Weekly News Digest 24 July 2020

US: Capital One earnings

The earning reports for the second quarter continue to roll in. Capital One has reported a net loss of $1.3 billion. The firm saw shrinkage across loan balances, purchase volume and revenue in its credit card business but interestingly, the lender also reported that delinquencies had dropped. This is an indication that cautious consumers are not only reigning in spending but also paying down balances. A similar trend across the industry has been noted by Argus, a Verisk Financial business, via its US Credit Card Report. While Capital One is maintaining a positive outlook, confident the firm can weather all storms, Kathleen Maffei of Argus commented, "Delinquency rates continue to perform better than the same period in 2019, primarily due to issuer forbearance agreements, stimulus payments and enhanced unemployment benefits. The decision at the end of July to either continue or end the increased unemployment payments will be critical to whether this continues or worsens."

Switzerland: UBS earnings and outlook

The Swiss lender UBS announced better than expected second quarter results. A net profit of $1.23 billion equated to a decline of just 11 percent from the same period in 2019 and was pleasingly higher than the analyst-estimated net profit of $973 million. However, the outlook remains less than rosy with the bank stating that earnings had merely been strengthened by trading activity, which could not offset the downturn in retail banking that it expects to continue through the second-half of the year. Lorna Baek of Verisk Financial Research remarked that, "Banks seem to be reporting better than expected earnings but clearly are preparing for much worse yet to come." Confirming this view a recent consultancy report has concluded that European banks alone could be facing as much as $915 billion in loan losses and a $34 billion loss in revenue over the coming years in a worst-case scenario.

US: National payments charter to be revived

The acting head of the Office of the Comptroller of the Currency (OCC), Brian Brooks, has revealed big plans to revive the former payment charter project that the New York Department of Financial Services (DFS) had quashed by arguing the OCC was overstepping its role. Currently, payment firms must apply for payment licenses on a state-by-state basis, which creates great inefficiencies and entry costs in payments. The move to establish the OCCs authority over fintech regulation and create a national payments charter would smooth the path for payment companies to work across frictionless borders, not to mention reduce the cost of entry for smaller fintech players. It is unlikely the move to revive the charter will continue unimpeded, as improving the efficacy of fintech payment firms does not lie in the best interests of the entrenched banking system.

China: Ant Group to go public

Said to be pursuing a joint listing on the Hong Kong and Shanghai's stock exchange, Ant Group is set to become one of the biggest IPOs of 2020. The fintech responsible for one half of the duopoly of superapps that dominate China's mobile payments and services ecosystem – namely Alipay – was last valued at $150 billion in mid-2018. This means that even if the firm lists a small proportion of its shares, it would enter the history books as one of the biggest IPOs of an Asian company. With an estimated profit of $2.2 billion in 4Q 2019, and the sale of small blocks of shares in secondary markets implying an updated valuation estimate of at least $200 billion – capitalisation on par with PayPal – the company will be an appealing prospect for investment strategists looking beyond New York and London.

UK: Klarna tightens lending rules

Buy now, pay later services (BNPL) in the UK have witnessed a firm uptick in volumes since lockdown was instituted, but that is not to say it has been a free for all on the acceptance of new consumers front. In order to ensure that Klarna does not also see an uptick in defaults, KIarna's Vice President, Luke Griffiths, said in a recent BBC interview that only customers who can and will repay on time are welcomed by the BNPL platform. Given the burgeoning BNPL industry, the increased uptake of its services and that the impact of the pandemic may not have been fully realised yet, this may be prudent as many consumers' financial circumstances could hang in the balance.

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

France: Banque de France experiments with central bank digital currency
Global: Pasia goes global with Western Union
Nigeria: International Finance Corporation loans $50mill to Access Bank
UK: Independent panel to review fintech sector
US: Survey reveals push in digital and payment activity