Fintech

Bancorp Stock: Fintech Solutions Push Bank to New All-Time Highs (NASDAQ:TBBK)

Published

9 months ago

27 July, 2024

AsiaVision

Banca Popolare di Milano (NASDAQ:TBBK) is heading towards an all-time high and does not appear to be affected by the current macroeconomic environment. As expressed in my latest articleThis bank is not like the others, in fact it places a lot of emphasis on the fintech segment. In a certain sense, we could almost call it a tech-bank, in fact its profitability ratios are quite high. At the same time, it does not issue dividends to reinvest capital in its business, which is not very typical for a bank.

Thanks to its diversity, TBBK is performing very well this year (+35% YTD) and is poised to hit new all-time highs.

Q2 2024 Highlights

TBBK Quarterly Report It has been positive in more ways than one: there has been solid growth, profitability and business efficiency have improved.

TBBK Q2 2024

Revenues grew by 7% compared to Q2 2023, ROE and ROA reached 28% and 2.90% respectively. In addition, the efficiency ratio improved further and reached 40%. This is an exceptional result, made possible by revenues growing faster than non-interest expenses. In this case, it helped to leverage greater operating leverage through the fintech segment.

TBBK Q2 2024

Over the years, TBBK has surrounded itself with leading companies in the payments sector and, to date, non-interest income is responsible for 22% of revenues. This is a very high figure and has implications not only in terms of earnings. In fact, fintech solutions tend to attract new stable and low-cost deposits.

TBBK Q2 2024

A large percentage of deposits come from Fintech Solutions Group, and only a small percentage are time deposits and money market deposits. The average cost of deposits is not surprising, very low, only 2.38%. There are currently banks that are struggling much more and can not get below 4%; TBBK has basically stabilized the average cost well below 3%. By the way, 93% of deposits are insured, so below the threshold of $ 250,000. This is a sign of strong solidity for the deposit base because it implies a high granularity and diversification of customers. In such a situation the bank has a dominant position, since a small customer has no bargaining power and has to settle for lower interest on his account.

Being able to finance at a low cost is a huge advantage for a bank, because it can obtain a higher spread on its loans.

TBBK Q2 2024

As compared to Q2 2024, Total loans reached $5.60 billion, up 6.46% from last year. At first glance, this may seem like a disappointing result, but net interest income in the first half of 2024 reached $188.21 million, up almost 9% from last year. This means that the cost of deposits increased more slowly than the yield on loans. In addition, the net interest margin this quarter reached 4.97%, up 14 basis points from the second quarter of 2023: it is very rare to find a bank with a better result.

In all this, the only negative note is probably the increase in non-performing assets to total assets. Last year this ratio was 0.47%, today it is 0.95%, practically double. It is not yet a worrying level, but it should stop there.

Fintech solutions generated $55 million in revenue in the first half of 2024, up 10% from the previous year. The main drivers were an increase in transaction volume (up 13% from Q2 2024) and collaboration with new partners.

This business segment is growing at double digits and potentially offers large profitability as it is scalable.

TBBK Q2 2024

Management’s long-term plan is for TBBK to become a kind of technology bank. The core business will always be lending money, but financial technology will play such a major role that it will disrupt the financial results. From a long-term perspective, TBBK could have a ROE of more than 40%, a ROA of more than 4%, and an efficiency ratio of less than 40%.

While these targets may seem overly optimistic at the moment, management is actually slowly coming around and the market is increasingly accepting their vision. If it succeeds, I doubt many other banks could compete on profitability.

TBBK Q2 2024

TBBK’s earnings per share look more like a technology company than a bank, but that’s precisely why this bank is trading at 3.37 times TBV per share.

TikR

Personally, I find the current valuation too high, which is why I consider TBBK a hold. However, I have no doubt that this bank deserves to be traded at higher multiples. The fintech segment is growing at double digits and has a lot of room for improvement in terms of profitability, so it would not be fair to price TBBK as if it were a traditional bank. At a price/TBV per share of 2x it could prove to be a reasonable choice, and just a few months ago it was at those prices.

Conclusion

TBBK is a very solid bank that is growing rapidly due to its exposure to the payments market. This bank is not like other banks; it has the traits of a technology company.

TBBK Q2 2024

Looking at capital ratios, we see another difference compared to traditional banks, namely a risk-based capital ratio of 16%, which is very high and conservative despite many share buybacks in the past.

Chart based on SA data

Since the end of 2021, shares outstanding have decreased by 11.25%, a significant and unusual figure for a bank. Consider that the repurchase entails a decrease in equity, a crucial factor in the valuation of any bank. Therefore, to repurchase so many shares, management must be firmly convinced of the bank’s financial position and its ability to increase TBV per share.

In Q1 2024, $50 million of treasury shares were purchased, in Q2 $100 million. In Q3 and Q4, another $50 million will be allocated each quarter.

Chart based on SA data

Management has been right so far, as TBV per share has grown year after year. Not even the rapid increase in interest rates has worried the solidity of this bank, as unrealized losses are negligible.

From a certain point of view, one of the advantages of this bank is that it does not issue dividends. While for some this may be a disincentive to invest in it, for others it is not at all, as they can take full advantage of compound interest. Profits that are not distributed are kept within the company, thus increasing the equity. At the same time, a portion can be reinvested to improve future revenue growth. In addition, buybacks versus dividends are a more tax-efficient way to reward shareholders.

In short, those who want to invest in TBBK should keep in mind that this bank is managed differently from a traditional bank, but these differences are the reason why it is trading almost at an all-time high today: many other peers have not even recovered from the collapse triggered by the failure of SVB. Of course, the opposite argument also applies, namely that it can collapse more than a traditional bank if fintech solutions stop its growth. After all, when a company uses operating leverage, it can encounter serious difficulties in times of recession.

Source

Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

Source

Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”