The US Federal Reserves' latest monthly report on consumer credit shows little change on previous trends with revolving credit down 3.6 percent in December. It does however serve to put a cap on 2020 with the central bank recording an overall decrease in revolving credit of 11.2 percent for the year. Consumers chose to save and pay down their credit card debt, a trend which was aided by government stimulus payments. The market though stabilised somewhat in the second half of the year and issuers will be hoping to return to some growth as they begin to lap the worst period of last year, which occurred between March and June. They will also be hoping that the rollout of vaccines and bulging bank accounts will spark a spending boom in 2021. As detailed in a new report from our colleagues at Argus, a Verisk Financial business, credit card balances have continued to decline even as the economy is well embarked upon a recovery phase. Deposit balances by contrast grew 13 percent from March through 15 December.
Mastercard has announced plans to allow payments in cryptocurrencies on its network later this year, with support limited to those forms which the global network deems both to have adequate compliance measures in place and to be relatively stable – with the specific criteria yet to be published. The news will be a further boost to a digital coin sector that has been garnering more mainstream approval in recent months. The move is consistent with Mastercard's long-term strategy to diversify its business, as evidenced by major acquisitions in the real-time payments space. "Mastercard has tried to remain agnostic on payment types", commented David Hickey of Verisk Financial Research. "A networks' role is to facilitate payments between buyers and sellers, and Mastercard obviously feels the demand for payment by cryptocurrency now outweighs the risk. However, it is unlikely that volumes will be significant initially given that most holders of cryptocurrencies are using them purely for investment."
Although the West Australian newspaper headline spotlights a more recent rise in the level of credit card debt, the latest central bank figures in Australia show that credit card debt in December was down by seven billion Australian dollars ($5.4bn) year over year, with "an annual fall of 9.1 percent in the number of cards in issue": quite a drop and not just one attributable to the pandemic, as Buy now, pay later (BNPL) products have proved nowhere more popular than in Australia. As readers will be aware, BNPL has recently met with a warm reception from consumers in the United States, though repayment patterns are not encouraging: a new study from Credit Karma has revealed that almost two in five BNPL users in the country missed at least one of their payments, with just under three quarters of that cohort seeing their credit score fall as a result.
China's ambitions over the years have been marked by a strategy of making itself intrinsic to physical infrastructure outside of its borders, especially in developing countries; now that same philosophy appears to be at work in payments, with the digital currency clearing centre of its central bank entering into a new partnership with SWIFT, long used for cross-border transfers between financial institutions. That would seem a logical move to allow international circulation of the forthcoming 'Digital Yuan', the central bank digital currency (CBDC) that is currently being piloted across multiple cities in China. It may well be that the authorities in Beijing will use the partnership with SWIFT to further extend the reach of its new currency regionally and perhaps even globally, though there are many obstacles along that path, not least the parlous state of US-China relations and the role of the dollar in denominating interbank payments between countries.
To end, links to some other cards & payments news this week...
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.