London-based digital bank Revolut has chosen Visa for its payment cards labelling, accompanied by ambitious plans to expand beyond Europe and Australia to enter the American and Singaporean markets in the coming quarter, with Japan and Canada queued up for next year. In the United States, reports Quartz, Revolut will partner with Mastercard. The global expansion strategy will eventually reach further into Latin American and Asian markets, requiring 3,500 new members of staff. Digitalisation is not always so positive when it comes to employment : a new Wells Fargo report expects 200,000 bank jobs to go in the face of the automation scythe in the 2020s.
Another high-profile partnership however is leading to cold feet in high places: the distinctly sceptical reception generated by Facebook's forthcoming Libra cryptocurrency is leading executives at Mastercard and Visa to wonder if this might not be an involvement to avoid. The latter company's CEO, Alfred Kelly, is reported to have said that Visa was 'not a member of anything' and had only ever signed a letter of intent with no binding obligations. Testifying in Washington recently before a Congressional committee, Libra's co-creator, David Marcus, came in for a grilling from lawmakers that betrayed deep unease about the impact on fiat currency stability and the public good more generally. "While it is inaccurate to describe Libra as a competitor to the main networks, new developments such as Libra are something that industry stakeholders need to keep abreast of", commented Patrick Houlihan of Verisk Financial Research. "This latest shift in thinking is understandable, as it is hard to see Libra amounting to anything greater than a small fish in the payments pond."
Across the Atlantic, card payments in the Eurozone have doubled in the last decade, according to the European Central Bank (ECB). Finextra reports that, "in 2018, card payments accounted for almost half of the total number of non-cash payments across the single-currency area. Credit transfers and direct debits were the second and third most common non-cash payment methods, accounting for approximately 23 percent each, while e-money and cheques together made up around seven percent."
Ask around if a glass is half-full or half-empty and, it is said, an engineer will always reply that the glass is twice as big as it should be. A similar issue arises with challenger banks in Britain: what frame should be applied to determine whether they are doing well or not? Some of the take-up figures look impressive, especially for app-based banks, as we mentioned in our issues of 20 September and 27 September. But what to judge progress by? How about the market share of the biggest banks in the country? After all, loosening the grip of that oligopoly was supposed to be the point of supporting the entrance of these new players in the wake of the banking crisis of 2008. The Financial Times looked at the situation on foot of a rocky September for challengers, including a profit warning delivered by the sixth-largest bank, CYBG (Clydesdale and Yorkshire Bank Group, which now also owns Virgin Money), Santander UK's revelation of a one-off charge of $1.65bn (citing Brexit and ringfencing obligations as culprits) and Metro's difficulties in raising money to meet its capital obligations; since the article was published, that bank has bowed to shareholder pressur with the announcement that founding chairman Vernon Hill will leave by the end of December.
For years now, armed with a favourable ruling from the World Trade Organisation, Visa and Mastercard have been knocking to no avail on the door of the Chinese payments market, a spacious mansion of potential profitability if there ever was one. In the meantime, although American Express has succeeded in entering via a joint venture, that grand dwelling has been comprehensively tenanted by the Alipay-WeChat Pay duopoly, to such a degree that even UnionPay is having to commit more to overseas markets. But now PayPal, a comparative newcomer, has managed to become the first foreign player to control a Chinese payments licence, through the acquisition of a 70 percent stake in Beijing-based Guofubao Information Technology. The company provides online and mobile payments platforms as well as enterprise solutions to meet needs such as cross-border foreign exchange.
Finally, in a strange twist, the IT system of an RBS subsidiary in Ireland is unable to actually compute negative rates on deposits, an expensive shortcoming for a bank with operations inside the Eurozone these days. Apparently, the code was written at a time when such an eventuality was "unthinkable". (Begging the question: what might be unthinkable now that we should nonetheless plan for?).
To end, links to some other stories of interest this week...
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