Will it be enough? That is the question hanging over the world's biggest economy as lawmakers in Washington agreed a $2 trillion relief package, paralleling the Federal Reserve's slashed interest rate and brakes-off policy when it comes to credit for the financial system. With well over three million Americans having filed for unemployment benefits in the last week alone and entire sectors now having come to a screeching halt, the government is set to apportion some half-a-trillion dollars for once-off hardship payments and unemployment benefits, with $850 billion in loans available for companies large and small. The startling rate of increase in the United States when it comes to Covid-19 cases means that, among other things, a negative interest rate in America is now no longer inconceivable as the prospect looms of a Great Depression II, with all that that entails for consumer lending.
As predicted in our article last month on the impact of the coronavirus on payments, digital payments are soaring, marking another step-change in the decline of banknotes and coins. While people around the world go into various forms of lockdown, populations are opting to get their goods online or, when essentials require an outing, paying electronically. Italy, steadfast in its enthusiasm for cash, has witnessed an 81 percent leap in e-commerce transactions in a month. However, while consumers are clearly willing to adjust methods and preferences, providers have to ready their facilities accordingly.
In Germany, the attachment to cash is undergoing a historic transformation, with Chancellor Angela Merkel herself recently exciting comment because she opted to pay by card rather than cash at a supermarket checkout. Although people withdrew quite a lot of cash from their bank accounts as the situation initially escalated, they are now showing an unprecedented enthusiasm for electronic methods. In fact, this openness to payment cards preceded the pandemic, as tracked in Verisk Financial Research's latest market update on Germany, which shows that the share of cash at the POS fell below half in 2018. Key to this attitudinal conversion is the take-up of contactless that is now underway. In his timely overview of tap-to-pay adoption around the world, VFR's head of research, David Hickey, writes: "With widespread acceptance in place, use could begin to grow rapidly as cards flood the market, particularly if, as expected, the coronavirus crisis continues for the coming months". (Read the full article here.)
With so many variables now in play, at least for the foreseeable future, Buy now, pay later (BNPL) providers are facing tricky conditions too, perhaps for the first time. BNPL activity has been expanding rapidly, with market leader AfterPay now counting 7.3 million customers across Australia, the UK and the US. Now the sector is facing what the Financial Times aptly calls a "stern test". It may be that fellow Australian company Zip Co, with 1.6 million customers, fares better as it conducts credit checks before lending. For now, like so much else, the priority for lenders is to hang on and make sensible decisions while the situation stabilises.
Understandably, announcements by firms of any size concerning entrance into new markets are practically non-existent at the moment. Thus the news from Revolut that it is entering the United States market is certainly a statement of extraordinary intent, given the existential challenges currently being experienced there. However, one particular account feature may prove decisive: "US customers will be able to get their salary up to two days in advance via direct deposit at no cost," said the firm in its announcement.
To end, links to some other stories of interest this week...
Canada: Central bank asks retailers not to ban cash
Canada: Changes for consumers and credit card payments
Eurozone: ECB throws away rulebook to bail out Italy
UK: Barclays waives overdraft fees for all customers
US: Issuers offering financial assistance
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.