Weekly Reads - June 27, 2022
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The rise of digital banks are changing how banking is being done across all of Latin America. Within the banking industry the top 5 players in each country often possess over 70% market share with a significant portion of their profits being driven by ludicrously high fees and commissions not seen in other regions. Additionally, its common to experience long waiting periods to open accounts and get access to credit; often times customers will be denied access to financial services due to their lack of credit history and income situation. This had led to a massive percentage of the Latin American population being unbanked with very little access to necessary financial services to improve their lives. Digital banks are challenging these incumbents to improve their customer experience, lower/remove fees, and start offering credit to a larger subset of citizens. With the advantage of leaner cost structures, lower customer acquisition costs, and platforms built for a positive customer experience digital banks are rapidly growing as both the unbanked and banked population take advantage of their strong value proposition.
With a mature core business Walmart is attempting to find ways to extract more value out of its wide reach through their majority owned financial technology company Hazel, now called ONE after acquiring two other startups. This new company will focus on capitalizing on Walmart’s reach of 1.6 million U.S employees and 100 million weekly shoppers to offer a singular platform for customers to spend, save, borrow. The goal is to offer financial services to underbanked/low-income people who often times already shop at Walmart to save money. It will be interesting to see if this starts a wave of startup mergers/acquisitions as healthy startups or established companies see opportunities to pick up these companies for cheap due to recession fears limiting new capital.
Despite recession worries and warnings from industry leaders/experts, foundry companies continue aggressively expanding their manufacturing footprint. This has especially been prevalent with Taiwan Semiconductor Manufacturing Co’s competitors (in this case Global Wafers) who are looking to take advantage of the rising trend in the U.S of keeping semiconductor supply chains local in order to take market share. The U.S only produces 10%-12% of the world’s microprocessor chips down from 40% in earlier years forcing the U.S to rely on imports. With the rapid expansion of semiconductor manufacturing in China and COVID showing the fragility of supply chains there is a rampant demand for new foundries in the U.S with congress offering incentives to many of these incoming foundries. The inflow of all this capacity in the next three to five years could cause an unbalancing of supply and demand potentially forcing much of this capacity to be underutilized or closed down. While secular growth trends will keep semiconductor demand growing long-term the industry is highly volatile and adding new capacity with the headwind of a potential recession could prove fatal for these companies.