The many and varied consequences of the Covid-19 outbreak are leading to reduced growth projections from some major players in retail banking and payments, notably Mastercard, Standard Chartered and HSBC. In the case of the cards scheme, the revised estimates see revenue for the first quarter lowered by some two to three percent. A lot hinges on how long the coronavirus persists, with HSBC noting that losses on bad loans could impact its bottom line by as much as $600 million if the virus is still in play come the third and even fourth quarter of the year. StanChart reported a rousing 46 percent rise in profit for 2019, but that was then and this is now: the bank has pushed back a key earnings target date as a result. For more coverage, see our analysis of Covid-19's impact on payments.
Mastercard was also in the news this week for a leadership change announcement. On the first day of next year, long-time president and chief executive Ajay Banga will become executive chairman, with his CEO role taken over by current chief product officer Michael Miebach, who is set to become the company's president two months later as well. Richard Haythornthwaite is retiring as chairman as Mr Banga moves to his new position. He leaves the company in rude health and set to not only accommodate but also profit from the array of technological innovations that many financial institutions with legacy systems have struggled to cope with. Last year, Mastercard brought in reported revenue of $17 billion; when he took over as chief executive in 2010, the revenue total stood at less than a third of that.
The nice thing about starting a digital bank is that regulatory and tech boxes having been ticked, it can all happen without so much as a physical brick having to be laid: an attractive proposition in these cost-conscious times for any firm, no matter how deep its pockets. Motivation multiplies if you already have a digital bank up and running, or a competitor has already made a move. Such considerations have led to two developments this week: in the first, Royal Bank of Canada is reportedly planning a direct-to-consumer bank across the border in the United States, with a view to targeting higher-net-worth customers. One of its competitors in that market, JPMorgan Chase, has been in talks with British regulatory authorities about opening a digital bank in the United Kingdom, following in the footsteps of arch-rival Goldman Sachs, whose Marcus brand has been growing fast in the UK in the two years since launch.
A transatlantic move in the other direction was made by Spanish bank Santander this week, as a deal was announced that will see Elavon México become part of its group once a purchase from Elavon, a U.S. Bank subsidiary, is concluded. As noted in Verisk Financial Research's new cards and payments report on Mexico, Santander and Elavon have long pooled their point-of-sale resources, mutually benefitting from a bank/acquirer cooperation strategy that has become common in the market in recent years.
For decades now, Europeans in both the private and public sectors have harboured an ambition to displace the dominant global cards schemes: EuroCard, which emerged from Sweden in the 1960s, was one such reaction, as was Eurocheque. The legislative push that led to the revised Payment Services Directive (PSD2) could be seen as part of this tendency, as it enables payment by bank account rather than debit or credit card. Now the European Commission, executive hub of the European Union, is reportedly cooking up a plan to develop and harmonise the fragmented payments environment for a population of close to half a billion people. According to a Euractiv report, a new Digital Finance Strategy is in the works. An unnamed official told the website that even the strongest national card schemes in Europe struggle to expand outside of their domestic markets. As a result, says the official, "they have to team up with larger international operators that are not European if they want to offer pan-European payments". Food for thought for Mastercard's incoming new chief executive and his global counterparts.
To end, links to some other stories of interest this week...
Brazil: Caixa partners with Visa in cards
Ireland: BoI's underlying profits for last year down 19 percent
Spain: Banks brace for supreme court ruling on APRs
US: Intuit buying Credit Karma for $7.1bn
US: Venmo prototypes a debit card for teenagers
The Weekly News Digest from Verisk Financial Research highlights significant developments that have recently occurred 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 that is often missing from the rolling news cycle.
About Verisk Financial 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 2022 – our unique datasets cover 72 countries around the world and feature more than 250 metrics per market.