Daily Dash: US BNPL Users More Likely To Be Indebted

March 3, 2023
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New US research shows extent of buy now, pay later (BNPL) user indebtedness, financial crime on the rise in Denmark, senior Mastercard executive becomes chief of influential think tank and Australia names Mastercard as participant in CBDC pilot.

BNPL Users Are Routine Borrowers, US Agency Says

In a new report looking at the financial profiles of buy now, pay later (BNPL) users, the US Consumer Financial Protection Bureau (CFPB) finds that these borrowers are more likely to be active users of other types of credit products like credit cards, personal loans and student loans.

Specifically, BNPL borrowers used other loan products more often than non-borrowers, including retail accounts (62 percent compared with 44 percent), personal loans (32 percent compared with 13 percent) and student loans (33 percent compared with 17 percent).

In line with that, BNPL users are more likely to be “highly indebted or have revolving balances or delinquencies” on their credit cards compared with consumers who do not use BNPL.

For example, 18 percent of BNPL users had at least one reported delinquency in another account, compared with 7 percent of non-borrowers. 

Delinquency rates were substantially higher for credit and retail cards among BNPL borrowers (9 and 8 percent) compared with non-borrowers (3 percent and 1 percent respectively).

“A common misconception of Buy Now, Pay Later borrowers is that they lack access to other forms of credit. Our analysis shows that these borrowers are more likely to use other credit products,” said CFPB director Rohit Chopra.

“Since buy now, pay later is like other forms of credit, we are working to ensure that borrowers have similar protections and that companies play by similar rules,” Chopra added.

Financial Crime On The Rise, Warns Danish Lobby Group

The number of financial criminals is increasing, Finans Danmark has cautioned, stating that there were 67,000 notifications of money laundering from banks last year.

Although the number is high, Finans Danmark also pointed out that only 581 cases were decided in the first half of 2022, adding that if criminals are to be caught and prevented, then information must be shared between the banks. 

Finans Danmark proposes that authorisation be given for information to be shared in its new report on the matter. 

"We have good cooperation with the authorities. But it's just not enough, because the legislation stands in the way if the problems are to be seriously solved,” said Kjeld Gosvig-Jensen, legal director at Finans Danmark. 

“Finans Danmark therefore proposes that a clear authority be given for the exchange of information between the financial institutions, which of course also takes proportionality and high data protection into account.”

Mastercard Leader Scores Role At Influential Think Tank

Michael Froman, who currently serves as vice chair and president for strategic growth at Mastercard, has bagged a new role as president of the Council on Foreign Relations (CFR).

The CFR is a non-partisan think tank that was first established in 1921 and focuses on US foreign relations.

“We congratulate Mike Froman, who will serve as president, Council on Foreign Relations. It is a testament to his distinguished career spanning over three decades across the highest levels of the government and the private sector,” Mastercard said in a statement. 

“His invaluable experience at the intersection of foreign policy, national security, and international economics makes him an ideal choice.”

Mastercard Named Among Participants In Australian CBDC Pilot

The Reserve Bank of Australia (RBA) has announced the names of payments industry firms that will take part in its central bank digital currency (CBDC) pilot in 2023.

Supported by the state-backed Digital Finance Cooperative Research Centre (DFCRC), the pilot will explore the potential use cases and economic benefits of an Australian CBDC.

Mastercard was named as one of the companies whose submission to take part in the pilot was successful. Over the coming months, Mastercard will explore “interoperable CBDC for trusted Web3 commerce” as its assigned use case.

Other successful applicants include ANZ bank, whose assigned use cases include “offline payments” and “CBDC distribution”. The RBA said it received a large number of use case submissions from a range of industry participants. 

Bank Of Israel Offers International Players Market Access

The Bank of Israel has issued a framework providing international payment service providers access to regulated payment systems in Israel.

It will enable foreign payments companies that are licensed in the US, UK or EU to operate in Israel by connecting to local payment systems, providing services to customers and businesses using payment cards, instant payments, ACH transfers and RTGS transfers.

“Providing access to regulated payment systems in Israel by international payment service providers will increase competition and lead to more diverse products offered to the Israeli public in the payments arena, and ultimately in other financial service sectors deriving from payments,” said Oded Salomy, payments lead at the central bank.

Effective immediately, this framework enables such entities to provide services to the public in Israel, relying on a licence issued in a foreign country. 

The central bank expects this announcement to bolster innovation in the payments arena and to spur entry of new market participants.

“We invite prospective new players that meet the exemption requirements to contact the Payment Systems Oversight Division at the Bank of Israel, to receive consultation and advice on how best to access local payment systems,” said Salomy. 

Revolut Becomes Profitable For First Time

Revolut has announced that it generated £636m revenue in 2021, tripling its revenue from the year before. For the first time, it also scored a net profit of £26.3m.

The UK fintech, which is valued at £33bn, said it increased revenue across all major product lines including payments, subscriptions, Revolut business and foreign exchange and wealth.

The growth was also in part due to an increase of more than 50 percent in weekly active retail customers, according to Revolut. The company currently has 25m customers, up from 11m in early 2021.

“2021 marked a significant milestone for the company, as it was the first year in which we became profitable,” Martin Gilbert, chairman of Revolut, said.

“This strong financial performance shows Revolut has efficiently moved from the ‘start-up’ business that is only focused on growth, to the ‘scale-up’ looking to grow profitably."

The company’s auditor, BDO, however, cautioned that it was unable to independently verify three quarters of its revenues. According to Reuters, it warned that some information in the account could be "materially misstated".

US Fed Denies Request To Reconsider Custodia Bank Master Account Application

The Federal Reserve Board (FRB) has denied a request by Custodia Bank, a major digital asset bank based in Wyoming, for reconsideration of its master account application.

In January, the FRB ruled that Custodia’s application was inconsistent with the required factors under the law, including “safe and sound” banking practices. 

The FRB’s rules permit an applicant to request that the board reconsider an application decision, but do not oblige the FRB to do so.

In February, Custodia informed VIXIO that it had filed an amended complaint against the FRB that challenges the legality of the board’s decision to reject the application.

UK Government Launches National Hub For Fintech

A new government-backed national hub for fintech, the Centre for Finance, Innovation and Technology (CFIT), has been launched in Leeds. 

CFIT is the first of its kind in the world and is backed by £5.5m funding from HM Treasury (HMT) and City of London Corporation funding.

“The UK is a world-leading location for fintech growth and investment. It’s a real British success story and one that’s spread across the whole UK,” said Andrew Griffith, an HMT minister.

The new body seeks to build on the dominance of the UK’s fintech sector, which is currently second globally only to the US for investment.

“The launch of CFIT today represents a significant moment for the UK’s fintech sector and our economy more widely,” said CFIT chair Charlotte Crosswell.

Crosswell, who stood down from her role leading the Open Banking Implementation Entity in January, added that the organisation will enable the sector to come together to start breaking down barriers that the fintech sector is facing, while also creating a clear path for homegrown fintech companies to achieve global scale, impact and success.

The new quango was a key recommendation in the 2021 Kalifa review, whose author, Ron Kalifa, has commented he is “thrilled” to see it launch.

US Supreme Court To Decide On CFPB Fate, Again

The US Supreme Court (SCOTUS) is going to hear a case that challenges the funding structure of the Consumer Financial Protection Bureau (CFPB) and puts in jeopardy all the actions the agency has made since its inception.

Last October, a three-judge panel at the Fifth Circuit said the CFPB’s funding structure is unconstitutional because it is not subject to periodic congressional appropriations and instead receives funding from the Federal Reserve when requested.

The case, filed by payday lender Community Financial Services Association of America, was originally aimed at challenging the CFPB’s payday lending rule. 

The lender successfully argued that the rule was invalid as it is the product of an unconstitutional funding scheme. 

The decision has created a significant level of uncertainty regarding other CFPB actions, effectively calling into question their validity.

SCOTUS has now revealed it agreed to hear the CFPB’s appeal against the Fifth Circuit decision.

Commenting on the news, the American Bankers Association said it supports setting up an appropriations process for the bureau, while it hopes that the resolution ensures “Americans continue to have access to the financial products they want and need, along with the protections they deserve”.

Indian Billionaire Pays Street Vendor Using Digital Rupee In Viral Tweet

Anand Mahindra, an Indian business tycoon worth $2.1bn, has been seen by more than 1.7m Twitter users paying for fruit from a street vendor in Mumbai using the digital rupee.

When he posted the clip, Mahindra said he had only just learnt about how to use the digital rupee while meeting with officials from the Reserve Bank of India (RBI) earlier in the day.

Since last November, as reported by VIXIO, India has been testing a pilot version of its CBDC, the digital rupee, in selected areas.

Raoul Pal, CEO of Real Vision and former Goldman Sachs trader, said of India’s central brank digital currency: “It’s incredible what they are rolling out. India is leading the global fintech revolution.”

US Consumers Lost $8.8bn To Scams Last Year

US consumers reported losing nearly $8.8bn to fraud in 2022, an increase of more than 30 percent over the previous year, new data from the Federal Trade Commission (FTC) shows.

A large part of that money, $3.8bn, was lost to investment scams, while another $2.6bn loss came from imposter scams.

In total, the agency received 2.4m complaints from consumers, where imposter scams and online shopping scams topped the list.

Although US federal laws do not require financial institutions to reimburse their customers for money lost to authorised payments, such as scams, the FTC asks businesses to stay alert, as the “$8.8bn pocketed by fraudsters means $8.8bn less for consumers to spend on goods and services offered by honest businesses”.

It also warns that the rise of business imposters should be “particularly troubling” as it could lead to “incalculable losses” in consumer confidence, even in the case of legitimate businesses.

Malaysia Central Bank Publishes Exposure Draft On e-KYC

Bank Negara Malaysia (BNM) has published an exposure draft on its proposed requirements and guidance for implementing electronic know your customer (e-KYC) solutions when onboarding clients to financial services.

The proposals seek to accommodate advancements in technology so that e-KYC solutions can be adopted safely and securely by banks, remittance and payments firms, while preserving the integrity of the financial system.

For individuals, financial institutions are asked to verify government-issued IDs using biometric data, fraud and/or “liveness” detection mechanisms, such as photo or video verification.

For businesses, identification of an “authorised person” must be performed alongside verification of the business’s legal existence and compliance with anti-money laundering/counter-terrorism financing controls. 

BNM has given stakeholders until May 2 to submit feedback on the proposals.

US Targets Wealth Management In Latest Russian Sanctions

The US Department of the Treasury has announced a new round of sanctions against Russian banks and companies that help Russia evade existing sanctions.

The new designations include more than a dozen financial institutions in Russia, including Credit Bank of Moscow, one of the top-ten largest banks by asset value, as well as wealth management firms and smaller banks that are often used by sanctioned individuals to evade sanctions.

These companies add to the list of already sanctioned Russian financial institutions, which represent more than 80 percent of total Russian banking sector assets, according to the Treasury.

Additionally, the Treasury sanctioned several companies in the metals and mining sector and third-country firms connected to Russia’s sanctions evasion efforts.

The actions were taken in coordination with the UK, EU and other G7 countries.

US Federal Grand Jury Indicts Russian Founders Of $340m DeFi 'Ponzi Scheme'

A federal grand jury in Oregon has charged the founders of Forsage, a decentralised finance platform (defi), with operating a global Ponzi and pyramid scheme that defrauded investors of $340m.

The four suspects are all Russian nationals, who allegedly built the fraudulent scheme into Forsage’s source code across the Ethereum, Tron and Binance Smart Chain (BSC) blockchains.

According to the indictment, analysis of Forsage’s smart contracts allegedly revealed that, as soon as a person invested in the platform, their funds would be automatically diverted to other Forsage investors, such that earlier investors were paid with funds from later investors.

Each of the founders is charged with conspiracy to commit wire fraud and, if convicted, faces a maximum penalty of 20 years in prison. The case is the first alleged criminal fraud involving a defi platform.

Mastercard Gets Certified For Australia Consumer Data Right

Mastercard has been approved as an unrestricted Accredited Data Recipient (ADR) under the Consumer Data Right (CDR) by the Australian Competition and Consumer Commission (ACCC). 

“Open banking is set to transform the way consumers can connect with and control their data, in everything from budgeting and payments to investing and lending,” said Richard Wormald, Mastercard’s division president for the Australasian region. 

The accreditation will help the card giant provide open banking for more Australian businesses and consumers, and the company’s partners will not need to also seek certification. 

“The more organisations taking part in the open banking space, the better the outcomes for individuals,” said Wormald. “It enriches individuals’ data, affords them more choice and control over which products they select in an open, safe, secure and transparent manner.” 

The CDR is Australia’s equivalent of Europe’s open banking, enabling consumers to give businesses permissioned access to their data. Banking data is currently available, although the ACCC is to expand the data right to the energy sector next.

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