Stimulus, relief and flexibility are the order of the day as Covid-19 tightens its grip, with the cogs of the world's economic machinery being greased as much as possible by policymakers and leaders. At the same time, the scale of the challenge is immense, as jobs are being lost at an unprecedented rate and entire sectors face an existential crisis. With the US Federal Reserve's second emergency rate cut in a week effectively bringing the benchmark down to zero and a historic lowering to 0.1 percent by the Bank of England, central banks on both sides of the Atlantic have now discharged their big monetary guns. That is not their only power: they are also busily reshaping the credit and regulatory environment for lenders in a bid to ease pressure on households and businesses. Alongside this, finance ministers and financial institutions have been working together to get their various societies through the immediate crisis, and fiscal measures are being devised and announced wherever one looks. There are bright spots amid the uncertainty. Supply chains are proving remarkably resilient, as are human beings, while e-commerce and internet platforms mean that a significant amount of economic activity can carry on via cyberspace in a way that would have been impossible two or three decades ago. The world will never be the same again, but political and economic systems are, so far, bearing up under the pressure.
With share values hit hard, credit card issuers now have a particularly tricky challenge in balancing business sustainability and customer need in a time of vanishing livelihoods. That is nowhere more true than in the world's biggest market, the United States. One telling indicator reported in the Financial Times is that no less than "tens of thousands" of cardholders enrolled immediately this week in a customer assistance programme from Goldman Sachs that allows the skipping of March payments. Unnamed sources from different institutions reveal that several banks' initial response to the crisis is to be forthcoming with credit limit raises when sought. It may be that emergency social welfare payments from the federal government come to the rescue of the many millions of torpedoed household budgets involved; for now, issuers are increasingly on the hook.
Regulators, too, are showing signs of flexibility in the face of challenging market conditions. As detailed in Verisk Financial Research's recent market update for the United Kingdom, the Financial Conduct Authority (FCA) have been rigorous in recent years in their goal of reducing the level of persistent debt. Indeed it was to be in this quarter, adhering to an FCA timeline, that many issuers were due to close relevant accounts and move cardholders onto repayment plans. The regulator's goal has been to put an end to a situation whereby many have been paying more in interest and charges than repaying of the principal. Now, given the transformed landscape and the increasing financial pressures coming into play, lenders have been told not to cancel credit cards and provide more time for the consumers in question to rectify their positions. Alexander Wray of Verisk Financial noted that "issuers will welcome additional flexibility from the FCA, allowing them to give customers the time and help they need – although this change could make explaining the new rules more challenging".
The pandemic has understandably led to an immediate demand for physical cash, but the capacity of electronic payments is significantly mitigating a pressure that could have been overwhelming in times past, allowing major banks to reconsider branch availability in light of social isolation. The most significant announcement outside of Europe and Asia has come from JPMorgan Chase, which says it will temporarily close a fifth of its almost five thousand branches because of Covid-19 and reduce hours across the remaining network. "Every day I'm asking what more I can do – as a mother, as a daughter and as a CEO", the head of JPM's retail bank, Thasunda Brown Duckett, wrote to her staff this week.
Noel Quinn, until now the interim chief executive at HSBC, is to be given the role on a permanent basis, the bank has announced after seven months of searching. Investors will be relieved to have a captain at the helm again, albeit one now facing uncharted waters. While interim CEO, Mr Quinn put in place a radical strategy to boost revenue via a refocus on growth in Asia, a shrinking of European commercial and investment activities and staff layoffs to the tune of 35,000 – a plan he had been unsure of being around to execute when it was revealed. Asia, the source of 90 percent of the group's profits, is now facing a sharp downturn, while the worsening situation in Europe makes it a difficult time to hand out redundancy notices. How Mr Quinn intends to approach the situation is unclear, but one major task is already on his radar: the plan needs a thorough reconsideration to safely navigate increasingly choppy waters.
To end, links to some other stories of interest this week...
The Weekly News Digest from Argus Advisory Research highlights significant developments in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value often missing from the rolling news cycle.
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