China popular ecom copy
Premium
China overtakes US to become top cross-border online commerce destination

It's not too long ago that only major businesses would think of ordering goods and services from China. The genius of Jack Ma's Alibaba was to first bring the Chinese supply network into the orbit of small businesses, and from then into the reach of individual shoppers from the West and the rest. It's a mark of how far we've come that online shoppers are now as comfortable ordering online from China as they are ordering online from the US. That's among the big findings in PayPal's 2016 cross-border consumer research survey, which is run by Ipsos. US and China are the biggest markets, with India growing fast No man is an island? Well, the Irish join Peruvians and Portuguese as the biggest cross-border online shoppers. That's due no doubt to Ireland's island status — but also displays how big of a challenge Brexit will prove for Ireland. Britain is Ireland's biggest trade partner. Another island, Japan, has the lowest incidence of cross-border shopping, along with Poland. So although Asia overall is the place where cross-border shopping is least prevalent, it is very popular in the Middle East and Latin America. In most cases, cross-border shopping is done from a computer rather than a mobile phone. Western and Eastern Europeans are the global laggards when it comes to cross-border shopping by mobile phone (with 10 and 11 percent respectively). Asia Pacific is far ahead at 27 percent. China is the world's most popular country for online shopping, followed by the USA and the UK. For all the incredible variety of goods and services available all around the world, the most popular category for purchases (at 46 percent) was clothing and footwear. The most popular reasons for shopping online overseas is price (76 percent) and access to items not available in the shopper's home country (65 percent). The main deterrent against cross-border online shopping is... delivery shipping costs. The biggest movitation to increase cross-border online shopping would be free delivery. Africans showed the greatest concern about data security when shopping online. Eastern Europeans showed the least. The entire survey can be found here.

Cards in Issue UAE
Premium
The Dubai dilemma

Dubai occupies a unique place in the world economy, a microcosm of a broader global battle between bricks-and-mortar retailers and e-commerce retailers. Today, Bloomberg reports that global giant Amazon is about to buy a Dubai souk. But it's not just any souk — it's souk.com, the blockbuster e-commerce site owned in part by South Africa's Naspers Ltd, which also owns a big stake in Tencent. The reputed selling price is one billion dollars. The sprawling city of Dubai has seen boom and bust in the last decade, but optimism is high that the economy is about to hit an upward trajectory once more, and that economic conditions will improve in 2017 after a relatively flat 2016. Over the last 20 years, Dubai has made a concerted effort to diversity away from oil and gas into tourism, entertainment and shopping, and with the city's airport becoming an aviation hub, there's ample opportunity to make Dubai into a global e-commerce hub. Therein lies the Dubai dilemma. E-commerce is a growing global phenomenon, and the UAE won't want to miss out. But while many countries are looking to e-commerce to boost exports and offer new global platforms to local producers, Dubai's culture is literally built around shopping. Dubai's merchants would prefer to have shoppers wandering the brick-and-mortar superstores — and have been pulling in visitors in astonishing numbers. Dubai International Airport (DXB) is the world's busiest airport by international passenger numbers — and even DXB is proving too small, with Al Maktoum International poised to replace DXB in the coming years. With something like 80 percent of the world's population within an eight-hour flight of Dubai, it's easy to see why the emirate has become a global travel hub. And with close to 80 million passengers a year passing through the airport, Dubai's duty free shops are booming. It's not only wealthy travellers in the airport. Great numbers of Asian workers can be seen travelling home for holidays, equipped with microwave ovens and other electronics. So it seems like a perfect opportunity to build a strong relationship with customers who may often visit or pass through the UAE. The gigantic malls of Dubai For those who stay overnight or longer in Dubai, there's any number of luxury malls to visit, including the eight-year old Dubai Mall that is one of the world's most visited shopping and entertainment locations — with more visitors than many cities such as New York or Los Angeles. It covers more than 1,000,000 square metres, and there's barely a luxury brand unrepresented in the vast mall. Yet there's conflict between Dubai's e-commerce world and its commerce world. Consider this: by far the largest online portal in the UAE, souk.com, is controlled by South African business Naspers, which also owns a huge stake in Tencent, the Chinese company which runs e-commerce site JD.com and is also behind WeChat Pay. Souk.com is estimated to control over 40 percent of the non-travel and entertainment sector of e-commerce. However, when it comes to bricks-and-mortar commerce in Dubai and the UAE, different forces come into play. Emirati construction players such as Emaar and Meraas have learned how to build and operate enormous attractions such as the Dubai Mall — and are clearly interested in maintaining a steady inflow of tourists to the kingdom, rather than encouraging e-commerce. Socialising in shops and malls is also a significant part of modern life in the UAE. People might shop from home for convenience, but going out to shop is also a social occasion for Dubai residents. Credit cards remain very lucrative and account for most of spending There's a subset of the UAE population that spends most of the money in this futuristic city, and it's that small population that is the principal target of credit card issuers. Our chart of cards in issue in the UAE shows that debit cards are close to doubling in number since 2010, while WPS (wage protection system) salary accounts — used to pay workers who then tend to withdraw the money as cash which is used for remittances back to their home countries — have more than doubled. Credit card usage meanwhile is on a far more gradual upward trajectory, with 3.7 million cards distributed among 1.3 million customers. Lafferty research suggests that around one in three of these credit cards is a premium card. Although credit cards account for only 14 percent of cards within the UAE, they take the lion's share of spending, and are a very profitable line for issuers. The casual visitor can quickly spot the source of most of this spending, which is the indigenous and affluent Emirati population. As high spenders that are unlikely to default on their debts, issuers have targeted the premium segment, with credit card specialist Dubai First offering a Royale card — which is by invitation only — that comes with an embedded diamond along with a gold rim. The proportion of spending on Premium cards has grown every year since 2009. In 2015 premium cards accounted for 75 percent of billed volume but just 33 percent of cards — up from 73 percent and 30 percent in 2014. So the affluent segment, and high-net worth individuals in particular, account for a disproportionate amount of credit card activity. This renewed focus from issuers has seen billed volume per card go from just over $5,000 in 2009 to over $12,000 in 2016. Overall, credit card spending is about six times that of debit card spending, and Lafferty estimates the figure for 2016 to be close to $50 billion. However, there are anamolies within the UAE market. See this chart: it shows that in the United States and Norway, people use their cards on a daily basis. When it comes to the Middle East, the UAE is a leader in frequency of use of credit cards, but it's still barely 50 times a year — and usually on expensive items. The cards market is fiercely competitive, with more than 40 card issuers in the UAE. "There's very little loyalty in the UAE," says one cards manager. Card users will switch to new cards as new offers come onto the market. Issuers are looking to move customers from standard credit cards to premium cards, which offer clients with more lucrative rewards. With much of the city's income reliant on merchants, payment providers are aware of regular grumbling about the prevalence of premium cards. Even retailers of luxury goods are keen to point out that they are not operating on 'luxury' margins. "Lots of retailers in Europe are operating on margins of one percent," says retail consultant Hans Eysink-Smeets. Regulators in Europe in particular have been forcing down interchange fees — that's not gone unnoticed by merchants in the Middle East. In fact, merchants in the UAE are quite happy to accept cash, as cash in transit in the UAE is relatively safe. Get merchants started on card fees however, and you'll hear an awful lot of unhappiness. If there's one bright spot for merchants, it is that Lafferty research shows that fees will start to drop as use of cards becomes widespread. Cash is still widely used in the UAE, with cash on delivery a favoured shopping method. Currently, most debit cards are used to withdraw cash from ATMs, and cash withdrawals account for 78 percent of transactions and 95 percent of billed volume — which provides people with cash to pay for good and services. Lafferty research predicts that with 20 million debit and prepaid payroll cards in circulation, there is a huge possibility for the expansion of card payments. In more developed markets, debit cards typically account for a much higher proportion of card spend (as against credit cards), and premium cards are not so dominant. But however much payments becomes normalised, there's still something extraordinarily extravagant about Dubai and its super-malls. Deep in the heart of Dubai Mall, shoppers can find the most expensive jewelry and watch boutiques, which might receive only a visitor or two a day. Even so, says the manager of one such shop, appearances can deceive. "This shop here has the highest turnover of any of our shops worldwide." With custom like that, it's clear that e-commerce won't be doing them out of business for quite a while yet — and besides, when people spend tens of thousands on watches or jewellery, most still like the pleasure of making sure it fits before taking it home.

F473shutterstock_252335677
Premium
The Accidental Bank

Deposits can stack up fast if your customers like the cut of your digital jib: but the necessity for stewardship remains perennial. Although the perfect blend of payments app and consumer preference has proven impossible to concoct for many retailers, Starbucks seems to have hit the sweet spot. On top of the undeniable success of its e-wallet, Starbucks's Mobile Order & Pay is now responsible for nearly five percent of the coffee chain's total transactions in the United States. Just a year old this month, the feature allows patrons to swoop in and pick up the prepaid beverage of their choice. The firm's mobile payments solution continues to roar ahead and can now claim about a quarter of all payments at Starbuck's points-of-sale: a truly impressive achievement, regarded with justifiable envy by many neighbours on the high street and one that has brought with it, counting in payment cards also, a sizeable deposit base of $1.2 billion. $1.2 billion remains a number to conjure with, even in an age of quantitate easing and gargantuan fines for global banks. The figure comes from the Wall Street Journal and is in turn based on data from S&P Global Market Intelligence. Reviewing the total, MarketWatch noted that it actually "exceeds the deposits at many actual financial institutions, including California Republic Bancorp ($1.01 billion), Mercantile Bank ($680 million) and Discover Financial Services ($470 million). Of course, starting in a post-war period that lived in tragic ignorance of frappuccinos and pumpkin spice lattes, there are umpteen examples of retailers taking deposits for future sales through Christmas clubs and so on. But, with modern tech platforms adding extra propulsion through scale and low-friction apps, 'accidental banks' holding massive deposits, such as Starbucks, can now rapidly rack up substantial deposits, faster perhaps than is good for anyone concerned. Time was when accounts built up slowly over time and trust was built, and fortified, in an unhurried fashion. Taste and trust There is also the fear that some of these 'accidental banks' are based on fads: we all know that seemingly impregnable brands (Blockbuster, Woolworth's, Kodak) can rapidly vanish if the zeitgeist turns against them: the digital world, steadily launching a fleet of over-inflated Zeppelins, is notoriously prone to Hindenburgesque disaster. Millennials and their elders are particularly taken with the coffee chain's loyalty offerings, but what happens when tastes change and Starbucks runs the risk of subsiding into a latter-day Howard Johnson's? HoJo, as it was fondly known, boasted over a thousand outlets across North America in 1975: now it has precisely one. As Starbucks moves further into the Chinese market, facilitating members of its rewards programme to use a pre-loaded gift card at over 2,200 outlets in China, the potential grows to quickly amass vast deposits that might even dwarf the current sum. Back in its home market, Starbucks is planning to launch a Visa-branded prepaid card, offered through Chase, by the end of this year. The New York Times reported a Chase representative saying that the card would be free of monthly service or reloading fees, which could see it become a big hit very fast. Of course, we should never forget, even as we move into the first truly digital age, that, at bottom, all this remains the work of human beings, or, as Diginomica contributor Jon Reed put it in a witty and pointed takedown of Starbucks' lofty self-image: "Underneath the cream of digital is the smarmy crust of tech support." And what is true of the digital interface is also true of the moolah: money is money, whatever the shiny medium through which it is passing, and with that reality comes responsibility and the need to understand the issues of stewardship, long understood by reputable bankers above all others.

FEATURED ARTICLES

Thursday 8th December @ 2:38pm

The ECB will continue with its program of quantitative easing , scaling back to 60 billion euros a month, the FT reports. "The bank confirmed that it would buy €80bn a month of bonds until March but added it would prolong its asset purchases until the end of 2017 at a lower rate of €60bn," the paper said. "The decision sparked sharp swings on financial markets. The euro initially strengthened and......MORE

Thursday 8th December @ 9:14am

It prompted questions about "the return of the premium card" and gave Amex an awful fright, but now it seems that JPMorgan's Chase Sapphire Reserve credit card will have serious acquisition costs for the bank due to the lavish rewards offered. Quartz reports that Jamie Dimon told investors the cost of the new card could cause a $200 million drop in......MORE

-1x-1
Wednesday 7th December @ 9:09am

Bad loans at Turkish banks are putting a strain on relations between the banks and the state, as Turkish president Recep Tayyip Erdogan seeks lower interest rates and lower borrowing costs. But that's not what banks want to hear. They're having problems of their own, as illustrated in the graph below from Bloomberg. It writes: "Troubled loans have risen to the......MORE

Tuesday 6th December @ 9:06am

There's no easy answer for what to do with Banca Monte dei Paschi di Siena : the world's oldest bank is careening down a cliff face as its share continues a downward trajectory that has been in motion since last year. The bank's problems have been well documented, but "Italian politicians and regulators have fiercely resisted bail-in, fearing it would frighten off investors, spook depositors and enrage......MORE

Renzi  copy
Monday 5th December @ 9:08am

Lafferty News has been writing about brinksmanship and Italian banking since late last year — see here — as the country struggled to established some kind of bad bank to take non-performing loans off the books of its struggling banks. One year on, and the situation is even worse, but now the banking crisis has taken out the young prime minister Matteo Renzi, who......MORE

Friday 2nd December @ 9:14am

Lafferty News has been travelling in the Nordics this week, and can reveal to our readers a hidden secret of reporting: taxi drivers have a disproportional influence on the news, as they are a great source of local news and gossip. That's especially true when it comes to payments news, as taxi drivers are excellently acquainted with the relative merits of mobile payments, apps, cash versus cards, Uber versus local and so on. Indeed, one hard-pressed taxi driver in Copenhagen was happy to......MORE

Thursday 1st December @ 11:32am

Lafferty News has been observing with interest the skirmishes as Basel IV proposals are finalised. On the one side, regulators, led by Stefan Ingves, argue that "some parts of Europe have persistently not wanted....to fix their severe problems"; on the other, Frédéric Oudéa, head of the European Banking Federation, has made the case against heavier regulation, arguing stoutly that banks in the continent are innocent of ignoring, let alone disguising......MORE

Wednesday 30th November @ 11:21am

Like Banquo at the feast, the consequences of past mistakes and misdeeds at RBS keep returning: the firm, which has vied to overcome both risky assets and steep fines for misconduct, has failed the latest stress test set by the Bank of England. As a result, capital buffers must be increased at the state-controlled lender. A total of seven firms in the UK were submitted to these tests: Standard Chartered and Barclays both struggled to......MORE

Tuesday 29th November @ 12:13pm

The Financial Times headline catches the mood amongst authorities in Italy and Europe more widely: "Fears mount of multiple bank failures if Renzi loses referendum". As the Sunday vote approaches, the anti-Establishment wave on both sides of the Atlantic threatens to upend much-needed constitutional reforms in Italy. In its coverage, London's Daily Telegraph suggests that €40bn may be needed......MORE

Monday 28th November @ 11:54am

The world's second most populous nation has been profoundly shaken by demonetisation — and no wonder, as a full 86 percent of Indian cash in circulation is in the process of being pulled out and replaced. With no warning at all before the announcement 20 days ago, daily life is suddenly more difficult for the vast majority. The Economist reports the on-the-ground effects for different classes, while also noting that "GDP growth might be as much as two percentage points......MORE

Friday 25th November @ 9:15am

The FT this morning features an interview with Anders Bouvin, CEO of Handelsbanken, who was appointed earlier this year. Mr Bouvin is the former head of Handelsbanken in the UK. The paper writes: "One investor jokes that the new chief executive is like 'a missionary', imbued with more passion for the Handelsbanken gospel by having had to find new converts in a far-off land rather than preaching to the converted in......MORE

MPS Problems
Thursday 24th November @ 10:04am

To its horror, Apple found its MacBook Pro so solid that people were failing to run out and buy a new one every two years. Hence the first significant upgrade since mid-2012 came last month, with a new 'Touch ID Bar' replacing the traditional array of function keys. Apple Pay on mobile hasn't been the success the company hoped for , so now the firm is returning to first principles, incorporating discoveries that the way we pay for something affects our brains. How much? More than......MORE