Payments News Digest 4 March 2022

Russia: International community takes steps to choke currency and payment flows

Although mild compared to the suffering in Ukraine, Russia has felt an immediate and dramatic effect from international sanctions this week, not least from the freeze applied on the central bank's cross-border transactional abilities. In the payments sector, Visa and Mastercard have suspended access to their systems for targeted financial institutions, while VTB, Bank Otkritie, Bank Rossiya and VEB, among others, are being excluded from SWIFT. Yesterday, Russia's leading consumer lender, Sberbank, exited the European market.

Ordinary consumers were quickly impacted by the effects: as VTB handles card payments on Moscow's mass transit system, Western curbs led to commuters being unable to use their Pay apps in the capital's Metro, for example. Meanwhile, borrowers' repayment plans were upended by a doubling of the central bank's key interest rate to 20 percent. And, as cash machines increasingly lack banknotes and queues lengthen outside branches, runs on banks in the country are also an increasing possibility, leading many citizens to look to cryptocurrency as an alternative payments and value-storage instrument. Bitcoin's exchange rate with the dollar soared this week, reflecting a spike in demand that may, in turn, hasten overdue regulation.

Following a previous round of sanctions triggered by Russia's annexation of Crimea, Moscow quickly set about establishing a domestic scheme, Mir, which launched in 2016 and has grown significantly since, though it is primarily used for debit transactions. The credit cards market is more vulnerable to systemic expulsions: this week, in filings with the Securities and Exchange Commission in Washington, Visa revealed that some four percent of its total net revenue came from its Russian business, along with one percent from Ukrainian transactions. Mastercard has a similar level of exposure to the two countries, amounting to some $1.1bn of annual net revenue.

US: Retail banks roll ahead with strategic plans

With their fourth quarter results now out of the way, America's banks are moving on with deals and strategies. Citigroup (which incidentally revealed an exposure in Russia this week of almost $10 billion) is set to become the biggest bank in the nation to do away with overdraft fees. Overdraft protection and returned item fees will also be eliminated. According to Reuters, "customers who overdraft their accounts can bring their balance above zero by setting up free, automatic transfers from a savings account or, in approved cases, accessing a line of credit from the bank. For customers who do not have these options set up, the bank said it will reject charges at ATMs and point-of-sale that overdraft an account." The move comes in the wake of similar announcements from Wells Fargo, Bank of America and Capital One, decisions which the new head of a reenergised Consumer Financial Protection Bureau described as "progress, but not enough".

Keeping pace with a recent trend for feature-packed app offerings, Bank of America plans to roll its various digital service offerings into a single app that caters to customer's mobile banking, private banking, wealth management and prepaid mobile needs: at the moment these activities are split across an array of apps. The unified solution should debut online before the year is out. Meanwhile, the TD Bank unit in the United States is aiming to break into the ranks of that country's top six banks by assets with the acquisition of Memphis-headquartered First Horizon. The $13.4bn deal will be the Canadian firm's biggest ever. Second only to Royal Bank of Canada in its home market, Toronto-Dominion already picks up a substantial proportion of its net income in the United States : in its most recent fiscal fourth quarter, the US unit's net income more than doubled year on year on higher revenue and lower credit losses provision.

UK: BNPL market squeezes out another player

According to a new Barclays study of BNPL users in the 18- to 24-year-old consumer cohort, half regretted having used the products, currently unregulated in the United Kingdom, with almost a third of respondents concerned that they might be unable to repay the debt. As noted last week, 2022 is bringing chill winds for the nascent industry, with rulemakers in several countries shaping up to dramatically recast the regulatory environment. One of the new giants in the field, Klarna, this week reported a fivefold increase in losses over the previous year, although the chief executive noted that it was now serving 100 million active customers worldwide with 99 percent of borrowed funds being repaid. Another of Klarna's keen competitors in the British market, Openpay, has decided to follow Robinhood, Lydia and Holvi through the Exit door. In the US, where it operates under the Opy brand name, the firm has enough commercial latitude to charge as much as 9.99 percent in APRs, unlike Britain where competitive pressure nixes that revenue stream.

Other stories of interest this week...

China: Tencent to reduce transaction fees on WeChat payments for SMEs
India: StanChart releases IATA Pay app, with other markets to follow
Japan: Worldline enters merchant services market
US: Merchants launch campaign to fight April's swipe-fee increase

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