Weekly News Digest 13 December 2019

Contactless ubiquity may be just around the corner at the US point of sale, and that spells a real challenge for smaller players, especially credit unions, whose members, as a recent survey reaffirmed, want and need the best card experience for their transactions. In an interview with PYMNTS.com, an executive from PSCU says that his company has already delivered half a million contactless-equipped cards to over a dozen such institutions, with a further three million set to go out to many more in 2020. (PSCU, no longer an acronym apparently, started life four decades ago as Payment Systems for Credit Unions and has since broadened its range of services.) As in Britain, the strategic route to mass adoption in America is starting with major transit networks: contactless readers have begun appearing on New York train and subway turnstiles, most recently at the Penn Station complex. A new prepaid contactless card and app, OMNY, is coming next year; in the course of 2023, the Big Apple's entire metropolitan transit system, which handles more than 2.6 billion trips each year, will have become contactless-enabled, at which point OMNY's stored-value predecessor, MetroCard, will be phased out.

Across the Atlantic, Deutsche Bank told investors this week that it will soon wind up the corporate unit that has been running its domestic retail banking operations, thereby putting an end to years of wasteful practice which saw such activities take place through a separate entity, DB Privat- und Firmenkundenbank (PFK), which also handles private banking services. More than 60 percent of PFK's €8.7bn annual revenue comes from retail, the Financial Times estimates. With its own board and bank licence, PFK was created over two decades ago with a view to selling it off, back when Deutsche's ambitions centred on investment banking. However, with that plan abandoned, the group ended up with a lot of unnecessary duplication. Now PFK is being done away with altogether, according to Tuesday's Investor's Day presentation, with the idea of saving €100m as a result. Chief executive Christian Sewing is now expecting growth through investment banking to outperform its consumer counterpart and deliver an increase of two percent annually. But, says Bloomberg columnist Elisa Martinuzzi, "relying on the investment bank again to improve revenue is a gamble. This doesn't feel like a different direction". Another compelling comment comes from Düsseldorf's Handelsblatt newspaper, which points out that Moody's now rates the outlook for Germany's banks as negative, unlike those of Italy, which the ratings agency now describes as stable, thanks to bankers there taking concrete steps to eliminate bad debt even though their country's economy continues to struggle as successive governments fail to agree on solutions. In the (translated) words of the article's author: "Cynics might come to the conclusion that the problem of Italian banks is Italy, while the German problem is German banks."

One German bank that finds itself, to say the least, in a quite contrasting circumstance to incumbent competitors is N26, which, not content with being one of Europe's best-performing virtual banks, has begun making inroads in the American retail banking market. And, if scale is the object in that particular market, the proven strategy is to offer rewards, a truism which has led N26 Inc., the Berlin-based bank's US subsidiary, to expand its Perks cashback rewards and discounts programme for debit cardholders. Among the partners is Booking.com, along with Lime, Headspace, Babbel, Curology, Headout and YOOX: the latter set being not exactly household names, but then again neither is N26 in the United States yet, though for how much longer? If you have the resources to get the rewards alchemy right, growth in a purely digital business can quickly become exponential. The catch? There is no more crowded marketplace than this one, and rewards offerings are ten a penny (or, should we say, a dime a dozen?).

In Hong Kong, licence-holding neobanks-to-be are in a quandary because of ongoing civil unrest: with city streets becoming a regular battleground between police and protesters, many of them young, the times are hardly propitious to launch digital banks aimed at Millennials, especially given the heavy involvement of Mainland Chinese money (from the likes of Bank of China, Tencent and Alibaba's Ant Financial) in the new ventures. Meanwhile incumbents such as Citi and HSBC are gearing up quietly to contest the space, having made more explicit moves over the last year to guard their turf through lowering or even waiving fees for traditional accountholders.

Back at its London headquarters, HSBC is going through its own convulsions at the moment, as the interim chief executive has been busy reshuffling his team, with the COO, chief risk officer and head of the investment bank all leaving their posts in advance of a restructuring plan for the firm, due to be unveiled in two months' time.

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

Asia: Demand for super-app financial services threatens mid-sized lenders
Australia: Cloud platform Xero integrates with NAB
Canada: Regulator raises capital requirement for big banks
Europe: EU follows G7, setting high regulatory bar for Facebook's Libra
UK: £40m payout for RBS customers in store over foreign currency rigging
UK: Small banks want softer rules to help them compete