Coronavirus effects continue to play out around the world and, following a warning on economic growth from the OECD, have drawn a policy response from central bankers in the United States, Australia and Canada in the form of interest rate cuts.The US Federal Reserve's announcement of an emergency drop by half a percentage point, the largest move since the global financial crisis over a decade ago, brings the current interest rate down to just under 1.25 percent. As things stand, bodies that rely on international circulation, from universities to airlines, are feeling the most immediate pressure, while damage control is the order of the day in the tourism industry. At the point of sale, supply shock has been more of a feature than demand shock, but that could change quickly if the West sees the kind of production shutdown that China witnessed last month: consumer confidence would then fall as income was threatened, at which point further economic policy levers may have to be activated to keep the economy moving – and transactions flowing both online and offline.
The larger variables of supply, demand and financial stability aside, there is no doubt that consumers are suddenly looking askance at everyday objects as hygiene awareness grows: one item so ubiquitous as to be more or less invisible is physical cash itself. What once seemed of almost academic interest – the bacteriological life on our banknotes and coins – has now assumed critical importance for public health, leading China and Korea to quarantine and sterilise paper money. A study published three years ago of dollar bills in Manhattan found that paper cash could indeed "potentially mediate interpersonal transfer of microbes". Now the next logical step is emerging, a push for contactless supported by no less than the World Health Organisation, at this moment the most influential institution on the planet: as reported in British newspapers, a WHO spokesperson advised that, should banknotes prove unavoidable, one should wash one's hands after handling. A proportional boost in contactless usage seems inevitable as a result.
A Supreme Court ruling in Madrid means that issuers of revolving credit cards may have to significantly reconsider their business model. The court found that a 27.24 percent APR applied to balances on revolving credit cards was usurious ("usurario"), compared to other annual rates for revolving credit cards in the market. While revolving credit card usage may not be as widespread as in some Anglophone markets, they represent a meaningful profit engine for banks. This development is set to reshape issuer strategies in the country, including those at some major lenders. As the top credit card issuers carefully track these developments, Patrick Houlihan of Verisk Financial Research indicated that Spain may well opt to follow the Portuguese path: "A similar ruling was made there in 2013. Since then, average APRs on revolving credit cards have decreased from around 24.8 percent to about 15.9 percent". We may also see fintechs look at this as an opportunity to pick up new customers if there is a change in approach from the main Spanish credit card issuers.
Small stake, powerful partnership: Alibaba's Ant Financial, owner of Alipay, has purchased a one percent share in Klarna, the BNPL (Buy now, pay later) platform now present on many of the world's most popular e-commerce sites. There are several benefits the partnership could bring, with Alibaba Group potentially broadening the range of payments options for its massive consumer base, as well as opening up links to Klarna's merchant network. For the Swedish PSP, one big draw could be access to QR code-driven business at the POS. "Klarna had already been working with AliExpress to offer its BNPL interest-free financing option", notes Lorna Baek of Verisk Financial Research. "Alibaba's AliExpress may also benefit from Klarna's streamlined user experience to improve the online shopping environment for Chinese consumers. Klarna, for its part, will be keen to leverage Alipay's extensive payments experience to move forward with its offerings."
A sign-of-the-times move from Wells Fargo suggests that the days of paying bills and debts by way of the cheque book, so beloved of American consumers, might finally be numbered. From early next year, the bank will offer current accounts with zero overdraft fees, an attractive proposition for a younger cohort that is increasingly watching the pennies with household debt at an all-time high in the country. However, if consumers insist on including cheques as a payment option, they have to opt for a limited-fee version of the account instead.
To end, links to some other stories of interest this week...
Australia: Eftpos calls for tap-and-go price transparency overhaul
Australia: Neobank Xinja turns away new customers as rate cut bites
US: Facebook 'rethinks' plans for Libra cryptocurrency
US: Fifth Third facing fake account regulatory action
US: Policymakers simplify capital rules for large banks
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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