By Daniel Döderlein, CEO and founder of Auka
Six months ago I warned that Facebook’s announcement of a partnership with MasterCard was bad news for banks. I said that the next step for Facebook would be the creation of an accounts console of sorts, where payments could be made directly to contacts and merchants. On Monday, in the UK and France, Facebook launched P2P payments.
In 2015, WIRED reported how Facebook wanted their Messenger App to be the “app for everything”. Payments are, of course, part of this vision. For now, users will be able to link their MasterCard or Visa card as the funding source and pay contacts who’ve also enabled the functionality. This is much like Apple just announced with their soft launch of Apple Pay P2P and their linked Apple Pay Cash card.
If a user doesn’t have the functionality set up, Facebook will send them a prompt to enable it. Thus creating the viral spread in their quest to dominate this space, replicating how successful mobile wallets in China, the US and Scandinavia also gained traction. It’s one key part of the “formula”. It plays on people’s networks for spread – and who is better at this than Facebook?
As soon as they’re able, Facebook will cut the middlemen (MasterCard and Visa) and let users draw the funds directly from their bank accounts. This will save time for users in receiving funds but more importantly, for Facebook, it’ll mean the processing fee they pay to the card companies for every transaction is scrapped, while money flows in and out of bank accounts. The European PSD2 regulation will make this happen and Facebook already has the license in place to get access.
One of the first things we discuss with potential bank clients is (or, was) this eventuality. Last month we conducted an independent survey of 1,500 senior bankers from across 15 European countries which found that over a quarter (26%) believe the likes of Facebook, Google and Amazon will take the role of the bank within the next five years.* It seems they’ve been watching the news but not fully realising this eventuality is, to a large extent, in their own hands.
Whereas once it was almost certainly the banks who underpinned, created and benefited from the payments process, we’re now seeing a distinct payment-control fragmentation across the world.
In China, the world’s largest economy, the likes of AliPay and WeChat Pay clearly dominate the payments landscape. The world’s second-largest economy, India, demonstrated their hunger for a better mobile payments experience when 7.5 million users downloaded Google’s TEZ in its first-month post-launch. In the US, there is a land grab between Apple, PayPal (Venmo) and various other third-parties. Retail giant, Walmart, has just announced that they’re close to surpassing Apple Pay in usage for mobile payments in the US.
In most of Europe, PSD2 regulation will certainly drive payments change and there isn’t a clear winner yet. Of markets where mobile payment usage is prevalent, it’s only in Scandinavia that banks have retained their historical ownership of the payments process. The Scandinavian bank issued mobile payments are favoured and actively used by 65 percent of the total population.
Regardless of the region, where there is true mobile payments success, there is evidence of the same formula being used. It doesn’t matter who uses this formula to create the success – tech company, bank or retail giant – it just matters that the same principles are applied.
In Europe, existing payment services directives have meant that only those with a banking licence (banks) have been allowed to do certain things when it comes to account access and payments. That is of course unless the bank works closely with them in a mutually satisfying partnership. This means that it’s harder for AliPay or Google or anyone without the appropriate approvals to come into Europe and replicate the success they’ve enjoyed elsewhere. Once PSD2 has been implemented, however, that all changes. Banks will no longer have a choice but to give third-parties access to accounts through their newly created and opened APIs. Mutually beneficial or not.
We saw that in India, soon after their version of PSD2 (the Indian Reserve Bank’s UPI system) was implemented, Google took advantage by launching Tez. The Tez concept is something that an Indian bank could well have successfully created and launched themselves prior to their new regulations dictating they hand over account access. You see, it ticks the boxes when it comes to the “mobile payments success formula” mentioned above.
When considering all of the successful mobile wallet solutions mentioned above and as stated, regardless of what kind of company they originated from, they all have the following five things in common. This is the basis of the formula:
Anyone can use the platform to send and receive money quickly and easily, regardless of what bank they belong to. It’s a common platform for everyone.
The mobile payments solutions all solve problems for users. Examples of the problems solved include not having physical cash when splitting a bill or transferring funds owed, not having to recall complicated account numbers or risk sending payment to the wrong person and paying a merchant or person for goods or services quickly and easily with no third-party hardware. There are so many big and small problems being solved for everyone that the solutions could hang their hats on this alone.
All have the function mentioned above in that if a recipient doesn’t have the platform, they’re prompted to download it in order to receive their money. The promise of funds is a pretty big dangling carrot for most.
In a world of online social interaction, it seems rather soulless that your bank limits you to a standalone screen with a small “reference” field only. All successful mobile payments schemes allow users to conduct conversations with each other the way they would using any other chat or messaging apps.
Path to monetisation
You didn’t think these various companies dominating mobile payments were doing it purely out of the spirit of wanting to people’s lives easier, did you? All of the solutions can see a clear short and long-term path to cashing in. To date, no banks apart from those in Scandinavia have made money from mobile payments. Two of the ways that successful wallets (who are all following the same core formula) are making and will make money include more successful marketing and upselling based on robust personal data which previously wasn’t available and secondly, with third-party and merchant fee generation.
Facebook will surely seek to follow this formula across Europe, post-PSD2. The question is, which regions banks will secure their territories by rolling out their own successful wallets first?
*Through LM Research and Marketing Consultancy
Chinese fintech platforms expected to meet capital requirements within two years – regulator
BEIJING (Reuters) – China’s financial technology companies are expected to meet capital adequacy requirements within a maximum of two years, said Guo Shuqing, head of the China Banking and Insurance Regulatory Commission (CBIRC) on Tuesday.
Micro lenders, consumer finance firms and banks operated by internet platforms should all have adequate capital like other financial institutions, Guo said at a news conference.
Chinese financial regulators have rolled out a slew of measures since last year to tighten the oversight of online lending practices in the country, particularly of technology firms looking to expand into the financial space, moving away from its once laissez-faire approach.
The drive scuppered Ant Group’s $37 billion initial public offering last year and has seen Alibaba’s fintech affiliate formulate plans to shift to a financial holding company structure.
“Starting a business needs capital, so does starting a financial business,” Guo said.
“As long as internet platforms conduct financial operations, the requirement of capital adequacy ratio on them should be the same as financial institutions.”
Financial regulators have set various grace periods for different internet platforms, according to Guo. Some have until the end of 2020 and others until the middle of 2021 to meet capital adequacy requirements, he said.
“But by a maximum of two years, (the capital adequacy of) all platforms should be back on track,” Guo added.
With regards to Ant Group’s restructuring, Guo said there were no restrictions on the financial business it develops but that all of its financial activities should to be regulated by laws.
Ant Group is in talks with other shareholders in its new consumer finance unit to bolster the firm’s capital as the fintech giant prepares to fold in its lucrative micro-lending businesses, Reuters reported last week.
It would need an additional capital of 30 billion yuan ($4.64 billion) to meet regulatory requirements, according to the report.
($1 = 6.4714 Chinese yuan)
(Reporting by Tina Qiao, Cheng Leng and Ryan Woo in Beijing; Se Young Lee in Washington; Editing by Christian Schmollinger and Ana Nicolaci da Costa)
Oil rises as vaccine and U.S. stimulus boost demand outlook
By Laila Kearney
NEW YORK (Reuters) – Oil prices were up on Monday on rising optimism about COVID-19 vaccinations, a U.S. economic stimulus package and growing factory activity in Europe despite coronavirus restrictions.
Signs that Chinese oil demand is slowing kept prices from moving higher.
Brent crude rose 51 cents, or 0.8%, at $64.93 a barrel by 11:29 a.m. EST (1629 GMT), and U.S. West Texas Intermediate (WTI) crude gained 28 cents, or 0.5%, to $61.78 a barrel.
Both contracts finished February 18% higher.
“The three major supportive factors are the prevalent vaccine rollouts, the optimism about economic growth and the view that the oil balance will get tighter as a result of the first two points,” PVM Oil Associates analyst Tamas Varga said.
Support also came from a $1.9 trillion coronavirus-related relief package passed by the U.S. House of Representatives on Saturday.
If approved by the Senate, the stimulus package would pay for vaccines and medical supplies, and send a new round of emergency financial aid to households and small businesses, which will have a direct impact on energy demand.
The approval of Johnson & Johnson’s COVID-19 shot also buoyed the economic outlook.
Manufacturing data from around the world was mixed.
China’s factory activity growth slipped to a nine-month low in February, sounding alarms over Chinese crude buying and pressuring oil prices.
“One negative is more and more talk about Chinese oil demand maybe faltering, that they bought all the oil that they’re going to need for a while,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “There’s some talk that their strategic reserves are filled up and so some people are betting against the Chinese continuing to drive oil prices.”
German activity, on the other hand, hit its highest level in more than three years and Euro zone factory activity raced along, driven by rising demand.
OPEC oil output fell in February as a voluntary cut by Saudi Arabia added to agreed reductions under a pact with allies, a Reuters survey found, ending a run of seven consecutive monthly increases.
The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, meet on Thursday and could discuss allowing as much as 1.5 million barrels per day of crude back into the market.
(Additional reporting by Bozorgmehr Sharafedin in London, Jessica Jaganathan and Florence Tan in Singapore; Editing by Jason Neely, Edmund Blair, Barbara Lewis, David Evans and Will Dunham)
EU auditors warn over 5 billion euro emergency Brexit spending
BRUSSELS (Reuters) – The European Union lacks tight oversight of 5 billion euros in emergency Brexit aid, the bloc’s auditors said on Monday, warning over governance risks regarding quick cash injections as Brussels prepares to disburse massive amounts of COVID-19-related stimulus.
The European Court of Auditors (ECA) said member states are due to get 4 billion euros, or most of the funding from the so-called Brexit Adjustment Reserve this year, without the usual requirement to agree with the bloc’s executive in advance what exactly they plan to spend it on.
“We therefore raise concerns that this proposed timing and structure creates a lack of certainty where member states may choose suboptimal or ineligible measures,” said Tony Murphy, a member of the ECA, an agency set up to ensure EU funds are spent properly.
Murphy said EU countries would only report on their completed spending in September 2023 and would need to pay back money that would not be deemed eligible.
“We would like to see changes,” to improve financial management and ensure the overall effectiveness of the Brexit emergency fund, Murphy said, though he said the ECA realised those most affected by Brexit needed the money swiftly.
Based on the size of trade ties with now-departed Britain and the share of fish catch in UK waters, Ireland is due to get a quarter of the Brexit emergency allocation, followed by the Netherlands, Germany and France.
As the EU moved from a protracted Brexit crisis to grappling with the coronavirus pandemic, last year it designed another unprecedented spending plan – economic stimulus worth 750 billion euros to pull member states out of a record recession.
While EU countries need to pre-agree with the Brussels-based European Commission their spending plans to receive recovery money, Murphy said trade-offs between swift and diligent spending were on the auditors’ minds.
“What we’d be striving at is a good balance between flexibility and appropriate control structures,” he said. “They are emergency measures, we can’t wait around for years for the plans to be drafted. It’s a matter of getting the balance right.”
(Reporting by Gabriela Baczynska; Editing by Hugh Lawson)
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