Data Dive, New Offerings Edition: Square, FICO And Mastercard

With so much happening on the world stage between Davos and the Lunar New Year, headlines in the U.S. last week might have run the risk of fading into the background. And that would be a shame since the theme of those headlines centered around new ideas, fresh additions and innovation.

Square made a big — and crypto-friendly — jump forward on real-time payment (RTP) efforts. The new FICO is coming, and promises big swings in consumer credit scores. And Mastercard and SoFi have paired up, not to offer one new product but what the two entities are describing as a “suite” of products for SoFi consumers.

In short, a lot of new ideas of offerings, and some big potential for some big changes in the financial services ecosystem coming soon.

Square Crypto-Inclusive RTP Advance

Square has won a patent to debut new tech that will allow users with different assets to transfer payments, including crypto-to-fiat transactions. According to the patent documentation, the tech will make it possible for a consumer to make a payment in any currency while allowing the receiver of the payment to choose what currency they would like to get it in. The network will automatically change the payment over to the desired final currency.

Letting crypto-to-fiat payments flourish will give cryptocurrencies a boost, according to most experts, as several of them are too volatile or not fast enough to become an effective payment option. The technology may also be extended in the future to cover securities, derivations or loans. Square also noted that it will remove boundaries that are particularly problematic in the retail sector, as many merchants can’t accept payments like cryptocurrencies — because of long processing times due to the fact that crypto valuations could easily change while the payment itself is being processed.

The RTP announcement came alongside news from Square that it is in the process of creating a “Lightning Development Kit” for eWallet developers. The kit will include “an API [application programming interface], language tools, demo apps and other features” to help Lightning payments integrate with various wallets, and aid bitcoin in becoming a more widely used currency.

Jack Dorsey — CEO of both Square and Twitter — has in the past affirmed that he believes cryptocurrency in general, and bitcoin in specific, have a potential to develop into a strong and viable currency — due to its longevity, strong brand and overall quality.

This is why, Dorsey notes, he focused on boosting bitcoin as opposed to working to developed a blockchain-based currency specific to Square.

FICO 10 — and Its Possible Impacts — Looms Large 

Is it about to get harder to procure a personal loan or a credit card in the U.S.? Quite possibly, depending on who you are, thanks to changes rolling out out to the FICO credit scoring system.

Those changes, however, will not be felt entirely evenly. In fact for those with prime or near prime scores 680 or better, the new scoring system will probably act to lift their score, not lower it, which will make securing credit easier. But for sub-600 borrowers with high debt-to-income ratios, missed payments and a tendency to take personal loans, odds are good their already difficult relationship with the credit market is about to get worse.

The move comes as Fair Isaac — the firm that maintains and updates the FICO system — is facing increasing competition from rival scorers like Vantage and others that have begun embracing wider sets on data in some places (such as bank account balances) while screening out data like civil judgements.

“There are some lenders that see there are problems on the horizon in terms of consumer performance or uncertainty [about] how long this [recovery] is going to go,” said David Shellenberger, vice president of scores and predictive analytics at FICO. “We definitely are finding pockets of greater risk.”

And that increased risk can be read in the ever up-tipping of American loan balances. Late last year, Experian reported that personal loan balances are now more than $300 billion, and that tally was up 11 percent year-on-year between Q2 2018 and 2019. Credit card debt stood at more than $1.3 trillion, per data from the Federal Reserve Bank of New York, at levels surpassing those seen more than a decade ago in the U.S. financial crisis. The average interest rate on cards stands at more than 19 percent.

What it will look like if Americans are less able to accrue debt because of the FICO change? It will be an interesting question to see answered over the course of 2020.

And finally …

SoFi and Mastercard’s Big Collaboration 

Mastercard and SoFi have teamed up on a suite of products and experiences centered around the SoFi Money debit card — an offering that will exist exclusively on the Mastercard network.

SoFi’s cards are designed to enhance SoFi Money cash management accounts. The fee-free account offers features that include high-yielding interest, reimbursements from ATMs, smartphone-enabled check deposits and peer-to-peer (P2P) functionality.

The new debit program includes cash-back incentives, mobile phone insurance and airport concierge services, among other offerings.

“Our mission at SoFi is to help our members achieve financial independence to realize their ambitions. In order to do so, we must build products and services that help our members,” said Anthony Noto, CEO of SoFi. “It is imperative that our partners are leaders in technological innovation, security and enhanced benefits, and Mastercard is an industry leader across all of those areas.”

Cardholders in Los Angeles will also have access to “enhanced fan experiences” when SoFi Stadium opens in Los Angeles later this year.

“We look forward to working with SoFi to offer their members innovative new products and benefits,” said Craig Vosburg, president, North America, Mastercard. “We recognize the importance of SoFi’s mission to enable their members to live better financial lives and are pleased they have selected Mastercard as their partner in doing so.”

Plus, in a world where FICO scores are about to make credit cards potentially harder to come by, rewards-enriched debit may be the next big thing in card offers, and SoFi is getting out and ahead early.

But, of course, it is probably a bit early to say, since the effect of FICO 10 is more speculated than known until it actually rolls out.

Which means we end where we usually do — with reason to keep on watching and waiting to see what’s next. And, as it breaks, we’ll have it here at the Data Dive to keep you up to date.