Let’s end this week with the newest updates on fintech. For Europeans, one of the biggest stories this week was the proposed launch of EU Digital Identity and Wallet and we describe how the European Commission sees it. We also talk about Wise launching a service that has been among one of the most heavily requested in the past years. We discuss the possibility for disrupting Visa and Mastercard duopoly based on the latest data from Russia, Klarna’s huge bug, HSBS and ING investing in BNPL, Ally Bank permanently removing the overdraft fees across all account, Standard Bank launching a digital shopping mall for its corporate clients and more. Take a look at the latest fintech weekly.
On Wednesday, Ally Bank announced it would be eliminating overdraft fees across all accounts. The announcement comes as a huge relief to the customers as overdraft fees are seen as one of the most expensive and common checking account fees.
“Nationwide, more than 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances — precisely the people who need help stabilizing their finances,” Ally Financial CEO Jeffrey Brown said in a statement. “Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up.”
According to The Consumer Financial Protection Bureau, 5% of checking account holders overdraft more than 20 times per year. To add, the majority of the customers that pay overdraft fees are seen as “financially vulnerable”
“There’s been a lot of attention on this topic,” said Diane Morais, president of consumer and commercial banking at Ally Bank, and “it will continue to be an area of focus.”
Prior to the updated policy, the online bang charged $25 for overdrawing an account. Ally Bank waived the fees permanently.
The fintech company Wise announced on Tuesday a launch of a new service for their user base in India. The customers in India will now be able to send money abroad to 44 countries across the globe including Singapore, the United States, the United Arab Emirates, and the Eurozone.
Kristo Kaarmann, CEO and co-founder of Wise, previously known as Transferwise, pointed out that this feature has been one of the most heavily requested for years.
“India specifically, it is very exciting,” Kaarmann said. “Over the last, like almost a decade now, the build up of local payments infrastructure and UPI has been very interesting to observe.”
UPI, which stands for Unified Payments Interface is currently one of the most dominant digital payment methods in India. It stands out in comparison to other digital payment methods such as digital wallets in its interoperability – the users can utilize different platforms build on UPI to transfer money and perform transactions.
The UK-based Wise is known for its cross-currency transfers done online in a cheaper and faster way than a traditional bank would do. It allows the users to use a favorable exchange rate and transfer the money in a safe, efficient, and quick matter.
The South Africa-based Standard bank has just opened an online marketplace and developer network that its corporate clients can use to procure digital tools and services created by the bank and a variety of its partners.
The digital shopping mall is called OneHub and gives the clients a single point of entry to several digital tools and services ranging from KYC to account opening. The corporate clients will also be able to use OneDeveloper that provides an API sandbox for the developer community that can network on business-to-business problems.
Jonathan Lamb, head of platform business at Standard bank, says: “By assisting corporates with their digital transformations, OneHub is aligned to Standard Bank’s strategy to develop ecosystems of partner organizations in order to satisfy a range of client needs, including non-financial needs. Over time, our ambition is for OneHub to become the go-to platform for business-to-business (B2B) solutions and APIs on the continent.”
Until now, in Russia, Mastercard and Visa had a duopoly. However, it may all change soon as it looks like a rival can disrupt the current state of things.
For a long time, the European Central Bank has eyed the idea of a home-grown strategy that could effectively compete with the giants such as Visa or Mastercard. Last year, the ECB announced a plan aiming at a unified pan-European payment system that offers a card, digital wallet, and P2P payments for all customers and businesses across Europe. The plan was announced through the European Payments Initiative (EPI)
Although many have been skeptical to the idea of rivaling with giants such as Visa and Mastercard given their dominance, the newest evidence from Russia indicates it is possible.
Back in 2015, Russia set up its new national payments card network, Mir. As of 2020, almost 75 million debit cards have been issued which account for roughly 29% of all debit cards in circulation, bumping Mir’s market share to 25.3$ in terms of the transaction value.
However, what is crucial to mention is that this success required a heavy state intervention which is unlikely to happen in Europe. To illustrate, the Russian government forced all public sector employees that receive state funds and welfare benefits to switching to Mir cards. The same situation happened with pensioners. To add, merchants with annual transaction turnover that surpasses $500 000 were forced to migrate to Mir, with the threshold about to be reduced to $250 000 in July.
Chris Dinga, payments analyst, GlobalData, says: “Governments can introduce payment schemes and take over the domestic transaction landscape by driving adoption via mandates and regulation. Indeed, this could be the model the European Commission follows when it launches its own payment scheme”.
The BNPL big player, Klarna, had to temporarily close access to its app yesterday after what they refer to as a “self-inflicted incident” that caused some users to log into other people’s accounts.
What was described by Klarna as a human error during an update resulted in a 31-minute time frame where 9500 users saw their personal data compromised. Klarna announced that the card and bank details were not shown and the information visible classify as “non-sensitive” under GDPR.
However, one London-based customer reported on Twitter: “I was able to see users’ partial card details under the “Payment Methods” section including bank names and mandate reference IDs. I was also able to remove stored card details and/or add new card details.
The user adds that he saw the details of “more than 20 random users,” and had access to phone numbers and purchase histories.
The Buy Now Pay Later startup Divido has just closed a $30 million Series B round led by HSBC and ING. Sony Innovation Fund by IGV, SBI Investment, OCS, Global Brain, and DG Daiwa Ventures, DN Capital, Dawn Capital, IQ Capital, and Amex Ventures joined the round.
Divido’s platform aims at connecting lenders, merchants, and partners at the point of sale, enabling sellers to offer their clients a BNPL option. The company has been launched back in 2014 and currently has over 1000 clients spread across their ten markets.
Catherine Zhou, global head, venture, digital innovation and partnerships, HSBC, says: “There is a clear demand for retail finance across the globe, both from customers and merchants. The Divido platform enables lenders to serve customers in this area with a compelling, well-managed proposition.”
This week, the European Commission announced a proposed framework for a European Digital Identity available to all EU citizens, residents, and businesses. The data of launch can be as soon as Q3 of 2022.
Under the proposed regulations, public authorities, as well as private EU entities, will be able to offer digital wallets that link their national digital identities with proof of other personal attributes such as diplomas or bank account.
The Commission has encouraged the Member States to establish a common toolbox by the fall of 2022 and start all the necessary preparations now. By 2022, the Commission expects the technical architecture, standards and guidelines and best practices to be ready.
The Commission pointed out that the European Digital Identity will:
- be available to any EU citizen, resident and business,
- be widely useable as a way to either identify users or to prove certain personal attributes, for the purpose of access to public and private digital services across the union,
- enable people to choose which aspects of their identity, data, and certificate they share with third parties, and to keep track of such sharing. User control ensures that only information that needs to be shared will be shared.
Margrethe Vestager, executive vice-president for a Europe fit for the digital age said: “The European digital identity will enable us to do in any Member State as we do at home without any extra cost and fewer hurdles. Be that renting a flat or opening a bank account outside of our home country. And do this in a way that is secure and transparent. So that we will decide how much information we wish to share about ourselves, with whom and for what purpose.”
Commissioner for Internal Market Thierry Breton added: “EU citizens not only expect a high level of security but also convenience whether they are dealing with national administrations such as to submit a tax return or to enroll at a European university where they need official identification.”
“The European Digital Identity wallets offer a new possibility for them to store and use data for all sorts of services, from checking in at the airport to renting a car. It is about giving a choice to consumers, a European choice. Our European companies, large and small, will also benefit from this digital identity, they will be able to offer a wide range of new services since the proposal offers a solution for secure and trusted identification services,” he concludes.