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Weekly News Digest 24 April 2020

24 April 2020
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Strategic deals and long-term vision needed to weather storm as older consumers come to fore – while fintechs adjust to increasing pressure

The end of March saw Goldman Sachs reach $72 billion in consumer deposits, as its Marcus retail bank continued to build deposits, amassing $12bn more in the first quarter of this year. Given the pandemic's effects, the bank has made a revealing strategic move, signing a deal with the AARP, a hugely influential advocacy group in the United States that concerns itself with the well-being of seniors and those approaching that stage of life. (It was founded as the American Association of Retired Persons but no longer goes by that name.) As noted by Reuters, the bank is "targeting companies it already works with to find consumers that are likely to have solid credit once global businesses get back to action". Meanwhile, the bank's new app is expected to include budgeting features and additional personal finance tools in the near future, particularly beneficial at a time when people, especially from more vulnerable cohorts, are likely to favour online banking over unnecessary visits to branches that may pose a health risk.

For some financial services firms, the pandemic is an unprecedented challenge to overcome, for others it is an existential threat that needs radical measures to withstand. The breed of fintechs that emerged in the wake of the global financial crisis that began in 2008 now finds itself particularly besieged, while the traditional banking sector has spent the past decade building balance sheets to the extent that they have significantly better capital buffers than in times past. In Italy, for example, having fought for years to restore the health of its finances, leading bank UniCredit has managed to sell off bad loans to the tune of billions of euros: it has now put aside €900m ($980 million) as a provision against souring loans. Meanwhile, a neobank challenger such as Berlin-headquartered N26, which began closing UK accounts this month, is at the sharp end of the drop in consumer cards spend because it leans so much on interchange for revenue. An interesting shift that N26 is seeing: although the number of accounts being opened has not changed, the demographic has, as older people take the plunge and venture into online banking.

However some fintechs have been taking drastic measures to weather the storm: P2P loan-facilitator LendingClub, for example, is taking the extraordinary step of laying off over 450 staff members, including the company's president, and temporarily reducing the chief executive's base salary by 30 percent. Cross-border transfer players are coming under extraordinary pressure too, with the World Bank this week forecasting a one-fifth drop in annual remittances to low- and middle-income countries. Travelex, already labouring under the burden of a cybersecurity breach at the end of last year, is now reportedly looking for a buyer. The big news in cross-border transfers this week though has been the launch by Santander of PagoFX in the United Kingdom, a particular challenge to the likes of TransferWise: for amounts that do not exceed £3,000 ($3,740), the transaction will be fee-free until the middle of June.

In another instance of companies with deep pockets retaining their appetite for bold moves, there are rumours that Google may be readying a smart debit card: leaked screenshots published by TechCrunch show that the card would come replete with the kind of transparency features and consumer-empowering tools that proved such a draw when the Apple Card was launched seven months ago. Since last year, Google has been working with Citigroup and a small credit union in California to launch a branded current account, codenamed Cache.

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

China poised to beat US in the digital currency race
Global: Google drops charges on shopping service
UK: Zero percent credit card deals fall to lowest level in three years
US: American Express in corporate effort to support small business

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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