumers to try new ways to borrow like “buy now, pay later”. There are also the macroeconomic effects of higher rates and the economic slowdown that likely accompanies them: a slowing economy hurts demand. Fears have already hit fintechs hard in the consumer lending space.

Higher rates are generally bad for the consumer lending industry. When interest rates are higher, fewer consumers generally want loans – and fewer can qualify as borrowing costs rise.

  • Online lending firm Upstart reported results this week that beat analysts’ expectations, but shares plunged a staggering 56% Tuesday on macroeconomic fears. Upstart generated $310 million in revenue for the first quarter, above expectations of $300 million. But it cut its revenue forecast for 2022 to $1.25 billion from $1.4 billion.
  • “It’s really that simple that when consumption rates go up, it means that at the margin, a whole bunch of people who would have been approved are no longer approved,” said Dave Girouard, co-founder and CEO of Upstart, during a call. with analysts. “So there’s a whole bunch of loans that never happened. And there’s a bunch of people who are still approved, but the interest rate is a few percentage points higher, and some fraction of them are going to decide that’s not the product they want . They don’t need it.
  • Upstart’s average loan price has jumped more than 300 basis points since October 2021, Girouard said.

“Buy now, pay later” activity could move away from broader consumer lending. The Upstart contagion caused Affirm shares to sell off ahead of its earnings, but the company’s share price quickly rallied after the earnings announcement.

  • Shares of Affirm soared 33% after markets closed Thursday to nearly $24, rebounding from the hit largely on stronger-than-expected quarterly results and a weaker-than-expected loss.
  • The company generated approximately $354.8 million in total revenue, with a net loss of $54.7 million, compared to $287.1 million in the third quarter of 2021.
  • Affirm said it has so far had nothing to do with interest rate hikes. “It is true that as rates go up, there is pressure on the financing of our business. But it’s a mistake to view this as a full flow on a linear basis,” Chief Financial Officer Michael Linford said on his third-quarter earnings call. “I think in the very long term, so going out more than a year, you would expect us to shrink, but that’s more of a long term thing.”
  • “Buy now, pay later” is a different type of loan, as it is usually short-term and often subsidized by merchants. Merchants may want to offer zero-rate offers to entice consumers, and pay-later plans may seem more attractive compared to buying by credit card as rates rise.

Fears of a possible recession are also weighing on credit. If a recession hits, consumer spending will plummet and the lending industry will be hit even harder.

  • Upstart saw delinquencies increase between November and February, leading to higher interest rates for consumers and lower conversion to business for Upstart, the company said. Although this rate has now stabilized, a recession could worsen defaults. The risk of recession as well as general macroeconomic concerns prompted Upstart to cut its earnings forecast.

Further interest rate hikes could force companies to act more quickly. Perhaps Upstart is simply more realistic about its outlook in a rising interest rate environment, and perhaps Affirm benefits from a differentiated business model. But if the Fed presses the brakes harder, it will be all the more crucial for companies to ensure that they are on the right track.

— Tomio Geron (E-mail | Twitter) and Lindsey Choo (E-mail | Twitter)


To be successful at Flatiron, a restaurant will need to attract a weekday lunch crowd with healthy offerings and a work-friendly setting for professionals; To stand out among nearly twice as many restaurants in SoHo, a new restaurant must lean into arts and culture with a cutting-edge setting.

Learn more

on the money

On protocol: Terra shut down its blockchain as Luna and UST plummeted, falling almost to zero. The sharp decline in the value of luna and the UST’s loss of its dollar peg helped fuel a crypto crash, highlighting the risks in stablecoins and digital assets more broadly.

Then, somehow, things got worse. Earth restarted the blockchain after making changes to the code, then unplugged again.

The Chainsmokers release royalty-bearing musical NFTs. Royal, founded by DJ Justin Blau, is issuance of NFTs and management of royalty distributions. The group does not charge for NFTs; instead, it gives them away, with frequent concert ticket buyers getting early access.

Also on Protocol: SoftBank says it is dramatically cutting its planned seed investments to half or even a quarter of last year’s funding frenzy. This is the most dramatic sign of a setback in the world of VC.

FTX CEO Sam Bankman-Fried bought a 7.6% stake in Robinhood. In a possible Elon Musk-esque move, Emergent Fidelity Technologies, a vehicle controlled by Bankman-Fried, has taken a $648 million stake in the investment firm. Robinhood shares jumped more than 20% after the news.

David Marcus’ bitcoin bet

David Marcus, until recently a senior Meta executive, is back with a new crypto startup that will be reminiscent of much of his recent work – with a few crucial differences.

Los Angeles startup Lightspark has raised Series A funding led by a16z crypto and Paradigm, with participation from companies including Matrix Partners, Thrive Capital, Coatue, Felix Capital, Zeev Ventures, and Ribbit Capital. Lightspark declined to disclose the amount and did not explain why.

The company is focused on “extending the capabilities” of bitcoin and working to build technical infrastructure for the Lightning Network, he said. The Lightning Network is a project designed to create faster and cheaper transactions on top of the bitcoin network.

Read the full story on

— Tomio Geron


Bitcoin peaked in November above $60,000. Then came Super Bowl ads, Arena and a flood of TikTok influencers promoting the latest altcoin. It wasn’t going to end well, was it? The crypto crash hit nearly every token and even knocked some stablecoins off their pegs. But the carnage was not equal. Bitcoin, ether, and even dogecoin have proven to be more resilient than newer coins. The question now is when the market will bottom out.


To be successful at Flatiron, a restaurant will need to attract a weekday lunch crowd with healthy offerings and a work-friendly setting for professionals; To stand out among nearly twice as many restaurants in SoHo, a new restaurant must lean into arts and culture with a cutting-edge setting.

Learn more

Thanks for reading – see you Monday!

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