PayPal has enjoyed an extraordinary run in recent years, building its global customer base patiently since detaching from parent company eBay in 2015, launching P2P app Venmo to market-transforming effect and, in recent times, receiving an unexpected boost through distributing pandemic-relief stimulus funds in the US. Now the company's chief executive, Dan Schulman, is making a pitch for central bankers to look to PayPal as the perfect wallet for the new breed of Central bank digital currencies (CBDCs) that are beginning to appear around the world, most notably in the form of the 'Digital Yuan', currently concluding its third major pilot run in Beijing. PayPal already made history by becoming the first foreign company to completely own a payments business in China and, in the words of Mr Schulman, is now "investing to create the most compelling and expansive digital wallet that embraces all forms of digital currencies and payments, and operates seamlessly in both the physical and online worlds": although PayPal is not the only cross-border specialist that people will look to once they begin to travel again, it is true that central banks will soon be looking to commercial players for a delivery vehicle.
A survey of over three thousand American consumers by Cornerstone Advisors lays bare an interesting phenomenon coming into play in markets with established incumbents and popular financial apps: even though customers are not deserting their traditional accounts, banks are losing out on interchange revenues – to the tune of some $2.5 billion in 2020 in the case of US issuers, Forbes estimates. According to the study, some three quarters of Americans are using Big tech or fintech solutions for their banking or payments needs, with merchant apps from the likes of Amazon, Starbucks and Walmart a major source of interchange displacement. One example of the kind of superior customer service that is being offered by apps could be found this week in an announcement from Google: commuters can now use its Maps app to pay for parking or mass transit in over 400 cities across the United States, sparing users by contactless means any need to touch parking meters, turnstile readers or points of sale that might pose a hygiene risk.
From London comes news of the latest set of results from Barclays, rounding out a full year of quarterly numbers: as anticipated, the bank's consumer, cards and payments division continued to be severely squeezed, with income falling by over 20 percent to £3.4 billion ($4.8bn) thanks to the reduced margins brought on by low interest rates, cardholders keeping their balances as low as they can manage and sluggish payments activity generally as the series of lockdowns in Britain hit spending appetite. Altogether the bank as a whole saw its profits before tax down by almost a third year over year, a performance which in fact outstripped analyst expectation and is being attributed to investment activities that contributed over half of overall income. "Spending and borrowing on cards has been down since the onset of the pandemic", commented Gary Brennan of Verisk Financial Research. "Those who were earning during lockdown took the opportunity to pay off debt and increase savings, which is consequential for banks such as Barclays that depend on energetic consumer payments activity".
Big changes are afoot in Middle Eastern payments, with Saudi Arabia's central bank set to launch an instant payments system that will mark a new era in a country where transfers were hitherto confined to normal business hours. With consumers in neighbouring Bahrain now opting for contactless for just over half of all payment cards transactions (a pattern seen throughout the Gulf) and banks in Qatar already in the midst of a round of banking mergers, it is clear that the region is set for an irreversible transformation in payments. The only fly in the ointment is the potential for a spike in loan impairments, with figures from Fitch showing vulnerability in terms of asset quality in both the UAE and Qatar, whose lenders are paying the price for structural shortcomings before the pandemic hit. As Verisk Financial Research's newest report notes, Egypt is currently experiencing a veritable blizzard of developments : "Digital payments provider Fawry has seen record growth due to Covid, Banque Misr is planning to launch a digital-only bank this year, 2018 saw the launch of domestic debit scheme Meeza [and] the number of mobile money accounts has doubled since 2017."
To end, links to some other stories of interest this week...
Australia: Anger at banks' payments scheme merger
China: Consumers now make three mobile payments every day
Global: Bitcoin crosses $50,000 for the first time
Japan: Shift from notes and coins means boost for banks
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.