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American issuers have been pulling out the stops to expand their credit-card customer base, with the end of last year delivering a record high of 196 million credit cardholders. Over 20 million US credit cards were issued in the third quarter of 2021 alone, according to TransUnion, with close to half going to consumers with poor or fair credit. Government stimulus programmes have enabled borrowers to keep up with payments. However, the inevitable end of the ongoing forbearance period on student loan repayments, currently timetabled for May, could quickly transform the commercial picture. Competition has been fierce, with Capital One alone spending almost a billion dollars on marketing in the fourth quarter, twice the amount for that activity in the opening three months of 2021.
On the acceptance side, a software update reportedly coming in the next few months could see iPhones add point-of-sale facilities to their array of potential uses – with no additional device required. Leveraging NFC chip technology, the development has been on the cards since the summer of 2020, when Canadian startup Mobeewave, dedicated to supporting such a use case, was bought by Apple for some $100 million. Most threatened by the move, potentially, could be third-party hardware providers such as Square, although it remains unknown at this point if the acquiring scope will go beyond Apple Pay. The question now is whether Apple will try to shoulder its way into the acquiring space given that, on the other side of the POS, Apple Pay was succeeded by the Apple Card.
What PayPal's chief financial officer called a "pull-back in spending by lower-income consumers" has proved a major decelerant for PayPal, whose latest quarterly results have led to a corporate shift in focus from account-number growth to customer-activity encouragement. A year-end count of 426 million users might seem impressive; the catch is that the majority, as many as two-thirds of that cohort, are hardly transacting at all. Overlaying that structural challenge is the Covid-era peculiarity of boosted online volumes retreating sharply as brick-and-mortar preferences reassert themselves and supply-chain variables along with inflation concerns together hit consumer spend. Born out of eBay, PayPal's erstwhile parent has also been pulling its payments business away at a faster clip than expected.
Meanwhile, Revolut, an increasingly strong competitor to PayPal in the payments super-app race, is offering customers in the United States the ability to send remittances to any bank in Mexico up to ten times a month without fees, with the transaction taking no more than half an hour. Even free users of Revolut's app in the US can send as much as a thousand dollars along this corridor without being asked to pay any fee. Remittances into Mexico have been skyrocketing during the pandemic: 2021 is on course, pending the calculation of detailed figures, to surpass $50 billion for the first time ever. Other tech sector results coming out this week have offered a mixed picture, with Facebook hit particularly hard on a decline of active-user numbers. That phenomenon will stand as a stark warning to fintechs: digital platforms that lack a subscription-based revenue stream are particularly vulnerable to user loyalty shifts.
The announcement of the latest annual budget afforded India's finance minister the opportunity to share two key decisions: India will be launching its own central bank digital currency (CBDC), possibly this year, and a new 30 percent tax will be imposed on virtual assets. Prime Minister Narendra Modi has already demonstrated a taste for swift action when it comes to shaking up financial orthodoxies in India. In late 2016, he withdrew 86 percent of cash in circulation with less than half a day's notice. In a recent newspaper article, Cornell University economist Eswar Prasad notes that innovations might diminish if central banks take too much of a lead in payments. There could also be a temptation to use digital-issuance tweaks as additional policy levers: one example Professor Prasad gives is fiat money that comes with an expiry date, a feature that could be used for political ends.
There is also the possibility of increased state surveillance. However, one argument that the Chinese authorities have advanced concerning the digital yuan, in use by over a quarter of a billion citizens as the XXIV Olympic Winter Games opens in Beijing, is that it safeguards privacy better than Alipay and WeChat Pay. In support of this claim, the e-CNY takes a two-tier approach : a low-grade wallet comes with limited transaction amounts/balances and consequently requires only a phone number for registration, while a heavier duty version involves financial players such as banks that can bring their expertise to bear on bad actors and fraudulent uses. The spectacular take-up of digital wallets in China should not blind us to the fact though that credit cards continue to enjoy a strong uplift in the People's Republic.
Other stories of interest this week...
Colombia: Argentine fintech Uala launches amid regional push
Ireland: Revolut Bank moves in as branch-based lenders depart
Taiwan: Singapore's DBS to buy Citi's retail business
US: Zelle users sent $490bn in 1.8bn payments in 2021
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