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The week in fintech: Brexit fallout hurting UK consumer spending

This recap features updates on bank technology, payments, online lending and other news in the U.S. financial technology space. Send tips, ideas and chatter to rachel.stone@spglobal.com. For other recent fintech news, click here.

More than a year after the U.K. voted to leave the European Union, payments processors are seeing the fallout reflected in declining consumer spending in the region.

Businesses started to ponder leaving the country after the vote, with 11% of London businesses considering the prospect and 2% having already done so as of November 2017, according to a report by market research consultancy ComRes. Guggenheim analyst Jeffrey Cantwell in a Feb. 15 note said he expects a drag on year-over-year spending caused by "ongoing weakness in consumer confidence" in the country.

Visa Inc. recently published a report that shows January consumer spending in the U.K. fell 1.2% year over year, the first January decline since 2013. And on a call to discuss fourth-quarter 2017 earnings, Mastercard Inc. President and CEO Ajaypal Banga highlighted slower consumer spending in the U.K. for the quarter, adding that the company "remain[s] concerned" about potential medium- and long-term effects of Brexit.

American Express Co. said the financial, trade and legal implications of Brexit are still not clear, but in its most recent 10-K filing said it may make "changes to the structure of our business operations in Europe as a result."

Guggenheim's Cantwell said U.K. macro headwinds might have a negative impact on Global Payments Inc.'s consensus revenue and EPS expectations for 2018.

On its quarterly earnings call, CFO Cameron Bready said the weak quarterly sales in the U.K. were generally in line with expectations, given the typical seasonality following a strong summer tourism spending season, according to the transcript.

In response to management's comments, Cantwell said in his note that Global Payments is "likely underestimating" the ongoing spending slowdown related to Brexit. The analyst does not expect the risk of slowdown to hurt the payment processor's stock.

However, Buckingham Research Group analyst Christopher Brendler does not expect spending trends to significantly effect earnings in the industry. The strength of the currency has a much bigger impact on payments companies than does consumer spending, he said in an interview.

Brendler said he is more worried about Worldpay Inc., which was recently formed from the Vantiv-Worldpay Group merger. That company could be vulnerable because 45% of its market share is in the U.K., the analyst said.

That said, Brendler believes investors are probably already taking this into consideration. He does not expect any negative surprises when the company reports earnings Feb. 28.

Also this week, the U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority signed an agreement that focuses on sharing information about fintech market trends and developments and supporting firms interested in entering the other's market.

In cryptocurrency news this week, Venezuela launched the presale of the petro, its own cryptocurrency backed by the country's crude oil reserves and other commodities. In an attempt to revive its collapsing economy, the government will accept the petro as a form of payment for taxes, fees, contributions and national public services, according to the cryptocurrency's official website.

Some customers who used credit or debit cards at Coinbase, the leading cryptocurrency exchange, saw duplicate transactions posted to their accounts. Visa, Worldpay and Coinbase issued a joint statement saying the issue was not caused by Coinbase.

"We have determined that the erroneous credit and debit charges are the result of Visa reversing and recharging transactions," Coinbase said in a Feb. 15 tweet. Visa has not released a statement about what caused the issue.

Switzerland's Financial Market Supervisory Authority issued guidelines Feb. 16 stating that certain initial coin offerings will be treated in the same way as securities. However, these tokens will not be treated by FINMA as securities.

S&P Global Ratings published a report this week that concluded that a cryptocurrency is more like a speculative instrument, so even if it experiences a meaningful drop in market value, it would not disrupt global financial stability.

Thailand's Securities and Exchange Commission is expected to introduce regulations on initial coin offerings and cryptocurrencies in March. The rules will demand further transparency and investor education efforts from market players.

Also, 16 cryptocurrency exchanges in Japan are preparing to establish a self-regulating body registered with the country's Financial Services Agency. The proposed body is expected to create policy surrounding security, insider trading and punitive measures, among other things.

From Feb. 16 to Feb. 22, the SNL U.S. Financial Technology Index declined by 0.64%.

A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.