Once bitten, twice shy: sub-prime borrowers appear not to have forgotten the painful lessons of the 2008 crash, according to the CEO of CardWorks, a credit card and consumer lender to the non-prime segment. Chief executive Don Berman told the Financial Times this week that the issuer's cardholders had not been immediately borrowing up to their credit limit. As of yet, it is hard to see how much of that response is down to government supports such as stimulus cheques and unemployment insurance. What happens when such assistance comes to an end with an economy not yet back to pre-pandemic levels? "A sub-prime borrower lives their entire financial existence in recession", Mr Berman told the newspaper. "So they tend to be resilient in times like this."
Goldman Sachs has shut its digital account Marcus to new customers in the United Kingdom, to avoid hitting a regulatory ceiling. Ringfencing rules require that banks holding deposits above £25bn ($31.6bn) have to separate investment activities from retail operations, an enormous undertaking that would not be cost-effective for Goldman. As noted in this newsletter last December, the Marcus executive team had been planning to take this step anyway, having been about halfway to the limit as a year drew to a close in which it had attracted 50,000 new customers. The fact that it has happened so soon reveals a profound shift in consumer behaviour during the lockdown, reflecting a consumer preference for salting away money during uncertain times.
Although British banks above the threshold had great difficulty meeting the requirement when it came in, an observation by the policy's architect, Sir John Vickers, in a 2018 interview seems eerily prescient in the current circumstances: "The very fact you can't predict the direction, size, anything about the next shock is why you've got to make sure you don't have a fragile system when it does hit".
From the Swiss capital of Bern comes news this week that a new solution, the QR-Bill, is set to replace payment slips that have been used by billpayers in the country for decades. The code will appear on each invoice for the payee to scan with their phone, triggering automatic payment and sparing users the hassle of typing up the various codes and numbers ordinarily required. Local media is reporting an additional efficiency in the form of the code's standardised format, which requires a single document rather than the seven in use until now. Those who prefer the traditional technique can continue to do so, while others are free to scan the new code in eight days' time. The service was developed by Zürich-headquartered payments giant SIX, in collaboration with stakeholders in the country.
Banks in Chile may face a more competitive future as a new law comes into force that makes it easier for consumers to shift providers. In Santiago, President Sebastián Piñera has put his signature to a financial portability bill intended to help account holders move their credit cards, banking services provider or lender with minimal friction and a legally guaranteed ability to compare competing products in financial services. A multi-year process has been underway in the country to open up competition, for example in acquiring (which was the domain of a single provider until 2018) and the open-loop prepaid card sector.
As our just-published market report for the country points out, cash and cheque payments have both been falling out of favour with Chileans in recent years, with electronic payments now representing half of the value of consumer payments, a market share expected to rise sharply as it has elsewhere during the pandemic.
To end, links to some other stories of interest 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.
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