Somewhat hidden in the hoopla around the launch of the new Apple Card this month is the arguably most important fact that, with its launch, Goldman Sachs is in fact becoming a credit card issuer for the first time. It was only three years ago that the Wall Street titan moved into consumer lending in any form, a milestone achieved through the launch of its online-only bank, Marcus. By CNN's count, Marcus "has lent $4.75 billion out in personal loans...and 13 percent of those loans have gone to customers with FICO scores below 660". This aggressive customer-building strategy appears to be being carried forward into the Apple Card partnership, with Apple's tech magic a peerless lure: "If Apple users start adopting Apple Card as their preferred payment method, Goldman could quickly seize a large part of the personal credit card market," speculates a Forbes opinion piece. JP Morgan Chase meanwhile, having invested $100m over the last four years, have decided to transform Chase Pay, dropping their much-touted app to focus instead on building merchant partnerships for a branded digital button at online and in-app checkouts.
In other news from the United States, the Volcker Rule reform so ardently desired by the big banks moved a step closer this week as the FDIC (Federal Deposit Insurance Corporation) approved the move. Broadly speaking, the Rule, introduced after the 2008 Financial Crisis, forbids banks from trading with customer deposits, which also means that ownership of private equity or hedge funds is prohibited. Though easily summarised, compliance is fiendishly difficult and expensive. Now the plan is to adjust models such that, without violating the Rule in principle, guidance will be clearer and more bank-friendly. "Though the magnitude of barred trading isn't anticipated to change significantly," notes CNBC, "banks will receive better guidance on their ability to make markets for customers." Two other key regulators, the Federal Reserve and the Securities and Exchange Commission, have yet to approve.
Much of the media commentary in recent weeks has been preoccupied with what it means for so many economies to be in a low-interest rate environment for so long: over the summer we have seen rate cuts in New Zealand, Thailand, the Philippines, Mexico and, of course, America, among others. Last week, Denmark's Jyske Bank began advertising a negative interest rate mortgage: homeowners will be paid half a percent per annum of their mortgage principal. That is not the only curious outcome of Europeans saving more and borrowing less this decade. The ECB rate for the excess liquidity in Eurozone banks is now minus 0.4 percent, which is costing the banking sector around €7 billion a year (amounting to some seven percent of profits). This is a situation with global ramifications, as the Sydney Morning Herald points out, citing the possibility that European bankers might well move into the Australian market. "Most of the big European banks have scaled back their international operations in the last decade in order to concentrate on their home markets", commented David Hickey of Verisk Financial Research. "But, with excess liquidity and poor returns now plaguing the European market, it is beginning to feel like bad timing. With no end in sight for low interest rates, it would be no surprise if banks are starting to look further afield once more."
In times past, Australian banks could easily repatriate the profits of units in New Zealand, where they enjoy a dominant presence. That era is coming to an end, with the Reserve Bank of New Zealand coming up with new capital requirements. Now Melbourne-headquartered ANZ (Australia and New Zealand Banking Group) is considering whether to reduce its exposure or even trim operations. Its corporate mind was surely concentrated by the central bank's recent decision to revoke ANZ's licence to determine its own operational risk capital, requiring the bank to follow official calculations. Also, not only ANZ but all Australian banks need to keep an eye on bad debts in their home market, which are on the rise for both secured and unsecured loans, albeit mostly in communities affected by the mixed performance in mining this decade.
Singapore, as befits a resourceful and multilateral trading state, never fails to throw up interesting stories. Longtime observers of DBS Bank will recall that few bank bosses are as adept at digitalisation as chief executive Piyush Gupta. Born in Uttar Pradesh, he rose through Citigroup to eventually head its South East Asia, Australia and New Zealand business. Interestingly, he left banking for a short spell at the turn of the century to start a web portal. Now the prospect of the huge returns promised by his native country has led DBS to plan an entrance into the Indian credit cards market next year. The bank is already successful in this line of business: half-year results last month revealed that revenue from fees on cards had shot up 18 percent. Although DBS leads its peers in Singapore, competition is set to increase sharply with the impending arrival of licensed virtual banks in the city-state. Arch-rival OCBC, for example, is reportedly in talks with potential joint-venture partners to file an application. The third main Singaporean player, UOB, has already got a digital bank off the ground in Thailand, with plans to spread out across the region once it is has proven viable.
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.
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 data going back to 2010 – and forecasts up to 2020 – our unique datasets cover 72 countries around the world and feature more than 250 metrics per market.