There's no doubting the biggest story this week as merchant acquiring giant Global Payments and TSYS (known as a processor, but also an acquirer) announced a $21.5bn merger that marks another milestone in the ongoing consolidation of merchant services. As incumbents prepare to withstand new digital challengers, the combined entity should be well placed to meet the needs of both banks and merchants, especially for the all-important small and medium-sized enterprise segment, which is the most open to solutions coming from newer digital players such as PayPal, Square and Stripe. The announcement comes in the wake of two similar mergers in the sector this year: FIS/Worldpay and Fiserv/First Data. "With the latest wave of consolidation, we are rapidly approaching the point where a small handful of players control the majority of the acquiring and processing market," commented David Hickey, head of research at Verisk Financial Lafferty Research. "While scale and the associated cost savings are major driving factors, the big payments companies are also looking to provide a more comprehensive service across the entire payments value chain. This protects against fintech players who have carved out niches within the industry, reducing the revenue available to the traditional players."
However, systems are only as good as what passes through them and so the latest signal that the American consumer is overstretched should raise concerns. That signal comes from the FDIC's latest quarterly report which, though seeing interest income leading the charge in a nine percent rise in earnings, reveals that net charge-offs, mostly from credit cards, increased by over five percent year-on-year: the deposits insurer points out that, over the last ten quarters, the credit card charge-off rate has now climbed for eight of them. Earlier this month, the New York Fed noted a rise in credit card delinquencies - and not just among Millennials, with middle-aged borrowers looking to new financial instruments as they scramble to keep up. "It could be", speculated American Banker, "that older Americans, especially those with lower income levels, are struggling to balance their financial obligations as they begin to age out of the workforce or take on increased medical expenses." Almost one in six adults expects to miss a credit card payment this year, according to a survey from WalletHub.
A statistic mentioned in passing in a Bloomberg overview of virtual banking moves in Southeast Asia encapsulates the extraordinary reach of the Chinese consumer tech giants: "about 60 percent of Citigroup's consumer credit cards in Asia are now paid via Ant's Alipay". With Hong Kong online banking licences now under their belts, Alibaba (from which sprang Ant Financial/Alipay) and rival Tencent (which developed WeChat Pay) are looking to Singapore as the perfect base for the capture of regional prospects such as Malaysia, Indonesia, Vietnam, Thailand and the Philippines. But will Singapore's central bank follow Hong Kong in setting capital ratios for incoming neo-banks at the same level as those required of traditional banks? Governmental enthusiasm for all things digital in Singapore, as well as digitalisation moves by domestic firms, particularly DBS, means that local players might well be ready for the fight. And it is not only the likes of Jack Ma who are noticing the island's perfect position: HSBC too is seeing a lot of room for improvement in its performance there, both in onshore and offshore operations.
There is certainly wide enthusiasm for digital ecosystems that embrace payments, but it is quite another matter to trust banks lacking a bricks-and-mortar provenance with big-ticket items such as salaries and mortgages. That natural reluctance is borne out in a new report from London which reveals that British consumers, despite the authorities' stout efforts to make account switching easier, are uneasy about stepping away from the Big Five banks when it comes to their primary bank accounts. But, as with so much in finance, the problem boils down to a percentage game: the Centre for Economics and Business Research in its accompanying survey of over four thousand adults in the country revealed that four in ten savers would indeed think seriously about taking up a new deposit relationship if they were being offered an extra percentage point in interest. But, in such a low rate environment, who can afford to give them that?
Finally, from Istanbul comes news of a surge in the number of customers with credit card debt and unpaid consumer loans: a year-on-year rise of 27 percent in the first quarter of this year, according to the Banks Association of Turkey Risk Centre. However a closer look at the association's numbers (PDF) reveals that individuals with unpaid consumer loans rose by 44 percent - in sharp contrast to a 14 percent increase for the cohort with credit card debt. When it comes to payment cards, the country is one of the largest markets in the region, with credit cardholding standing at about 96 cards per 100 adults. Four issuers (Yapı Kredi, Garanti, Isbank and Akbank) hold over two thirds of credit card billed volume at the POS and, with some of the recent macro indicators for the economy also troubling, they will be watching these debt trends closely.
To end, links to some other stories of interest this week...