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Apple Pay will be switched on in Australia on Thursday, but only American Express card holders will be able to use it. 
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US credit-card delinquency rates were the highest on record in the fourth quarter, according to a Federal Reserve Bank of Philadelphia report.
Vineet Anand's insight:
This Friday, 4/12, marks a significant event as major banks unveil their quarterly results. While usual metrics like NII, CRE write-downs, and trading revenues will be scrutinized, the spotlight will also be on consumer lending provisions, particularly for credit cards. Here's a snapshot of the relevant figures:
This trend isn't isolated to credit cards; similar patterns are evident in other lending categories such as Auto loans. This suggests a broader narrative of financial strain, particularly among younger and lower-income households. With expectations of persistently high rates, this strain may continue to intensify.
Despite a recent sigh of relief from today's PPI data following yesterday's CPI numbers, the Federal Reserve's planned rate reductions for the year are scaling back. Initial projections of three cuts are now dwindling to likely just one. Realistically, any rate changes may not materialize until the September meeting.
Looking ahead, the upcoming bank quarterly calls are anticipated to highlight a growing reliance on AI, LLM/generative AI models. These technologies are set to revolutionize operations across customer service, risk management, wealth, marketing, and technology development. The focus is on driving operational efficiency and delivering an exceptional customer experience.
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Klarna Bank AB is turning over a smaller share of UK customers to debt collectors as the threat of late fees the company introduced last year prompts more of them to keep up with their bills.
Vineet Anand's insight:
Late fee introduction with a cap at 25% of the purchase value is reducing the number of UK and US customers reported to debt collectors by Klarna. - BNPL customers sent for debt collection reduced to 0.84% from 1.95% in 2022. - Late fees introduced in 2023 are having an impact - A fee cap at 25% of order value (which seems a bit much) led to 55% payment on time - In the US, the debt collection is down to 2.8%, a 180 bps improvement
There are two important considerations to keep in mind. - Firstly, Klarna is preparing for an IPO in Q3 with a valuation of around $20B, and the quality of its on-time payments will help improve this quarter's results and the IPO prospectus. - Secondly, it is worth noting that the markets are not regulated, and while there have been talks of market regulation in the UK, US, and other countries, it is unlikely that we will see any significant regulatory changes this year, especially with elections on the horizon.
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Visa Inc. and Mastercard Inc. agreed to cap credit-card swipe fees — a deal that US merchants say will save them at least $30 billion over five years — in one of the most significant antitrust settlements ever, following a legal fight that spanned almost two decades.
Vineet Anand's insight:
A prolonged 2 decades of legal drama over interchange fees seems to be reaching at least a medium-term settlement. Key aspects here are: - Visa & MC rake in $100B in fees (2003 numbers) - Rise in digital transactions is leading to increased volume of transactions CNP (tap, dip, and wallet) and card present transactions - Total household card debt is around ~$1.5T (excludes corporate card spend at merchants). Delinquencies have been higher in the past three to four years. - Both networks paid $6 billion in a class-action lawsuit in 2019. - The settlement will save merchants approximately $30 billion. - The reduction in interchange fees is small, at 4 basis points over three years and 7 basis points over five years. SMB's will have limited benefits from changes in fees. - "Honor all cards" removal may lead to large merchants considering a surcharge option, which is unlikely to be implemented given the negative impact such a move has had in other markets around the world. - A large trade group of over 200 members has agreed to the settlement. - Finally, the impact on larger issuers, who generate most of the fees, is likely to be small, with only a 7 basis point reduction. This may be passed on to customers in the form of slightly higher annual fees or changes to reward programs to maintain current net income levels
In conclusion, this settlement should put an end to the ongoing legal battles, lobbying, and other activities, enabling stakeholders to focus more on creating value, including the growth of mobile wallets.
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Capital One has made a $35 billion bid to acquire Discover Financial Services, in a move that radically reshapes the payment card industry.
Vineet Anand's insight:
Beyond the headlines, you will notice the timing of this acquisition is a grand strategic opportunity for Capital One in many ways:
- Credit card loan volume will surpass to be a leader with $257B - Loan volume will be 2X of American Express $126B in card loans - Capital one will gain a big foothold in payment networks ~40M merchants, ~100M cards - Capital One will have a unique play being an issuer, processor, network - Credit Cards portfolio expansion for Capital One known for reward cards, and Discover for cash back card - Capital One used to historically issue cards to sub-prime profile of customers, however that has changed over the past decade with a focus on SMB's and reward cards including last year acquisition of Velocity Black - Discover customers have credit ratings in good standing (mostly!), and carry a balance / revolve - Capital One might become the 6th largest bank in the US - Capital One will have the opportunity for compete with greater conviction on co-brand deals with likes of Costco card (currently with Citi in US), and other retailers, hotels, airlines - Rich valuable data from payment processing that will help launch new services to capture more market with GenZ and Millennials - Biggest deal in the industry since financial crisis
MasterCard and Visa in the next 4 to 5 years (assume regulators approve the deal) will be gearing up for a good challenge from this merger entity. Fairbanks known for being digitally savvy will navigate through the current Discover challenges of compliance and risk management that has caused a 62% profit dip and resignation of CEO.
While the regulators have to chew upon, there are some good tail winds including push by Biden to drive greater competition, transparency around junk fees, and aid Discover be more committed to recover from the compliance and risk management challenges.
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From
www
From fuel and groceries to hotels and airline tickets, consumers are putting more purchases on credit cards—and taking longer to pay them off.
Vineet Anand's insight:
Today's news of 2023 GDP at 3.1% has a strong component of consumer spending embedded to fuel further conversation around the sate of the economy in 2024, gyrating between soft landing to growth! While 2023 numbers had most economists reflecting back on how different 2024 turned out from their prediction models - the Fed policy at least for now seems to be effective with a waning inflation rate.
Consumer card spending in 2023 rose by ~$525B with a 'B' to $2.25T since 2019 for top 4 banks with JPM, and BofA raking high single digits and WF spending was up 15%.
There are underlying concerns in these numbers: - 30+ days delinquency numbers have risen consistently over past 8 quarters to the highest levels now - Card loan balances have exceeded the 2019 level by ~$525B - BNPL will have some contribution to the overall spending volume on cards - Consumer deposits have fallen across all 4 banks
From a consumer dynamic perspective there has been heavy spending during holidays, disposable income has reduced even though wages have risen, student loans pause in payments has now been lifted, insurance for homes & cars have risen, and even though inflation is slowing - the consumers will not end-up having the same prices that existed 3 years ago requiring them to budget differently to the new reality. On the plus side the banks so far have not provisioned for higher than usual delinquencies, wages improved, employment levels are good, consumer confidence is higher, and GPD continues to show expansion during a election year.
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From
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Elon Musk's social media platform X, formerly known as Twitter, announced it will launch peer-to-peer payments this year.
Vineet Anand's insight:
X as part of it 2024 strategy plans introduce P2P payments around in Q2/Q3 of this year. X has 14 MT licenses with more in stages of approval. Part of X strategy (Musk) is to create a WeChat like super app that he calls 'everything app' and to take over entire financial lives without a bank account. As Musk states X will bring “the power of living more of your life in one place". Super apps have not seen traction outside of Asian markets - do they have a place for developed markets with the growing workforce of Melliniials and Gen-X that will dominate commerce(banking, payments, investments...) and are digital savvy consumers.
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The Consumer Financial Protection Bureau's planned new open banking rules do not go far enough to protect consumer data, say two industry groups.
Vineet Anand's insight:
CFPB open banking proposal is a start in the right direction, however falls short in consumer data protection offered by regulators in Europe and Australia. As consumers, the right to data and its usage by third parties, data aggregators and other entrusted persons needs more definition to provide protection and highlight liabilities towards misuse. The Clearing House response does reflect some of these issues including screen scraping using credentials, third party obligations. There is tremendous insights / learning CFPB can take even from PSD1/PSD2/and the oncoming PSD3. 2024 will pave way for an open banking reg!
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Apple has offered to let rivals access its tap-and-go mobile payments systems used for mobile wallets, three people familiar with the matter said, a move that could settle EU antitrust charges and stave off a possible hefty fine.
Vineet Anand's insight:
A game changer for Apple Pay rivals that have for nearly a decade have been pushing Apple to open its tap-and-go services for inclusion. Players from down under Australia to US to EU have long challenged Apple for its inclusion of other rival providers. And whilst the current proprietary network has served well in building leadership, this change will change the landscape significantly.
Apple can benefit by driving greater revenue in opening it services post this EU offer conclusion by 1. charging a fee to use the service; and 2. through increased transaction volume; and 3. having users of rival players to likely convert to more Apple financial services offerings .. draw more consumers that benefits the larger Apple ecosystem.
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Coinbase Global Inc. is rolling out spot crypto trading on its international exchange as part of a global expansion, saying some users are wary of US venues due to the country’s uncertain regulatory backdrop.
Vineet Anand's insight:
Investors continue to wait for approvals to Spot EFT trading from the regulator. which seemingly is getting pushed into early next year. This move by Coinbase is interesting given its challenges with SEC in US allowing for International markets to engage in spot trades. With Binance bracing its US survival and SBF saga, there is good ground for Coinbase to make greater inroads!
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Goldman Sachs Group Inc., which has been trying to jettison its struggling credit card business, now has a potential way out of its partnership with Apple Inc.
Vineet Anand's insight:
Apple's early exit from GS likely indicates a formal relationship with another issuer and servicer for its card and savings account offering. As suggested previously, time for Apple to get a banking license through acquisition to own the service offering that brings great value to its 'services revenue' bottom line! Has Amex stepped in? Or is it Synchrony? Amex service and culture is more aligned to that of Apple. However strategically the expansion to health insurance and wealth for Apple will require another partnership or goes back to owning a license!
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All 12 of the pending spot Bitcoin ETF filings will enter a “window” for possible approval within the next eight days, say Bloomberg ETF analysts James Seyffart and Eric Balchunas.
Vineet Anand's insight:
Much awaited ETF approvals likely this month ... market cap for Crypto to grow with SEC approvals. Blackrock to expand Ethereum ETF. And while some Crypto participants are recovering from FTX, BlockFi, Gemini, Celsius (judge approved bankruptcy), new regulations will strengthen the market for expansion!
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Elon Musk wants X to manage users' "entire financial life" so that they "won't need a bank account" by the end of next year.
Vineet Anand's insight:
X bold moves to engage users for banking and investing by end-2024; likely retail and SMB focus whilst X is securing MT licenses across states! A potential bank acquisition for licensing purposes??
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The move would reduce the fees that banks receive when consumers shop with debit cards.
Vineet Anand's insight:
"Higher for longer?" - merchants complaints have hit a chord for Fed to consider stepping in towards reducing Debit card fees for 21C + 0.05% that generate ~$17b in fees each year! Next week Fed meeting to potentially reflect some of their thinking to reduce or retain caps.
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Global consumer finance provider Splitit Payments (ASX: SPT) has confirmed it will delist from the Australian Stock Exchange and re-establish itself as a new entity in the Cayman Islands.
Vineet Anand's insight:
Motive Partners invests $50M in 2 tranches for BNPL Splitit, a white label installment as a service provider. In a market with limited funding, an investment by Motive will delist the company from ASX and move HQ to Cayman. And while BNPL steam seems to have subsided, there is value to generate by investing in product that will attract Gen-Z for future of banking and related credit products! Motive with its global presence, $5B in assets, consultants and innovation can build on this white-label business in significant way.
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As the only two real-time payments rails in the U.S., the rivalry between RTP and FedNow could get intense, but maybe not.
Vineet Anand's insight:
TCH RTP and FedNow interoperability in question with FedNow having launched last week giving FI's greater choice across two RTP rails. The two real-time rails it seems for now will not compete on price and their lack of interoperability will require FI's to choose one over the other given difference around RTP settling with NY Fed and FedNow via Fed's master account - the later. might be preferred by FI's. Real-time rails have greater adoption opportunity in creating value for consumers (overdraft, payment scheduling) and businesses (24x7 operation) to be leveraged. A singular real-time system will need to prevail or interoperability will need to be established for wider use across US market.
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Apple's relationship with Goldman Sachs led to the creation of the wildly successful Apple Card, but post-launch friction and a change in priorities has crashed the relationship into the rocks.
Vineet Anand's insight:
Recent news publications have reflected the conundrum Apple faces in its partnership with Goldman Sachs and its impact to the Finance Services(FS) model that hinges upon this important relationship. Is it in peril? How will Apple exit keeping its consumer base gleefully happy unaware of this noise? Where does this lead to for Apple in next 2 years as the MasterCard partnership agreement comes to an end too?
Apple's FS leader, Jennifer Bailey, can explore targeted spectrum of strategic activities including 1 . Given the current Federal hikes there is good opportunity to purchase(acquire) a bank (small) for license with capability in cards, savings, checking, insurance (health) products, and Wealth - create pathway for further expansion to FS products; 2. Banking license and a targeted acquisition (even banks with $50 to $100b in assets) will free it from wrangling of underwriting, fraud, KYC and reporting; 3. continue to expand developing in-house capabilities as it has executed with rewards, underwriting, credit management; 4. card / payment processing using modern issuers like Marqeta, SoFi are partnerships to develop without giving up the interchange that it never paid Goldman per contract 5. servicing through a premium provider using in-house tools Given Gen-Z's over the next 4 years will be establishing more than 4 million banking accounts and seeking new additional FS products - giving the traction over the past decade from wallets to Apple Pay to Apple Cash to Apple Card to Apple Later to Apple Savings ... growth in health insurance, and wealth will be key whilst steering the Apple Car Play engagement growth!
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Apple Card credit-card holders can open an account with a 4.15% annual percentage yield.
Vineet Anand's insight:
Apple's much awaited savings account is now available to Apple Card holders.Industry impact - a very attractive rate of 4.15%, better than most CD rates in the market with a lock-in period for 8 to 12 months; depositors are shopping for better rates, leading to movement to greater competition to both established large banks and Neo-banks. For Apple a great ramp to increase services revenues from payment post the recent BNPL offering!
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NBFIs have emerged as key players in the financial sector, and global financial stability could hinge on their resilience as policy is tightened to tackle high inflation
Vineet Anand's insight:
NBFI's pose financial risk without adequate governance and regulations. Globally NBFi's have ~50% of global financial assets of ~$250T. US NBFI's might pose smaller risk like SVB with investments made in the past during low interest rates; and some NBFI's offer BNPL and Digital currencies - both those models are under pressure.
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Apple on Tuesday introduced Apple Pay Later, which will allow users to split their purchases into four payments spread over six weeks.
Vineet Anand's insight:
#EmbeddedBNPL is here! BNPL has its headwinds with - Fintech latest valuations with the likes of Klarna, Affirm reflect current market environment; Fed raising market rates in high-inflationary environment - cost of credit for BNPL players; Regulation is coming to BNPL... yet there is opportunity.
BNPL market, per some researchers, will grow $250B+ in 5 years and the tailwinds - Consumers (especially GenZ's) want instant gratification; creating differential financial experiences; Brands want it to create unique buying experiences.
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800 Citi staff will join NAB's workforce when the deal closes in March next year. Find out more.
Vineet Anand's insight:
NAB's acquisition of Citi retail gives it access to 1 million credit card customers, and $24 billion book of mortgage, unsecured lending and retail deposits plus private wealth management operations. A 30 month TSA will give NAB time to integrate the operations with its tech.
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Circle has filed with the Securities and Exchange Commission to become a US Federally-chartered national commercial bank.
Vineet Anand's insight:
Circle bank filing as part of extending its efforts in becoming a digital currency bank, which will fortify its stablecoin product USD Coin
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Canada's Scotiabank is converting credit card repayments into buy now, pay later plans, with the option to pay off debt in three, six or 12-month fixed instalment payments.
Vineet Anand's insight:
Scotiabank enables its customers to convert purchases to BNPL using the mobile app or online
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NEW YORK (Reuters) -Global payments giant JPMorgan Chase & Co has launched a real-time payments option that it hopes will increase its edge in the financial industry's battle to handle more of the surging volumes of global digital payments. The new product, called request for pay, lets corporate clients send payment requests to the bank's roughly 57 million retail clients who use its app or website, cutting the cost and time it takes for those companies to get paid, said Cyrus Bhathawalla, the bank's global head of real-time payments. The digital payments product is one of a handful JPMorgan has in the works, as the largest U.S. bank invests heavily in the sector which has grown sharply as more commerce occurs online, a trend further boosted during the coronavirus lockdowns.
Vineet Anand's insight:
JPM Chase launches 'request for pay' for corporates and merchants to benefit improving cash-flows for clients in wholesale payments group.
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FalconX, a one-stop-shop for institutional cryptocurrency market participants, has closed a $210 million Series C financing round, valuing the company at $3.75 billion.
Vineet Anand's insight:
FalconX series C funding to drive expansion of product lines and strategic acquisitions driving institutional growth!
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Venmo credit card users can now automatically buy cryptocurrency using the cashback they earn on purchases.
Vineet Anand's insight:
New credit card offering to use cash back each month to purchase 1 of 4 crypto. Earlier this year Venmo users were able to purchase, sell crypto.
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Curated by Vineet Anand
Payment Industry leader passionate about Fintech, Innovation in Banking, Product Management & Strategy, driving revenue growth through client management, business development and P&L focus.
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The Payments ecosystem is evolving at an unprecedented pace driven by mobile, cloud computing, start-up's challenging the behemoths, and new technologies. My personal collection of curated stories and blogs.
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*** Simultaneously published on Linked-in ***
Big week for Apple Pay with announcements of launch in Canada and Australia with a big caveat - only Amex issued cards will be accepted.
Is this is a smart play by Apple Pay to launch with only American Express in Australia and Canada, hoping it will push other issuers to participate. Lets breakdown on who can use Apple Pay in Australia?
From a user perspective, s(he) needs to be aware that Apple Pay works only with an iPhone 6 and above device, the fact it is an Amex issued card (not network), and the merchant accepts Amex. A tall order! Some might argue it is a one-time set-up on Apple Wallet, then it is a matter of finding a merchant that accepts Amex, which is no different today. Yet not all iPhone 6 users are Amex issued card holders.
In contrast, Commonwealth Bank also announced today that it had expanded the capabilities of its digital mobile wallet offering, Tap & Pay, to support MasterCard and AMEX credit card payments. This means customers can now make purchases using the app on all Android handsets with NFC capabilities, as well as the CommBank PayTag solution for iPhone users, not just limited to iPhone 6 and above.
CommBank has more than 300,000 cards have been set up on the CommBank app and one million transactions processed since Tap & Pay was launched. A smart strategy by CommBank giving its customer choice across irrespective of the mobile device manufacturer.
There are few strategic questions at play today:
Banks at risk of losing control of customer relationship:
Issuers that have spent acquisition dollars, reward and marketing programs, developed a strong brand value that resonates with their customers, retention strategies, and customer service that drives the intimate desire to remain close to the customer whilst embracing new contactless payment solutions. Apple Pay does disrupt that customer intimacy as an issuer / bank to become another choice in Apple Wallet.
Most banks/issuers have a relationship with the customer that extends beyond credit and debit cards.
Banks need to take control and charge in developing solutions like CommBank Tap & Pay; Barclaycard contactless, Pingit, and wearables; and Chase with its Chase Pay in US which embrace new contactless payment options across the global spectrum of NFC enabled devices with an operating platform of Apple, Android, and MS Windows. A few will point that Apple will not open its SE for banks to use so what to do? The way around is allow for QR based, NFC stickers, or explore HCE.
The road ahead for banks as issuers:
There exists a great opportunity for banks/issuers to use dollars saved from shutting low traffic high street branches to extending individual bank branded application capabilities in contactless, P2P payments, referral to alternative lenders for SMB loans, faster payments, PFM, RDC, identify management and offer a digital array of services that attracts millennials, deepens the existing relationships to drive greater brand affinity with its customer base.
I forecast by 2020, the playing field will get more defined having moved away from the novelty of secure Apple Pay, Android Pay, Samsung Pay and ‘other Pay’ players.
The customer experience and customer choice of either using mobile manufacturer provided solution or a trusted bank partner based solution will outline the winners. Banks today have a great advantage to build upon the existing relationships with their customers offering an array of products in a bank-banded application, however that success will be dependent on their ability to bring speed, innovation, customer experience, and utility which will eventually define the landscape.
References:
Apple Pay launches in Australia - Sydney Morning Herald
Apple Quarter 4 Results 2015
This post is a reflection of my personal opinion and does not reflect views, strategies, and roadmaps of my employer or clients consulted.