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The Bottom Line

If there were any lingering doubts about the potential impact of the buy now, pay later (BNPL) installment credit model on card economics, Square’s recently announced $29 billion acquisition of Afterpay likely put them to rest. Nonetheless, we see Apple’s plan to enter the fray with a feature built into Apple Pay as the more significant near-term concern.

Though much is still unknown, the unofficially dubbed “Apple Pay Later” could potentially be more threatening to card issuers than existing BNPL products. It could also further complicate the Apple - bank/credit union/debit issuers relationship, which could already be described as “frenemies” at best.

Google continues to make progress toward the launch of its much-anticipated checking product, recently announcing partnerships with six more financial institutions for a total of eight, so far. Both large banks and credit unions have signed on, with well-known names like Citi, BMO Harris, and BBVA on one end of that spectrum and the $2 billion asset Stanford Federal Credit Union and $800 million Coastal Community Bank on the other.

Delinquencies & Defaults Brewing on the Horizon 

Despite the many uncertainties in our “now” normal, Covid-19 is undeniably changing consumer spending patterns – and it shows. According to its 8-K filing from June 1, which compares May 2019 to May 2020 payment volumes, Visa’s cardholder spend in categories like travel, entertainment, fuel and restaurants had 20-40%+ declines year-over-year, while spend in categories such as groceries, home improvement, retail sales and telecom/utilities grew 20-40% for the same period.      

Despite several well-publicized bumps in the road, the U.S. migration to EMV-based chip cards has undeniably reduced payment fraud at the physical point of sale. That’s the good news. On the flipside, increasing fraud rates in the rapidly growing card not present (CNP) channel have the potential to more than offset gains in card present (CP), perpetuating an overall upward trend in card fraud.

You may have read about a recent development in the ongoing online commerce wars. Visa and MasterCard announced plans to launch a shared pay button for online purchases, replacing their existing Visa Checkout and MasterCard Masterpass payment buttons. American Express also signaled its willingness to join the effort. The resulting changes could become visible on ecommerce websites as early as the 2018 holiday shopping season.