Weekly News Digest 24 January 2020

As in our personal lives, there is no better month than January to take stock: in the case of companies with shareholders that period of reflection happens once the fourth-quarter results are released. And, as we saw last week with major banks in the United States, the mood has been generally positive, with only Wells Fargo struggling to make hay as the economy shines. In fact, according to the Financial Times, the big US banks not only grew but actually doubled their profits in the decade just ended, having weathered an extended period of pressure on margins from low interest rates and the regulatory push that came in the wake of the 2008 crash. The rising power of Big Tech, which once seemed to present an existential threat, has lately become an opportunity for fruitful partnership, though it may well be that historians will look back at the phenomenon as a shift in banking power from Wall Street to Silicon Valley.

A new year also brings with it resolutions and a desire to set plans in motion. Usually it is a precipitating event in the course of the previous twelve months that has made clear that there is no time for delay: that is certainly the case for a new group composed of some of the world's leading central banks, finally spurred into action by Facebook's Libra announcement to examine the prospects of a central bank digital currency that could be backed by state assets and legal authority. (A "Synthetic Hegemonic Currency" has been the term used by Bank of England governor Mark Carney.) Spearheaded by the Bank of England, the parties involved include the Bank for International Settlements, the European Central Bank and the Bank of Japan. It is worth looking back at Mr Carney's logic in a speech he gave to a gathering of his peers in August during which he made the point that, given the technological changes we have seen, a reserve-backed and thoroughly digital currency would seem inevitable, but that the kind of regulatory passivity that attended social media's rise should be avoided: when it comes to pegged digital currencies, we cannot regulate after the fact.

UnionPay International is continuing to broaden its cross-border acceptance by partnering with PayPal. The tie-up means that UnionPay-branded cards can now be added to PayPal wallets in Australia, the Philippines, Singapore, South Korea and Thailand, with the power duo planning to add upwards of 30 markets by the end of the year. "While this is good news for UnionPay's cardholders, allowing them access to 24 million merchants", noted Lorna Baek of Verisk Financial Research, "PayPal also stands to benefit greatly as the partnership serves to cement last year's 70 percent equity purchase of China's PayPal replica, GoPay, which made PayPal the first foreign payments platform permitted to process online payments in China. As such, wherever UnionPay-branded cards are accepted, PayPal will now also be accepted, pitting PayPal against payment behemoths such as Alipay and WeChat Pay." Perhaps everyone can compete and win in a digital payments market now worth trillions rather than billions of dollars.

By contrast, the British market seems positively lacklustre. Despite being a breeding ground for digital challengers, a recent YouGov survey found that 35 percent of Britons are actively avoiding apps, including those from their financial institutions that might help to manage their banking and payment needs. However, this doesn't mean that the population as a whole are entirely digitally unaware: approximately half use their traditional institutions' apps and online banking services. In addition, perhaps surprisingly for this increasingly cash-lite society, over a quarter of customers still prefer to pop into their local branch to manage their money in a face-to-face way. Mobile banks have a lot of work to do in building the trust required to effectively compete with legacy counterparts.

To end, links to some other stories of interest this week...

China: Ant's phone-loan success threatens incoming global schemes
Singapore a catapult into SE Asia for Chinese tech giants
UK: More than a million accounts switched in 2019
UK: New digital bank Vive receives restricted licence
US: Amex coverage on par with Visa and Mastercard