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What César really wanted was to get out of Cuba. A bartender struggling to make ends meet in Havana, he tried last year to reach Miami in a rickety boat but was forced to abandon the attempt when he was intercepted by the U.S. Coast Guard.
He’s now preparing a second escape attempt: with a direct flight to Moscow. His ticket has been paid for by a Russian recruiter but it comes with a hefty price tag nonetheless: As part of the deal, he will have to join the Russian army and fight in Ukraine.
“If this is the sacrifice I have to make for my family to get ahead, I’ll do it,” said César, who turned 19 this year and whose name has been changed to protect his identity.
“You can be a nuclear physicist and still die of hunger here,” he said. “With my current salary I can barely buy basic things like toilet paper or milk.” He said he hoped he would be allowed to work as a paramedic.
The news of Cuban fighters in Ukraine splashed across global headlines earlier this month when Havana announced it had arrested 17 people for involvement in a human trafficking ring recruiting young men to fight for Russia.
The news raised questions about the extent of cooperation between the two Cold War allies, and whether cracks were beginning to show in Havana’s support for Russia’s invasion.
Conversations with Cubans in Cuba and Russia reveal a different side of the story: of desperate young men who see enlistment in the Russian army as their best shot at a better life — even if not all of them seem to know what they were getting themselves into.
One recruit in his late 40s in the Russian city of Tula, whom we will call Pedro, said he was promised a job as a driver “for workers and construction material” but on arrival in Russia was being prepared for combat, weapon in hand.
“We signed a contract with the devil,” he said, recalling the moment he enlisted. “And the devil does not hand out sweets.”
Until recently, Havana — though formally neutral on Ukraine — made no secret of siding with Moscow in what it called its clash with the “Yankee empire.” The Castro regime is dependent on Russia for cheap fuel and other aid. But unlike, say, North Korea, it has little to offer in return other than diplomatic loyalty.
Since the Kremlin launched its full-scale assault last year, the countries have exchanged visits by top brass.
Critics have warned that, keeping with Soviet tradition, Cuba could send troops to help fight Moscow’s cause. They point to a May visit to Belarus by Cuba’s military attaché, where the “training of Cuban military personnel” was top of the agenda, and a trip to Moscow by Cuba’s defense minister several weeks later to discuss “a number of technical military projects.” But there has been no evidence of direct involvement.
Havana’s crackdown on the recruitment network followed the publication of an interview on YouTube in late August, in which two 19-year-old Cubans claimed they had been lured to Russia for lucrative construction jobs, only to be sent to the trenches in Ukraine. They said they had suffered beatings, been scammed out of their money and were being kept captive.
Cuba’s foreign ministry vowed to act “energetically” against efforts to entice Cubans to join Russia’s war effort, adding: “Cuba is not part of the conflict in Ukraine.”
The change in tone in Havana suggests that the recruitment of Cubans through informal backchannels has “hit a nerve,” said Christopher Sabatini, a senior fellow for Latin America at Chatham House.
“Cuba and the Soviet Union fought side by side in Angola and other places, but for ideological reasons,” he said. “Now it’s boiled down to the ugliest, most mercenary terms, giving it a transactional quality that goes against decades of friendship.”
In November 2022, Russian President Vladimir Putin signed a decree offering fast-tracked naturalization to foreigners who signed up as contract soldiers. “We are all getting Russian citizenship,” one recruit texted this reporter. That week, he and others told POLITICO, some 15 recruits, some of whom had been in Russia for only a couple of months, had been personally handed their passports by the local governor.
With heavy losses in Ukraine, Russia “needs the cannon fodder,” said Pavel Luzin, a senior fellow at the Center for European Policy Analysis (CEPA). He added most foreign recruits come from Central Asian and African countries, Syria and Afghanistan.
It is unclear exactly how many foreign citizens have joined Russia’s ranks. But Luzin says their limited numbers mainly serve to boost Russia’s narrative that it has international support for its war.
“Without speaking the language, knowing the local terrain, or the right training for modern warfare, they’ll be swiftly killed and that’s it,” he said.
For most of the Cubans with whom POLITICO spoke, their involvement with the Russian army began in late 2022, when somebody using the name Elena Shuvalova began posting on social media pages targeting Cubans looking to go abroad or already in Russia.
One post showed a woman in a long skirt in front of a car decorated with a Cuban flag and a “Z,” Russia’s pro-war symbol. In the accompanying text, Shuvalova offered a one-year contract with the Russian army, “help” with the required language exams and medical tests, and “express legalization within two days.”
Pay consisted of a one-off handout of 195,000 rubles (about $2,000) followed by a monthly salary of 204,000 rubles ($2,100). By comparison, Cuba’s average GDP per capita in 2020 was $9,500 per year.
Of the four recruits currently in Russia who shared their stories with POLITICO, three said they had been flown in from Cuba this summer. At home, they worked in hospitality, teaching and construction. One said he had a professional military background. Two others had completed two years of standard compulsory military service.
While they knew they would be employed by Russia’s military, they were reassured that they would be working far from the front line as drivers or construction workers. “To dig fortifications or help rebuild cities,” one recruit’s exasperated wife told POLITICO.
Because they could face charges of joining a mercenary group in Cuba or of treason or espionage in Russia for talking to a reporter, POLITICO changed the names of the recruits quoted in this story.
Each of them said they were flown in from Varadero along with several dozen other men. They said their passports were not stamped on departure, and that upon entering Russia their migration cards were marked “tourism” as their purpose of stay.
On landing at Moscow’s Sheremetyevo airport, the recruits were met by a woman who introduced herself as Diana, who said she was a Cuban with Russian ties. They were then loaded onto a bus and brought to what one recruit described as “an empty school building” near Ryazan, a city in western Russia 200 kilometers southeast of Moscow.
There, they underwent a cursory medical check and were subject to a mountain of red tape, including the signing of a contract with the Russian defense ministry. One recruit said a Spanish version of the text was made available to those who specifically requested it, but others said that a translator simply summarized its content verbally.
The recruits said that some of the new arrivals remained behind at a military unit in Ryazan. But most were transferred to the 106th Guards Airborne, a division based in the city of Tula near Moscow that has been deployed into some of the fiercest fighting in Ukraine.
Kyiv claims the 106th was largely “reduced to fertilizer” in the early days of the invasion when it tried to capture Kyiv. In recent months, it has been stationed around Soledar and Bakhmut, hotspots in eastern Ukraine.
“When they handed us the uniform and told us to go train I realized this was not about construction at all,” one recruit said. By then, however, he was locked in.
A legal adviser who is well-known within Russia’s Cuban community told POLITICO he has delivered the same tough message to scores of Cuban recruits who have appealed to him for help: “Once you’ve signed the contract, defecting is tantamount to treason.”
When POLITICO spoke to Pedro in Tula, he said he felt trapped by his decision.
“I came here to give my children a better life, not to kill,” he said, breaking down into tears. “I won’t fire a single bullet.”
He added he had considered trying to escape. “But where do I go?”
POLITICO could not determine whether Shuvalova or Diana were working for Russian or Cuban authorities. Neither woman responded to requests for comment — though Shuvalova told journalists at the Russian-language Moscow Times that she worked pro-bono.
While the Cuban Embassy in Moscow did not respond to multiple requests for comment, the government itself has sent mixed messages. Shortly after Cuba’s announcement that it had broken up the human trafficking ring, Havana’s ambassador to Moscow told the state-run RIA agency that “we have nothing against Cubans who just want to sign a contract and legally take part in this operation.”
Russia’s defense ministry did not respond to a request for comment.
It’s not easy to tell just how many Cuban citizens have joined the Russian military.
In conversations with POLITICO, the recruits said roughly 140 Cubans were currently in Tula. And a caller to a Miami-based Spanish-language television channel in early September said that he had some 90 Cubans under his command in Ryazan.
A trove of 198 hacked documents, allegedly belonging to recent Cuban recruits and published online by the Ukrainian website Informnapalm, showed the ages of those who joined the Russian army ranged between 19 to 69 years old. More than 50 of the passports were issued in June and July this year.
Not all Cubans POLITICO spoke to said they had been tricked into joining the war. In photos shared online and in messenger apps, many pose proudly in military gear, some carrying weapons.
“No one put a gun to their heads,” Yoenni Vega Gonzalez, 36, a Cuban migrant in Russia, said of his acquaintances in Ukraine. “The contract makes it clear that you’re going to war, not to play ball or camping.”
He said he had been refused the opportunity to join because he does not speak Russian. “Otherwise, I would have gone [to the front] with pride and my head held high.”
During the reporting of this article, several Cubans still on the island reached out saying they wanted to enlist. All cited economic, and not political, reasons as their core motivation.
Accounts of daily life behind the fences of the training sites differed greatly.
Some recruits described their interaction with the Russians as friendly and the atmosphere as relaxed. In their free time they smoked cigarettes and sipped on Coca-Cola (officially not available in either Cuba or Russia). On the weekends they went sightseeing and reveled in the city’s bars.
But those who say they were tricked into service, seemingly a minority, complain about payment delays and said they are threatened with incarceration for resisting orders.
When asked about the moral implications of his decision, one recruit in Tula said it wasn’t his primary concern.
“This is the way we found to get out of Cuba,” he said. “No one here wants to kill anyone. But neither do we want to die ourselves.”
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When we first started Vagaro, companies primarily relied on cash or checks as their main form of payment methods. Credit card technology was still in its early stages of adoption back then, and both customers and businesses were just starting to familiarize themselves with and trust this new form of payment.
Fast forward to today. Now, preferring cash or check is less popular. The script has flipped — we have a world where instead of saying, “We don’t take credit cards, please pay in cash,” companies are saying, “We don’t take cash, please pay by credit card.”
There’s a reason for this shift. The integration of online payment systems has unlocked considerable advantages for businesses, all while improving the overall experience for buyers.
Related: How to Select the Right Payment Gateway and Payment Processor for Your Ecommerce Business
When I created Vagaro, I envisioned a comprehensive, one-stop shop for our customers. To create that seamless customer experience, we were working on incorporating online booking into our solution. But as I spoke with my sister-in-law, a hairdresser and a big source of industry insight for the company when getting started, about my plans, she posed an important question:
“What about credit card processing?”
Integrating this feature into the platform made sense, but I knew nothing about how credit card processing worked. And when I started to call around, everybody talked about it in complicated terminology.
Most people today are in the same boat I was in. They don’t understand how a hairdresser or other independent business, as well as credit card companies like Visa or Mastercard, each claim a portion of a customer’s payment. But they still want the convenience of payment integration.
From the customer’s perspective, few people are carrying around cash or multiple forms of payment options. In today’s fast-paced world, consumers prefer processing transactions quickly, paying in advance and tracking their spending all in one place.
Online payment integration makes transactions easier for businesses, too. They can sell more products or services more efficiently, including memberships, packages and gift certificates. They can accept deposits to reduce lost revenue from appointment cancellations and no-shows. And when payments are accepted on the same platform as booking, a company can know the profile of the customer, such as the services they book the most or products they tend to gravitate toward. This directly ties into marketing and upselling opportunities. If a company wants to send a VIP discount, they can do that if they know a customer’s profile and how/where they’re spending.
Similarly, a company offering a product to a business, in most cases, will need to collect payments — the product should ideally include features to facilitate this process. As the marketplace shifts priorities to offering a smooth and comprehensive customer experience, payment integrations are now considered a necessity, and the trend toward becoming a one-stop shop is gaining momentum.
Related: The Unspoken Financial Cost of Slow Payment Options
Looking strictly at the financial side, there’s a lot of money to be made from payment integration. It goes beyond simply expanding the variety of products sold; credit card transactions tend to yield higher tips, too.
Imagine getting a haircut. If the customer is forced to pay in cash, that limits the amount they can tip based on how much money they have on them. However, with online payment processing in place, customers are able to tip as generously as they like. And if the business presents tip options — say, 15, 20 and 25 percent — the customer doesn’t have to try and calculate the tip in their head. It’s easier to click on the percentage and send it off without thinking about it.
Online payment integrations can also remove awkward conversations that often happen around tips. When a hairdresser or other provider shows a tip prompt on the screen, it gives the customer a natural opportunity to tip. The provider doesn’t have to say, “Oh! And don’t forget the tip!” the way they might if the customer paid in cash.
Additionally, online payment integration can make your solution a lot stickier — a product that generates revenue for its users becomes indispensable. If a company wants to increase dependency on its product and reduce churn, efforts should be focused on offering a solution or service that streamlines increased revenue.
Related: 6 Hidden Ways That Paying by Check Is Hurting Your Business
When a business wants to partner with another organization for online payment integration, they should prioritize seeking common core elements, just as they would with any partnership: Both companies should have similar philosophies of operation, stages of technology development and understanding of buyer demands.
But another point to check is the contract length. Businesses should make sure that, for a long-term contract, there is a sliding scale — as the company processes more transactions, the costs should go down. If a sliding scale arrangement isn’t possible, companies should opt for a short-term contract so that as they evolve and their processing volume increases, they can pivot and move to another provider with more favorable terms if needed.
Online payment integrations have the power to significantly boost a company’s earnings. However, the ultimate winners are the customers making purchases. With enhanced convenience, they can buy more of what they want or need without worrying about the form of payment or how the transaction process will work.
The buyer expectation now includes the availability of online payment options, and your competitors likely offer those options already. To stay ahead in the market and meet customer demands, integrate a way for buyers to complete credit card transactions, be a part of the money-making service and continue improving the integration once it’s in place.
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As buy now/pay later fintechs edit their strategies to cope with changing economic trends, IKEA is launching its first installment-loan option through Block’s Afterpay unit, with a modest strategy unlikely to draw any fire from regulators as BNPL rule-making looms.
IKEA shoppers may opt for instant financing on purchases from $40 to $500 through Afterpay at 0%, with loans repayable in four equal payments over six weeks, the companies announced Tuesday. The loans are available online or at any of IKEA’s 52 U.S. stores, according to a press release.
The move appears to aim for the middle ground in the increasingly competitive BNPL lending arena, by offering consumers the simplest form of zero-interest “Pay in 4” BNPL loans that gained broad popularity during the pandemic.
After the pandemic, many BNPL fintechs began promoting an expanding range of interest-bearing loans for thousands of dollars whose terms extend up to 60 months, raising concerns about consumer risk. Some observers expect the Consumer Financial Protection Bureau to act soon in establishing formal guidelines for BNPL lenders to report consumer borrowing activity, among other details.
IKEA — which plans to add eight more U.S. stores plus nine pickup-and-order locations in the next three years — is strictly offering its zero-interest loans at this time, a spokesperson for the merchant said.
Offering unsecured loans at 0% makes less sense for many BNPL providers in an atmosphere of rising interest rates, where funds are no longer cheap, analysts say.
Many BNPL fintechs are managing this challenge by continuing to offer 0% “Pay in 4” loans that are key to building relationships with consumers, while they promote an expanding range of interest-bearing loans like those Afterpay offers through other merchants, said Ariana-Michele Moore, a retail banking and payments advisor with Datos Insights.
“In the merchant-fintech model, a merchant like IKEA will pay a percentage of the transaction to Afterpay which may be higher than credit card interchange. In the fintech-consumer direct model, it makes more sense to broaden the loan options for recurring customers,” she said.
The deal could also give IKEA shoppers broad exposure to Afterpay, Moore said.
Afterpay last year announced an expansion of its interest-bearing loans through a monthly repayment plan offered through merchants, alongside its 0% interest Pay in 4 programs.
BNPL lending is on track to be a key financing option during the fourth quarter, with Affirm recently announcing the official rollout of its physical Affirm Card enabling customers to finance purchases with BNPL loans on the spot in stores. Klarna launched a physical card last year.
Separately, Citizens Financial Group last week announced a new Citizens Pay BNPL financing deal with Trek Bicycle, and earlier this month Affirm launched a partnership with Booking.com, extending its BNPL loans across online travel brands that also include Kayak, Priceline and Agoda.
The U.S. BNPL market is on track to grow at a 14.8% annual rate for the next five years, according to eMarketer.
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Deep in the Wyoming wilderness last month, Christine Lagarde, president of the European Central Bank, stood before a large audience of elite central bankers and casually predicted the collapse of the international financial order. Resplendent in red and black, she resembled a humanoid Lindor chocolate truffle — and though her warning was diluted by the usual impenetrable jargon, the subtext was sufficiently clear and dramatic.
“There are plausible scenarios where we could see a fundamental change in the nature of global economic interactions,” Lagarde announced drily to the crowd, which was gathered for the annual central banker confab in Jackson Hole, Wyoming. The assumptions that have long informed the technocratic management of the global order were breaking down. The world, she said, could soon enter a “new age” in which “past regularities may no longer be a good guide for how the economy works.”
“For policymakers with a stability mandate,” she added with understatement, “this poses a significant challenge.”
A “new age”? — and coming from a member of that most dreary and unimaginative of the global technocratic-priesthoods, the central bankers? The warning at Jackson Hole wasn’t even the first time Lagarde has fretted publicly about the fate of the international order of free markets, dollar dominance and globalization that she had a hand in creating. While others have raised the issue, Lagarde has been outspoken. Just in April, she was the first major Western central banker to raise explicit concerns about the fragility of the greenback, whose international dominance she said “should no longer be taken for granted.”
It was, all told, decidedly odd from the leader of the hallowed monetary authority, whose communications department rarely holds forth on anything more gripping than balance sheet policy and deposit rate adjustments. Coming from a woman whose long career in the upper echelons has been defined by a deference to the U.S.-led international order, it was apostasy, even. Most alarming was Lagarde’s seeming indifference to the power of her own words over the state of said international order. One official at the ECB was startled enough by the April comments that he asked the speechwriter what they meant, only to be reassured that they had been “misinterpreted” and were simply an affirmation of the institution’s narrow mandate for price stability.
But it’s hard not to wonder whether Lagarde, after a lifetime managing the global establishment from crisis to crisis, has identified a potential extinction event — and is making her pitch that, once more, it is she who ought to help the world avert it. “I agree she’s on to something,” said the retired fixed-income investor Jay Newman. “There will be big shifts in trade and investment.” Paul Podolsky, another longtime trader, speculated that Lagarde was preparing the ECB, in trademark French fashion, for a “possible situation in which the euro would have more leadership in the global system than it would normally have.”
Elsewhere, the prevailing sense is confusion, not least at Lagarde’s apparent disregard for the tradition of blandness in a business where every utterance is heavily scrutinized by obsessive, knee-jerk market forces. “What Lagarde said is not the natural thing for a central banker to say, in the sense that they typically don’t go for the tail-risk as a baseline,” panicked one analyst in nervous anonymity, referring to a kind of risk that is rare but deadly. “Maybe she doesn’t realize what an unusual communication it is for a central banker — or maybe she knows something we don’t.”
So what does Lagarde want? The problem is it’s tricky to get a grip on what, if anything, actually moves her. Few have been able to discern in her any strong feelings or guiding principles beyond some vague notion of “service” to the institutions she invariably ends up leading through dramatic, epoch-defining crises. A sphinx with a winning smile, she possesses a charm that can come off as both authentic and calculated. “She could be funny when she needed to be,” said one former colleague.
What does she do for fun? She rarely reads for pleasure. Nobody interviewed by POLITICO has ever seen her read a book, or anything that isn’t a policy briefing. She has scant time, understandably, for the pursuit of hobbies. She does enjoy making jam, in July, for her family, and she is prone to the odd round of golf with the central bankers. She used to swim regularly but now not as often, constrained as she is by an intense work schedule. In terms of world-view, those who know her deduce that if she believes in anything she’s a centrist, or vaguely center-right. But most stop short at “pragmatic.”
Unlike many of the technocrats she finds herself surrounded by, however, she is a charming chancer and a skilled communicator. She possesses an uncanny, Forrest-Gump-like predisposition for finding the driving beat of history — and if not exactly seizing it, surviving it.
From the outset, she enjoyed a near-vertical trajectory, rising from the depths of suburban Normandy to lead the major Chicago law firm Baker McKenzie, where she wooed colleagues and the international business elite alike. (“She is perhaps the nicest person I’ve ever had the pleasure of knowing,” said former Baker colleague Marc Levey.) At a time of peak globalization, the firm helped big upstart firms like Dell break into Europe, and by 2005 her growing prominence had landed her in an unelected role in French politics. As finance minister, she wrestled with the financial crisis, professed undying allegiance to Nicolas Sarkozy (“Use me for as long as it suits you,” she wrote the then French president) and was later convicted for “negligence” in a sordid affaire involving payments of public funds to a billionaire businessman — but escaped punishment when the judge took pity on her. (“She acted on orders,” a former political colleague told the Guardian newspaper. “She has done nothing wrong in her life.“)
With uncommon ease, Lagarde remained at the ever-changing forefront of establishment consensus, a quasi-ceremonial, Elizabeth II-like figure who was perceived as an effective steward but was nevertheless often constrained by circumstance from exercising any real power. Consider her time as managing director of the International Monetary Fund, the venerable, 77-year-old institution that lends out money, often on harsh terms, to indebted countries when nobody else will. She joined the IMF in 2011. It was a dark time — the height of the eurozone crisis. Greece was the unhappy protagonist, forced to near-fatally gut its public spending at the behest of its Franco-German creditors after a decade-long spending binge, the effects of which it masked by manipulating its official data.
As part of the French government, Lagarde, in line with the prevailing consensus, had resisted the IMF’s involvement. But when the fund’s chief, Dominique Strauss-Kahn, was arrested on sexual assault charges in New York, she leaped for the top job. She embarked on a glitzy world tour, schmoozed China and split the Latin American vote, handily beating her rival, the distinguished Mexican central banker Agustín Carstens. Given the trashed reputation of her predecessor — and in spite of previous assurances that the Europeans would cede control to the emerging economies who were now among their creditors — it was a sleek, if ultimately predictable, victory.
Once in office, however, she was rarely more than an elegant middle manager, readily admitting that she was not the one making the big decisions. Neither, she admitted, was she much of an economist — her own chief economist, Olivier Blanchard, likened her, with warmth, to a “first-year undergraduate.” “I’ll try to be a good conductor,” Lagarde said upon joining. “And, you know, without being too poetic about it, not all conductors know how to play the piano, the harp, the violin, or the cello.” She was principally an informed mediator who would sway but not dictate, there to build consensus among the nation-states represented on the IMF’s board — which in practice, according to some, meant winning acceptance for whatever decision the Europeans and U.S. had already made beforehand.
She played upstart nations against one another, offering big concessions to the most powerful new arrival, China, while sidelining others, according to Paulo Nogueira Batista, the Brazilian board member at the time. “The managing director and staff of the fund would approach us individually to explain what they were thinking, and explain their views, and they’d say, ’Look, we understand you’re not happy with the solution, but let me tell you, we already have the required majority,’” Batista recalled. “And then, if we were still resisting, we’d be in the minority.” She was also conspicuously close to the American board member, David Lipton. “Christine wouldn’t have been so good without David, and David needed her to be the face of the fund — with her charisma and her charm,” said Daniel Heller, who represented Switzerland on the board.
The result? Against the advice of the U.S., many emerging world members and the Fund’s own thinkers, including Blanchard, the Fund bowed to European pressure and signed up to a deal that left Greece lumbering under its debts for a further four years before it had another chance to renegotiate. Even when Lagarde herself came around to Blanchard’s view, pressure from a German-led bloc in Europe meant she could change little. Exactly nobody was surprised when, in 2015, the tensions caused by that bailout came to a heady boil, triggering the rise of a rebel left-wing government in Greece.
At the ensuing tense summits of the eurozone’s finance ministers, situated at a long table in a windowless, harshly lit room in Brussels, she was able to offer the occasional morsel of benign distraction. “She was great fun,” said Jeroen Dijsselbloem, then the Eurogroup’s head, recalling that at the “most impossible moments,” with the fate of Greece and the eurozone in the balance, “she’d reach into her bag and take out some M&M’s and say, ‘Let’s have some chocolates.’”
“Yes, Lagarde was personally warm,” granted Yanis Varoufakis, Greece’s finance minister at the time. But to him, that counted for little. “Because she was straitjacketed by the IMF, she was powerless,” he said. “And given that she was very keen not to jeopardize her position in the institutional pecking order, she was happy to go along with our crushing.”
With the U.S. exasperated and with the eurozone appearing to have overcome its existential crisis, the Fund withdrew from tense negotiations over a third bailout with the Greek government at the 11th hour, citing major disagreements between Athens and her creditors. Lagarde — her hands carefully washed of whatever would come next — emerged with her reputation intact.
So what to make of her recent turn as a minor visionary? Lagarde has always held forth on the big, worthy problems of the day across an eclectic range of media — appearing last year on Irish prime-time TV, for instance, to offer an armchair psychological diagnosis of Vladimir Putin, and discussing her sex life in Elle France magazine in 2019. But now, her words — as she learned the hard way — carry momentous weight.
Initially, with trademark tact, she claimed she didn’t even want the job at the ECB, though within months she was asked to run, and by November 2019 she got it, as a compromise candidate that saw the German Ursula von der Leyen take charge of the European Commission. “So Lagarde was brought in for, like, greening up the economy, and other stuff beyond monetary policy,” recalled Carsten Brzeski, the chief economist at ING Economics and a wry critic of Lagarde. “And then we had the pandemic.”
The novel coronavirus was more than a match for Lagarde’s vaunted communication skills (or, indeed, anyone else’s). But that didn’t mean she couldn’t do a whole lot of damage. Disaster came right at the pandemic’s outset, at a conference on March 12, 2020, when she was answering questions from the media about the early alarming spread of COVID-19 in northern Italy. Asked whether she would act to reduce the perilously high “spread” on the interest paid on Italian debt, Lagarde offered a now-infamous response that blew up the Italian economy — and much of her credibility with it.
The cataclysmic soundbite? “We are not here to close spreads.”
It may not sound like much, but in the arcane world of central banking, it was tantamount to uttering a hex. Years before, Mario Draghi, Lagarde’s predecessor, had famously “saved the eurozone” by announcing that the ECB would do “whatever it takes” to back billions of euros of at-risk sovereign debt. Central banking relies on a certain enigmatic mysticism, which Draghi, the reclusive, Jesuit-trained technocrat par excellence, had in spades. At the Italian’s mere beckoning, debt markets calmed. Draghi didn’t even need to deploy the figurative “bazooka” of actually flooding the eurozone with money. His words were enough.
Lagarde’s comment was “whatever it takes” in reverse — a bazooka turned faceward. “I saw the Draghi spirit leave the room,” recalled Brzeski hauntedly. “For years we were spoiled by his famous magic — the man could calm financial markets just by reading out the telephone book — and then Lagarde comes and ruins it in ten minutes. The Draghi magic was exorcized, and Lagarde was the exorcist.”
The bond markets exploded. Before joining the bank, Lagarde had been pitched as an arbiter whose main role would be to forge consensus among the central bank governors who make decisions at the ECB. But the “spreads” fiasco was a sharp reminder that she was uniquely accountable as the voice of euro monetary policy. And she blew it. Her authority collapsed. “In the past, we knew we needed to listen very carefully to Draghi,” said Brzeski. “Now markets know it’s normally not Lagarde who calls the shots.” Plus, she was enjoying herself too much, pontificating on climate change and social justice. “As a central banker you don’t improvise,” harrumphed Brzeski. “You are boring, you repeat the same messages over and over again.” Once, when a presser ended, recalled one analyst, reporters swamped the ECB’s head of market operations Isabel Schnabel — leaving Lagarde alone, taking notes.
Former colleagues wonder whether she misses the IMF, where she was able to be a rockstar financier, to propound without worrying about how her pronouncements landed. “I mean that job is incredible, it connects you with global power at the highest level,” said Heller, the Swiss board member. French media, as usual, speculated that her eye was really on the presidency, a rumor that has never entirely gone away.
“Maybe she looks down on central banking,” wondered Brzeski, sounding wounded. “Maybe she finds it boring.”
All that is to say that now, when Lagarde says something, it’s safe to assume she’s saying it with intent. “She had a very steep learning curve, but she also climbed the learning curve very quickly,” said Klaas Knot, the governor of the Dutch central bank. Even Brzeski observed that the past year’s harrowing experience of inflation has forced a certain weary seriousness onto Lagarde, and she recently snapped at a Reuters journalist who questioned her shifting views on monetary policy. She looks lifeless at the pulpit, bored and no longer having fun — a growing despair, Brzeski said, that has at least made her more credible with the markets.
Just as she has offered her thoughts on climate change and the war in Ukraine, it may be that Lagarde, with her recent comments, is looking for that next big crisis over which to assume ceremonial leadership. As well as policy tightening, her overworked publicity team prioritizes policy branding: snappy soundbites, alliterative triplets, cartoon-based policy explainers. “She sees the big picture,” said Latvian central bank Governor Mārtiņš Kazāks. “Just look at her CV.” “I think she’s jealous and still looking for her ‘whatever it takes’ moment,” said the ECB staffer cited above, somewhat less charitably.
It is also highly likely that she earnestly believes things are taking a turn for the worse, and is, in a way, mourning the collapse of the globalized system that she shaped and that in turn shaped her. And in grappling with a world off balance, it helps to have a lawyer deliver the bad news. Effective monetary policy requires the synthesis of planetary volumes of data, and, as her colleagues say, Lagarde has the training to inhale great galaxies of the stuff, spending much of her waking life wading through dense briefing material. “Read the footnotes in her speech,” the veteran market-watcher Podolsky urged. “All she is doing is, lawyerly-like, reading — or having her staff read — all the staff research coming from the ECB, OECD, and IMF, and pulling out the pieces that support her questioning.”
Like an owl before an earthquake, Lagarde seems alive, said Podolsky, to the prospect of “a more hostile world,” of war and deglobalization, of Chinese decline and inflation that never quite dies. It is a chaotic uncertainty that left the ECB’s own Governing Council divided and markets uneasy, ahead of an announcement Thursday on whether the bank will continue to raise interest rates or take a break, an acknowledgment that the economy — and the politically sensitive manufacturing sector in particular — has cooled. (The ECB and Lagarde, through the bank’s press office, declined to comment for this article.)
There’s another possibility, however. As Lagarde has learned, predictions from a major central banker carry the risk of being self-fulfilling. “If she was finance minister nobody would pay attention,” noted the analyst speaking on condition of anonymity. With inflation raging, as Lagarde herself noted in a recent speech, the public is ever more attuned to the bank’s operations and communications, which makes the economy, in turn, more sensitive to Lagarde’s touch. This, she added, provides “a valuable window of time to deliver our key messages.”
Key messages! Monetary policy is already a weak form of mass mind control — could Lagarde be trying to verbalize into existence a new economic paradigm on which to hitch her professional fortunes? She has always been willing to say, well, whatever it takes, for her survival, even when doing so strains beyond her level of competence. A legacy as the ECB chief who oversaw the euro’s rise as a challenge to the domination of the dollar would be an elegant feather in her cap.
And if armageddon never arrives? She’ll be well placed to take credit for averting it. Lagarde — as with most central bankers — was humiliated by the sudden rise in inflation. As Brad Setser, a former staff economist at the U.S. Treasury, said, her recent comments reflect a desire to emphasize the risks as a form of damage control. “It comes from a need to be reserved,” he said.
Call it apocalyptic expectations management. If ECB policy fails to steer Europe safely through global economic fragmentation, Lagarde can quite comfortably say that, well, sorry, but she always warned it might. And then, as usual, she will emerge from the calamity blameless — sure, the opera house may be flaming rubble, the brass players at each other’s throats and the wind section reduced to cinders, but she’s just the “conductor” after all.
Lettering by Evangeline Gallagher for POLITICO. Source images by Hollie Adams/Bloomberg via Getty Images, Thomas Lohnes/Getty Images, Boris Roessler/Picture Alliance via Getty Images and pool photo by Sebastian Gollnow via Getty Images. Animation by Dato Parulava/POLITICO.
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Whitney McDonald
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The implementation of the ISO20022 offers a great opportunity to transform and modernise banking operations and payments.
Payments are the lifeblood of the economy, facilitating transactions for goods and services and the greater flexibility and speed have greatly expanded the choices.
In Switzerland, besides cash, debit cards were the preferred payment method between from 2017 and 2020 (22% to 32% of payments by volume and 28% to 34% by value). Whereas volume and value has remained on a similar level since then, contactless payments have increased between 2020 and 2022 (from 13% to 19% in value).
Additionally, a substantial growth in mobile payment transactions have been observed between 2020 and 2022 (4% to 11% by volume and 4% to 8% by value).
Source: Swiss National Bank
In our recent payments survey of more than 40 banks in Switzerland, 45% rate payments as a strategic driver, and 55% as a need-to-have commodity.
Furthermore, 82% of the banks consider that payments will be even more important in five years than it is today, and only 18% believe that they will be less important.
Payments are a key connector between a bank and its customers. Depending on a bank’s positioning and product offering, over 50% of customer interactions involve payments.
Source: Deloitte payments survey 2023
ISO20022 and instant payments
The implementation of instant payments and adaption to ISO20022 is mandatory and follows a clear roadmap outlined by SIX (mandated by SNB) with a product migration path.
Together with the financial institutions, SIX is initiating the technical rollout of ISO20022, followed by the technical readiness for SIC5 by the end of 2023. The largest Swiss banks must comply by the end of 2024, with a capability of processing instant payments (receiving), and the remaining banks must comply by 2026 at the latest.
Open banking
Open banking − which permits access to bank customer interfaces for third-party providers − is not yet mandatory for banks and other financial institutions in Switzerland. However, Open banking was made mandatory for banks and other financial institutions in the EU with the regulation Payment Services Directive 2 (PSD2) regulation.
On 28 June 2023, the European Commission published draft legislation, PSD3, which aims to:
In Switzerland, the Federal Council has included open banking in its ‘digital agenda’ for 2024. Therefore, it can be assumed that this will trigger transformation activities for banks and financial institutions on the regulatory side.
Payments are undergoing a profound transformation, based on/initiated by changes in customer behaviour, technology, commercial/business models, partnerships/fintech’s as well as in regulation.
It will therefore not be sufficient in the long term simply to implement the new regulatory requirements for payments.
Banks and other financial institutions should now deal with the challenge of payments transformation holistically and set the right course.
Banks and financial institutions will be confronted with the following consequences if they do not modernise and upgrade their payment systems:
ISO20022, combined with the advent of instant payments, holds immense potential for financial institutions in Switzerland and Liechtenstein. This combination offers many opportunities for early adopters, enabling them to enhance their operations, streamline processes, and stay ahead of the curve.
Opportunities and advantages from early adoption
Modernising applications and processes
Fostering innovation
ISO20022 and instant payments present Swiss and Liechtenstein financial institutions with unprecedented opportunities to modernise their applications, streamline their processes, and innovate. Early adoption of ISO20022 will enable them to gain a competitive edge, enhance operational efficiency, and deliver an exceptional customer experience. By leveraging ISO20022’s capabilities, financial institutions can transform their operations, unlock valuable data insights, and drive product and service innovation.
Embracing ISO20022 is not only a strategic move. It is also a crucial step in future-proofing the payments landscape.
Finally, payments will be a challenge for banks and financial institutions to develop process excellence and to meet regulatory requirements. Payments will become a key differentiator in the management of client expectations and customer centricity.
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Outages such as the one Square suffered late this week are rare, but can still cause major disruptions to merchants — particularly smaller businesses that may not have a multitude of non-cash payment options.
Square and Cash App suffered system outages starting around midday Thursday through early Friday. The outages, which were still being repaired Friday morning, led to hundreds of queries on social media about what would happen to missing funds and complaints about workarounds not working.
Square’s outage follows a similar incident this year on the bank-supported Zelle transfer network, and demonstrates the blowback a financial institution or payment company can face when functions that are normally taken for granted fail. As consumers reduce their use of cash, they put the onus on merchants to offer a backup method of payment — or accept the transaction offline and own the risk for any failures after their point of sale restores connectivity.
“From personal experience, my daughter was working in a supermarket over the summer and they had an outage lasting more than an hour,” said Ron van Wezel, a strategic advisor for Datos Insights in Amsterdam, where there’s almost no cash usage. “Imagine the chaos of clients leaving their shopping bags and walk away [and] angry people shouting at the cashiers.”
The tracking site Downdetector noted about Square 18,000 outage reports Thursday evening, declining to about 2,000 by around noon Eastern time on Friday. Some businesses in the San Francisco Bay Area reported receiving more than $1,000 in payments without being able to use cards, according to the San Francisco Chronicle. Some merchants also resorted to cash payments and writing down consumer credit card numbers to charge later, a similar tactic that merchants in Europe deployed when Visa suffered a high-profile outage in 2018.
Square posted an announcement of the outage — and an apology — early Friday on the X social media platform and other outlets. It also posted an announcement that it would investigate what caused the outage and would share its results. The Associated Press on Friday reported the outages on Cash App and Square’s point of sale systems impacted thousands of users.
Block, which operates Cash App, other consumer services and Square’s business-facing products, referred questions to the company’s updates on http://issquareup.com and https://status.cash.app/.
As of 11:30 a.m. Eastern time on Friday, the latest update on Square read: “Our engineers have worked on a solution for this disruption and they plan to make it available in an upcoming Square Point of Sale update (version 6.25.1) We will continue monitoring and provide updates as they occur. Thank you for your continued patience.” The latest Cash App update said the P2P rail is “mostly” back online.
Earlier status reports from Block said the disruption affected Square Stands and Readers connected via USB on Point of Sale version 6.24, merchants reported seeing a message saying the reader has disconnected. The instructions recommended that merchants connect to Bluetooth as a backup. Other messages advised against updating to the 6.24 version of the POS until more information is available.
Square Stand is the company’s point of sale terminal, which competes with Fiserv’s Clover and other similar devices. Cash App is a P2P transfer service that also supports other Block services such as its cryptocurrency trading business.
An outage such as Square’s will impact smaller businesses more than large retail chains, according to David Mattei, strategic advisor for the fraud and AML practice at Datos Insights.
“Hopefully the merchant has multiple POS devices in the event one is not working,” Mattei said. “However, for very small businesses, they likely only have a single POS device, so this could be a very serious issue for them.”
An outage typically means that the POS device lacks the connectivity necessary to verify a card payment. In this case, allowing a sale to proceed and processing the payment at a later time. Square calls this its “offline mode,” which is available on some versions of Square’s point of sale products. Other payment industry firms call this backup option “store and forward,” Mattei said.
“However, there are problems with this,” Mattei said. “If there are any problems with the transaction, the merchant ends up owning the liability.”
These issues can include fraudulent transactions, invalid cards or insufficient funds.
“Larger merchants protect themselves in these situations by having multiple payment processing relationships.” Mattei said.
Another potential backup option is a cloud-based point of sale, van Wezel said, noting that providers can operate a distributed architecture that will switch transactions automatically to a second server if there is a problem. Merchants can also implement multiple cloud systems for further redundancy.
“However, contingency remains a major concern for merchants. One of our clients once said that their RFP to vendors stresses three top priorities: resilience, resilience and resilience,” van Wezel said.
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The Federal Reserve launched its much-awaited FedNow real-time payments channel on July 20, and experts say it can be revolutionary for the payments industry. The United States was lagging in the adoption of real-time payments (RTP) before the launch of FedNow because the market is structured on choice rather than mandate, Jennifer Lucas, Americas payments […]
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The financial services industry ships over 3 billion new cards each year, according to ABI research.
That’s enough plastic, laid end to end, to wrap around the planet more than six times. And issuers replace these cards every three to five years — leaving the old ones to sit in landfills for hundreds of years before they fully decompose, if they ever do.
Plastic leakage into the environment will almost double, to 44 million tons, in 2060, according to the Organisation for Economic Co-operation and Development. Most of that will wind up in the ocean and other aquatic environments, but it’s also not great for humans. First-use plastic is produced from fossil fuels and contains highly toxic chemicals. As plastic breaks down, its components can be inhaled or ingested; mothers can even pass plastic along to a fetus through the placenta.
Despite these risks, most banks and credit unions plan to push out more plastic in the next five years, according to a July survey of 109 card issuers conducted by American Banker’s parent company, Arizent, for this story. Thirty-eight percent of respondents said they plan to increase the number of physical cards they issue by up to 10%, and 31% said they plan an increase of more than 10%.
Even if digital alternatives such as mobile wallets eventually replace physical cards, the planet and its inhabitants still suffer each year that new plastic enters circulation.
“I never knew that it takes 400 years for a debit card to degrade. When you hear that, it’s shocking,” said Eric Carter, digital solutions and innovations officer at Bank of New Hampshire.
The $2.4 billion-asset bank began issuing a biodegradable debit card last August. It’s one of several players in the financial services industry taking notice of this issue — and taking action. However, many companies’ efforts will still take years to implement, and the costs of switching away from first-use plastic remain a deterrent to some.
Carter, who has worked in the banking industry for 36 years and has held his current responsibilities for the past 18 years, was researching options for debit card materials when he discovered the possibility of issuing biodegradable cards, and how much better they were for the environment than cards made of first-use plastic.
And then it hit him.
“I’ve been doing this for 18 years and I’m part of the problem,” Carter said.
As Carter was doing his research, he was also struck by how much his own daughters cared about sustainability. They would talk about the materials going into Pringles cans or plastic sandwich bags; they worried about the coral in the ocean. His oldest, Marissa, is a 20-year-old marine biology major at the University of New England in Biddeford, Maine. Her sister, Eliza, is 18 and wants to preserve old buildings; her senior project was a dress made from recycled materials. She starts at Wentworth Institute of Technology in Boston this fall.
But would the type of plastic in their debit cards really matter to his daughters and their friends? When Carter asked, he got an emphatic yes. This was all the encouragement he needed to present the idea to his team.
Bank of New Hampshire chose polylactic acid, or PLA, for its biodegradable debit card. PLA is made from corn or similar bio-sourced material, and has the benefit of being compostable under the right conditions.
There are a variety of other sustainable choices, depending on what the bank’s key environmental concern is — and how much it wants to spend to solve the problem.
Recycled polyvinyl chloride, or rPVC, and recycled polyethylene terephthalate, or rPET, cards are made primarily using plastic waste; a key difference between the materials is that rPET, mostly used in bottles and other food packaging, doesn’t emit the same toxic chemicals as PVC when incinerated. Both of these plastics are typically less expensive than other sustainable materials.
A more premium (and thus more expensive) option is ocean plastic. These cards are made primarily using plastic collected from coastal areas to prevent that trash from drifting out to sea.
In all cases, the nonplastic components, such as the EMV chip, contactless antenna and magnetic stripe, are the same as those in cards made of first-use plastic.
“Though my daughter is a marine biology major and I like the idea of reclaimed plastic, it’s still plastic. It’s good that it’s out of the ocean, but I don’t want to put it in my back yard either,” Carter said.
Carter’s bank is based in Laconia, New Hampshire, but it gets its cards from Thales, a global card manufacturer based in France. And while many other banks around the world have the same access to sustainable materials for their cards, Bank of New Hampshire is still very much an early adopter in the U.S.
Ultimately, many banks may not have a choice about adopting more sustainable options. Mastercard will require all banks to use sustainable materials in any new card issued as of 2028. After that date, if an issuer tries to offer a card made from first-use plastic, the Purchase, New York-based card network has the option to refuse it.
ABI predicts that the number of rPVC payment cards issued will “surge” to 638 million in 2026 — but making the cards out of recycled plastic or compostable materials solves only half the problem.
Those cards will also be discarded one day, and many will still take up space in landfills or as litter. To this end, some banks have begun putting bins in their branches to collect expired cards, shred them on the spot, and then ship the pieces off to a recycling partner once the bin is full. Others are collecting expired cards at ATMs, which already have the ability to capture cards.
Mastercard’s deadline is meant, in part, to get everyone on the same page. Different regions may share a goal of being more environmentally friendly, but they each have their own reasons.
“Europe has always been hot on this and therefore the EU has really been driving it,” said Paul Trueman, executive vice president of cyber and intelligence at Mastercard. Building on a cultural imperative to be more sustainable, regulators in the European Union expect corporations to have net-zero greenhouse gas emissions by 2050.
Other parts of the world have their own motivations. In the Asia-Pacific region, rising sea levels are a major concern; in Brazil, it’s deforestation, Trueman said. But the environmental impact of plastic cards can be addressed only if the supply of recycled or bio-sourced material is available to the card issuers who care to procure it.
In 2018, Mastercard launched a partnership with three European card manufacturers — IDEMIA (France), Giesecke+Devrient (Germany) and Gemalto (a Dutch unit of Thales) — that serve a global audience, with a goal of reducing the amount of first-use plastics each of these companies use. In 2020, Mastercard created a sustainable materials directory to allow issuers to more easily find options for eco-friendly cards; the Mastercard Card Eco-Certification scheme followed in 2021, enabling issuers to display a badge on their cards to demonstrate their sustainability.
Today, Mastercard endorses 23 alternatives to first-use plastic, and issuers worldwide have produced 235 million Mastercard-branded cards using those approved materials since 2018. There are 3.2 billion active Mastercard and Maestro-branded cards worldwide, according to the company’s second-quarter earnings report for this year.
Past efforts to fundamentally change payment cards, such as the addition of the EMV chip for security, have involved some degree of coordination among the major global card networks. For Mastercard’s sustainability goal, that level of coordination isn’t necessary.
“We work directly with the vendors. And the reason for that is those vendors serve us, but they also serve Visa, Amex, Discover and all the rest of them … the vendor then supplies the product directly to the bank,” Trueman said. “A card is just a piece of plastic, no matter which brand’s on it.”
At Giesecke+Devrient, for example, 60% of its orders are already for eco-friendly materials, according to Ashwini Pandey, director of product management at G+D, which ships about 500 million cards a year and plans to stop using virgin plastic in its payment cards by 2030.
G+D has been working on offering recycled cards for over 10 years, and the technology behind these cards has advanced substantially in that time.
“The market was not there … and also from the technological perspective, from the material plastic perspective, it was not that refined or innovated the way it is today,” Pandey said.
By 2020, enough of the necessary pieces were in place for G+D to move ahead more aggressively with eco-friendly cards. Its suppliers had an ample amount of recycled plastic to work with, and the quality of the finished product was now good enough to meet the same standards that the card networks applied to cards made of first-use plastics, Pandey said.
Although Mastercard is spearheading this particular initiative with G+D and other vendors, the other card networks have their own projects underway.
Visa offers upcycled plastic cards from CPI Group and has a goal of being a net-zero company by 2040. San Francisco-based Unifimoney offers a Visa card made from ocean-bound plastic, and in Europe, Bank of Ireland issues a bio-sourced Visa debit card and CaixaBank has a 100% recycled-plastic Visa credit card.
American Express has offered cards made from reclaimed ocean plastic since 2019, and last year it began issuing a metal Delta SkyMiles card that gets 25% of its metal from a retired Delta Boeing 747.
Individual banks have also made their own commitments to sustainable payment cards. Bank of America announced in April 2022 that all of its plastic credit and debit cards would be made from at least 80% recycled plastic as of 2023 — a move which, it estimates, would reduce the use of more than 235 tons of first-use plastics based on its own issuance volume. Bank of America issues 54 million cards a year to consumer and business clients.
“There is a big consciousness now, from a consumer angle, of wanting to be more green, as well as a big-business focus on recognizing the role we play in driving towards net zero and beyond,” said Jeni Mundy, global head of merchant sales and acquiring for Visa.
But ultimately, the banks and card networks don’t need to be aligned on this as long as the vendors do their part, according to Mastercard’s Trueman.
Some HSBC branches in the U.K. have boxes that shred expired payment cards on-site. The bank then ships the pieces off for recycling after the box fills up.
“Even if you don’t want to do it, there’s no physical benefit in having a first-use PVC card versus a recycled card,” Trueman said.
Any price difference between first-use PVC and recycled PVC should flatten out over time due to competitive pressures, he said. Ultimately, the experience of buying virgin-plastic cards will be like buying leaded fuel at the gas pump — it will be almost impossible to find, and anyone who sells it will charge a steep premium because there will be so little demand, Trueman said.
“The whole petrochemical process switched over, [and] all the engines became better,” he said. “Everybody can handle unleaded fuel, so unleaded fuel is the new norm.”
The credit card industry has long advised its customers to cut up their expired cards and discard them in household trash for security purposes, and if this habit doesn’t change, recycled-plastic cards will take up just as much space in landfills as first-use plastic cards do.
The payments industry is still figuring out how to best address this issue, and it has yet to come up with a universal solution.
Bank of New Hampshire chose PLA cards — the kind made from corn — because they are biodegradable under the right conditions, but considered sturdy enough for everyday use.
To properly decompose, “it’s got to be in an industrial compost pile, with heat and moisture, and it’s got to be in for six months,” Carter said. But just “being in your car or your wallet, or you went swimming, that’s fine.”
Consumers who do their own composting could dispose of their cards at home, and if these cards do end up in landfills they are still nontoxic, allowing them to break down safely over time, Carter said.
Other banks are instituting programs that allow them to collect plastic cards to be recycled, regardless of what kind of plastic they’re made from.
In June, HSBC began piloting a system at some of its U.K. branches to allow people to bring in cards to be shredded on-site and then shipped off for recycling once the bin is full. The bin is collected by TerraCycle, which separates the shredded plastic from the card’s metal components (which are also shredded), allowing the plastic to be reused.
Mastercard
Although the bins are being deployed by HSBC in partnership with Mastercard, they can accept any card for recycling.
Santander has a similar in-branch recycling program in the U.K., but in Spain it takes a different approach — it works with G+D to collect expired cards through its ATMs.
“We are using the existing infrastructure,” Pandey said. “There’s no physical change needed in the ATM,” which is already designed to capture cards when, for example, a user mistypes their PIN multiple times.
Consumers aren’t likely to bring an expired card to the ATM unless they know it’s expected of them, so the ATM starts to inform the user about this process about three months ahead of the card’s expiration date. G+D collects 60,000 to 70,000 cards a month this way. The plastic from these cards is then recycled to be made into benches, Pandey said.
A third option is to mail the card to the bank or its recycling partner.
Each of these processes has its pros and cons. ATM capture “throws another supply chain headache into it,” according to Trueman, because ATMs can’t shred cards on their own. The bins that banks use in the U.K. provide peace of mind to consumers by shredding the cards im- mediately, but this works only for banks that have branches, he said. A fully digital bank would have to accept cards by mail or at a partner location.
Most of these projects also don’t solve for the growing number of metal payment cards being issued.
“Metal cards have a different positioning in the market; they’re more like a lifestyle card,” Pandey said. These cards are already made with some amount of recycled metal, he noted.
All of these steps — from replacing first-use plastic to accepting cards for recycling when they expire — add to the issuer’s costs.
Whether the issuer gets a meaningful return on its investment is the elephant in the room — or in the case of Bank of New Hampshire, the moose.
When the bank began issuing biodegradable debit cards a year ago, it offered a series of new designs that its customers could choose from. Its most popular new design is the Old Man of the Mountain, a famous New Hampshire rock formation that collapsed two decades ago; before that, customers’ favorite design was a picture of a moose.
“Everybody loves the moose card,” Carter said.
Bank of New Hampshire is a mutual bank, meaning it is owned by its depositors instead of traditional shareholders. This structure enabled it to downplay the issue of cost when choosing the materials for its new cards.
“[Cost] wasn’t a factor for us; it was really the social aspect of it,” Carter said. Bank of New Hampshire pays about 30 cents more per card than it did before switching away from first-use plastic.
The choice of a biodegradable “corn card” has its own built-in marketing perks, Carter added.
“Every time you talk to a customer about a biodegradable card made out of nonedible corn, it always gets people talking,” he said. People asked whether it would melt in their pockets (it won’t) or whether the card could be eaten (it can’t). Once they got their answers, those customers started using the cards a lot more.
Although the bank can’t prove a direct correlation between card materials and spending, it has been tracking a number of metrics that showed an increase in usage — and, by extension, an increase in revenue.
Bank of New Hampshire has about 28,000 active card users; its processor defines an active user as one who transacts at least once a month. This number has risen about 3% year-over-year, but the big leap is in the number of “super power users,” who make over 40 transactions a month. That number jumped by 7%, to 7,000, from a year earlier.
In June of this year, the bank opened 35% more new accounts than it did a year earlier. Its debit card transactions rose 2.6%, to 20,115 transactions, from June 2022. Its total amount spent rose 2%, to $757,004. “More transactions means more interchange income,” Carter said.
For another bank, the cost of issuing recycled or sustainable cards still hasn’t added up.
This is a point of frustration for Climate First Bank, a two-year-old bank based in St. Petersburg, Florida, that emphasizes climate-friendly products and rewards in its messaging. It simply doesn’t have the scale to make the switch away from first-use plastic, according to Chris Cucci, chief of staff for the $333 million-asset bank.
It checks vendor pricing regularly, and most recently ran the numbers in December. A “run of the mill” card costs it $2 to $3, with a typical minimum order of 1,000 cards. It has 2,300 account holders today, many of whom have already been issued cards.
Of the options Climate First considered, Cucci said the cheapest sustainable card was just under double its current cost. Climate First would prefer to issue cards made from ocean plastic, which would cost $7 a card, though this is a “prohibitive” amount, Cucci said.
Climate First isn’t the only card issuer struggling with this problem. Of the participants in American Banker/Arizent’s July survey, only 6% had replaced their full portfolio with cards made from recycled plastic or bio-sourced materials. Another 13% have started replacing their cards but still issue virgin plastic, and 8% have a plan in place but haven’t started. Twenty-eight percent are discussing replacing first-use plastic but haven’t made a decision yet; the remaining 45% either have no plans or don’t know their company’s plans.
Of those that are replacing first-use plastic cards, the biggest motivator is the environment, at 55%. Marketing was the second-biggest motivator, at 28%, and mandates from a card network or other party was the driving force for 14% of respondents.
Of those that are not replacing their cards, the biggest deterrent was lack of demand, at 38%, followed by cost, at 30%.
Climate First’s customers sometimes inquire about the materials used to make its cards, and Cucci said the bank tries to be transparent about the process it’s going through. “We haven’t lost a customer over it, but I would say that it’s something that our customers … do ask about, and they’ll be really excited when we have a solution,” he said.
Most of Climate First’s customers use digital wallets like Apple Pay or Android Pay, but that doesn’t eliminate the need for a plastic card, Cucci said.
“They still require you to issue a physical card to be able to turn those services on,” he said.
While this isn’t true for all cards — the iPhone’s built-in Apple Card, for example, mails a physical card only to users who request one — there are many factors that keep physical cards in use today.
A full shift away from plastic “requires that everybody does have a smartphone capable of handling [mobile payments], that they have the capability to pay through that card and that they have a choice — that they want to pay through that physical card,” Mastercard’s Trueman said.
An industrywide shift fully to digital payments “assumes a lot [about] the equity across the countries” in their access to technology and desire to change habits, he said. The plastic card endures because of the simplicity and the security it provides, Trueman said. He likened plastic cards to pencils, which people still use long after the invention of the pen.
“There’s something about a pencil. It does one job incredibly well. If you get fed up with [what you’re writing], you can just kind of rub it out and start again,” he said.
At Bank of New Hampshire, Carter hopes its sustainable debit card sets an example that other banks will want to follow. But he knows it won’t be that simple. Bank of New Hampshire was also an early adopter of contactless cards in the U.S.; it offered contactless debit cards in 2009. It took nearly a decade — and the combined impact of EMV-chip cards, Apple Pay and a global pandemic — before most other banks made the same shift.
To Carter, this is cause to be patient about the momentum behind sustainable payment cards.
“It might take a little bit for it to take hold, but hopefully in the long run it’s going to take hold and we’ll be one of the first to have made that leap,” he said.
Banks aren’t just in the business of mailing out plastic cards. They also distribute a huge number of pens to their branches. Some go a step further and offer them to customers as promotional materials. TD Bank, the U.S. unit of Toronto-Dominion, hands out 12 million to 15 million plastic pens a year. It’s a branding initiative that began when it was a New Jersey-based company called Commerce Bank, which the Canadian TD purchased in 2008. Despite rebranding as TD, the bank didn’t want to stop handing out pens, but it had two major environmental concerns to contend with: Its pens were made of first-use plastic, and they were all shipped from China (burning a lot of fuel in transit). To address both of these issues, TD embarked on a three-year project to convert to rPET materials and to source its pens locally. In the end, it chose to work with Pen Company of America in Garwood, New Jersey. “Bringing the pen from China back to the U.S., we actually saved money,” said Lena Forrest, head of branded experiences at TD Bank. As a safety feature, the pen isn’t refillable; the bank didn’t want small children to be able to dismantle the pen and choke on its parts. To make sure the pen lasts, TD requested to use a large ink cartridge. As a result, TD’s pens can write for about 2,730 feet before running out of ink — the equivalent of seven and a half football fields, or twice the height of the Empire State Building, according to Forrest. “In my 15 years [at TD Bank], I’ve not come across a pen that has run out of ink,” Forrest said. TD expanded its promotional pen program to Canada in July, shipping 250 pens to each of its 1,300 branches in the country. Until this point, Canadian branches had been using ordinary unbranded pens sold by office supply stores. The bank isn’t focused only on pens. A few years ago, TD embarked on a plan to remove all single-use plastic within the bank. This included plastic cups and cutlery in its office kitchens, as well as the packaging it uses to ship promotional materials. “Even the tape that we use on our boxes is a water-based tape,” Forrest said. “We take the environment very seriously at the bank.” |
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Daniel Wolfe
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Whitney McDonald
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Small businesses are embedding payments options beyond credit card transactions into their platforms as consumers desire pay-over-time capabilities.
“Now that technology has allowed installment payment options to be present everywhere, especially online, consumers are choosing that,” Bobby Tzekin, co-founder and chief executive at embedded finance platform Wisetack, tells Bank Automation News on this episode of “The Buzz” podcast.
While software-as-a-service providers allow companies to embed payments options into their platforms with credit card transactions, the more affordable approach actually is to spread out payments over time, Tzekin said.
Wisetack’s API-based technology embeds into a company’s platform to allow for these pay-over-time transactions, he said.
Listen as Wisetack’s Tzekin discusses embedded finance with BAN Editor Whitney McDonald.
The following is a transcript generated by AI technology that has been lightly edited but still contains errors.
Bobby Tzekin 1:13
Yeah, we believe there’s two important trends that are driving consumers to adopt something other than a credit card to pay for purchases these days, which then is setting the stage for the embedded piece. So first, in terms of financial products, credit cards have been the most common and frequent way consumers will borrow in the US. And the reason why that’s changing is twofold. One, after the Great Recession, there was a regulation that prevents card issuers from marketing on campus and universities. And so now we have a much larger population of young people graduating without credit cards and going without a credit card for a long time. So that is requiring a new way for them to afford larger purchases before they really started getting the income that they’ll get later on in their career. So that’s one trend. The other really important one is everyone understands these days that a credit card is not a great way to borrow great way to pay if you pay it off at the end of the month. But it’s expensive to borrow. And everyone understands that. And so now that technology has allowed installment payment options to be present, everywhere, especially online, consumers are choosing that because they know it’s more affordable to spread your payments over time via these installment payments. And that I think sets the stage for Well, why is embedding these financial products important. And the other trend that contributes here is the adoption of SAS or software as a service by businesses pretty much every business, no matter the size these days, is thinking about or has already adopted some type of software to run their business. And those software providers themselves are embedding payment options. And the most common one usually the first one is credit card payments. If if the businesses are serving consumers, the software they use typically will offer credit card processing. And the next step beyond that, obviously, we just talked about the limitations of credit cards is Well how else can a consumer pay, especially for larger purchases? And that’s what wisetech does, we embed the seamless installment payment options. So the consumer can pay over time if it is a large purchase, and they don’t have to put it on a credit card.
Whitney McDonald 3:32
Now taking that a step further, I know you started talking through how wisetech accomplishes this, but maybe we can get into a little bit about the technology behind wise tech and how it’s how it works.
Bobby Tzekin 3:43
Yeah, absolutely. So as I mentioned, its most fundamental voi stack technology consumer can pay over time for a large purchase and how we’re different from others who may say the same thing is that we’re an API platform. So we do a few things differently. One is we’re incredibly easy for a developer to integrate into any software experience. So it’s a deeply embedded option. And that does a couple of other things. One is it makes it really easy for the business to get started. So the business, just the way everyone expects these days that if they’re running a business, they can very easily enable credit card processing for their customers. They can do the same thing with installment payments via wisetech. It is very easy it is embedded in the software that the business is already using. So it makes the startup cost go away for the business. We’re also because we’re embedded we’re very seamless as part of the purchase for the consumer, very customer friendly. So we from the very beginning focused on simplicity and customer friendliness, and that encompasses both the consumer as well as the business. And another way we differentiated is we in the past they focused on businesses that sell in the real world so not online purchases, not a website. They sell through but they are usually doing something involves an in person service. So we work with a lot of home services, businesses, like plumbing, electrical, H back, and so on just things around the home. And we also work with dental practices, we work with car repair shops and some other similar type of businesses that that again, serve their customers in the real world, not on the website.
Whitney McDonald 5:25
Now a little bit further into what you were just explaining, could you talk through, I don’t want to use the word embedded. But could you talk through integrating wisetech onto some of these claims that you were just explaining what does that entail?
Bobby Tzekin 5:38
Yeah, we, we have focused on having a really simple API that I do think the best parallel is, these days, everyone expects it to be really easy to integrate card processing. So So there are a few components. One is for businesses, how do they get going and offer the payment option. So it should be really easy to provide some basic information and turn it on for for my customer experience. So we do that. Also, we embed reporting, so in the software that a business is already using, all their transactions that have been paid via wisetech will show up seamlessly in the reporting. So they don’t have to change anything around how they reconcile what their business did. And then the final part is, again, for their customers for the consumer, how easy is it for the consumer to pay. And so all of that we’ve made it really easy to put into a piece of software. So think if if I’m running a plumbing business, I’m using this piece of software to manage my entire business. It means dispatching my technicians to jobs in the field, it means managing my inventory of supplies, it means my orders my payments. And so why stacks embedded in there as a payment option. And anytime there’s a large, unexpected job, let’s say your pipes burst at home, and it’s an unfortunate thing is going to cost many 1000s of dollars to repair Well, you don’t have to panic about how you would pay for that because you can pay over time. And that option is available as the business comes out to do the work.
Whitney McDonald 7:15
I’d love to get into another use case here. I know that you just shared that great example. Maybe we can talk about another way that wisetech is in action. I know that you recently announced that you’re working with citizens, maybe you could talk through through that and what that entails a more specific type of use case. Yeah, I
Bobby Tzekin 7:35
can talk about both of those. So another very common example we have is imagine it’s it’s the winter and it is very cold and your water heater goes out or your your heater for your home. And it is obviously an emergency. When that happens, you didn’t plan for it, you call It’s a call a plumber, if it’s the water heater, they show up. And they look at your 15 year old water heater and they say, well, it’s on its last legs, I can repair it. And I’ll probably be back here next year. Or I can replace it with something better. Or you have another option, I can replace it with a really modern top of the line version that’s much more energy efficient is actually going to save you substantial costs in terms of the energy that it’s going to consume. And at that point, the merchant usually will will present a proposal that says here’s your options. And for the options of replacement or the top of the line replacement. There’ll be something that presents, okay, maybe it’s $2,000 for this option, or as low as let’s say, for example, $150 a month. And that allows the consumer to afford something better that over the lifetime will save them money, whether it’s through lower costs of repair or lower costs of energy, if they could just afford to make the better purchase in the moment. So it’s a win win. Because the business is able to do the right work and serve the consumer, the consumer is able to afford something better. They don’t have to revolve on a credit card and incur additional costs. And so then the consumer makes the choice. Let’s say they do elect to pay overtime so they can afford the better the better purchase. They can either proceed with that through the proposal that they received from the business, which often is digital, it can be emailed or texted to the consumer, or the merchant and the technician in the home via the mobile app that they use to manage their work and push a button and the consumer can attack text message to complete their payment. So all of that is part of the consumer experience. And then once the consumer starts the process, it takes just a minute to see what their options are to pay over time. And they can complete everything on their own device really quickly. So that’s the that’s the customer Ernie, that’s an example of how it works. And I’m happy to go into that more if it’s interesting.
Whitney McDonald 10:06
No, that’s great. And I kind of wanted to shift a little bit here into what I was talking about with the relationship with citizens, what what it means to be working with a financial institution, I know that there was also discussions that there was opportunity to further those types of relationships, maybe specifically talking about citizens here, and what that does, with with wisetech, and then other opportunities for other FIS to to work with other advice.
Bobby Tzekin 10:34
Yeah, from the very beginning, when we started the business, in our business plan, we said that we’re building a platform for financial institutions. And the reason for that is multifold. One is, as I mentioned, these are big shifts in terms of what’s available to consumers, we know that financial institutions need to play in that space of installment payments. So we knew that they’d be interested. On the other hand, these are large banks committed to serving consumers, and they have a really low cost of capital. So we knew it would be a win win to provide a technology that we’re great at making and running to financial institutions that are already committed to that business and have a low cost of capital. And so that benefits customers, and it benefits the financial institutions. And in terms of, if you think about citizens, they already have some big brand names, they’ve had a partnership with Apple for a long time, they’re partnered with Microsoft for purchases at the point of sale. So they really know the space, the reason why they partner with us, is because they reach a channel and a type of business that they can’t reach otherwise. And that is those developer integrations that bring them smaller businesses and real world businesses. And we’re really good at serving those merchants, we have a big merchant base that they want to have access to. And again, for us, we get a lot of benefit from being partnered with a large bank that is committed to this space. And we do, as you mentioned, we do have others in in process that we’ll be announcing, in the coming quarters. And again, it furthers the the example I started with that if if you think of us as a network of technology integrations and merchants, we always planned to bring the banks to this platform. And another parallel again, if you go back to the card processing world is on a smaller scale, think Visa and MasterCard that is a network of consumers and merchants that allows payments and financial institutions to be on that network. And that’s very much the vision for us. But we are not beholden to the card rails and have a lot more flexibility when it comes to the terms on which everyone can participate.
Whitney McDonald 12:54
Yeah, that’s really helpful. And I know you kind of gave us a little bit of a sneak peek of your you’re working with others. But it’s all just about kind of growing that network is what I’m getting from what you’re what you’re saying citizens being one, but like you said, there’s there’s others in place to again, grow that grow that network that’s speaking of what you’re working on, for the remainder of 23. I know you said a couple of other partnerships, announcements coming in the coming quarters on the tech side, or even just on the embedded payment side things that you’re working on for the rest of the year or excited about for the rest of the year. Yeah,
Bobby Tzekin 13:33
there are quite a few things. That’s a big category, onboarding the financial institutions and ensuring that that important pillar of the business is really serving the the large banks. That’s an important part. And as we talked, we’ll have more specifics to share soon. The other part is we are growing the network part, we are growing our integrations we are growing our network, our Merchant network and merchant base. And so all of that comes with plenty of work where we’re constantly looking to make the product simpler and better so that it can reach more customers. We’re growing quite fast. And that comes with its own set of things we have to do. Overall, I’m very excited that our net promoter score has stayed really high. And we do we do organize what we do around customer happiness. And from early days, our net promoter score has been just just around 80. And so that that’s how we prioritize what we do. And it’s focused on what are the little things we can do in the product that makes it that make it ever easier for the consumer to pay and then for the merchant, to use us. So we have a long list of those. And so just supporting the growth of the customer base generates a decent amount of work. And currently I would, I would say those are the main two areas, the financial institutions and the growth of the customer base that we are focused on.
Whitney McDonald 14:58
You’ve been listening to the As a bank automation news podcast please follow us on LinkedIn and as a reminder you can rate this podcast on your platform of choice thank you for your time and be sure to visit us at Bank automation news.com For more automation news
Transcribed by https://otter.ai
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The post-pandemic surge in use of contactless payments for public transportation is just the first step of a major transformation in how people pay fares. Visa now sees rising demand for the technology to reach other modes of transport.
Most public-transit riders would rather link payments for bicycle, scooter and ride-share fees along with bus and subway fares within a single app, according to a survey Visa conducted in May among 11,500 consumers in 12 global markets.
Such an app would fix the problem faced by 51% of public-transit riders surveyed, who said they’re using four or more payment methods per month to get from point to point as buses, trains and other modes require them to juggle cards, tickets and cash.
Sixty-four percent of consumers who use public transit said they would use such an app if it were available, and 42% said they would use public transit more often if they could plan, pay for and manage various legs of any public-transit journey, the survey found.
The results indicate a ripening climate for Mobility-as-a-Service (MaaS), a concept linking different public-transport modes across cities through payments, said Nick Mackie, Visa’s vice president of urban mobility and government.
“Contactless has taken hold in many markets, but transit payment apps are still quite fragmented so that many riders are tapping to pay here, using a ticket there and even cash to get from point to point in many cities,” Mackie said.
The vision of MaaS is not unlike online shopping, where you plan purchases and pay for them through one app like Amazon, except every city will have its own app with interoperability between transit agencies, so there will be a rich mosaic of connected apps making it easy to pay for all kinds of transport modes wherever you go, Mackie said.
Mastercard also supports MaaS, and previously announced its “micro mobility” initiative to create payments infrastructure linking consumers’ payments for rides on different transport modes across cities like London, with a high penetration of open-loop contactless transit development.
If MaaS is developed to its full potential, a consumer in any participating city could use a centralized app to plan their journey across town, with the option to prioritize speed versus low-carbon-impact modes, or methods that incorporate exercise, Mackie said.
“Ideally, MaaS would make it easier to plan a journey based on a rider’s specific preferences — with recommendations for the best alternatives in cases of traffic snarls or a train delay — with payments enabling the whole process in the background,” Mackie said.
The potential for MaaS and payments technology to drive significant public-sector transit convenience has been discussed for years, said transit industry consultant Peter Quadagno, founder of West Chester, Pennsylvania-based Quadagno & Associates.
“MaaS has been a buzzword in the industry that also stands for ‘getting more transaction volume from a sector that’s invisible to me,’ ” Quadagno said. He noted that there would be significant costs and challenges required to get multiple siloed transit agencies and third-party transportation-service operators to collaborate on streamlining payment across cities.
But the growing ubiquity of contactless payments within public transit puts Visa and Mastercard in a better position than before to drive MaaS, Quadagno said.
“If the card brands could make the business case, and get governments to kick in investment, that might get them over the hurdles,” he said.
While MaaS is still in its infancy, the concept has advanced furthest in certain Nordic cities like Helsinki, which combines various city transport services in its Whim app where consumers pay per ride or purchase subscriptions. Stockholm’s MaaS app UbiGo, launched in 2019, also enables users to plan and pay for public transport, taxis and bikes.
The first key step to MaaS adoption was assessing consumers’ readiness, according to Mackie.
Visa’s next moves in driving MaaS involve encouraging transit agencies around the world to adopt a single payment system, versus supporting existing fragmented systems for buses, trains and light rail that exist in many cities.
“Transit isn’t the most avant-garde of industries; it’s very local and very brick-and-mortar in its nature, and hasn’t kept up with advances in retail, for example,” Mackie said.
Visa also is encouraging transit systems to streamline consumer payments by capping the total fare any consumer might pay on a daily, weekly or monthly basis — across multiple transit systems — to increase confidence that they won’t be overcharged, he said.
The other element will be encouraging third-party operators of transit methods including bicycle and scooter rental, ride-sharing and even car rental providers to close gaps in payment methods to connect to central cross-transit apps within cities.
Municipalities would also need to ensure inclusive support of multiple transport-mode payments, he noted.
“All the solutions we’re developing are inclusive, so if there are riders who can’t afford bank-issued payment credentials there would be options for prepaid cards or transit cards loaded with credits issued by government agencies,” he said.
MaaS may assume different shapes in various markets, Mackie said.
“There are many definitions of MaaS, but with the incredible progress that’s been made in contactless adoption in the last few years, we see a path to playing a bigger role to help drive realization of the concept through our network, capabilities and setting standards that will help it take off,” he said.
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Kate Fitzgerald
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