Payments News Digest 17 June 2022

US: Credit card borrowing up but uncertainty remains

The latest Federal Reserve data on consumer credit presents a positive picture for credit card issuers: balances on revolving loans, a category made up primarily of credit cards, are up 15 percent year on year and now approaching pre-pandemic levels. There are also indications from Chase and the American Bankers Association that the interest-bearing portion of that balance is increasing. Further positive news comes from Bank of America which reported a nine percent year-on-year increase in US consumer card spending in May with credit card spend up 16 percent.

"Reasons for caution abound however when one digs a little deeper into the numbers and considers the increasingly fraught macroeconomic environment", noted David Hickey of Argus Advisory Research. "The growth in consumer spend and borrowing, for example, looks less impressive when high inflation is considered." In addition, there is a fear that low-income households grappling with higher prices could begin to rely on credit cards to fund their daily expenses. Bank of America reports that fuel accounted for almost a tenth of weekly spend for that segment in the last week of May.

Many issuers were competing strongly for custom last year and thus moving into comparatively risker segments, onboarding record levels of customers in the final quarter. For the moment though, with very low delinquency rates thanks to almost full employment, banks should be able to keep their portfolios performing while being ready to adapt should conditions deteriorate.

US: Apple's bite at BNPL will be more of a nibble to start with

Although not officially confirmed, more details have been emerging about Apple's forthcoming debut in BNPL. New subsidiary Apple Pay Later appears to be setting a more cautious course than some expected in capping the loan amount at $1,000, with the limit depending on variables such as credit scores and related reports. The company's own data will also be harnessed to scotch potential fraudsters. The first BNPL loans, with repayment terms of no longer than six weeks, are expected to take place with the launch of the latest version of Apple's operating system in September or thereabouts.

With the Fed having steeled itself in the battle against inflation with a higher-than-expected rate rise this week, more consumers will probably look to installment-based arrangements to reduce their cash flow headaches, although the startups that have hitherto driven the sector are now under intense pressure in many cases as funding becomes increasingly expensive; their predicament leaves the way open for established consumer lenders and tech companies with stable income to grab the top spots in a rapidly expanding market.

Europe: Pan-Nordic payments system moves into real-world pilot phase

After a much longer period of gestation than originally anticipated, Swedish banks have begun onboarding bank customers in a real-world pilot of pan-Nordic payments infrastructure P27. The multi-currency service is now expected to be introduced in the first quarter of next year. Banks in neighbouring Denmark are reportedly close to reaching pilot mode, with P27 having been approved to replace Finance Denmark as the national clearing house six months ago. Finland will then follow. With half of all cross-border trade within the Nordics not involving other countries at all, the region is a natural setting for this kind of integration. No Norwegian bank is currently involved, despite the fact that the country's DNB Bank and Ministry of Finance participated in P27's foundation back in 2019.

There is a notable trend in Europe of new payment schemes and infrastructures such as iDEAL ( Netherlands ) and Blik ( Poland ) coming to prominence, although plans for a continent-wide European Payments Initiative (EPI) were abandoned in March, leaving P27 a Western Hemisphere pioneer in terms of its trans-currency ambitions. The consortium picked Mastercard as its infrastructure partner in 2019.

Some other stories of interest this week...

Australia/US: Afterpay in-store sales almost quadruple with Square tie-up
Europe: Open Banking platform Tink strikes payments deal with Revolut
India: Central bank lifts restrictions on Mastercard
Latin America: Ecuador's Kushki secures $100m to reach unicorn status
US: PayPal Pay Monthly expands platform's BNPL range

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