The year 2019 has been a busy one at the frontier of Big Tech and retail banking, with significant moves by Apple (Apple Card), Google (Cache), Facebook (Libra) and Uber (Uber Money), each one the fruit of a long-cherished desire to tap into traditional financial transactions. Now the Federal Deposit Insurance Corporation (FDIC), the regulator known to all banked Americans through its in-branch notice promising to insure deposits up to $250,000 per customer, is looking again at the official scrutiny levelled at 'Brokered Deposits' (ie, money that comes into an account via a third-party and thus not considered core capital). The Wall Street Journal spells out the nitty-gritty: "One of the FDIC's goals is to clarify that existing partnerships that constitute a direct relationship won't result in a brokered deposit. Another is to narrow the definition of who is a broker to exclude entities that aren't primarily in deposit-moving business; tech companies have argued that should exclude them." As with all their other activities, the key for the tech companies is volume: the less regulatory friction in the mix, the better for that goal.
In the United Kingdom, as in the European Union and elsewhere , the interface between fintech and banking has been defined by the legally enshrined principles of Open Banking, premised on interoperable data-sharing tools and standards. Now a new and more far-reaching dispensation is coming into being, as British regulator FCA (the Financial Conduct Authority) seeks proposals on how best to bring 'Open Finance' to an expanded sphere of operations, including the marketplaces for cash savings and mortgages. Open Finance, from a consumer perspective, would yield an all-encompassing virtual dashboard for price comparisons and lining up of product features. The FCA's move follows the Financial Stability Board, a global monitoring body, noting the competition-promoting possibility that the likes of Facebook, Alibaba and Google could be mandated to share data about customers that financial institutions and fintechs would otherwise be lacking.
The FCA has also been tackling what it terms as a "dysfunctional" overdraft market in Britain, mandating that banks move from charging set fees to charging by an interest rate instead. However, with the set fees in question as low as 50 pence ($0.65) daily from challenger banks such as Monzo and Starling, some customers could end up paying more under the credit score-based model being implemented by the new digital banks. Nevertheless, the majority of customers should benefit from the interest rates offered by Monzo (either 19, 29 or 39 percent) and Starling (15, 25 or 35 percent). Incumbents HSBC, Nationwide and First Direct are all opting for 39.9 percent. "The new digital banks continue to offer UK consumers a better deal all round than their traditional high street counterparts", noted Lorna Baek of Verisk Financial Research. "With the regulator's help, dipping into the red is becoming a little bit easier for consumers in this market as a result."
Things are heating up in Australia – and not just because of the record-breaking heatwave currently underway. Wrongdoings in the country's finance industry continue to emerge, with regulators seeming increasingly determined to raise standards in the major banks, not least in a bid to recover the industry's reputation. The Westpac money-laundering scandal, for example, continues to make the headlines as the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) are levying an additional fine of 500 million Australian dollars ($352m) with respect to suspicious international payments linked in some cases to child exploitation, bringing total penalties to a billion Australian dollars so far. The bank is also being required to increase its operational risk capital requirement by half a billion Australian dollars. However, it is not just Westpac that has to clean up its act with ASIC also looking into National Australia Bank (NAB) for allegedly charging fees for services that it failed to provide. In preparation for what promises to be a challenging new year, NAB has set aside two billion Australian dollars to cover anticipated costs.
Finally, returning to the United States, the Federal Reserve is reporting that corporate debt has overtaken household debt – both at peak levels – for the first time in almost three decades. And it's not only the scale that is worrying as corporate debt rose faster than ever, at 5.7 percent, in the third quarter of 2019 to reach almost $16 trillion. While growth in corporate debt is not a new phenomenon, concern is being expressed about how corporations are using the funds, since corporate investment has clearly softened while returns to investors grow. However, this issue is not only confined to America, with Moody's chief economist characterising corporate debt in China as, in the wake of reports that defaulting Chinese private firms has also set a record-breaking pace this year.
To end, links to some other stories of interest this week...
Brazil: Banking apps spread, while shakeout potential grows
EU: New cross-border payment rules
France: La Banque Postale might bid for HSBC's retail activities in France
S Korea: Open Banking officially launched
UK: FIs to be tested on climate crisis response plans
The Weekly News Digest from Argus Advisory Research highlights significant developments in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value often missing from the rolling news cycle.
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