KBW: Mobile Payments, Consumer Finance Industries Prove Volatile

February 12, 2020         By: jmongiello2

Earnings season is always kind of a chaotic time for anyone who watches an industry. It’s no different in the mobile payments space, where earnings season has delivered its share of ups and downs. Our friends out at Keefe, Bruyette & Woods (KBW) set out in a bid to make sense of the senseless, and what they found on their path was worth taking note of.

The first major point that KBW found was that the impact of the new Current Expected Credit Losses (CECL) rule left banks a bit flat-footed. While the increase in an allowance for credit losses was substantial—going from $1.5 billion to $4.3 billion, nearly triple—required disclosures around things like reserve impact were a little less clear. This threw up another layer of fog around an already obscured front.

It also became clear that some credit card issuers were bigger potential problems than others. American Express was far down the list of problem children, as was Discover and Synchrony Financial. Meanwhile, much greater concern was invested in firms like Ally Financial, Capital One Financial, Sallie Mae and Navient.

Yet the numbers that emerged suggested that both concern and the lack thereof were misplaced in nearly every circumstance. Both Discover and Synchrony offered up weaker than expected earnings-per-share outlooks, while the remaining firms mentioned previously were up on a range of factors, including earnings.

KBW, however, notes that some of the selloffs are likely overblown. While CECL did deliver some impacts, these impacts are likely to be lessened later on as companies take on stronger reserve levels in accordance with CECL’s demands.

Basically, the long and the short of it is that there are a lot of factors that go into stock valuations, and the consumer finance sector—of which mobile payments is really a part—is no exception. New regulations often have a way of destabilizing things, at least until all their implications are fully understood and their potential issues realized. Yet as new regulations become old ones, their impact commonly lessens as people get used to whatever it is the government wants now.

So while there were some real shake-ups in the field this time, don’t look for the field to stay shaken up long. At least, until the next new regulatory move emerges.