FRIDAY JULY 16, 2021 VOL. 186 No. 135 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Citigroup forecasts higher 5 expenses as it revamps its business model Share of listings with The global company says that a quicker- than-expected economic recovery is creating some opportunities to invest in businesses bidding wars that will generate returns over time. Page 5 See story on page 6 Bidding wars lessen as buyer May 2021 June 2021 6 fatigue hits housing market 90% Competition amongst those shopping for homes fell for the second straight month 80% as surging prices pushed consumers to the 70% sidelines and inventory saw modest gains, 60% according to Redfin. (See chart, left.) Page 6 50% BBVA debuts biometric 40% 7 cards in Mexico as 30% test run for global rollout 20% The bank is piloting fingerprint-reading cards that work with existing payment 10% terminals. Its goals are to strengthen security 0% for large transactions and to inform future Sarasota, Charleston, Reno, Charlotte, Kansas City, Spokane, deployments in other markets. Page 6 Fla. S.C. Nev. N.C. Mo. Wash. Source: Redfin Visa invests in crypto 8 even as merchants balk The card brand is working with 70 cryptocurrency companies to meet dailybriefing Bank M&A will get consumer demand for paying in bitcoin and 3 tougher after Biden order, other digital currencies at the point of sale. PNC’s Demchak says It had little choice given that most retailers Wells Fargo’s Scharf PNC’s recent acquisition of BBVA’s U.S. don’t accept crypto directly and are in no 1 finally making headway operations won quick approval from rush to do so. Page 7 on cost-cutting goals regulators, but a recent presidential directive The bank’s noninterest expenses fell by promises more scrutiny of such deals, N26 eyes value of about 8% in the second quarter — a sign that according to CEO Bill Demchak. Page 4 9 $10B in fresh fundraising CEO Charlie Scharf is making progress in N26 is holding discussions with investors reining in spending that had been soaring BofA predicts consumer to raise several hundred million dollars in in recent years amid heightened regulatory 4 spending will drive loan a fundraising that could value the German scrutiny. He ultimately hopes to reduce gross growth in second half fintech at about $10 billion, according to expenditures by $8 billion annually. Page 2 Bank of America expects interest income people familiar with the matter. Page 9 to rise as stronger borrowing outweighs the Fed’s Powell calls for stricter impact of low rates. The upbeat forecast is in The next financial 2 oversight of stablecoins contrast with remarks from JPMorgan Chase 10 crisis is edging closer. As the Federal Reserve mulls whether executives. Page 4 There’s time to stop it. to establish its own digital currency, Fiscal restraint, the reversal of enormous Chair Jerome Powell told lawmakers that amounts of monetary stimulus, smarter cryptocurrencies designed to have the regulation and job retraining are among the stability of bank deposits and money public policy steps that could interrupt the market funds should be regulated long U.S. tradition of boom-and-bust accordingly. Page 3 cycles. Page 9 FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 2

of expenses as a percentage of revenue — of after its earnings report was released, ending EARNINGS 66%. That was down substantially from 80% in the day up 3.98% to $44.95. the second quarter of 2020, but still up from Still, the nation’s fourth largest bank 62.3% in the same period in 2019, and above continues to work to address regulatory Wells Fargo’s the ratios reported this week by JPMorgan concerns, particularly those of the Fed, Chase, Citigroup and Bank of America. which imposed the asset cap in the wake Scharf finally “[It’s] too early to call full victory, but this of a series of consumer scandals. Though quarter was definitely a very important step Wells is making progress on addressing in the right direction,” said Scott Siefers, those concerns, related legal costs can be making managing director at Piper Sandler, who said “lumpy and unpredictable,” Santomassimo the company’s expenses came in below his cautioned during a conference call with headway on expectations. analysts. Wells has reduced its locations by about 5% Santomassimo also said that Wells is since the start of the year, parting ways with “seeing signs of green shoots” in auto loans, cost-cutting more than 2 million square feet of real estate. credit cards and commercial real estate, even It is selling a tower in downtown Phoenix as overall loan balances have continued to goals and continues to evaluate upcoming lease decline. Average loans fell to $854.7 billion in expirations for further closures, said Chief the second quarter, down from $873.4 billion By Polo Rocha Financial Officer Michael Santomassimo. in the first quarter and $971.3 billion a year July 14, 2021 The bank’s real estate footprint was due for earlier. The dip reflected subdued demand After several years of swelling expenses, some trimming even before the pandemic, for credit as businesses and consumers the cost-cutting push by Wells Fargo CEO and Wells still has a “significant opportunity to remain flush with savings and pay down their Charlie Scharf is finally showing signs of right-size some of that space,” Santomassimo existing credit lines. progress. said in a conference call with reporters. The unusually high payment rates by The San Francisco company is on track to He added that customers’ increased use of borrowers will “normalize eventually” meet its full-year expense guidance of about digital tools will allow for fewer employees. and prompt an uptick in loan balances, $53 billion, which is $4.6 billion lower than its “It will not only make us more efficient,” but it is unclear when that will happen, 2020 expenses, executives said Wednesday. Santomassimo said. “I think over time, it Santomassimo said. Noninterest expenses fell to $13.3 billion will actually allow us to do a much better In one recent strategic pivot, Wells decided in the second quarter, an 8% drop from the job serving customers in a more streamlined to shut down customers’ personal credit same period a year earlier. way, which would be good for everybody.” lines, eliminating the product in favor of The headway on costs was welcomed by The bank’s net income rose to $6 billion in credit cards and personal loans. analysts who were sometimes frustrated the second quarter, outperforming analysts’ Asked about the decision, Scharf told by earlier Wells Fargo executives after they expectations, and up from a $3.8 billion analysts that it followed the bank’s “exhaustive frequently failed to deliver on key targets. loss in the same period last year, when effort” to simplify the business and scrap “Given what they can control, we think the COVID-19 pandemic hammered bank unneeded parts, such as its international management is doing a pretty good job,” profits. wealth business, asset management services said Kyle Sanders, senior equity research Wells Fargo’s stock price rose Wednesday and student loans. analyst at Edward Jones, “and we think they’re making progress towards turning the company around.” Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 In January, the $1.9 trillion-asset company Phone 212-803-8200 AmericanBanker.com pledged to chop its gross expenses by more than $8 billion in the coming years, equal to Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 about 14% of its total noninterest expenses. Aggressive cost-cutting is seen as necessary Managing Editor Dean Anason 770.621.9935 Reporters/Producers to boost the competitive position of Wells Fargo, which has a larger expense base as a Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 percentage of its revenue than other large Miriam Cross 571.403.3834 Washington Bureau Chief Joe Adler 571.403.3832 U.S. banks, and which has been forced to Jim Dobbs 605.310.7780 spend heavily to clean up a series of scandals. Executive Editor, Technology The firm’s ability to generate more revenue Penny Crosman 212.803.8673 John Heltman 571.403.3847, Allissa Kline 716.243.2679 has been limited both by the low interest rate Hannah Lang 571.403.3855 environment and an asset cap imposed by Community Banking Editor Paul Davis 336.852.9496 John Reosti 571.403.3864, Gary Siegel 212.803.1560 the Federal Reserve Board in 2018. Contributing Editor Daniel Wolfe 212.803.8397 At the end of the second quarter, Wells Kevin Wack 626.486.2341 Fargo reported an efficiency ratio — a measure

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 3

Personal lines of credit were a “very, But the report will not stop at discussing the supply side,” Powell said in response very small business for us,” Scharf said. He CBDCs. “We’re going to address digital to Waters’ question. “There are limitations argued that Wells Fargo can continue to serve payments broadly. That means stablecoins, it around the availability of some raw materials customers through other credit products, means crypto assets, it means CBDC,” Powell and of labor and of zoning and things like that including a revamped suite of credit cards. said. and nothing we can do … really affect[s] that.” This month, Wells launched an Active Cash On stablecoins, Powell suggested he saw “It is true that interest rates are one factor Card that offers customers 2% cash back on a need for regulation that would parallel the that’s supporting demand,” Powell added, all purchases. framework for banks’ insured deposits or “but we really can’t do much about the “There’s a lot of opportunity in the card money market funds. supply side.” space for us to do a better job of providing “We have a pretty strong regulatory Meanwhile, Powell demurred on whether compelling products” to existing Wells framework around bank deposits, for regulators would extend the temporary customers and new clients, Santomassimo example, or money market funds, that doesn’t regulatory relief offered to community banks told reporters. exist, really, for stablecoins,” Powell said. for calculating their asset growth resulting At the same time, Powell indicated from participating in the Paycheck Protection that stablecoins were more likely to find a Program. CRYPTOCURRENCIES permanent place in the payments system Until the end of the year, smaller banks than other crypto-related assets. “If they’re that hit new regulatory classifications with going to be a significant part of the payments PPP loans boosting their asset size do not Fed’s Powell universe, which we don’t think crypto assets need to comply with rules that kick in with will be but stable coins might be, then we the higher categories. calls for need an appropriate regulatory framework, Rep. John Rose, R-Tenn., asked whether which frankly we don’t have,” Powell said. the relief should be extended past its current Over the course of the hearing, Powell was expiration date. stricter quizzed by lawmakers about the Fed’s plans “I don’t know, to be perfectly honest. I’d be for a central bank digital currency. “This is happy to take a look at that and get back to oversight of not a riskless proposition. It’s a pretty bold you,” Powell said. But he added that the Fed is proposition for the Federal Reserve,” said Rep. mindful of how regulatory costs are affecting Patrick McHenry, R-N.C., the committee’s community banks generally. stablecoins top Republican. “We are very well aware of the pressures Rep. Stephen Lynch, D-Mass., pressed that are added to community banks because By Brendan Pedersen further, questioning the Fed’s “slowness” on of fixed regulatory costs. … We try hard not July 14, 2021 developing the policy around CBDCs and to be part of the problem,” Powell said. “We WASHINGTON — As the Federal Reserve asking if the U.S. was at risk of falling behind see community banks under pressure and mulls the creation of its own digital currency, the efforts of other central banks’ digital we see the number diminishing. We have the central bank also sees the benefits of currencies. a whole subcommittee led here by [Fed stronger regulation of stablecoins offered by “We have a lot of work left to do on board] Governor [Michelle] Bowman … that the private sector, Chair Jerome Powell said the technical side and on the policy side, is designed to stop that sort of thing from Wednesday. but a critical part of it is just the public happening. It’s something we work on all the Powell told lawmakers that stablecoins — a consultation,” Powell said. time.” cryptocurrency pegged to normal currency to The hearing also touched on whether the A number of lawmakers expressed support avoid price volatility — should be regulated Fed could do anything to help boost supply for Powell having a second term as the head to bring them more in line with standards for in the housing market, which has been of the Fed. bank deposits and money market funds. significantly outpaced by demand. Several “There is a great deal of uncertainty right “It’s very simple: these are economic lawmakers from both political parties asked now,” McHenry said in his opening remarks. activities that are very similar to deposits Powell what the Federal Reserve could do to “What I am certain of is this: You have earned and money market funds, and they need to address sky-high demand and tight supply. and deserve another term as chair of the be regulated in comparable ways,” Powell “A lack of supply and constraints around Federal Reserve.” The Biden administration said during a virtual hearing of the House the housing stock are a factor in the recent has not yet indicated whether Powell will be Financial Services Committee. increase in housing costs,” said House reappointed. The Fed chair estimated that a much- Financial Services Chair Maxine Waters, anticipated report about central bank D-Calif. “If the Fed were to raise interest rates, digital currencies will be ready for release what do you project the impact would be on in September. The report will mark the addressing housing supply challenges?” “beginning of … accelerating that decision Powell argued that the Fed was not in a process” about whether the central bank will position to address such challenges, which issue a digital dollar, and the Fed will seek he said had more to do with supply-chain public comment, Powell said. difficulties. “It wouldn’t have any effect on

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 4

is an indication that the industry has taken Sandler analyst Scott Siefers said in a note to M&A notice that deals like the one for BBVA will be clients. harder to come by. Demchak said on the call PNC said the conversion of BBVA’s Wednesday that the bank might be open to customers, branches and systems is expected Bank M&A smaller acquisitions, but asking prices “today to be completed by October. The company seem way too high to me.” said it’s on track to realize $900 million in will get The BBVA deal was PNC’s largest bank expense savings next year. acquisition since Cleveland-based National PNC executives said that growing interest City in late 2008. income will remain a challenge, as loan tougher BBVA contributed an estimated $316 demand still is tepid and the Federal Reserve million in total revenue and $153 million in is expected to hold its main borrowing rate after Biden net income to PNC in the second quarter. near zero until late 2023. Overall, PNC reported $1.1 billion in net Until then, the company is relying more on income for the quarter, rebounding from a fee income to bolster its bottom line. order, PNC’s $744 million loss during the same period PNC reported a 35% year-over-year jump last year when the COVID-19 pandemic in noninterest income to more than $2 Demchak took hold. Net income was down 39% from billion for the second quarter. The increase the previous quarter due mostly to an initial was driven by higher charges on deposits as loan-loss reserve the company had to set more transactions took place and fee waivers says aside for the BBVA acquisition. put in place during the pandemic last year PNC was able to recapture $648 million of expired. PNC also reported a 38% increase By Jon Prior reserves for credit losses on its own book of in corporate service fees, due in part to more July 14, 2021 loans, a move that has helped boost earnings M&A advisory activity. By any measure, PNC Financial Services in recent quarters. But the company set aside The company is reducing its reliance on Group’s $11.7 billion acquisition of BBVA’s $1 billion in an initial provision for credit some charges after making a change to its U.S. unit went off without a hitch. losses, which included some integration overdraft policies that would make it easier PNC announced an agreement in costs, on BBVA U.S. loans that were absorbed for customers to avoid charges. November to acquire the $104 billion-asset as part of the acquisition. Noninterest income now makes up 45% of BBVA, and within six months it had received The acquisition added $291 million in PNC revenue, up from 38% just one year ago, all the necessary regulatory approvals and delinquent loans, pushing PNC’s total to $1.3 according to its earnings presentation. completed the deal. Pittsburgh-based PNC is billion at June 30. now the fifth-largest commercial bank in the There were some signs of long-awaited company, with $554.2 billion of assets. loan organic growth. EARNINGS But striking such a deal going forward is Total loans at PNC increased 24% over about to get harder in the wake of President the previous quarter to $294.7 billion. BBVA Biden’s executive order to clamp down on added $60.5 billion to the total, but PNC BofA predicts consolidation within the industry, PNC’s reported its own slight increase on the Chairman and CEO, Bill Demchak, said consumer side. There was still a 2% decline consumer Wednesday. in PNC’s own commercial loans as paydowns “It is safe to say that a larger deal in today’s surpassed new originations. environment would get much more political Demchak said credit line utilization spending will scrutiny and noise than we did with the BBVA increased some over the second quarter but deal,” Demchak said during the company’s still remained near historic lows. drive loan second-quarter earnings call with analysts. “We’re actually winning a lot of clients, and “That weighs on us.” we’re extending facilities at a pace beyond Biden’s order directed the Department where we’ve been for a bunch of years,” growth in of Justice in consultation with the Federal Demchak said. “The problem is they’re just Reserve, the Office of the Comptroller of the not drawing on them.” second half Currency and the Federal Deposit Insurance PNC’s shares rose sharply after the results Corp. to review what changes could be made were announced early Wednesday but were By Jim Dobbs to the approval process over the next six down 1.3% by midday. July 14, 2021 months. The administration is concerned Still, analysts were generally pleased with While ultra-low interest rates crimped that consolidation could be raising borrowing the second-quarter results. Bank of America’s revenue during the second costs for consumers and that branch closures “After sifting through the noise, PNC’s core quarter, the company expects interest income caused by mergers could be cutting off access [second-quarter] results look better than to rise along with consumer spending in the to financial services in communities of color. we had anticipated on a combination of a back half of the year. Demchak’s reaction to the Biden order big negative provision and good fees,” Piper Chairman and CEO Brian Moynihan

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 5 said Wednesday that consumer spending domestic product grew by 10% in the second Large banks such as JPMorgan Chase and accelerated during the spring and early quarter. Citigroup also benefited from reserve summer alongside successful virus Moynihan said that he expects more releases in the second quarter. vaccination efforts. Total consumer and customer spending and borrowing to pay small business payments at BofA reached for everything from cars and homes to small $976 billion in the second quarter, up 41% business expansions, as the economy and EARNINGS from a year earlier and 23% from the same supply chains normalize over the back half of quarter in 2019. this year and into next. He cited government “Consumer spending has significantly stimulus payments – including direct checks Citigroup surpassed pre-pandemic levels,” Monihan to U.S. households – as one accelerant. said during a call with analysts after BofA And even with rates low, increasing loan forecasts posted its second-quarter results, “and loan volume should drive up interest income levels have begun to grow.” in the third and fourth quarters on both a The upbeat forecast on loan growth quarterly and annual basis, Moynihan said. higher was in contrast with remarks Tuesday by He expects more loan demand from both executives at JPMorgan Chase, who said consumers and businesses. expenses as that U.S. consumers are unlikely to take on “This quarter, we saw loan levels across meaningful amounts of leverage this year. most every business move past stabilization At Charlotte, North Carolina-based BofA, and begin to make progress,” Moynihan it revamps outstanding loans and leases totaled $919 said. “Companies need to build inventory, billion at the close of the second quarter — hire workers to meet the growing customer its business still down substantially from $999 billion a demand.” year earlier, but up 2% from the first quarter. He argued that the combination of That total partly reflected growth in credit hiring by businesses and higher customer model card loans, which rose 4% from the first spending will create a “virtuous circle” that quarter to $75.6 billion. will likely drive greater credit line use by By Allissa Kline “We are seeing our organic growth engine business owners. July 14, 2021 kick back in,” Moynihan said. Wells Fargo analyst Mike Mayo said that The faster-than-expected economic Still, BofA’s second quarter net interest BofA, like much of the banking industry, is recovery is opening certain doors to invest in income was flat from the prior quarter at in an “intermission” between a period in growth businesses, and that means expenses $10.3 billion and down from $11 billion a which credit quality improved and a second are going to rise this year, Citigroup executives year earlier on a fully taxable-equivalent act that will feature revenue growth, and that warned Wednesday. basis, reflecting unusually low interest rates. last quarter provided positive indicators. The $2.2 trillion-asset company is now Low rates have been constricting the “Even if this time between acts might forecasting an annual expense uptick in the margin between what Bank of America pays be somewhat longer than expected,” Mayo mid-single-digit range for 2021, up from 2% to its depositors and what it charges borrowers said, improvement in revenue “is a matter of 3% projected in March. The increase grabbed — a predicament that is also bedeviling when and not if.” the attention of analysts who wanted to know many competitors. BofA’s net interest Moynihan said he expects credit quality if the numbers would creep up even more in margin of 1.61% for the second quarter was to remain strong as lending grows, given coming months and whether momentum 26 basis points lower than a year earlier. the brightening economic picture. BofA’s would extend into 2022. That downward margin pressurecarved second-quarter net charge-offs declined Chief Financial Officer Mark Mason tried to into revenue, which dipped 4% from a year 28% from the first quarter and 48% from a allay any concerns about rising costs while also earlier to $21.5 billion. year earlier to $595 million. defending the company’s decision to spend But the increased customer spending Bank of America posted net income in more money now on business segments that and uptick in total loans suggests that Bank the second quarter of $9.22 billion, or $1.03 are expected to strengthen profitability and of America’s revenue “could soon begin to per share. That was up from $3.53 billion, or returns in the future. turn higher,” said Moody’s Investors Service 37 cents per share, a year earlier. Analysts Citi’s management team is “going through analyst David Fanger. surveyed by FactSet Research Systems had a very thoughtful strategy refresh and as we Spending among Bank of America’s forecast second-quarter earnings of 77 cents go through that we are identifying … some customers was 22% higher in the first half per share. real strategic opportunities to invest in the of this year in comparison with the same The improved profitability was driven franchise,” Mason said during Citigroup’s period in 2019 – prior to the coronavirus largely by BofA’s decision to release $2.2 second-quarter earnings call. “And we’re not pandemic and the economic malaise it billion of loan-loss reserves, which dropped going to miss this window of opportunity.” imposed. That data includes credit and debit to the company’s bottom line. Citi reported operating expenses of $11.2 card spending among both consumers and In 2020, the bank had set aside billions of billion for the second quarter, up 7% year small business owners. dollars to guard against the possibility of a over year and 1% from the first quarter. The BofA’s economists estimated that gross surge in bad loans that never materialized. company has been forecasting an increase

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 6 in spending since December when Mason realignment. But the comprehensive plan will in Kansas City, Mo., and 78% in Spokane, offered a glimpse at how much it would cost to be presented during an investor day being Wash., rounded out the top six. fix long-standing risk and compliance issues; planned for the first quarter of 2022. “Prices have gone up so much and most last fall those problems led to a pair of federal “We’re going to put our entire vision for the homes are going well above asking,” Cambria enforcement actions and a $400 million civil firm in front of you, so you can then hold us Henry, owner and managing broker of money penalty. accountable for executing against it,” Fraser Spokane-based Haven Real Estate Group, said The business revamp undertaken by CEO said. in an interview. “It’d be more exciting if I had Jane Fraser is also driving higher expenses. more houses to sell.” Fraser, who was promoted to the role on On the other side, Colorado Springs, Colo., March 1, has set out to simplify Citi by exiting HOUSING MARKET had the least competition at 43.3%, dropping underperforming businesses and doubling from 63.8% in May. Miami followed at 49.5%, down in areas that already generate healthy then came 51.9% in both Tucson, Ariz., and profits and those that are ripe for large-scale Bidding Virginia Beach, Va. growth, including the U.S. consumer unit. On Wednesday, Mason said the quick pace wars lessen of the economic recovery is driving some of the BIOMETRICS decisions to make “accelerated investments” in certain areas, such as credit card marketing. in June as Credit card spending — which is rising across BBVA debuts the industry as consumers resume travel and buyer fatigue dine out more — rose 40% year over year, biometric returning to prepandemic levels, Mason said. At the same time, Citi is spending money hits housing on wealth management, commercial cards in banking and treasury and trade services for market multinational corporations, all businesses Mexico as test with “strong growth prospects” and “returns By Paul Centopani that are north of 20%” in a normal economic July 13, 2021 environment, he said. Home buyer competition declined slightly run for global The company is in the process of selling in June as listings increased and price surges retail franchises in 13 overseas markets, discouraged a growing number of consumers. rollout including China, India and Australia, Fraser The overall share of properties facing said. The first round of bids was “very bidding wars dropped for the second month By John Adams encouraging and competitive,” she said. in a row, to 65% from 72.1% in May and the July 12, 2021 Mason declined to share expense guidance all-time high of 74.1% in April, according to As the adoption of digital payments for next year, but he was confident that Citi Redfin. It marks a year-over-year jump from accelerates, so does the urgency surrounding will spend what it needs to spend “in a smart 56.8% and it’sthe 14th month in a row with security, leading BBVA to conduct a biometric fashion” to position the company for the over 50% of listings receiving multiple bids. card pilot in Mexico. future. The drop in bidding wars falls in line with BBVA is overhauling its cards in Mexico, “If we see more investment opportunities Fannie Mae’s June Home Purchase Sentiment adding biometrics, removing account details in 2021 or 2022, we’re going to go after them Index, which found that a larger share of printed on the card’s surface, and using 86% because we know that we can deliver on the potential home buyers felt market conditions recycled materials. The test serves several benefits and returns that are associated with were unfavorable, compared to May. strategies at once, such as reducing the putting that money to work,” he said. “Buyer fatigue is likely one factor pushing issuer’s carbon footprint as part of a wider Citi reported net income of $6.2 billion for down the competition rate, with some house corporate push for sustainability, simplifying the second quarter, up significantly from $1.1 hunters moving to the sidelines after losing how consumers engage with the bank and billion in the year-ago period thanks to the bidding war after bidding war or getting priced improving ID security as more banking and lower cost of credit. During the most recent out,” Lily Katz, Redfin senior data journalist, payments move to either digital channels or quarter, Citi released $2.4 billion in reserves. said in the report. “An improving supply contactless payments in-store. End-of-period loans were down 1% year over situation may also be making a difference, The results of the Mexican test will inform year. with new listings up 4% year over year.” BBVA’s decision on the global deployment Like JPMorgan Chase, credit card payment However, the buyer climate varies across of biometric cards. BBVA chose Mexico as rates are stifling loan growth, though Citi said the country. Sarasota, Florida faced the highest a test market to address a mix of payment it expects rising card activity to translate into competition among the 52 largest metro areas, fraud and reliance on cash that pervades loan growth during the second half of the year. shooting up to 87% from 70% month-over- the country. The Federal Reserve Bank of Neither Fraser nor Mason disclosed month. Rates of 82.9% in Charleston, S.C., 80% Dallas reports about 90% of retail, rent, utility, anything new Wednesday about Citi’s business in Reno, Nev., 78.9% in Charlotte, N.C., 78.6% service and public transportation payments in

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 7

Mexico are cash-based. At the same time, the director at Aite Group. Writing for American Banker, Howard country is amenable to digital technology and “They are much more expensive for issuers, Blankenship, vice president of sales for smartphones in general, a combination that and they require a shift in ingrained habits CellPoint Digital, said mobile wallets like Apple attracts banks to launch digital payments. at the point of sale for consumers,” Conroy Pay, which use biometric authentication. can The biometric cards use dynamic card said, adding the U.S. had two false starts benefit from Mexico’s fraud concerns and the verification values, and do not include a visible with contactless payments over the past two habit-forming nature of digital transactions, expiration date and card number. BBVA uses decades, and it took a global pandemic to creating a market of users ready to use new dynamic CVVs in its line Aqua cards, which convince shoppers that contactless cards were forms of authentication from other companies. launched in October 2020 as part of a broader worth effort to change those habits. The BBVA cards will work with NFC point effort to curtail card fraud. The biometric cards Biometric payment cards require a biometric of sale terminals, including transportation will be part of the Aqua line. sensor, secure element and contactless ticketing and transit entry. “As long as the The card BBVA is testing in Mexico includes antenna, among other components, according terminal has NFC, the biometric cards should built-in fingerprint readers that support to the Secure Technology Alliance. All of these work,” said Jorge Moreno Lopez, head of retail contactless payments without entering a PIN elements add to the cost of manufacturing solutions in global payments at BBVA. or a signature, creating a payment experience each card. The bank is in the midst of a broader that it contends is faster and more safe than As contactless transactions increase, security overhaul that includes an agreement traditional insertion at point of sale terminals. there’s the potential to build scale that could with Nok Nok Labs, which sells authentication “If you’re looking for security and make biometric cards less costly because of a technology that works with standards from a convenience, with biometrics you get both,” higher number of payment and card holders coalition called Fast Identity Online, covering said Ignacio Banon Trevino, head of global would potentially create a better cost benefit fingerprint, voice and facial recognition, payments at BBVA. analysis if cards are mass produced. The among other new digital ID modes. BBVA Mexico is using biometric cards from extra $1.50 in cost to produce a biometric As the pandemic pushes more commerce Visa, which operates a broader biometric card could be cut to about $0.75 given mass online and automates brick and mortar program to push the technology out to its production, according to Munich-based card retail shopping, other advanced forms of issuer network, as does Mastercard. In an manufacturer Giesecke+Devrient. authentication are also getting more attention internal study, Visa found 50% of consumers Terminals would not require costly after evolving slowly in the past. Digital ID, prefer fingerprint biometrics as their preferred upgrades. A biometric card should work with which replaces static authentication methods mode for in-store authentication. point of sale hardware that’s equipped for with user-controlled flexible authentication, Visa has run similar biometric cards tests EMV chip-enabled payments, according to the is also getting more attention as mobile with Mountain America Credit Union in the STA, adding this makes it easier to integrate commerce and contactless payments increase. U.S. and Bank of Cyprus. Cardholders enroll biometric cards with existing payment A new project in Utah, for example, is tying their fingerprint, which is stored on the card. programs. The user experience is also similar driver’s licenses to user profiles that vet users When the consumer places a finger on the once the consumer is onboarded. for payments, financial services and access to card’s sensor during a payment, the card BBVA and biometric card manufacturers facilities. compares the scanned print to the one stored argue the boost in contactless will push “We know people are ready for contactless,” on the card. adoption for biometric cards. Banon Trevino said. “And the biometric cards At Mountain America Credit Union, the “The notion of having a device or a card allow people to make payments without pilot found the cards worked well, though that is just ‘yours’ should have an appeal to making contact with the terminal.” there were complications at drive-thrus and people,” said Michel Roy, senior vice president some restaurants that required the consumer of the payments business line at Fingerprints, to hand the card to a retail employee to the London-based biometric company that CRYPTOCURRENCIES complete the transaction. The credit union has worked with BNP Paribas and other and Visa did not return requests for comment institutions on biometric authentication and for this story. card projects. It also provided the sensor Visa invests In BBVA’s test, consumers register their technology used in the Mountain American fingerprints at branches. The bank has about Mountain Credit Union and BBVA pilots. in crypto even 24 million customers in Mexico, with 6 million Smartphone authentication should ease credit cards and 21 million debit cards. adoption for biometric cards, where there may The pilot has commenced with bank have been reluctance in the past, Roy said. as merchants employees and will gradually roll out to “People who are using smartphones are consumers, initially focusing on high-net- likely already using some form of biometrics, balk worth individuals, making the cards available to unlock the device in most cases,” Roy said. to 10% to 15% of all users in the early stage. The “They’re using it for door locks and access, so By John Adams expense of biometric cards drove the decision the payment card is just the next form factor. July 14, 2021 to initially focus on a small segment. The PIN method is a broken experience. It Visa recently included two nuggets of There are still challenges with biometric requires people to pause before using their information in a cryptocurrency market cards, according to Julie Conroy, research cards.” report that spoke volumes about the state of

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 8 how digital currency is used — and not used usually recurring bills tied to financing Both Visa and Mastercard have signaled — for payments. instead of full payment at the time of their interest in working with companies The card brand reports more than $1 purchase. And WeWork’s initial adopters to support cryptocurrencies in the past billion was spent on crypto-linked Visa for crypto payments included Coinbase, a year, with other major payment companies cards in the first half of 2021, while pointing cryptocurrency company. such as Square and PayPal also ramping up out that Visa’s programs “don’t require While taking an agnostic view of whether support. coffee shops, dry cleaners, or grocery consumers want to pay in cryptocurrency Mastercard in February said it would stores to directly accept cryptocurrencies and merchants want to accept directly process cryptocurrency payments at checkout.” The cards instead convert cryptocurrency, Visa’s Angelo is positioning in its network, adding 37 million potential crypto balances to traditional funds before the card company as a technology and merchants in 2010 countries. PayPal in late spending. processing enabler for cryptocurrency 2020 announced its users could buy, hold “It’s about being a bridge between transactions, including integrations with and sell cryptocurrencies, and in March said the cryptocurrency ecosystem and the dozens of cryptocurrency wallets. In most it would support cryptocurrency payments merchants, almost all of whom do not accept cases, “cryptocurrency transactions” refers in its merchant network, though after a or manage crypto in any way,” said Terry to transfers in and out of these wallets to conversion. PayPal in April extended the Angelo, senior vice president and global support conversions to U.S. dollars or other support to its Venmo peer-to-peer payment head of fintech at Visa. “A billion dollars is a currency, which is then used for a retail app, which supports cryptocurrency small number in the face of total payments payment. transactions for a fee as low as $1, a move volume [$11.3 trillion], but as a category it “I don’t have a particularly strong view seen as extending PayPal’s support to didn’t exist a year ago.” either way if there’s a demand for direct younger demographics. Revenue from Visa’s messaging suggest that merchants cryptocurrency payments,” Angelo said, bitcoin trading now accounts for more than aren’t lining up to accept cryptocurrency at adding that if demand for cryptocurrency 70% of Square’s revenue. Mastercard did not the point of sale, with Visa’s half-year report payments at the point of sale increases, return a request for comment, while PayPal pointing out the card network’s crypto there will need to be adjustments to manage said it does not break out cryptocurrency payment service is similar to the “magic of chargebacks and other issues that occur transaction volume in its earnings reports. tap and go” without the “complexity” of new with the mass introduction of any new Square referred questions to its earnings for acceptance points of cryptographic keys, payment tender. “But we haven’t seen that the quarter ending March 31, during which referring to the work involved for merchants demand yet, mostly because it’s hard to set it reported $3.5 billion in revenue from to accept cryptocurrency at checkout. up the ecosystem.” bitcoin transactions. Merchant support for direct To build its digital asset business, Visa has Visa earlier in 2021 put out a call for cryptocurrency payments has long been formed partnerships with 70 cryptocurrency partnerships to support digital currencies, tepid to nonexistent, with most acceptance companies including FTX, Coinbase, Crypto. saying its technology, scale, merchant reach for direct payments coming for niche com and CoinZoom, to power conversions and security positioned the company to businesses such as fine art or higher-end that cover an addressable market of more support other projects. The strategy fits wine purchases in which the users are largely than 70 million merchants globally. with Visa’s “value add” initiative to focus investors or technology executives. The cost Visa also recently supported the launch on services beyond payment processing to of upgrades — and the risk associated with of the BlockFi Rewards Credit card, which expand its business. bitcoin’s volatility — are the main reasons lets users spend traditional currency “For Visa, connecting the crypto economy most cryptocurrency payments simply while earning cryptocurrency rewards. is part of its ‘network-of-networks’ strategy, convert digital assets to government-issued Cryptocurrency-linked incentives are and they have a number of initiatives in money before the merchant receives the picking up steam, with recent plays including place supporting different types of digital transaction. Bakkt’s partnership with Wyndham Rewards currencies,” said Zil Bareisis, the head of Elon Musk generated attention this year to allow hotel guests to convert loyalty Celent’s retail banking practice. when he announced Tesla had invested currencies such as rewards to cash, gift cards As the interest in crypto grows and more in bitcoin in anticipation of accepting or cryptocurrency. people end up holding digital currencies, bitcoin from consumers as car payments, “The rewards side is interesting. These some might be tempted to spend their funds though Musk later retreated from that are traditional currency-linked payment directly, but it’s important to distinguish announcement. The office sharing company instruments, but consumers are earning between different types of digital currencies, WeWork also said this year it would bitcoin as a reward,” Angelo said. “We think Baresis said. “While bitcoin’s price volatility support cryptocurrency from clients to pay more of this is coming. It’s a trend where makes it unsuitable as a payment method, membership fees and for WeWork to pay its consumers will value having bitcoin as an stablecoins and CBDCs can be more viable own rent to building owners. asset that can gain value as an investment.” options,” Bareisis said. These high-profile endorsements Visa partnered with Bakkt in June to issue Much of Visa and Mastercard’s public suggested momentum for mainstream a debit card that allows consumers to use statements have leaned toward stablecoins cryptocurrency payments. But neither bitcoin and cash balances in stores, transit instead of cryptocurrencies like bitcoin and WeWork or Tesla’s moves were similar and across Apple Pay and Google Pay’s ether, without making a firm commitment. to most retailers, since car payments are networks. Both card brands are also interested in

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 9 supporting central bank digital currencies, not to be named as the information isn’t Over the last two centuries, the United mostly by enabling the private sector public. States has averaged a financial panic every involvement in distribution that’s expected A spokesman for N26 declined to twenty years, the second-highest incidence to be part of most CBDC projects. Most of the comment. Discussions are preliminary of economic disaster of any country on the CBDC projects in large countries are a year and the final valuation will depend on planet. or more from launch, meaning stablecoins investor demand and could range from Sure, many expect a post-COVID period are likely the main direct-payments play for around $8 billion to $11 billion, the people of accelerated financial growth. Financial the card brands. said. Its potential value compares to a ups and downs are a natural part of any Stablecoins are backed by traditional market capitalization of $8.3 billion for economy. But what we have been doing over currencies to avoid valuation swings, and Commerzbank AG, Germany’s second the last half century is creating an endless are expanding rapidly. Circle recently largest lender, and Deutsche Bank AG with continuum of booms and bigger and bigger announced its intent to go public through $25.4 billion. busts that is increasingly difficult to break. a combination agreement with Concord The company, which offers digital retail Financial crises are built brick by brick Acquisition Corp., a special purpose banking services, could join European through a collision of government policies acquisition company. Circle’s USDC fintechs including Revolut Ltd. and Wise and private sector actions and reactions, stablecoin has expanded rapidly over the Plc that have commanded multibillion- often in periods where the velocity of past year as the company pursues a financial dollar values in recent transactions. Others innovation and pace of economic growth services “super app” strategy. And Diem, the including Nutmeg and Tink AB have are the greatest. It all climaxes when a loss Facebook affiliated stablecoin, is expected attracted takeover interest from global of public confidence converts the energy of to launch sometime in 2021. finance giants on the hunt for new sources economic euphoria into a race from risk. “Where we will see direct crypto of growth. However, many fintechs face Nomura Bank’s Cassandra model recently payments is in stablecoins,” Angelo said, the same issues as traditional banks in warned that the U.S appears vulnerable to a adding business payments would be a generating returns from customer deposits. financial crisis over the next twelve quarters. prime area for growth. “There’s a chance to N26 reported net losses of 110 million There are 12-step programs for many use stablecoins to move money outside of euros for its most recent financial year, citing things, and financial disasters appear to what today is a fairly slow and cumbersome investment in new products and staff. The be one of them. We are well along the banking system.” firm, founded in 2013, said in January it had path of completing one such program that 7 million customers in the U.S. and Europe. will supercharge the next economic crisis The bank has also faced regulatory by creating too much money, too little FINTECH headwinds including in Germany, where market discipline and too many misplaced it was told to improve money laundering expectations. controls, and the U.K., where it blamed Step 1: Overspend by trillions of dollars N26 eyes Brexit complications when it withdrew from that neither we, our children or our the market last year. grandchildren will have the ability to repay, value of about and then follow it with a chaser of unbridled government spending on infrastructure BANKTHINK and other special interest rewards so that $10 billion a “gravy-train-will-never-stop” psychology drives economic euphoria and the in fresh The next mispricing of risk. Step 2: Convert the funding of the financial Federal Reserve from the issuance of fundraising currency to massive borrowings from banks, money market funds and foreign official By Bloomberg News crisis is institutions, and grow the Fed’s balance July 15, 2021 sheet from $800 billion to $8 trillion by N26 GmbH is holding discussions with edging closer. purchasing mortgage-backed securities and investors to raise several hundred million more than half of the notes issued by the dollars in a fundraising that could value Treasury, encouraging investors simply to the German fintech at about $10 billion, There’s time buy what the Fed is buying. according to people familiar with the matter. Step 3: Closely control economic The firm, backed by billionaires Peter Thiel to stop it. expectations through the Fed’s “forward and Li Ka-Shing, is working with advisers to guidance” and keep interest rates artificially seek fresh money at a far higher valuation By Thomas P. Vartanian and low for the better part of 12 years to stimulate than previous funding rounds. This could be William M. Isaac the economy and simultaneously prevent the final time it raises cash before an initial July 14, 2021 the national debt from overwhelming public offering, said the people, who asked The next financial crisis is on its way. taxpayers.

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 10

Step 4: Watch leverage grow as There are steps that can be taken to disrupt outstanding corporate debt increases to this cycle of boom and bust. The Fed must GIG ECONOMY $11.2 trillion, or nearly half of the total U.S. be resolute about reversing the enormous economy, and household debt reaches $14.6 stimulus injected into the economy. That trillion, the highest levels in more than 15 takes time and it often runs into negative Marqeta eyes years. market reactions. Post 2008, the Fed was Step 5: Irrigate the economy with so only able to shed a little more than 50% of gig-economy much government largesse that one quarter the securities it had purchased in a decade. of the dollars in circulation are created in Congress also must be stingier about what it just one year, providing an incentive to make spends, understanding that it holds the keys growth with bad loans and investments to put that cash to the creation of future financial crises. to work. The regulation of institutions and markets Payfare Step 6: Watch median residential real must become smarter, eliminating costly estate home prices escalate 24% in the last redundancies between state and federal year due to a shortage of supply and the supervision. And the government must partnership vast amounts of mortgage credit that are begin deploying technology — artificial available at historically low rates, even as intelligence and Big Data — to provide By David Heun median income levels stagnate and new regulators with mountains of real-time July 13, 2021 efforts to increase affordable housing information to better predict and prevent, The payment processor Marqeta is seeking threaten to replicate the 2008 subprime rather than just wait for, financial crises. At to capitalize on its June IPO by teaming with fiasco. the same time, the country must be serious Payfare to find new opportunities in the gig Step 7: Label significant increases in about reimagining job education to retool economy. inflation of 4.2% in April and a 5% year- people displaced from jobs that will never The partnership is a significant move to-year increase in May’s Consumer Price return. for Marqeta, which reached a $14.3 billion Index as “temporary,” requiring no action. The Panic of 2008 and fintech advances valuation after listing on Nasdaq last month. Step 8: Ignore sound fiscal restraint and are showing us that we need to regulate The Oakland, California, company was allow the gross federal debt to exceed 100% financial activities rather than just financial already in expansion mode, having added of gross domestic product. institutions. Nearly 100% of the country’s credit card issuing to its digital platform Step 9: Underestimate the negative future prudential oversight resources are dedicated earlier this year through a pact with Deserve. that commercial real estate markets will face to overseeing just 40% of the economy — By teaming up with the Toronto-based from the impact of COVID-19, mortgage and banks — while allowing massive risk to Payfare, which operates as the payments eviction moratoriums, increasing crime, hide in plain sight throughout other parts of engine behind companies like DoorDash, social unrest and increasing urban flight. the economy. And finally, politicians must Uber and Lyft, Marqeta aims to combine its Step 10: Continue to bail out the economy restrain themselves — a wild concept for card-issuing platform with Payfare’s full- every time it falters, letting markets know sure — from using the economy to achieve service digital banking apps and modern that there is no penalty for taking sizable cultural and social goals given how many user interface. risks, allowing increasingly larger companies times that has backfired in the last two “Marqeta puts us in a great position to to dominate and perpetuating debt-laden centuries. roll out some infrastructure globally,” said “zombie” firms at the expense of economic There are solutions to this long-term Marco Margiotta, CEO and founding partner innovation and productivity. financial dilemma. The question is, do we of Payfare. “We would certainly do it in Step 11: Allow China to surpass the U.S. have leaders with the courage to implement North America, but also in Europe, Asia and economically, as many experts believe may them? other markets.” happen by 2030. The companies see the gig economy as Step 12: Worship technological Thomas P. Vartanian is executive director ripe for expansion. The market was already innovation and ignore the immeasurable and professor of law at George Mason transformed by the pandemic, with ride- risk created by inferior hardware, insecure University’s Scalia Law School, Program on sharing companies offering faster payouts networks and weakly coded software, as we Financial Regulation & Technology. and leaning more heavily on services like load every inch of data and every ounce of William M. Isaac, a former chairman of food delivery. As lockdown restrictions ease economic value onto an insecure internet, the Federal Deposit Insurance Corp. and and the job market gets more competitive, even as digital currencies create new risks, Fifth Third Bancorp, is co-chairman of the another transformation is imminent. including threatening the dollar’s standing Isaac-Milstein Group. He and his firm provide Marqeta and Payfare see an opportunity in as the global reserve currency. services to many clients, including some who providing money movement connectivity to Every one of these financial explosives may have an interest in the subject matter of businesses deploying freelance workforces. currently embedded in the economy will this article. The views expressed are his own. Clients can use Payfare’s proprietary rails ignite and accelerate the disappearance of and application programming interfaces to credit and liquidity when triggered by some push payments to virtual or physical cards, future event. or gain access to Mastercard Send, Visa

For up to date and complete coverage go to AmericanBanker.com FRIDAY JULY 16, 2021 AMERICANBANKER.COM PAGE 11

Direct or Same-Day ACH in the U.S. and financial tools. “We want to be a one-stop shop for doing DailyPay operates as an earned wage this, whether a (Uber or Lyft) driver needs access provider, as does Fiserv’s Instant money pushed to a co-branded account, or Financial through prepaid payroll card to a standard Bank of America or Wells Fargo services. account using other rails,” Margiotta said. The Square Cash app provides a similar They need to act fast to serve this need — service, as does the Chime digital banking or other vendors will. app, but those are generally established for “Competition is coming for sure, based consumer use. They are not locked into a on the growth in this sector,” Marigotta said. business management platform for mass “Everyone is kind of in the water on this instant payouts through a service. now, but no one is addressing the needs Servicing the gig economy payments specifically like we are … We get asked by structure is likely to be the next arena where investors a lot about what the competition most payments providers, including major might be, and there really is no direct processors, will want to play, Shipper said. competition at this time for the full platform “Everyone is looking at this pay-on- we offer.” demand sector,” Shipper said. “This is one In the partnership, Marqeta’s role is “the of those areas, kind of like buy now/pay connective tissue for payments,” said Darren later, as something that is about to become Mowry, chief revenue officer at Marqeta. very popular and everyone in the industry “We are very comfortable being underneath is going to want to figure out how to play the piping in moving money, and that is along.” q what we are excited about in this case,” Mowry said. © 2021 Arizent and American Banker. Marqeta and Payfare will test the process All rights reserved. as it moves along into potential new industry sectors and geographic markets. “It’s an important point, as to why we are calling this a partnership as opposed to just a deal, because we really think the two teams will explore and test across a variety of organizations,” Mowry noted. “We believe gig working is not anywhere near what it will become. “It’s not just in ride-sharing, grocery or food delivery, or pharmacy or clothing,” he added. “This is a longer-term partnership where we test new capabilities across a lot of different industries.” As the gig economy grows, the demand for virtual cards and connected accounts will increase as well. It’s an area in which Payfare handles most of its own needs, but having Marqeta as a partner will strengthen that capability, especially in European markets where Marqeta is certified. “If Payfare doesn’t offer digital card issuance today, Marqeta can help them in that area,” said David Shipper, senior analyst in Aite Group’s retail banking and payments practice. “The relationship with Marqeta will really open doors and Payfare and get them to expand globally.” Various companies have worked on certain aspects of faster payments to workers, including Green Dot with its SimplyPaid service or its Gig Wage banking

For up to date and complete coverage go to AmericanBanker.com