Payments News Digest 27 May 2022

Canada: Loans growing healthily in latest round of reports

A ''mixed bag'' was the Reuters consensus on the set of Canadian bank results published this week, but, looking into the performance in consumer credit, growth seems to have been the order of the day in the fiscal second quarter for Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CIBC). The headlines note that CIBC fell short of analyst expectations, but that was primarily due to a more-than-eightfold increase in credit-loss provisions prompted by last September's takeover of the Costco portfolio in Canada, by definition a move intended to generate future growth but one that is immediately consequential for the newcomer's balance sheet: that portfolio, previously a co-brand with Capital One, came with a reported $3 billion in its outstandings. TD Bank, the country's second-largest lender, saw personal loans up by four percent for the period, with higher volumes on credit cards being a main driver, while at Canada's largest retail player, RBC, strength in lending was somewhat undone by a fall in revenues from capital markets.

US/Global: Central banks increasing role in transfers and payments

Central bank digital currencies (CBDCs), with a few eyecatching exceptions such as China's pilot e-CNY and the Sand Dollar in the Bahamas, may not be in public use yet, but SWIFT believes it has spotted an opportunity that it is well placed to service: cross-border transfer of CBDC payments. Now the world's largest interbank system, in a partnership with Capgemini, is looking at ways to move funds from one digital fiat to another as well as CBDC transfers in and out of the existing fiat currencies.

In other payments infrastructure news, the Fed has finalised its rule governing the transfer of funds on FedNow, the payment-clearance settlement system due to be launched next year. Its last touch before signing off was to incorporate a provision controlling the risk to banks, who are now able to delay a payment if fraud is suspected. Consumer advocates however remain doubtful that enough has been done to shelter consumers from bad actors. "The new FedNow rules leave payments exposed to the same type of fraud that plagues Zelle today", said Lauren Saunders, associate director of the country's National Consumer Law Center. "The Fed must take measures before FedNow launches to ensure that it does not become a haven for fraud, and the CFPB [Consumer Financial Protection Bureau] and Congress must enact rules to make all person-to-person payment services safe." A pilot of the new service with the participation of over 120 entities is currently underway with full-scale testing coming before the year is out.

Europe: ECB concerned about wider stability after crypto market rout

The new breed of national digital currencies have yet to properly emerge, but already they are displacing Bitcoin's claim as a financial instrument ideally placed for payments purposes. It is now abundantly clear that it, and other cryptos, are assets for investors to consider rather than hungry consumers to buy pizzas with. The sector's collapse in value has been so pronounced this year that it could pose a threat to wider financial stability, according to the European Central Bank. Although banks under its aegis have not been as involved in crypto investment as, for example, financial institutions in America and Britain, portfolios have been growing, with an increase too in European banks' involvement in custodial and trading services. Europeans are keener on the vehicle than one might suspect: the ECB calculates, based on a survey, that up to a tenth of households in the EU might be holding crypto. This week however one bank from the English-speaking world, Commonwealth Bank of Australia, decided that it was prudent to pause its app-based pilot offering customers access to the likes of Bitcoin and Ethereum.

India: UPI-centric national strategy puts pressure on credit card usage

In India, a central-bank mandate for card-on-file tokenisation is fast approaching but, according to the Merchants Payments Alliance of India (whose members include global subscription-services giants Netflix and Microsoft), the requisite tech capabilities may not be in place in time for day one on the 1st of July. Apple, as noted in this newsletter last week, has simply decided to stop accepting cards for its services. Both debit and credit cards are affected by the rule. Although Visa- and Mastercard-branded cards can already be tokenised, as can cards from domestic debit scheme RuPay, there is growing concern about the tokenisation-processing capabilities of other players, such as small issuing banks.

As examined in Argus Advisory Research's reports on India, the key development has been the 2016 arrival of the Unified Payments Interface (UPI), a central plank of the government's financial policymaking that has been bringing in its wake a stack of complementary digital capabilities to tackle identity verification, move the country towards cashless, better protect data and chip away at the high population of unbanked citizens.

Some other stories of interest this week...

Australia: NAB, using Open Finance, launches first BNPL product
Global: Klarna to focus less on growth and more
Global: Worldline's Ingenico to enable the rollout of Alipay+
MENA: Payment gateway HyperPay, Mastercard partner on digital acceptance

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