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Weekly News Digest 9 April 2020

09 April 2020
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Throughout the locked-down countries, it is becoming painfully clear that unprecedented measures are urgently needed to save small and medium-sized enterprises (SMEs), most of whom have no online incarnation to keep them afloat during the pandemic. Companies and sectors concerned with food and essential supplies, as well as online-only businesses (entertainment and multi-player gaming platforms; social media) are moving front and centre, but they cannot make up for the ongoing shutdown of high streets, rightly described as the backbone of our economies. Four days after a $350 billion loan programme began in the United States, a further $250bn was requested this week by the government department overseeing the small business relief effort. But lending to SMEs is a complicated business, especially with the thin margins and often idiosyncratic accounting involved: to assuage lender unease, the Federal Reserve is buying the loans. From the corporate sector, long-term thinking to the greatest degree possible is called for, with payments players such as Visa, PayPal and Square, all in direct contact with SMEs, also announcing philanthropic moves to help.

With aircraft grounded the world over, the aviation industry is another one of the many struggling at the moment. One of the dilemmas now facing the travel, entertainment and hospitality sectors is how to manage the various cards rewards programmes now lying fallow. United Airlines is extending the MileagePlus Premier status of current members to 2022 and halving thresholds for qualification; the airline is also offering more points to credit cardholders. Rival Delta has announced similar moves. It is likely that American Airlines and other carriers will follow suit as executives acknowledge that rewards programmes will have to be extended and customers incentivised in order to meet the industry's greatest challenge since the September 11th attacks.

It was announced earlier this week that the European Commission is to launch an investigation into Mastercard's proposed acquisition of part of Scandinavian payments processor Nets, on the basis that the move would harm competition. The six countries that requested the investigation were the four Nordic nations, together with Britain and Austria. Mastercard already owns Vocalink, which operates the United Kingdom's instant payments infrastructure: this acquisition would increase their participation in a fast-growing space. Mastercard, meanwhile, expects that the transaction will be completed by the second half of this year.

While Mastercard expands its reach in the continent, the European banking industry has set out its thoughts on the future of European payments. There is a desire among policymakers and banks for a pan-European payments system which can compete with the non-European providers, Visa and Mastercard, that currently dominate consumer payments in the region. In a newly published paper, the banks make a number of recommendations including that instant payments be used as the basis for a new payments system. "While the various European stakeholders discuss strategies," noted David Hickey of Verisk Financial Research, "commercial organisations are several steps ahead."

Readers may recall that the launch date for the People's Bank of China's central bank digital currency (CBDC) was mere weeks away from issuance when the health situation in the country made further development temporarily impossible. Now, from Seoul, comes news that South Korea's central bank has announced a 22-month CBDC pilot. Covid-19, if anything, has added impetus to the pressure on central bankers around the world to create digital currencies, now that the public perception of banknotes and coins has been tainted by fears of infection, on top of the necessity felt by governments worldwide to pre-empt Big Tech moves such as Facebook's Libra.

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

Canada: Mastercard and Visa raising tap limits by 150 percent
Global: Virus could push half a billion people into poverty
Sweden: RIX-INST joins ECB's instant payments settlement platform
US: Fintech shifts continue as SoFi acquires Galileo for $1.2bn
US: Visa waiving monthly fees until June for new clients of e-commerce gateway

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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