Payments News Digest 20 January 2023

US: Big banks remain cautious even as interest rates boost revenues

As the fourth-quarter results round continues to emerge, it is clear that the rise in interest rates helped Main-Street stalwarts such as Wells Fargo, Bank of America and Citi. The latter in particular saw loans performing well in its domestic personal-banking activities. Macroeconomic headwinds are leading firms to bump up their loan-loss provisions: the biggest consumer bank by assets, JPMorgan Chase, upped that set-aside by 49 percent over the previous quarter.

Rival Goldman Sachs, which changed its organisational structure at the beginning of the quarter just ended, reported that its new Platform Solutions division for credit-card and instalment-based lending almost doubled its year-on-year losses. With the debut of Marcus in 2016, the bank set out its intent to smooth out the peaks and troughs that bedevil trading and investment banking with steadier consumer lending. However, the broadening of its operations so far has not proved straightforward, despite tie-ups with blue-chip partners such as Apple and GM.

UK/US: Pay-later sector moving fast to adapt to new environment

The first few weeks of the year have brought with them an array of stories proving that BNPL's 2023 will be just as brimful of developments as the year before, with the industry now having to adapt to regulatory tightening and funding dilemmas. In the case of the former, some firms are taking steps before they are required to: in one example, London-headquartered Zilch has revealed that it has begun sharing activity with top credit reference agencies.

British fintech Divido meanwhile, a white-label BNPL provider, saw its profits rise by a half last year on the back of partnerships with impressive clients ranging from M&S Bank (Sparks Pay) and Novuna Consumer Finance (previously Mitsubishi Capital). By contrast, one of the big names in the sector worldwide, Humm, has decided to exit Great Britain, citing a "more challenging macro environment", and focus instead on neighbouring Ireland.

Across the Atlantic, a telling market exit also took place: Afterpay folded its tents in the southwestern state of New Mexico. In addition to limiting late fees, a new state law lowers the cap on small-loan interest rates from 175 to 36 percent. The firm's response indicates that any retreat in the United States by first-generation BNPLs could become a matter of state-level pushbacks as much as any national ruling. (It is worth noting too that the US has now overtaken Germany as Klarna's biggest grossing market. )

Nigeria: Swelling volumes in mobile payments signify historic shift

A countdown clock on the Central Bank of Nigeria's website has been displaying, to the nearest second, how much time remains until the last day of the month: the date on which the country's three most valuable banknotes cease to be legal tender. New versions of the country's 200, 500 and 1000 naira notes have been entering circulation since mid-December.

As an Insights piece published yesterday by Argus Advisory Research points out, this central bank has been extraordinarily busy in recent times, a sign, among other things, that technology is rapidly transforming possibilities. The situation is well illustrated by the transaction value on mobile P2P payments, which has increased almost tenfold since 2019. "There are undoubtedly challenges here in the form of civil disorder, corruption and internet access," notes the article. "However, as the latter steadily improves, digital methods may prove the workaround that has long been needed to unlock the historic opportunity presented by Africa's largest population, the vast majority of whom are under 40 and in possession of a mobile phone."

Arguably, central bankers in developing countries feel the presence of a significantly more important countdown clock: if and when China's new digital currency begins to circulate outside its borders, the sovereign status of weaker currencies may be quickly eroded.

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

China: e-CNY app launches offline payments for CBDC
India: Central bank wants to add Visa, Mastercard credit cards to UPI soon say sources
UK: ATM withdrawals rise for first time in 13 years notes Nationwide
US: PayPal, Visa team on faster cross-border payments to 25 countries

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