Weekly News Digest 22 November 2019

Last week we covered the intriguing involvement, along with Google and Citigroup, of Stanford Federal Credit Union in the new current account product being cooked up for launch next year. Credit unions have long been a reliable stalwart in American society, with modest branches and a focus on the bread-and-butter business of retail banking. It was therefore interesting this week to see that the annual analysis from the American Customer Satisfaction Index shows that credit unions have been overtaken by banks, with national banks catching up on their regional and community rivals on the same metric. Could it be that the convenience and reach of digital offerings, such as Zelle, are improving the public's view of bigger financial institutions? If so, Citi may well be on to a winner, should the venture with Google come to fruition. Although regulatory bodies in the United States will no doubt be scrutinising privacy aspects of the partnership as never before.

In an increasingly interconnected world, the reach of one's network counts more than ever. Back in the days when exclusivity counted more than connectivity, American Express could afford to operate in a smaller acquiring pool than its larger competitors. Three years ago, however, with the end of the Costco partnership and the Card Rewards War transforming its business landscape, the company promised shareholders that it would catch up with Visa and Mastercard in terms of point-of-sale availability by the end of the decade. Many merchants proved resistant, until American Express reportedly produced ever more enticing sign-on bonuses. These payouts can reach extraordinary proportions, if the Dow Jones Newswire report is correct in its suggestion that "a small number of big merchants have received payments of around $450,000 since last year, according to people familiar with the matter".

Digitalisation, like avant-garde architecture and get-away-from-it-all trips, looks great on paper, but things can turn out awfully different, as TSB executives discovered last year when an IT upgrade led to weeks of inaccessible (and inappropriately accessible) accounts for two million customers. At the root of the meltdown, an independent report now reveals, lay the fact that preparatory tests had not taken place in a live environment. In addition, decisionmakers were unaware of more than half of the two thousand bugs that emerged in trials, while the overall process was pushed to its conclusion too quickly. Every bank must go through digitalisation sooner or later, but, says the report, the key ingredient of "common sense" had already gone missing when then-chief executive Paul Pester threw caution to the wind and gave the green light for an account system migration. Later he said, "If I had a time machine, I would take myself back to one minute before one o'clock in the afternoon and change the decision". Surely there is a fintech somewhere working on time-travel as a service?

"The Sage of Elavon" might well sound to some like the name of an undiscovered novel by JRR Tolkien: in fact, it refers to the latest acquisition in the ongoing consolidation of European payments. This time, the consequences are likely to impact the British and Irish merchant acquiring scene in particular, with Sage Pay (a Sage Group subsidiary) being purchased by Elavon (a U.S. Bancorp subsidiary) for a reported $300 million. Sage Group is said to be turning its attention away from payments as specialists, such as Stripe, make the user experience ever more seamless. At the same time, Elavon is keen to gain more market share, having lost some ground in Ireland as one of the two main banks there ended its long-running partnership with the acquirer. "As the merchant acquiring industry becomes ever larger, more complex and more expensive, smaller outfits, such as Sage Pay, have to assess whether they can remain competitive in such a dynamic industry", commented Patrick Houlihan of Verisk Financial Research. "Meanwhile, larger operators, such as Elavon, are being forced to specialise if they wish to remain competitive."

In Germany, Apple is facing a new challenge to its policy of blocking access to the NFC chip in the iPhone to third-party payment apps. Apple have long cited security reasons for its refusal to open to rival mobile payment providers but have been accused of stifling competition. The fact that iPhone users can only use the native Apple Pay service to make payments through the industry-standard NFC channel has contributed to the fragmented nature of mobile payments markets in many western countries. Germany's Federal Minister for Economic Affairs appealed in early November to the European Commission, asking for tighter regulations on Big Tech over what they consider abusive practices by market-dominating platforms, which impacts on digital sovereignty. With that in mind, a German parliamentary committee voted last week to force operators of electronic money infrastructures to offer access to rivals for a reasonable fee. Having recently fought off a similar challenge in Australia, Apple appears to be gearing up for another battle.

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

Australia: Westpac 'breached anti-money laundering laws'
Japan: 18.5 percent of households using e-money but cash still king
UK: £400m unclaimed on Oyster Cards
US: Americans now have a record $14tn in debt
US: BB&T and SunTrust get final approval of merger
US: PayPal to acquire Honey for $4bn