Why Apple card will succeed; Opening the Fed payments system

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Wall Street Journal

Widening their horizons
Fannie Mae and Freddie Mac will be required to consider credit scores besides Fair Isaac’s FICO when determining a mortgage applicant’s creditworthiness under a new rule issued by the Federal Housing Finance Agency, the mortgage companies’ regulator. “One of my priorities is to ensure that the American people have a safe and sound path to sustainable homeownership, which requires tools to accurately measure risk,” FHFA Director Mark Calabria said.

“The move is seen as a win for VantageScore, a credit-score system by VantageScore Solutions, which is owned by the three large credit-reporting firms: Equifax, TransUnion and Experian.” FICO’s stock dropped nearly 6% on the news.

The rule “deviated from a ruling by the agency last year that barred VantageScore from competing,” American Banker notes. “The 2018 proposal said developers sharing common ownership with a consumer data providers had a conflict of interest.”

Meanwhile, U.S. mortgage debt reached a record $9.406 trillion in the second quarter, topping the previous peak of $9.294 trillion set back in 2008 just as the financial crisis was unfolding. “The big picture is that when you look at mortgages, which is the biggest piece of [household debt], it still looks pretty healthy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase.

At the same time, the Federal Housing Administration “is vastly expanding the scope of condominium purchases eligible for lower-down-payment loans,” a move that “could help revive the entry-level condo market for first-time buyers because FHA-backed loans require only a 3.5% down payment and lower credit score than conventional loans.”

Big on financial services
Berkshire Hathaway now holds nearly $100 billion in financial services stocks, including banks, payment companies, insurers and a ratings firm. Its financial services investments — which include Bank of America, Wells Fargo, American Express, U.S. Bancorp, JPMorgan Chase, Moody’s and Bank of New York Mellon — account for seven of the company’s top 10 holdings and about a fifth of its total market capitalization of $488 billion.

Financial Times

Get them hooked
“The humdrum rewards might spell a flop,” but “early signs suggest” that Apple’s credit card “will be a hit,” thanks to the company’s branding and “sleek software.” While the card pays “just” 1% cash back on purchases made directly with the card, it pays double that when using the Apple Pay mobile payments system and 3% on Apple purchases, including App Store payments.

“And that, of course, is Apple’s play," the paper notes. "The more people it can connect to its ecosystem, the more people are likely to pay up for its high-margin phones, then pair them with AirPods, Watches and an Apple News+ subscription.”

Get a move on
The Federal Reserve “should press ahead with FedNow [its faster payments system not expected to be implemented before 2024] — the sooner, the better — and find a way to open its payments system to reliable participants, whether or not they count as banks,” the paper urges. “The U.S. attachment to writing paper cheques, which Europeans observe in wonder, like anthropologists discovering a tribe with strange rituals, is fading and debit cards with chips are taking hold. But the inefficiency of the underlying infrastructure reinforces the grip of banks and curbs competition.”

JPMorgan Chase is expected to earn $123 million for advising Allergan on its planned $63 billion sale to U.S. pharmaceutical giant AbbVie. “Assuming the deal completes, the fee would be the largest ever disclosed, surpassing the $120 million paid to Morgan Stanley for advising Monsanto on its $66 billion sale to Germany’s Bayer in 2016. The bulk of the $123 million fee will be paid only if the deal completes. The payments shine a light on the lucrative work of bankers who spend years building relationships with companies to cash in on big takeovers, regardless of the consequences for the buyer.”

Taking care of business
N26, the German fintech valued at $3.5 billion that “has drawn customers and staff at breakneck speed,” said it is addressing concerns posed by the country’s banking regulator, including "a string of well-publicised phishing attacks."

“We have a full banking license and we comply with every law there is,” said Valentin Stalf, the company’s co-founder and CEO. “We already resolved some of the issues that were mentioned by BaFin in the public statement. The rest will be dealt with in the coming weeks.”

“Since its launch in 2015, the company has signed up 3.5 million clients in 24 countries to its app-based suite of bank accounts, and is adding 10,000 more every day.”


Cost of lack of access
Increasing access to basic banking services, such as checking and savings accounts, could save black Americans up to $40,000 over their lifetimes, a report from McKinsey & Co. says. While there is an average of 41 banks for every 100,000 people in majority-white counties, there are only 27 in non-white majority areas, the report found. “Further, banks in black neighborhoods typically require higher account balances to avoid service fees. The average minimum balance in white neighborhoods was $626, compared with $871 in black neighborhoods.” At the same time, “more expensive services like pay-day lending are more readily available in black neighborhoods.”


“Black families are being underserved and overcharged by institutions that can provide the best channels for saving.” — McKinsey & Co., which found there are fewer banks in black areas than in white ones, which it said is a main reason for the wealth disparity between the two groups

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