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Home » Daily Briefing » Daily briefing - 03 July 2019

Daily briefing - 03 July 2019

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Some historians trace the rise of consumer credit in America back to the Singer sewing machine, which became popular in the 1850s, with women showing particular enthusiasm for financing the devices. "A dollar down, a dollar a week," was the slogan. By the 1920s, Americans were buying up to two-thirds of their consumer goods on credit. The ultimate expression of credit was of course investing with credit, also known as leverage, which gave us the Wall Street Crash of 1929 and the subsequent Great Depression, which economists are on the verge of understanding. Those days also saw the rise of merchant credit, most famously expressed by Sears & Roebuck, which eventually became the Discover card brand. But cards are suddenly looking under threat from the new digital platform players. So it's time for a new wheeze, preferably digital. And now they're back: Instalment plans, but digital! With Visa and Mastercard synonymous with the point of sale, there's a chance for them to issue credit themselves rather than through their issuing bank partners. "As alternative financing increases in popularity, particularly among younger customers who don't have credit cards but are looking for more flexible ways to pay, POS financing platforms could steal share from credit cards in particular, in turn presenting a threat to networks like Visa and their issuing partners, which are taking note and responding," notes BusinessInsider. "As an established company with preexisting merchant relationships, Visa may be able to convince merchants to offer its POS financing solutions instead of, or at least in addition to, those from startups like Klarna, Afterpay, and Affirm that have been largely focused on e-commerce payments. What may make Visa's offerings most compelling is that they can be used in-store so there's no gap in their availability, which could bring partnerships and, in turn, volume, to the platform; that's particularly important considering that Klarna and others have been bringing their solutions in-store."

Singapore and Hong Kong feature prominently in banking news recently as proxies in the battle between incumbents and challengers. But with investment from the city state's wealth fund, the incumbents have been beefing up and undergoing transformation. 'The announcement by the MAS that it will issue up to five new digital bank licences is credit negative for small foreign-owned incumbent banks in Singapore,' Simon Chen, vice president for financial institutions group at Moody's Investors Service, said in a note on Tuesday, indicating that their credit ratings may suffer as a result. 'Their modest domestic franchises will face the greatest disruption risk from digital bank entrants,' he added in a statement. Hong Kong has a similar framework for digital bank licenses. In recent months, the Hong Kong Monetary Authority began granting digital-only banking licenses to firms that are backed by the likes of Standard Chartered, Tencent and Alibaba-affiliate Ant Financial, among others."

Among those setting up in Singapore is Revolut. Revolut has appointed Richard Davies as its new chief operating officer after facing scrutiny in the UK and Lithuania over its compliance procedures. Mr Davies was chief executive for OakNorth during its early days, and also worked at HSBC and TSB in recent years. In the sacred sprint to scale up, Revolut simply bypassed some compliance procedures, including turning off systems that were meant to flag suspicious transactions. "The board was informed in 2018 that automated systems to block suspicious transactions had been disabled for months, meaning that thousands of illegal transactions may have flowed through the app's systems between July and September. The automated system had reportedly been blocking many legitimate transactions that were cropping up as "false positives", much to the chagrin of users. This inspired the bank to disable its blocking system and switch over to a screening process, which allowed suspicious transactions to be made and then later reviewed."

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