Weekly News Digest 14 February 2020

Regulators in Beijing have signalled initial approval for Mastercard to begin a yearlong period of preparation with its state-backed partner, NetsUnion Clearing, that will culminate in a final official decision on the scheme's readiness to finally take its place in one of the world's most prized consumer markets. It has been a long march for Mastercard, with the entrance bid only possible because of a World Trade Organisation ruling in 2012 prompted by a complaint lodged by the United States two years earlier. In the world of payments, any delay is critical, but in that lost decade QR-based payments have exploded thanks to Alipay and WeChat Pay. On top of that, China UnionPay's monopoly position will make meaningful market share a difficult prospect. However, such is Mastercard's ability to form partnerships and develop tech that this is one challenge the company will surely relish. Apple Pay meanwhile are reportedly set to roll out contactless payments in Guangzhou and Shenzhen before the summer, the current public health crisis allowing. The move is part of a global drive that sees the app on target for a ten percent share of global card transactions by 2025, according to new forecasts referenced by Quartz.

Household debt in America has just set a new record of $14 trillion, reports the New York Fed, whose latest data reveals that credit card debt, with a $46 billion upswing in the last quarter, rose by more than expected. "Depending on one's perspective," comments American Banker, "the surge in consumer borrowing is either a normal byproduct of a booming economy or a worrisome trend that portends a wave of delinquencies when the next downturn hits". Supporting the latter view perhaps is a survey finding that some 91 million Americans are afraid of hitting their credit card spending limit, according to personal finance website WalletHub. Meanwhile, the Federal Reserve's regular opinion survey of 74 domestic lenders found unchanged demand for credit cards, with stronger demand expected. However, a "significant net share" of banks surveyed expect performance to deteriorate when it comes to credit card loans to nonprime borrowers.

"History...is a nightmare from which I am trying to awake", remarks a character in a James Joyce novel: that pronouncement should surely be emblazoned over the doors of Wells Fargo and Deutsche Bank, with both institutions looking to structural change in their respective bids to regain sustainable profitability. In the case of the American bank, incoming chief executive Charles Scharf has created an internal group to better deliver on customer experience and digital strategies to support it. New reporting lines are also being put in place to harmonise operational, sales and analytics efforts – and to ensure that regulatory obligations are being properly met. For Deutsche, the planned absorption of the firm's corporate unit for retail and private banking has been met with indications of forthcoming approval from European and domestic financial regulators. The unit was carved out in the 1990s for a potential sale but instead only spawned an expensive and unnecessary burden.

Britain may be home to some of the most cutting-edge payments companies in the West, along with regulators that seem determined to propel the fruits of their efforts into the mainstream marketplace, but digital banking in the country will be one significant player less with the news that Berlin-headquartered N26 has decided to shut up shop in the United Kingdom. As we noted last week, the neobank, described last year as the most valuable fintech in Europe, now plans to expand in America, building on a worldwide base of five million customers; of these what the Guardian estimated as "more than 200,000" in Britain will now have their accounts closed; last year, the company revealed that some 30 percent of British users were paying for a premium account (at £14.90 per month). Rivals Monzo and Revolut will appreciate the withdrawal of a significant competitor. "Although N26 cited Brexit in its announcement," commented David Hickey of Verisk Financial Research, "the level of competition in the market may also be a factor. Monzo and Revolut count their UK customers in millions, while Starling is also moving into that bracket. N26, as a late entrant, had its work cut out to compete with these more established London-based banks."

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

Australia: Commonwealth Bank quarterly results
Brazil: Itau Unibanco posts higher profit on consumer lending, fees
Singapore: DBS' quarterly profits top estimates
US: MoneyGram enables P2P transfers to a phone number
US: Varo Money clears final hurdle for national bank charter