The Federal Reserve's latest quarterly survey of leading loan officers reveals that issuers in the United States are continuing to tighten standards on credit cards. Asked to compare their practices in the third quarter and at the beginning of the year, respondents noted that individuals with lower credit scores were less likely to be approved for credit card loans. Concern has evidently grown when it comes to new borrowers' ability to stay on track with repayments; nor has the uncertain economic outlook helped, with banks' reduced tolerance for risk also a factor. However, notes the Fed, many "also cited a deterioration or expected deterioration in the quality of their existing loan portfolio as an important reason for being less willing to approve loan applications".
Across the Atlantic, a new regulation is being prepared in Madrid to increase transparency and consumer protection in revolving credit arrangements. The applicable interest rates for such products has given rise to increasing litigation of late, notes the Ministry of Economy and Business. Two measures in particular may now be brought in to protect consumers: in the first place, lenders would have to do a better job of evaluating creditworthiness; secondly, the information provided by the lender would have to be clearer and updated quarterly to reflect the situation concerning amounts owed, due dates and repayment scenarios that might be advantageous to the borrower. A more detailed set of rules is in the works, with the proposed new regulation coming into force in January. The development fits in with a global trend of regulatory attention being paid to these issues, for example the British regulator's focus on persistent debt and bank-initiated Credit Limit Increases being effectively banned in Australia. The credit card industry in Spain now seems in line for potentially significant changes to business practices as well as impacts on profitability as the consumer protection trend takes hold there too.
The reporting season for banks in Australia got off to a dismal start, with Westpac's chief executive confessing that his firm's performance for the financial year that ended on 30 September had been "disappointing": press headlines spotlighted a 16 percent fall in profits. Thanks to less revenue from interchange and the climbing cost of rewards, net fees from Westpac's cards and merchants business was down by 28 million Australian dollars ($19.3m). For the forthcoming financial year, the bank flagged "modest loan growth" that would impact fees as well as impending regulatory changes for credit cards, both set to constrain non-interest income. Somewhat eclipsed by media reaction to the resulting dividend cut was the news that there would be an investment in Cloud-based banking platform 10x Future Technologies (founded by ex-Barclays chief Antony Jenkins). Westpac's New Zealand unit had happier news to report than its parent, with earnings for the year up three percent.
The news from National Australia Bank was not much better, with the firm's net profit for the full financial year tumbling 13.6 percent. A combination of remediation costs for misconduct and a change in policy regarding software capitalisation were the primary causes for the poor performance, which also led to a dividend cut. Chief executive Philip Chronican confessed that "this year has been very challenging, requiring significant actions for us to deal with past issues and make real changes aimed at earning trust with customers and the community". However, tangible progress has been made in digitalisation: according to the accompanying presentation, two thirds of active customers are now using digital channels exclusively, while digital subsidiary UBank, which uses IBM's Watson technology, saw its number of customers grow by 40 percent over the two years to the end of September.
Returning to the northern hemisphere, Santander has taken a majority stake in corporate currency transfer fintech Ebury, as part of a push to break into new markets in Asia and Latin America, the latter being a region that has recently proven lucrative for a bank struggling to make significant returns in its home continent. Ebury provides services to SMEs and corporate clients involved in cross-border activities, transferring funds to overseas units, collecting money from customers in foreign currencies and smoothing out the pain points of foreign exchange fluctuation. "Small and medium-sized businesses are a major engine of growth around the world, creating new jobs and contributing up to 60 percent of total employment and up to 40 percent of national GDP in emerging economies," commented Ana Botin, executive chairman of Santander.
Continuing to grow its global reach via licence acquisition, German fintech Wirecard has purchased Beijing-based AllScore Payment Services in a deal said to be worth as much as $120 million. AllScore has a licence for processing mobile and credit card transactions in China. At the end of 2017, Wirecard declared a renewed focus on organic growth rather than strategic buyouts, after a decade-long flurry of M&A activity involving $1.5 billion to purchase 20 entities, so this recent deal has come as a surprise to the industry. Add to that the fact that the buyout seems to be merely the purchase of a presence or placeholder in the market given the lack of business being conducted by AllScore. "The move may be a reaction to PayPal's recent purchase of the Chinese payment group, Gopay Information Technology," commented Lorna Baek of Verisk Financial Research. "Wirecard may have had a fear of missing out as the online payments market in China continues to grow but remains dominated by Tencent and Alibaba. One has to wonder what Wirecard has up its sleeve, particularly in such an advanced and fast-paced payments market, as it estimates a $40 million and $57 million contribution to EBITDA from its latest addition in 2021 and 2022 respectively."
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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