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As the latest quarterly and end of year, reports come from the US card giants, it is clear that debit and credit cards have been set on radically different paths by the pandemic. Americans have grown their deposit balances over the last year and this has triggered a switch to debit. Higher spend in traditional debit-heavy retail sectors and lower spend on credit-heavy T&E is another driver of the shift. Interestingly, this switch is across all income groups as higher income groups have become more conservative and lower-income groups have benefitted from stimulus payments.
Mastercard's end of year report highlights these trends, with cross-border transactions down by 29 per cent, gross dollar debit volume up by 13 per cent and credit cards down by nine per cent. Visa's end of year financials told a similar story: cross-border volume down 16 per cent with a five per cent drop in credit card volume for the 12 months ending 30 September 2020, while debit cards enjoyed an 11 per cent rise. Average transaction sizes have increased too over the year – for both card types – but while credit card transaction size growth has been minimal at around two per cent, debit card's growth has been dramatic at approximately 17 per cent. Though debit may have saved the day, it is questionable whether this change in spending will persist in the long term. Resumption of travel will likely be a tell all for the comeback of the credit card.
While some payment providers struggle to adjust to a rapidly changing landscape, others are thriving – seemingly purpose-built to weather a global pandemic. PayPal confirmed such a perception by reporting a record performance for 2020 as it benefited from rapid business digitisation, new product development and a broadened acceptance network. The firm reported revenue growth of 21 per cent to reach $21.4 billion overall. Contributing to this was 15.4 billion payment transactions, up 25 per cent on 2019, worth $936 billion which was up 31 per cent on 2019. Of the growth in payment transactions, merchant service volume grew by 33 per cent while Venmo grew by an impressive 56 per cent – cementing its role in payments by becoming the latest fintech service to be used as a verb. Looking ahead, PayPal is forecasting continued payment volume growth in the high 20's on a percentage basis, contributing to rosy revenue growth of around 20 per cent.
The UK Financial Conduct Authority (FCA) has announced that BNPL providers such as Klarna and Clearpay will be required to investigate the creditworthiness of prospective users. According to the financial services watchdog, the number of BNPL agreements grew almost fourfold last year and so, in the words of its official report on the sector, "BNPL products which are currently exempt from regulation should be brought within the regulatory perimeter as a matter of urgency". Lawmakers were initially concerned that the regulator might take as long as two years to act; but clearly, that is not to be the case. Although the sums involved in an average BNPL transaction are low, the aggregate for some consumers is not and recent data from one of the country's biggest banks found over ten per cent of customers were reportedly in arrears, suggesting repayment obligations were proving unmanageable for some consumers.
As banks across Europe struggle to reconcile record low interest rates and the pandemic induced economic downturn, Spain's largest bank – Santander – posted its first annual loss since its founding in 1857, perhaps signalling what to expect in banking across the continent for the foreseeable. The annual net loss totalled $10.5 billion, largely attributable to its 2Q $15 billion write-down on assets that led to a $13 billion quarterly loss. Eurozone lenders have struggled to make sizeable profits since the 2008 global financial crisis and weak profitability, or indeed losses, now look set to continue through to at least 2022. Cost savings is now the name of the game: Santander has earmarked an additional $1.2 billion in cost-saving measures such as cutting staff across multiple countries, and similar moves can be expected from banks across Spain as cost-to-income ratios are re-examined in detail.
To end, links to some other stories of interest this week...
Australia: Banks push for BNPL regulation
China: Banks' profit rebound expected
Germany: Deutsche Bank ekes out a profit
Indonesia: Top three sharia subsidiaries merge
UK: Fidelity eyes Starling Bank stake
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.
About Argus Advisory Research The market-leading online, interactive database and data dashboards covering the global cards and payments industry in detail, plus a range of data-packed country and regional reports. Leveraging financial cards data going back to 2010 – and forecasts up to 2025 – our unique datasets cover countries around the world and feature more than 250 metrics per market.