Personal finance fintech SoFi is acquiring a small community bank in Salt Lake City with a view to becoming a full-service bank, long an ambition of the San Francisco-based firm, which grew out of peer-to-peer lending roots. Licensing in the state of Utah, rather than its Californian home, allows it to get further and faster towards the ultimate goal of a national banking charter. In a further statement of its ambitions, SoFi has announced the launch of its first credit card, issued by the Bank of Missouri with Mastercard branding. In keeping with SoFi's consumer-orientated ethos, the card offers as much as two percent unlimited cash back when applied to its own cash management or investment accounts or repaying SoFi personal or refinanced-student loans. Altogether, the moves are symptomatic of startups from a tech background (Square and OnDeck being other examples) that developed with a friction-solving, user-experience obsession in areas where traditional banks, in many cases besotted by investment banking at the time, felt little inclination to innovate. Now, seasoned by stiff competition and emboldened by successful investment rounds, they are coming after core banking functions.
Are we set to see Open Banking 2.0 in the UK? There has been clear movement in recent times to find and add new value to the API-driven protocols, which effectively grant non-banks live, customisable access to customer accounts, in some cases conferring the ability to initiate payments. Now, with three million regular users in Britain, the authorities are planning to use the new breed of products for tax collection purposes : a logical move now that half of small and medium-sized businesses in the country are said to be using Open Banking. A consultation has been launched on future governance, while the banking establishment is readying a new service company to export Open Banking interfaces to a slate of other product areas, including consumer credit and pensions. Open Banking fared well last year, doubling its user base to two million in just over six months at one point, with almost one in five adults starting to use online banking apps during the first half-year of the lockdown or so, according to a survey conducted by consumer-empowering charity Nesta. Along with the European Union and Australia, the United Kingdom has been in the premier league of Open Banking development, but its full impact seems yet to come.
One major consequence of Open Banking is the ability to bypass traditional cards rails, a disintermediation risk that the major cards schemes have long been aware of, leading Mastercard, for example, to pursue a multirail strategy for many years now. The result has been a building up of its Account-to-account (A2A) capabilities, a powerful offering when combined in particular with the new faster payments infrastructures, such as SEPA Instant Transfer, that have been coming online in recent years. In the latest development, the cards giant has completed its acquisition of the A2A part of Nets' payments business. Meanwhile, in a related story, BNP Paribas has partnered with Token to create a new A2A solution called Instanea for merchants throughout the continent, enabling consumers to pay for online purchases directly from their bank account. "Risks like chargeback are also eliminated as payments are authenticated by the customer in their banking portal," noted BNP Paribas in its press release, which also points out that Instanea is compatible with popular payment gateways and shopping cart providers.
Finally, from Tokyo this week comes news that JCB has increased its investment in Net Protections, bringing its stake up to over ten percent and paving the way for an alliance to reap a Buy now, pay later (BNPL) opportunity that is perfectly placed for Net Protections, which specialises in using technology to maximise consumer financing reach. The partners plan to appeal to prospective borrowers both domestically and overseas. "Typically, the Japanese preference for cash is deeply rooted in a mistrust of holding any kind of debt", commented Lorna Baek of Verisk Financial Research. "Japanese people certainly use credit cards, but they choose not to borrow with them as a rule. However, splitting payments into instalments might be perceived as more like smart money management. BNPL has actually been around for quite some time here but, as it slowly pivots more towards digital payments, its appeal should grow, particularly where customers perceive the service to be user-friendly and secure".
To end, links to some other stories of interest this week...
Australia : PayPal brings its BNPL offer to crowded market
India: American giants vie for slice of digital payments pie
US: JPMorgan to shutter Chase Pay at end of month
US: Walmart is betting on banking with fintech move
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.