We begin this week in the United States, where new statistics from the Federal Reserve have revealed a trend of elevated credit card charge-off rates for smaller issuers that has now stretched to six quarters, plateauing above seven percent after a steep rise over the course of 2016 and 2017. Meanwhile, the rate for the largest 100 retail banks, less inclined to chase customers with lower credit scores, stood at 3.78 percent. At the most recent Fed board meeting on monetary policy, the conclusion was that the economic risk of household debt remained "moderate"; consumer credit grew steadily in the first quarter of this year, although credit card interest rates have risen. Elsewhere inside the Washington DC beltway, the Office of the Comptroller of the Currency (OCC), which regulates and supervises nationally chartered banks and savings associations, is concerned about a deterioration of credit quality in the credit cards business, mindful of a possible slowdown in economic growth over the next 18 months. "If the global financial crisis proved anything," notes Fin Keegan of Verisk Financial Lafferty Research, "it proved that keeping an eye on the subprime sector is worth the effort."
In other news from the US market: 'buy now, pay later' solution provider Sezzle chose Bank of America Merchant Services as its digital cards processor. Sezzle pays merchants in full while offering interest-free instalment plans to e-commerce shoppers. Also First American Bank, which is based in Illinois with operations in Wisconsin and Florida, has acquired Continental National Bank, a smaller bank with almost half a billion dollars in assets that serves residents in and around Miami. Meanwhile, two small San Francisco Bay Area-based lenders, Presidio Bank and Heritage Bank of Commerce, have announced a merger and merchant services provider NXGEN International has bought Payment Plus, which is active across 30 states providing processing equipment and services.
There has been some notable transatlantic activity in the past week also, with Montréal-headquartered payments tech firm Nuvei buying SafeCharge, a British payments processor servicing online merchants: SafeCharge processed transactions to the value of $14 billion last year. And Goldman Sachs has led the latest funding round in Elinvar, a German startup that provides a fintech platform for established banks to lend online. The amount invested has not been disclosed.
European digital challengers have made extraordinary ground in recent years: they may not yet be at the point where workers en masse are entrusting their salary deposits to them, but consumers are increasingly giving them a whirl on their phones. One such new player, Raisin, has used Europe's new Open Banking regime to its advantage, helping consumers find the most rewarding services available for their deposits across the patchwork of national banking systems. Shopping around is less of a hassle in the United States, where banking is naturally more integrated, but Raisin is entering the American marketplace confident that its model will take the hassle out of finding the most competitive rates for savings and investments. As TechCrunch notes, much of its appeal lies in the fact that "users only have to sign up to Raisin once, including regulatory checks, in order to access any of the offers from partner banks on its platform". European neobanks present an existential threat to at least ten percent of the continent's banks, according to a new study: "Since 2011, new banks offering digital-only services have increased their customer base across Europe by 15 million," reports Computer Weekly, "while traditional banks have lost two million customers. AT Kearney predicts that, by 2023, 85 million Europeans will use the digital banks that are the challengers today."
Finally, regulators in New Zealand are imposing a standardised method for the calculation of operational risk on ANZ Bank: that might sound somewhat dry, but the practical effects are anything but as the revocation of the bank's permission to use its own method takes the minimum capital requirement up to 760 million New Zealand dollars ($496.4m), a whopping 57.3 percent rise. Across the Tasman Sea, Australia's banking regulator has indicated that it will be removing a cap that set the interest rate serviceability buffer at a minimum of seven percent for mortgage loans. More lending in the sector is expected as a result.
To end, links to some other stories of interest this week...