In Washington, the Consumer Financial Protection Bureau's latest biennial overview of the consumer credit cards market has just been published : the headline number this time around is $900bn, which is the value of total balances in the US credit cards sector for 2018, in part as a result of some 106 million new accounts being opened last year. The aggregate credit line now stands at $4.3 trillion, almost as high as the all-time peak (which, needless to say, occurred just before the financial crash of 2008.) Credit quality however appears to be healthy on the whole, although the proportion of subprime borrowing has been creeping up. In May, we reported that the Fed had observed a trend of elevated credit card charge-off rates for smaller issuers that has now persisted for six successive quarters. The CFPB is sanguine however: "Despite this picture of increasing credit availability," it notes in the report, "most of the growth in available credit is accounted for by unused lines on accounts held by consumers with super-prime scores."
Last week, the Australian press was calling the rate of tie-ups in the Buy Now, Pay Later (BNPL) sector a "stampede" and, with no sign of the announcements abating, it is hard to find the headline writers guilty of exaggeration. The payment method is now growing fast throughout the English-speaking world, with market leader Afterpay now able to count 5.2 million customers worldwide. Merchants too have been understandably keen to get involved, with the ecosystem expanding rapidly as a result. Small wonder that Visa, which had signaled an interest in BNPL earlier in the summer, has now reportedly struck a deal with Afterpay to leverage mutual benefits without changing the business model. Once again, Visa's move shows an openness to innovation: like Mastercard, the company is changing fast to adapt to new behaviour, especially amongst millennials, who have been the most enthusiastic users of BNPL. So far from being a "credit card killer", the new breed of BNPL players may prove to be the way for the incumbent schemes to access new pockets of value as interchange caps, low interest rates and consumer prudence tighten traditional returns.
Just over three months ago, Facebook made the news worldwide with the announcement of its new cryptocurrency, Libra, rousing central bankers and finance ministers worldwide, most notably Mark Carney, who proposed this week that a new digital currency issued by a consortium of central banks could prove a better reserve currency for the world than the dollar. In China meanwhile, the authorities have been moving ahead at such speed that a government cryptocurrency is reportedly ready to be launched. Although there has been no official confirmation Forbesis citing both named and unnamed sources behind the news that at least seven prominent players will be responsible for dispersing the as-yet-unnamed coin : Alibaba, Tencent, China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), the Bank of China, the Agricultural Bank of China and Union Pay. With the country's busiest shopping day only 75 days away, it may well be that Beijing goes ahead by November 11: Singles Day.
QR codes are often lauded in payment circles as the path to reaching the un- and underbanked, but they certainly aren't being praised across the board. In South Korea where there is a robust and highly developed cards industry, the domestic payment scheme, BC Card, has complained of industry disruption and strong headwinds from the rise in popularity of QR codes. QR codes can allow for the transfer of money directly from the buyer's account to the seller's account, bypassing card networks. While the South Korean credit card industry certainly isn't in immediate peril, the development is a concern, particularly as the Bank of Korea is set to introduce a mobile direct payment service based on QR codes by September. Lorna Baek of Verisk Financial Research commented: 'While QR codes are undoubtedly a win for financial inclusion and closed-loop payment models, their growth may be a concern for the cards industry. Unlike the NFC channel which has been largely locked down by the networks, QR codes are in theory open to anybody".
While bricks and mortar bank branches are undoubtedly in decline globally, where they do exist there is still a need for bank tellers. However, thanks to a recent move by ICICI Bank in India, the human face of banking, which still had a foot in the door, may have been given an almost final shove. The bank has deployed 14 industrial robotic arms across 12 cities to count currency notes in the still largely cash-based society, which if successful will be rolled out further.
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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