Weekly News Digest 29 November 2019

With income disparity reaching an all-time high in the United States, other divides that have exasperated the status quo are becoming ever more apparent. One such divide is the number of bank closures rural areas are experiencing over urban areas. In a new report from the Fed it is noted that 800 rural counties lost access to a branch between 2012 to 2017, accounting for 14 percent of their total branches. In comparison, urban counties lost only 9 percent. While this may not seem an obvious area of concern with bank branch closures now the general trend in favour of low-cost online access, it constitutes a major worry for rural areas where online or mobile access is often not possible. Rural areas tend to have higher poverty rates, large minority groups and lower levels of education so branch closures risk excluding an already marginalised group of people from financial services.

While the US banking industry might be opting for rural bank branch closures, China is warning of them. In the recently released Financial Stability Report, the People's Bank of China (POBC) announced that approximately 13 percent of its banks were considered high risk, of which more than 30 percent are rural lenders. As China also faces serious problems of financial exclusion in its rural areas, which feeds into the restriction of its development of the overall economy, it is essential that rural banks are guided in best practices ensuring their continuance. Unlike the Western experience, China's government is mainly unwilling to step in and bail out troubled lenders, so banks have been notified to make changes to capital or dispose of non-performing loans in the face of a stagnating Chinese economy that struggles with the effects of US tariffs.

Last week in our 'links to some other stories of interest' segment we highlighted Westpac woes as Australia's financial crime watchdog accused the embattled bank of an alleged 23 million breaches of anti-money laundering and counter-terrorism financing laws. That story developed as an entire payment system (LitePay) was shut down and key executives were told to prepare for accountability. Chairman, Lindsay Maxsted, publicly apologized for the bank's critical failings and announced the withdrawal of bonuses from executives until an assessment of accountability had been conducted. The following day Westpac announced the departure of CEO Brian Hartzer, Director Ewen Crouch and the retirement of Chairman Lindsay Maxsted in early 2020. The assessment of accountability coupled with upcoming shareholder meetings has predictably resulted in an early cull to offset a possible shareholder uprising.

Of late we have all become acutely aware of the challenges that traditional banks are facing with regards to fintech start-ups. This week, The Royal Bank of Scotland launched its digital bank offering – Bo – in a bid to defend against customer poaching from the likes of Monzo and Starling. However, in the same news week and across the pond the commission-free investing app, Robinhood, has withdrawn its application to become a bank with experts citing the challenges that fintechs face when trying to disrupt the traditional banking system. While fintechs have generated considerable success in the U.K in crossing the fold into banking or at least disrupting the industry, its U.S counterparts have seen less success. In fact, in the third quarter of 2018, London overtook New York in attracting fintech investment, which experts claim is due to a maturing of the UK fintech environment. While the US is still home to largest fintech market in the world, the evidence suggests more and more that it lacks the environment to encourage and support growth beyond the start-up stage with even large traditional banks struggling to evolve while dealing with legacy issues.

The Indian e-commerce payment and fintech firm, Paytm has raised $1 billion in its latest round of funding, placing the company's value at $16 billion. Paytm, which already dominates the fiercely competitive Indian e-commerce and mobile payments ecosystem, has moved into banking and credit cards recently to target some big numbers. Stating that it would like to cross over 250 million active users by year-end 2020 and see its retail acceptance network grow from 14 million to 25 million, the firm will have to continue its strategy of product diversification to access new customers and encourage current customers to become more invested by utilising its ever-expanding offerings. It, therefore, comes as no surprise that the company plans to expand into insurance, lending, stockbroking and investments with its newly acquired funds.

Other stories of interest this week...

EU: ECB signals support for new European payment network
India: India puts WhatsApp's payments service on ice
UK: UK banknote printer De La Rue fears for its future
UK: TSB to close 86 branches with the loss of up to 400 jobs
UK: Revolut Enables Direct Debit Payments For UK Clients