Illustration: Sarah Grillo/Axios
Can the private sector, and technology companies in particular, bring critical financial services to those who have been excluded from the global financial system?
The big picture: Most fintech startups espouse two lofty goals: disrupting the banks and serving the underserved. But 20 years after Elon Musk founded the early fintech X.com (it later became PayPal), banks still dominate in almost every economy in the world. Meanwhile, the ranks of the underserved, at least in developed markets, have barely shrunk.
In the U.S., the poor tend to be excluded from much of the financial system for various reasons. If you have unpaid debts, money in a checking account can be seized; banks also extract billions of dollars in fees from the very people who can least afford them.
What all the fintechs have in common is regulatory arbitrage: They don't want to be regulated as banks. Just about every bank function is also offered by a fintech, and if cryptocurrencies gain broad adoption, then even central bank functions will start being offered privately.
Why it matters: Central banks have broad powers to shape the financial sector. In countries like Sweden and India, they can mandate moves toward a cashless society and build payments systems to encourage that. They also, crucially, monitor the health of the banking system. But if fintechs start disrupting hidebound banks, or start to dominate the financial sector, then sovereign nations will find themselves with a severely diminished macroprudential toolkit.
Illustration: Sarah Grillo
Nonbank lenders, including startups, all claim to be providing a valuable service to the underbanked. But distinguishing the helpful from the predatory can be extremely difficult.
PayActiv is a particularly interesting innovation. Marketing itself as a "financial wellness solution," it plugs into employers' time-and-attendance systems and allows employees to withdraw up to $500 of their earnings before payday, for a fee of $5 per pay period. These aren't one-time withdrawals: You get an unlimited number of transactions, including cash withdrawals, Uber rides and debit-card payments, for the one-time fee.
The ontological question: Waged employees generally earn hourly, but get paid only once every two weeks. So, what's the status of unpaid earnings? If I cash them out today, is that a loan to me that needs to be repaid on payday? Or was I making an interest-free loan to my employer all along, and my employer is now just paying me earlier than normal? In the latter case, why should I pay for this service?
My thought bubble: One interesting way of telling the difference between Earnin and PayActiv is to see whether they're Sharia compliant. Shah tells Axios that his service comports with Sharia law; because it's a membership program, there's no interest and the fee is unrelated to the size of any transaction. Earnin, on the other hand, fails the Sharia tests on multiple counts.
There are 3 ways that a company can go public: a traditional IPO, a Dutch auction (Google being the prime example), or a direct listing.
The question, asks Axios' Dan Primack, is whether that can change, with corporations issuing stock into a direct listing. His answer: Yes, probably.
The bottom line: Just because it can be done doesn't mean it will be done. VC-backed unicorns rarely extend their "disruption" philosophy to their own securities.
Illustration: Aïda Amer/Axios
First it was China. The end of May saw the collapse of an obscure Inner Mongolian bank, Baoshang, which had about $90 billion in assets and which had seemed perfectly healthy. The government blamed misappropriation of funds by the bank's owner, but the damage was done. The interbank lending market in China seized up, especially for smaller institutions.
Next came investment funds. The GAM Greensill Supply Chain Finance fund, in Switzerland, imploded in early June, followed in short succession by Neil Woodford’s Equity Income fund in the U.K. Then came French asset manager H20 Asset Management, running into similar problems.
Be smart: This isn't a financial crisis, although it's very similar to how many crises start. Every bull market has a massive "bezzle," to use J.K. Galbraith's famous term. We're seeing the beginning of a rise in skepticism, and a shrinking bezzle. That's good for honesty; it's less good for asset prices.
The S&P 500 closed the first half of 2019 at 2,942 — less than 1% shy of its recent all-time high.
Be smart: By the standards of 2016 and 2017, the past 18 months have seen the kind of volatility you might expect in a world of great uncertainty. But the market can always get more volatile — especially if Jay Powell's Fed doesn't deliver the rate cuts it's expecting.
Tomorrow is July, which means that we will officially be entering the longest economic expansion the U.S. has ever seen.
Data: U.S. Treasury; Graphic: Chris Canipe/Axios
If the bond market is to be believed, however, a recession is in the stars.
Illustration: Rebecca Zisser/Axios
The June jobs report is out on Friday, writes Axios' Courtenay Brown, and it will get even more attention than usual after May's dismal numbers.
OPEC and its allies will meet in Vienna tomorrow and Tuesday.
U.S. stock exchanges close early on Wednesday and will be closed entirely on Thursday for Independence Day.
The Steve Jobs Theater at Apple Park. Photo: Justin Sullivan/Getty Images
Jony Ive, the great Apple designer, is leaving the company. He reportedly spent most of his time in recent years on Apple Park, the controversial new $5 billion HQ that includes things like the largest carbon fiber roof in the world, atop the Steve Jobs Theater.