This time last year, fintech infrastructure provider Plaid and Visa were on course for a $5.3 billion deal. The takeover seemed set to proceed until the Department of Justice in Washington, citing anti-competitive dangers, sued to block the process. Opinion is divided over whether Open Banking is or is not a threat to traditional credit cards, but the DoJ was put off by the combination of card and non-card rails under one roof. Recent developments in the financial data-sharing ecosystem show that new players like Plaid, which interfaces between banks and value-add apps such as Venmo, are running into problems stemming from a patchwork of regulations, the incomplete actioning of Dodd-Frank – specifically Section 1033 – and understandable consumer confusion. A fresh push from the White House currently rippling through government agencies and Congressional committees may clarify matters. In the meantime, Plaid has turned to a dramatic Plan B, announcing this week a new program in conjunction with partners such as Stripe, Square and Galileo (acquired last year by SoFi Technologies) along with dozens of other processors and fintechs on both sides of the Atlantic. The net result is the programmable connectivity needed to include a pay-by-bank choice at the checkout.
Meanwhile Visa's third-quarter set of results showed a remarkable 68 percent rise in net income for the 2021 fiscal year. This "performance was driven by the continuation of the recovery in many global economies and the increased diversification of our revenue", commented chief executive Alfred Kelly Jr. "Looking ahead, Visa is even better positioned for the future as cross-border travel recovers and we continue to drive the rapid growth of digital payments and enable innovation in money movement globally." Mastercard too had reason to celebrate, with profits up by 60 percent on renewed social activities and travel.
In Britain, the major lenders have all been reporting similar results, with Santander's profits up fourfold for the quarter, NatWest's trebling, Barclays seeing record profits and Lloyds too enjoying a significant profit boost. However, cards were absent in the media citations of the underlying drivers, with mortgages and the multiple benefits for financiers of an improving economy more prominent. Consumer demand for unsecured loans remains sluggish: Lloyds for example saw a mere one percent increase in value under that heading.
With the country's central bank flagging the possibility of an interest rate rise to stem inflationary fears as well as the cost of maintaining its customary high level of benefits to cardholders, American Express in Britain is raising its annual percentage rate by more than two percent from February. A statement explained that Amex was "making changes to the interest rates on our personal credit cards to reflect the cost of providing rewards, product benefits and loyalty programmes, which have increased in recent years."
Two relatively new but already titanic names in modern payments, Stripe and Klarna, have agreed to participate in a partnership allowing retailers in the United States and Europe (including Britain) to add a Klarna option at Stripe checkouts, dramatically smoothing the path for merchants wanting to offer a BNPL button.
Both firms have been busily extending their reach in recent times. With an estimated value, based on successive investment rounds, now approaching $100 billion, the deal cements Stripe's infrastructural position as an increasingly core digital platform that underpins a plethora of services through partnerships with players as disparate as UnionPay and the Macy's department store chain. The Irish-American company is also no stranger to instalment financing solutions, having already inked a collaborative deal with Afterpay in Australia and New Zealand. This new deal with Klarna dwarfs that arrangement as it covers so many markets.
Klarna already has over 90 million users and is busily building its services stack (including the provision of current accounts in Germany) in the quest for a sustainable business model once the unusual conditions precipitated by Covid diminish: the BNPL industry was afforded a huge opportunity by the reluctance of traditional unsecured credit lenders to extend credit to new customers as the crisis deepened, leading young people in particular open to considering the format.
Other stories of interest this week...
Europe: EU says more time needed to put bank capital rules in place
US: Antitrust investigators scrutinise Visa's fintech tie-ups
US: Consumer watchdog orders Big Tech to turn over payment system plans
US: Facebook/Meta scales back its crypto ambitions once again
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