Many digital lenders, payment processors, tech-forward banks log lower EPS in Q2

Many digital financial platforms, payment processors and tech-forward banks saw earnings per share decline sequentially or on a year-over-year basis during the second calendar quarter amid high interest rates and other headwinds.

Of the 18 select companies that posted results between July 18 and July 31, 10 logged sequential declines in their second-quarter earnings per share (EPS). Among those 10, half posted lower EPS quarter over quarter and year over year, according to S&P Global Market Intelligence data.

Only four companies — Mastercard Inc., WEX Inc., American Express Co. and Axos Financial Inc. — posted higher earnings on a sequential and year-over-year basis.

Digital lenders grapple with high interest rates

All four digital financial platforms in the analysis reported lower earnings quarter over quarter.

Charlotte, NC-based lending marketplace LendingTree Inc. posted a loss of 1 cent per share in the second quarter, significantly down from its EPS of $1.04 in the previous quarter, yet higher compared to the loss of 63 cents per share in the same period a year ago. The company lowered its 2023 revenue outlook again as consumer demand across its main verticals of mortgage, personal and small business loans, and insurance remained under pressure due to high interest rates.

Digital lender SoFi Technologies Inc., which reported a loss of 6 cents per share compared to a loss of 5 cents per share in the linked quarter, is taking advantage of its bank charter to tackle high funding costs. At the end of the second quarter, 50% of SoFi's loans were funded by deposits which helped it to reduce costs and expand its net interest margin (NIM), executives said during the company's earnings call.

LendingClub Corp. and Enova International Inc. recorded quarter-over-quarter and year-over-year EPS declines.

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Payment processors log higher EPS year over year

Of the four payment processors, Mastercard, Wex and Visa Inc. logged higher EPS in the second quarter compared to the same period in 2022.

Payments companies reported that consumer spending is still resilient and cross-border travel continues to recover. However, they are facing headwinds due to inflation and the slower growth in the economy.

Visa Inc., which saw EPS decline quarter over quarter to $2.00, reported a slowdown in the growth of its payment volume in the US since March due to declining ticket sizes of spending on fuel, retail goods, travel, food and drug.

Puerto Rico-based Evertec Inc. was the only payments company in the analysis that saw EPS decline quarter over quarter and year over year.

Tech-forward banks face deposit pricing pressures

Of the 10 tech-forward banks, Axos, American Express and four other institutions clocked sequential EPS increases in the second quarter.

Among the four companies that posted lower earnings on a sequential basis, Discover Financial Services and Synchrony Financial also saw their EPS down year over year.

Synchrony Financial reported second-quarter EPS of $1.32, compared to $1.35 in the previous quarter and $1.60 in the same period a year ago. Discover Financial logged second-quarter EPS of $3.54, down from $3.55 in the first quarter and $3.93 in the 2022 second quarter.

Intensifying competition for deposits remained a headwind for the sector, leading to elevated funding costs and NIM pressure.

"We've seen a pretty big pivot in terms of aggression really across the industry on rates paid on deposits. So that certainly has put pressure on those rates," said Bradley Brown, corporate treasurer at Ally Financial Inc. during the company's second-quarter earnings call.