Payments News Digest 26 May 2023

Canada: Interchange deal struck with Visa and Mastercard

In Ottawa, the Canadian government has reached an agreement with Visa and Mastercard that will see interchange on point-of-sale transactions fall to an average of 0.95 percent. Officials say that merchants can now look forward to an average reduction of 27 percent on the typical fee. The deal comes in the wake of a class-action settlement a year ago that freed merchants to pass on interchange directly to their customers, at which time the federal government had promised small businesses an interchange intervention.

Nine out of ten Canadians hold a credit card, notes Argus Advisory Research's new report on the market, which translates into almost 60 million in circulation. Meanwhile, new figures from a government agency show that Canada's household-debt-to-GDP ration is the highest in the G7. Now standing at 107 percent, it broke the hundred-percent threshold during the pandemic, with mortgage debt the biggest driver.

UK: Digital banks breaking records as pioneering founder departs the scene

British digital banking is evolving fast, with several new developments in recent days ringing in the changes. Chase UK, which only launched in September 2021, trebled customer numbers over the last twelve months to now reach an impressive count of 1.6 million customers. Key to its appeal, besides powerful branding, first-year cashback and a well-reviewed app, have been features such as passive saving (through rounding-up to the nearest whole pound) topped up with five percent interest annually on the accumulated sum.

Competitor Revolut meanwhile, despite picking up 30 millions users around the world and breaking into fresh markets such as Brazil, finds itself mired in a momentum-sapping approvals process for a UK banking licence. At issue is a central bank request to reorder shareholder priority, a move that the neobank's biggest investor, SoftBank, sees as worthy of substantial compensation. The situation is not only hindering its British business (which has six million customers) but also plans for the United States, Singapore and Australia.

Starling Bank by contrast is able to lend and has reported a net interest margin of 2.72 percent, more than doubling last year's ratio to drive pretax profits of £195m ($241m). As competition intensifies, founding boss Ann Boden has chosen to step down from an executive role to join the board in an advisory capacity. A long-anticipated announcement of a public share offering has been postponed for now, she said, pending the return of more propitious market conditions.

Australia: BNPL's heyday comes to an official full stop

In last week's newsletter we noted that pay-later lending opportunities in Australia had been effectively taken over by the main banks, all of which are already well regulated. Now the authorities have legally sealed off the loophole that spawned the BNPL start-up boom in the first place, regulating the activity as a consumer-credit product to fall under the aegis of ASIC: the Australian Securities and Investments Commission. The new regime will mandate the undertaking of background checks and prevent loan stacking by consumers, even for loans where interest is not being applied.

"It's fair to say that the right sort of regulation will ensure you've got checks and balances in the lending process, in the sign-up process so that people who simply can't afford it or people who have multiple accounts already, should find it difficult to prove the case about why they should get another account," said Minister for Financial Services Stephen Jones earlier this year.

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

China: Digital yuan CBDC trying SME loans to improve uptake
India: Highest-denomination notes to be pulled from circulation
India: Walmart's $16bn Flipkart investment paying off as Amazon edged in e-commerce
UK: Rise of 'shadow credit' as consumers turn to risky loans

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