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Daily briefing - 09 May 2019

The headline reads : 'Visa acquires control of Earthport', and sounds very Star Wars and exciting, and features a planet. Earthport turns out be a UK firm that specialises in cross-border payments. One of the ironies about the "global financial system" is that it doesn't really exist in the way most people imagine. It's a whole lot of different systems stuck together with tape and wire. People still talk about wiring money as if dollar bills are zinging along the telegraph wires. So there's plenty of room for players like Earthport. "Currently, Visa enables payments to be sent to or from Visa cards," says a Visa statement. "The acquisition will make it possible for Visa clients to enable individuals, businesses and governments to utilize Visa to send and/or receive money through bank accounts around the world. With the acquisition of Earthport, Visa expects to be able to reach the vast majority of the world's banked population and allow them to easily, quickly and securely move money worldwide." Visa said the move will allow it to go "beyond the card". Mastercard has gone further down this route and the entire 'About Mastercard' section on its main website hardly mentions cards but has plenty about electronic payments and connecting things together. It will be interesting to watch what Visa does with Earthport, which has worked with Ripple for several years and lists Ripple prominently as a partner on its site. Ripple, incidentally, announced a partnership this week with Ria, which Tearsheet lists as the third biggest money remitter in the world after Western Union and Moneygram. Ria is a subsidiary of Euronet Worldwide. CaixaBank's strategic changes continue as the Spanish bank starts to close two out of five of its ubiquitous urban branches while shedding staff through voluntary redundancies. "Like other large European banks, CaixaBank has been looking to shift away from small, teller-filled urban branches to fewer, larger 'stores' that specialise in financial products and high-margin advisory services," reports the FT. "During a November investor day in which it presented its 2019-2021 strategic plan, CaixaBank said it was looking to reduce urban branches by about 40 per cent from the 3,100 it had at the end of last year. As part of the deal with its unions, Spain's largest bank by market share will increase the number of Store and Business Bank flagship branches from 285 at the end of 2018 to about 700 by the end of 2021." Has GAFA gone out of fashion? People have stopped stuffing all the big tech players in to the same brackets, with good reason. As TechCrunch points out, privacy issues have become centre ground, and that's going to leave some players in the dust. Compare and contrast: "Mark Zuckerberg: 'The future is private.' Sundar Pichai: 'The present is private.' While both CEOs made protecting user data a central theme of their conference keynotes this month, Facebook's product updates were mostly vague vaporware while Google's were either ready to ship or ready to demo," writes Techcrunch. "The contrast highlights the divergence in strategy between the two tech giants." Today's comic relief comes from consultants McKinsey, who keep knocking out predictions that look like the work of a clever five-year-old. A new report suggests that bank workers who survive the roboticization of the workplace will be higher paid in the future. Why? "'The really successful folks will be able to bring together the technical capabilities along with those traditional sales capabilities,' Matthew Steinert, one of the authors of the report, said in an interview. We can guess that Matthew doesn't read Dilbert. Getting paid extra to do two jobs instead of one doesn't seem like a big step forward, to be honest. World's largest asset manager pulls out of deal to save Italian bank Carige

Singapore by night
Daily briefing - 07 May 2019

Despite the general gloom around Brexit, the UK's fintech scene has been receiving admiring looks from other global financial centres including Singapore and Hong Kong. We reported recently that Hong Kong's regulators have begun issuing new licences to digital only banks, and now Singaporean authorities are studying whether to make similar moves. "Technology and other non-bank firms have been making large digital strides, and they have brought substantive value to their customers in doing so. Some of these non-bank firms have established digital-only banks, either amongst themselves or in partnership with incumbent banks," the Monetary Authority of Singapore said in response to a query from Reuters on Tuesday. The Authority is studying whether to "admit such digital-only banks with non-bank parentage". Hong Kong has long been controlled by four major players: HSBC, Bank of China Hong Kong, Hang Seng Bank and Standard Chartered. It's well established that the US has enjoyed a tremendous credit boom in recent years, with soaring auto lending and college debt, and an all-time high in credit card borrowing. It's inevitable then that we're headed into peak season, with banks writing off credit card losses at the highest rate in seven years, according to Bloomberg. This time around though, banks are holding on to the riskiest debt while selling off the rest to investors. "The difference in standards underscores how any future consumer downturn may hit banks more than asset-backed investors. Though losses have been rising for banks and to a lesser extent bonds backed by credit card payments, Barclays isn't alarmed by the numbers now," reports Bloomberg. "While card losses are growing, they're still near post-crisis lows and haven't crimped strong profits in banks' consumer lending divisions. Part of the deterioration can be explained by a surge of lending in the space, as many banks have prioritized growing their credit card businesses, which can generate the highest interest rates of any form of consumer debt, over other areas like auto lending."Many debates around blockchain revolve around one question: is it private and centralised or public and decentralised? The answer will give you a good basis for understanding the issues. Contrast for instance the approaches of Facebook and Twitter to the question of digital currencies. Facebook is in a panic to reverse direction away from its current unpopularity and boost its privacy while also introducing some kind of Facebook Coin for payments across its network. Facebook's instinct is a private, centralised digital coin, issued by Facebook and there are reports that Zuckerberg is in talks with investors to raise a billion dollars to back its digital currency, including bitcoin bull Tim Draper. There are reports that Facebook will name its coin Libra. Facebook arrived very late to digital assets but has been hiring people who understand banking and payments and people who understand cryptocurrencies. But Facebook, for all its novelty, is a very corporate beast so may only be attracted to the notion of a stablecoin. A stablecoin is a digital asset pegged to fiat currencies such as the dollar to prevent wild swings in value — but it also appeals to the corporate mentality which is scared of bitcoin. Stablecoins include Tether, which was launched by the giant Hong Kong-based Bitfinex exchange, the Gemini Dollar (originated by the Winklevoss brothers), and JPMorgan's JPMCoin, all of which are pegged to the US dollar. Compare and contrast to Jack Dorsey at Twitter, who has supported development of bitcoin and incorporated it into the Square offering. The others look like they are trying to re-invent the wheel. In other blockchain-related news: Amazon Web Services, the part of Amazon that makes money, is broadening its blockchain-as-a-service offering with the general release of Amazon Managed Blockchain. "Customers want to use blockchain frameworks like Hyperledger Fabric and Ethereum to create blockchain networks so they can conduct business quickly, with an immutable record of transactions, but without the need for a centralized authority. However, they find these frameworks difficult to install, configure, and manage," according to Rahul Pathak, General Manager, Amazon Managed Blockchain at AWS. Microsoft has been also an aggressive player in this market and is teaming up with JPMorgan on its blockchain offering. "Microsoft is to position JPMorgan's private version of ethereum, Quorum, as the cornerstone of its cloud-based enterprise blockchain offering to customers," says Finextra. "Under terms of an MoU signed between the two companies, Quorum will become the first distributed ledger platform available through Azure Blockchain Service, enabling JP Morgan and Microsoft customers to build and scale blockchain networks in the cloud."

A Revolut payment card
Daily briefing - 03 May 2019

Is Mastercard stepping ahead of its longtime rival Visa? The company this week announced a 27 percent rise in profits and it saw its price hit an all-time high as the company pivots towards the delivery of value on new digital rails. "The company's stock rose as much as 4.1 percent to $257.4 in morning trade," reported Reuters. "Total net revenue rose 8 percent to $3.9 billion, in the quarter ended March 31, beating the average analyst estimate of $3.86 billion. Mastercard, like rival Visa, has been looking to digitization to drive its business and diversify its customer base. The company recently partnered with Apple Inc and Goldman Sachs for the Apple card, which can be accessed digitally on an iPhone. Mastercard earlier this year dropped its name from its logo to distance itself from the notion it was only focused on 'cards', and suggest it was making a big foray into digital payments."Mastercard has been disrupting itself, thinking of how it would deal with a big competitor that took control of new rails that bypass cards schemes. This week Global Payments announced that it is to begin offering Mastercard's Pay by Bank app to its UK clients. Pete Bettles, Chief Operating Officer at Global Payments UK noted that the app enables digital processes. "As the number of ecommerce transactions continues to rise, customers need to be 'digital by default' in order to offer a smooth and secure user journey," he said. "We remain committed to delivering software driven cutting-edge payment solutions and our partnership with Mastercard allows our customers to be at the forefront of the next generation in digital payments." We occasionally track the rise of public relations industry relative to the news media. Public relations is a relatively new field, less than a hundred years old, so let's guess that back in the 1950s and 1960s, there might be one PR person to every few journalists. That kept rising. The ratio of journalists to public relations people back in 2008 was 1 to 3. Today it's one to six. That's an awful lot of flack. Now, for all their care in shepherding funds, fintechs have never been backward about coming forward and the PR business is an essential part of that. As several reports have pointed out, the latest wave of tech IPOs arrive on a flood of hype and PR. Just don't look at the numbers please. Arun Krishnakumar, writing at Daily Fintech, suggests that tech might be the new banking, but not in a good way. He selects OakNorth as a bright spot in Softbank's $100 billion portfolio, where it nestles alongside businesses such as Ping An, Uber and Alibaba. Softbank's bet is on sucking down vast gulps of citizen data and processing that through its machine learning technologies while driving towards a remote-controlled version of the future. But we're not the only ones sceptical about what boosters call "data-driven thinking". Krishnakamur writes: "I am sure Softbank will make handsome multiples when some of these shaky businesses go public. However, the success these firms managed with private money, would be hard to replicate in the stock market. If a few of them fail, that would trigger pain. There is enough negative PR about the tech industry's lack of ethics, diversity and how they manage data monopoly. Creating a bubble, riding it and exiting it before a market crash might just make Tech the New Banking. Softbank might have accelerated that process."Please note: Lafferty Daily Briefing will return on Tuesday 6 May following the public holiday in the UK and Ireland on 5 May.

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Thursday 2nd May @ 9:53am

What goes around comes around. Back in 2016, Lafferty Group suggested that banks should not rush to dispose of their merchant acquiring businesses. Why? The oversight of customer spending extending into the digital and physical sphere provides companies with a wealth of data useful for serving those customers better, a point well understood by the likes of Apple and Alipay. With a handful of deep-pocketed PE firms consolidating big processing organisations, and the rapid move...MORE

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Wednesday 1st May @ 10:05am

Can someone please explain what banks have against coffee? The future of finance, according to a lot of people in the know, is a banking app that shows you how to save money by, for instance, telling you not to have another coffee. JPMorgan Chase got in on the wheeze on Monday, tweeting advice to its customers in a particularly tone-deaf manner that mimicked a customer and a robot. ("You:

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Friday 26th April @ 10:02am

Banks, Facebook is making a major pitch for your business. For now, Facebook is just after your marketing business, and it's doing so in language that is a model of obfuscation and mistruth. Yes, a new survey of 18 to 34 year olds in the US, conducted for Facebook by Accenture, reports that this group want flexible finance, casual convenience and the human touch. (Quite why a survey was needed to find this is not clear, not least because Facebook often seems to know a lot...MORE

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Thursday 25th April @ 10:33am

Which is Germany's most dysfunctional bank or financial institution: Deutsche Bank, Commerzbank or newcomer Wirecard? In news that will come as a shock to no-one this morning, Germany's Deutsche Bank and Commerzbank have called off merger talks. Wirecard, meanwhile, is getting attention it doesn't want, and German authorities have come to its defence. Wirecard this morning announced that EY had...MORE

Wednesday 24th April @ 9:52am

Australia gets a new SME-focused bank this month as Judo Bank picks up its licence and goes into business. The fintech was founded by former NAB staff who plan what's now a familiar offering: a banking relationship built for the digital world. A report by Judo claims that Australian SMEs face a funding gap of $80 billion. Also familiar is the problem that most banks want a family home as collateral. "So what will Judo's

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Tuesday 23rd April @ 10:44am

Is it open season on capitalism? When Jamie Dimon is arguing that capitalism is not the solution to everything, we mortals should pay attention. What an election 2020 is shaping up to be in the US: Donald Trump will be unable to believe his luck as he sets out his stall as the last defender of capitalism. There's even talk that the Bank of England will select a new governor who once praised an anti-capitalist protest. What is the world coming to? Bank of England governor...MORE


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