Weekly updates

Financial system frontiers and the Apple invasion

The announcement of Apple's high-yield savings account in partnership with Goldman Sachs inspired a new round of shivers down the spine of bankers around the world. It's been a rather unusual couple of weeks, straight to the point of people trying to spin financial inclusion as a bad thing, apparently because if people have more control over their money they would be "drawing down savings for nonessential purchases”.

More to the point on the competition between big banks and big tech, from the Financial Times:

The iPhone maker is playing a long game in finance and payments, say three former Apple employees, and its current moves are laying the technical groundwork for taking a bigger share of the market.

For example, Apple spent years on what was known internally as Project Muirfield — the ability for the iPhone to not just send payments, but receive them. This feature was announced to little fanfare in February 2022: an Apple press release described that merchants using iPhones with ‘tap and go’ NFC chips could now accept payments from credit cards with “no additional hardware or payment terminal needed”. The service works with payment service providers including Stripe, Adyen, and Square.

“People familiar with the tech say the implications are far wider: if the buyer and the merchant are both using iPhones or iPads to process payments, that gives Apple the capability to create a closed-circuit that doesn’t require banking partners or networks run by Visa and Mastercard.

“Right now, they can’t upset banks, and they can’t separate network partners — it’s too important for distribution at the start,” says a former Apple employee. “But you can imagine that the pendulum swings: as more and more people use Apple Pay . . . then the leverage moves into Apple’s camp and they can make other plays that aren’t so dependent on the banks.”

Munster adds that Apple has a long history of partnering with others until it is to their advantage to go it alone, and he suspects that is the end game in finance, too. “The list is long of former Apple partners who have become obsolete,” he says”.

The banks’ concern with big tech expanding to the financial market is understandable. It represents a significant rapture in a rather hegemonic era. Especially in payments, the frontiers between the regulated market and the tech world have been fading over the last ten years and traditional players will need to find new ways of asserting their position in the market. They won't win on the same basis they are used to.

In the game of network effects, big tech is king. In their squabble with neobanks and fintechs, big banks often try to kick the ladder that took them to the top and give no chance for new entrants to climb behind them.

But they are now contemplating a world where they are not the biggest players in the game anymore. Our take on this? Even the big banks will have to join neobanks and fintechs in making payments less of a numbers game. How, you ask? By creating a ubiquitous, centralized payments infrastructure that connects every account in any given country. That's how the banks in India contained the growth of wallets (UPI) and that's one of the reasons behind the tough start of WhatsApp Pay in Brazil (Pix).

Speaking of which… RTP report, Pix and UPI

Last week, Pix was featured in ACI Worldwide's Prime Time for Real-Time Global Payments Report as the world's second largest real-time payments rail, with 29.2 billion transactions, behind India's UPI, with 89.5 billion transactions. However, in terms of total purchase volume (TPV), the amount of money the rails moved around, Pix is almost twice as big as UPI.

Putting these numbers into context, Pix's feat is even more impressive. Considering Brazil's and India's absolute population and GDP, Brazil has more than double the RTP transactions per capita and RTP TPV/GDP when compared to India.

* The Global Economy (2021) IBGE (2022)

**ACI Worldwide (2022)

***India: IBEF (2022) and Brazil: BCB (2022)

Financial inclusion and digital financial services

Data source: TheGlobalEconomy Brazil indicators

The graph above indicates the impact of digital financial services in Brazil. While the number of ATMs and bank branches went down over the years, the percentage of people (15+ year-olds) with bank accounts has increased substantially, reaching over 83% in 2021.

It is worth celebrating growing almost 30pp in 10 years even if that is still far behind France (over 99%) or Spain (over 98%).

Twitter and (mis)trust

Twitter can’t make up its mind about who should have a blue check mark. It is not clear if this business blunder will help alleviate the pressure to be more profitable, but this change has a less obvious impact on trust and information verifiability.

Originally, Twitter’s blue check was meant to establish authorship over a tweet, so looking at a tweet you could distinguish if that came from a president, a parody account, or an impersonator. The feature was the same for the press, governments, politicians, and public people. It was a tool designed to help readers decide whether or not to trust the information. This was done by verifying the identity of the person/organization behind the account and matching that information to the account itself.

Now, the check mark just means that it is a paid account. That added trust is therefore gone. Twitter published a Misleading and Deceptive Identity Policy but so far has failed to enforce it. Since users cannot rely on the platform for identity verification, Twitter is not able to help to navigate our daily sea of random information anymore.

Financial inclusion, Twitter (mis)trust, Pix vs UPI, and financial services border control