The commercial destinies of the leading banks in the United States and their smaller competitors are steadily diverging. With the likes of JPMorgan Chase able to commit $11.4 billion to technology for this year alone, digitalisation is undoubtedly one area where the heavyweights can pull ahead in a way not seen before in this market. A further bifurcation is evident in new figures published by the US Federal Reserve, which shows markedly healthier credit card delinquency rates for the hundred largest firms in the country. According to Bloomberg, "delinquent accounts for the largest banks were at 2.44 percent in the second quarter, while other banks saw the rate spike to 6.34 percent from 5.73 percent the prior quarter". American credit card debt as a whole now stands at $870 billion.
Remember the days when no article on consumer finance was complete without recourse to the buzzword of the age, disruption (with its rebellious cousin disintermediation often bouncing alongside)? Now it seems, with a new decade looming, that cooperation might be the word that best sums up the climate of the industry. As APIs proliferate, plugging complementary services together has become a snap. And there is a change of mindset too which recognises that traditional financial institutions, despite a bumpy ride so far this century, occupy a unique place of trust in the public mind, while tech start-ups, despite an endemic naivety about real-world contexts and consequences, have a definite advantage when it comes to pleasing customers and minimising friction. But now Jelena McWilliams, chairman of the US Federal Deposit Insurance Corporation (FDIC), is actively seeking "disruptors" to join the civil service, writing in American Banker that "if our regulatory framework is unable to evolve with technological advances, the United States may cease to be a place where ideas and concepts become the products and services that improve people's lives". A good point and one that David Marcus, co-creator of Libra, the Facebook-driven cryptocurrency, might feel like quoting as he labours to seek approval in Washington. Libra's mission, in its governing body's words, is to "reconfigure the financial system". As we noted in our previous issue, this is leading regulators, lawmakers and cards schemes to express reservations on a spectrum of doubt that runs from unease to outright alarm. This week came the surprising news that PayPal is jumping ship: some disruption is too much, even for disruptors.
Germany's banking system featured in several stories this week: the Washington Post focused on the balance sheet difficulties of the public-sector financial institutions called Landesbanken, controlled by different federal states. The newspaper contends that these authorities are reluctant to lose control as consolidation into a single, nationwide body emerges as the most effective potential solution. It was announced this week that public-sector banks Helaba and Deka are currently exploring a merger, which may prove the nucleus of a larger aggregation. Landesbanken are intimately tied to Sparkassen, the powerful savings bank network in the country, historically popular among Germans and thus a meaningful competitive force for Deutsche Bank, which is currently renewing its commitment to retail functions as it withdraws from a costly misadventure in investment banking. Two major vectors in that push are the reform of core software systems and the overdue integration of Deutsche's Postbank subsidiary: both are far from straightforward propositions as the bank's own executives have described the current computer system as "lousy", while Postbank's workforce, once employed by the government, are baulking at Deutsche's most recent pay rise offer (their union wants seven percent). To address the IT issue, Deutsche is creating a central technology division and earmarking €13bn to fund such activities for the coming two calendar years.
Following Jyske Bank's lead, Italian bank UniCredit is now passing on negative rates to clients with deposits of more than €100,000 (just over $110,000). The measure should be fully implemented by 2020. Curiously, historically low interest rates are leading many homeowners in Denmark to refinance, delivering a boost to the country's banks and cheering revenue forecasts. European Union leaders meanwhile are advocating mergers and acquisitions to gain the scale and efficiencies needed to make the most of thinning margins. The current chair of the EU's committee of finance ministers, Mario Centeno, said this week that "the profitability outlook of banks remains a key concern. Further changes to business models should be encouraged. Where needed, consolidation should also play a part."
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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