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American consumer borrowing grew by just over a tenth in June according to the latest figures from the Fed, revolving debt up by 16 percent for the month. Perhaps unsurprising given other indicators that have emerged, the rise nonetheless outstripped economist projections and took place before July's sharp interest rate increase. The Fed's latest survey of loan officers meanwhile showed that credit limits eased in the second quarter though there was some tightening around balance repayment requirements as credit-card loan demand grew.
The June rise in borrowings reflects inflation and cost-of-living increases that have since persisted: in the United States, where a third of residents live in properties owned by others, July saw a jump in rental costs of 7.4 percent year over year. This has pressured wallets, notes the Bank of America Institute in its latest monthly report. Americans have nonetheless been spending on summer vacations, dining and entertainment. However, "households' deposit and savings balances remain elevated", BofA economists point out.
Is trouble in the offing for those without savings to dip into? New York Fed data shows a slight shift in the composition of delinquencies. Although the total remains two percent below the pre-Covid level, borrowings from subprime segments that are 30 days overdue edged up slightly in the second quarter.
The determination to enjoy the summer in spite of darkening economic projections is shared by British consumers: reviewing July spend data on its credit and debit cards, Barclaycard saw an uptick in non-essential spend : eating and drinking, for example, were up by nine percent year-on-year. Travel spend too has been booming, with airline purchases doubling and travel-agent bookings treble what they were in July 2021.
However, when it comes to essentials, households are becoming more frugal in their habits, reflecting awareness of the winter to come. The country's central bank predicts inflation of over 13 percent in October and a subsequent recession lasting until the end of next year. That inflation rate, should it come to pass, will break a record that has lasted almost 42 years.
Last month, the cash-withdrawal total at British post offices was up by a fifth over the same period the year before to reach £801 million ($981m). There are competing explanations for this behaviour, which represented an eight percent rise over June, but it may well reflect the instinctive need for a sense of control that physical cash provides more readily than digital representations.
The punishing climate for tech companies led to another fintech failure in Europe this week as Berlin-headquartered Nuri was forced to declare itself insolvent. Thanks to its partnership with Solarisbank, depositors' funds are protected. Last month, Volt, the first online-only bank licensed in Australia, also had to shut down, having been unable to raise sufficient capital to sustain its operations. In their early years, neobanks were the darling of industry reformers and tech evangelists as reforms were implemented in the wake of the Global Financial Crisis, but such collapses serve to demonstrate once again the high-stakes nature of attempting to reinvent traditional banking via the startup route.
Despite the lack of a bricks-and-mortar network, it is a difficult and expensive matter to challenge traditional lenders for the new breed of digital banks, now numbering some 400 worldwide according to one estimate. London-based Kroo joined those ranks last month thanks to the awarding of a full banking licence, reassuring potential depositors with a government-backed protection mechanism and also offering loans and overdrafts. Until now, the app's offerings had been confined to a prepaid debit card. No doubt it will learn the lessons imparted by forerunners in the space such as Monzo, whose founder has been forthright in sharing his lessons learned.
Some other stories of interest this week...
Brazil: Retail sales drop but use of credit cards grows
Indonesia: E-wallet provider Dana raises $250m
Japan: Online shoppers call time on a spending spree
US: Capital One's co-brand business gets a little bigger
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