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Although the latest crop of quarterly results from Wall Street banks may have disappointed their shareholders, the figures from their credit card issuing activities reveal healthy spending, somewhat confounding the current worries about consumer confidence. As noted in a Bloomberg round-up, this year has seen Americans flocking back to restaurants and returning to the skies for short breaks. Charge-off rates fortunately have remained at close to all-time lows. Earlier this month, Bank of America data showed a year-over-year slowdown in garment and furniture purchasing while noting that, compared to pre-Covid behaviour, spend remained "relatively high". Although inflation remains an understandable concern for households, the employment picture in the United States is currently bright, a boost for cardholders. Even compared to last year, the spend is impressive: in March, for example, BofA saw spending on US credit and debit cards up by over a tenth compared to 2021.
In Washington, long-planned interchange revisions by Visa and Mastercard are stirring up some intense lobbying by big-box retailers. However, those fee changes are not all upward revisions: in fact, smaller merchants will be seeing a fall in their interchange costs. Nonetheless, a group of lawmakers, most prominently Senator Dick Durbin, argue that any hikes will hurt consumers through the passing on of costs in the form of higher prices. As readers will be aware, this has been a much-debated topic in the decade since the senator's eponymous amendment began capping swipe fees on debit cards: in 2016, Fed economists argued that, though well-intentioned, the Durbin Amendment distorted market equilibrium such that people on low incomes were the ultimate losers of the legislation.
With an extended period of rising interest rates increasingly inevitable, consumer-focused lenders such as Wells Fargo and Bank of America are seeing encouraging signs for their balance sheets: Wells reported a three percent rise in its loans total for the quarter, both year-on-year and compared to the previous quarter. "While we will likely see an increase in credit losses from historical lows, we should be a net beneficiary as we will benefit from rising rates, we have a strong capital position, and our lower expense base creates greater margins from which to invest," the bank's chief executive, Charles Scharf, commented. BofA did even better with a ten percent loans-total increase year over year, with its customers spending at their highest-ever level for a first quarter.
No longer receiving stimulus cheques, Americans are returning to plastic, although Citi, bucking a trend seen in its competitors' quarterly results, had more difficulty in its personal banking and wealth vertical, with revenue falling by a single percent on a fall in card and mortgage lending. Profits overall however could not help but fall year-on-year on the base effect of the pandemic-distorted quarter being used for comparison. For its part, JPMorgan Chase reported a painful tumble in profits of 42 percent, with Citi down by 46 percent and Wells Fargo down by just over a fifth. Lenders' performance in the remaining quarters of this year may now well turn on rate-setters finding the optimum balance between counter-inflationary policy and economic growth.
Cross-border tie-ups continue to make the news around the world. In the most notable one this week, India's mobile-payments infrastructure, UPI, will become available to the 3.5 million Indians who live in the United Arab Emirates (UAE) as well as the further two million of their compatriots who visit annually as tourists. The service is being made possible thanks to a collaboration with NeoPay, Mashreq Bank's payment subsidiary whose launch was noted in the previous issue of this newsletter. Although small, the UAE presents a disproportionately large cross-border market with about a quarter of payments falling into that category. On the Indian side, the system being introduced to the UAE was responsible in its home country for over 45 billion transactions valued at a trillion dollars in its latest fiscal year.
In China, the digital yuan (e-CNY) continues to extend into the commercial ecosystem as tests begin of e-CNY functionality using Tencent's digital bank, WeBank. The WeBank wallet, once activated within the e-CNY app, will allow for transfers and acceptance of the central bank digital currency via QR code. The functionality brings Tencent's famed WeChat app into alignment with rival Alipay as both are now trialling the digital yuan's new distribution network. As Argus Advisory Research's market report for China points out, "instead of using cash or cards for payments, most consumers here opt to make payments through mobile apps such as Alipay and WeChat Pay for everything ranging from small everyday items to flight tickets and online shopping." That unparalleled reach is now on the way to being put at the service of a programmable currency entirely controlled by the authorities in Beijing.
Meanwhile, the country's card payments giant, UnionPay, appears, somewhat unexpectedly, to have nixed proposals from leading Russian issuers now on the look-out for a new international co-badge partner for Mir-branded credit and debit cards. It remains to be seen if these rumours translate into a firm rejection.
Other stories of interest this week...
Global: Apple Pay outage affects Mastercard users
Global: Google Wallet may be making a return
US: Congress eyes e-cash as an alternative to CBDC
US: Revolut and Cross River Bank link up to offer consumer loans
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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.
About Argus Advisory Research The market-leading online, interactive database and data dashboards covering the global cards and payments industry in detail, plus a range of data-packed country and regional reports. Leveraging financial cards data going back to 2010 – and forecasts up to 2025 – our unique datasets cover countries around the world and feature more than 250 metrics per market.