Weekly News Digest 3 July 2020

Wirecard crisis spells opportunity for competitors

As the Wirecard empire continues to disintegrate, payments players are on the look-out for discrete pieces to incorporate into their own operations. One potential buyer mentioned in domestic media is Paris-headquartered Worldline; Wirecard's still-solvent North American unit is also attracting interest from potential buyers, according to the newly appointed administrator in Germany. This week, five of the company's offices, including its headquarters in Bavaria, were raided by police and prosecutors gathering evidence in a fraud investigation triggered by the discovery of €1.9 billion ($2.1bn) of payments that apparently existed only as fake documents attesting to their reality. Holders of cards issued by the firm in the United Kingdom and Ireland had access to their accounts blocked for several days as the Financial Conduct Authority in London ordered a temporary freeze on transactions; issuing partners reportedly worked around the clock to restore functionality, with every hour counting for many holders, who depend on the card for critical services such as gas supply and electricity payments.

Digital payments regulation under the spotlight

The increasing importance for besieged economies of online spend has made clear the need for oversight procedures in digital payments that are fit for purpose. "Technology and regulation have driven an unbundling of payments that were traditionally done under the roof of a regulated bank", writes Huw van Steenis, until recently a senior advisor at the Bank of England, in the Financial Times. "The EU is especially vulnerable in this regard because it has been explicitly trying to break banks' monopoly on payments. In addition, many European banks have raised capital by selling the parts of their businesses that work with retailers that want to accept cards." Now a huge coordinated effort is called for to ensure appropriate safeguards as private sector players gain systemic importance. One of the most aggressive is Facebook, whose plans have so far been met with scepticism by regulators, following splashy but as-yet-unsuccessful attempts to establish the Libra digital currency and WhatsApp payments (suspended last week in its debut market by the Banco Central do Brasil after launching in mid-June).

Karat finds creditworthiness in online charisma

A new card from Karat, its first, is targeting social media stars such as performing gamers and beauty influencers. As a Wired article on the Karat Black Card explains, the move is designed to target young people who have carved out follower-dependent revenue streams but find it difficult to demonstrate creditworthiness for traditional issuers, whose systems have no facility for weighing the importance of likes or followers. The move, in partnership with Stripe, is especially timely in the midst of the pandemic since, as the Wall Street Journal (perhaps melodramatically) puts it, "banks have no idea who's creditworthy anymore" because deferrals and government support – together with a lack of consistency in credit scoring and reporting – are leading to uncertainty in forming credit judgments.

Amex steps up for small merchants with cashback initiative

Finally, American Express has earmarked $200 million in a cashback effort to revive the small-business point of sale in the United States, Britain, Australia and Canada. The network is giving back up to $50 to cardholders spending at small businesses: $10 in spend, for example, will trigger $5 back, a reward that can be availed of up to ten times in a three-month span, up to a $50 ceiling. Offers along the same lines are reportedly forthcoming in the main continental European markets as well as Japan and Mexico.

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

Brazil: Banks face a pincer threat from Big Tech and fintech
Europe: Banks to take on card schemes with new system in 2022
UK: Confirmation of payee becomes law for bank transfers
US: Ally/Cardworks one of $100bn+ worth of dropped M&As