Banks in the UK are feeling the pinch as the dust settles around the Payment Protection Insurance (PPI) scandal. PPI sounds great in theory – protection that covers loan repayments should the borrower fall ill or become unemployed – and so millions of policies were sold between 1990 and 2010. However, when PPI was identified as being expensive (adding 20-50 percent to the cost of loans); ineffective (approximately only 15 percent of plans paid out); mis-sold (customers weren't told they were buying it, or it was identified as 'essential'); and inefficient (long delays and complicated procedures for claimants), banks were ordered to retrospectively compensate consumers to the tune of a possible $5.7 billion. The August 29th deadline for claims has passed but a huge spike in last minute claims has left many banks with unexpected bills. The Royal Bank of Scotland is to take a hit of $1.1 billion; Clydesdale and Yorkshire Bank has reported an additional loss of $571 million; and both Lloyds Banking Group and Barclays face a payout of $1.5 to $2.3 billion each. The total cost of the PPI scandal is now expected to reach at least twice as much as the initial projections.
Stripe, the American online payments platform, has been making strides recently into the lending service business, made possible by a banking partner that has not yet been revealed. It recently announced that it will permit its e-commerce business customers to borrow money, which will be repaid out of its future sales on the payment platform. Unlike the historic method of relying on the Fair Isaac Corporation (FICO) score employed by banks which can take weeks and months to process, Stripe will make instant decisions using machine learning models with decisions mainly based on transaction activity. And as if one announcement in a week isn't enough, Stripe doubled down in its lending intentions with the announcement of its corporate credit card for its US-based business customers. The card will operate via Visa and cardholders must pay their balance in full each month, resulting in no interest or card fees. Stripe will profit only via interchange fees on each transaction instead. Verisk Financial Research analyst, Lorna Baek, noted that "Stripe's expanding by-product services are a real testament to how a fintech firm can leverage its data to identify consumer needs and fill in the service gaps faster and better than traditional banks."
The Netherlands welcomed the completion of the rollout of 24/7 instant payments this week – with payments taking a mere five seconds to credit the recipient's bank account, twice as fast as the EU average; and where payments are limited to €15,000 per transaction across Europe, the Dutch system has no limitations on transferrable amounts. The rollout has been gradual with all of the major banks – ABN AMRO, ING, Rabobank, de Volksbank and Knab – connecting their online and mobile customers to the system over the past six months, and the project has now been completed on schedule. The results have been impressive with The Netherlands now rising to be the undisputed EU leader in the number of instant payments, as more than a million daily transfers taking place via mobile and online banking are credited instantly.
The Australian Prudential Regulation Authority (APRA) has been active in granting new banking licences, in an effort to introduce more competition to a market that is dominated to an unhealthy extent by the four main institutions. In its most recent licensing move, it granted the neobank, Xinja, the right to accept deposits without restriction. Xinja Bank, 100 percent digital and operating via a mobile app with the physical issuance of a Xinja debit Mastercard, has its sights set on shaking up Australia's banking industry. The bank already has plans to expand into savings immediately with the launch of 'Stash', its savings account, and intends to enter the lending market in 2020. The APRA also granted the same license to 86 400, an Australian fintech, in July; Volt, an Australian neobank, in May 2018; and Judo, an Australian challenger bank focusing on small and medium-sized enterprises, in April 2019.
Data is the new oil, and the Payments System Regulator (PSR) in the U.K is the latest to realise the potential and has laid out its intention to work with Pay.UK, the operator of the BACS, Faster Payments and Cheque and Credit payments system in the targeted development of products and services. The decision was made on the back of the findings of a report on the use of data in the payments industry. It is hoped that by leveraging the use of the massive amounts of data collected by the PSR, opportunities for new products and services can be identified and developed in the UK's new payments architecture (NPA) – the payments system which will take over from current BACS, cheques and Faster Payments infrastructure.
To end, links to some more stories of interest from this week...
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