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Bank of England follows the Fed’s lead, hikes 25 bps - Industry roundup: 24 March

Bank of England follows the Fed’s lead with 25 bps rate hike

In its March meeting, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase its bank rate by 25 basis points to 4.25%. The move mirrors the rise made by the Federal Reserve earlier in the week. The two dissenting members preferred to maintain the bank rate at 4%.

The bank noted recent significant and volatile moves in global financial markets, particularly since the failure of Silicon Valley Bank and in the run-up to UBS’s purchase of Credit Suisse, reflecting market concerns about the possible broader impact of these events. Overall, government bond yields are broadly unchanged, and risky asset prices are somewhat lower than at the time of the Committee’s previous meeting.

The Bank of England’s Financial Policy Committee (FPC) briefed the MPC about recent developments in the global banking sector. The FPC judges that the UK banking system maintains robust capital and strong liquidity positions and is well placed to continue supporting the economy in various economic scenarios, including in a period of higher interest rates. The FPC assesses is that the UK banking system remains resilient. 

Reflecting these developments, bank wholesale funding costs have risen in the UK and other advanced economies. The MPC says it will closely monitor any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook.

The UK government announced additional fiscal support in its Spring Budget. Bank staff have provisionally estimated that this could, relative to the February Report, increase the level of GDP by around 0.3% over the coming years. A full assessment, including the extent to which these measures could affect supply and demand in the medium term, will be conducted ahead of the May Monetary Policy Report.

UK GDP is still likely to have been broadly flat around the turn of the year but is now expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report. As the Government’s Energy Price Guarantee (EPG) will be maintained at £2,500 for three further months from April, real household disposable income could remain broadly flat in the near term rather than falling significantly. The labour market has remained tight, while the news since the MPC’s previous meeting points to stronger-than-expected employment growth in Q2 2023 and a flat rather than rising unemployment rate.

The twelve-month Consumer Prices Index (CPI) inflation fell from 10.5% in December to 10.1% in January, but it surprisingly rose to 10.4% in February, 0.6 percentage points higher than expected in the February Report. Services CPI inflation was 6.6% in February, 0.1 percentage points weaker than expected at the time of the February Report, but food and core goods price inflation has been significantly stronger than projected. Most of the surprising strength in the core goods component was accounted for by higher clothing and footwear prices, which tend to be volatile and could prove less persistent. Annual private sector regular earnings growth has eased, to 7% in the three months to January, 0.1 percentage points below the expectation in February.

The BoE still expects CPI inflation to fall significantly in Q2 2023 to a lower rate than anticipated in the February Report. This lower-than-expected rate is primarily due to the near-term news in the Budget including on the EPG, alongside the falls in wholesale energy prices. Services CPI inflation is expected to remain broadly unchanged in the near term, but wage growth is likely to fall back more quickly than projected in the February Report.

Commenting on the BoE’s decision to raise rates by 0.25%, Marc Cogliatti, Head of Global Capital Markets at Validus Risk Management, said: “The decision comes in the wake of a higher-than-expected UK CPI reading, which reaffirmed the dilemma facing the MPC. On the one hand, they want to avoid heaping undue pressure on the UK consumer at a time when everyone is having to overcome the rising cost of living. But on the other, the committee needs to ensure that inflation does not escalate further, therefore adding to people’s woes.”

“Those hoping for a respite from tighter monetary policy may have a longer wait ahead than anticipated, as policymakers grapple with the dual task of confronting inflation and easing bank jitters,” added Jatin Ondhia, CEO of property investment platform Shojin. “As such, in the current climate, investors must stay focused on their individual goals, assess the risk exposure they are comfortable with, and ensure they are using all the tools and techniques at their disposal to protect their wealth against uncertainty and changing market conditions. If they do, they could find new opportunities amid all the turbulence. From diversification to tax efficiency, agility will be the watchword as the foggy conditions persist.”


GTreasury launches treasury banking API integration platform

GTreasury, a treasury and risk management platform provider, has launched ClearConnect Gateway, a global bank API connectivity suite. The solution offers GTreasury customers an alternative from the expensive, slow, and time-intensive connections commonly found in corporations today.

The suite is a significant expansion of GTreasury’s ClearConnect platform, launched in 2022 to ensure data fidelity essential to treasurers and CFOs. With ClearConnect Gateway, organisations have instant API connectivity and data integrations into their preferred banking partners.

ClearConnect Gateway’s architecture is built for API connection speed and breadth. GTreasury states that the API connectivity suite works smoothly from day one; once an API is set up, it does not need to be changed. The solution delivers current and prior day balance and transaction reporting in real-time while enabling the most modern payment technologies to be quickly set up and leveraged - including RTP, FedNow, and new B2C payment types.

GTreasury has also developed many out-of-the-box APIs with leading banks and says it will continue to expand its API ecosystem. It also claims that the solution enables the fastest API onboarding for additional banks of any treasury and risk management system, which should drastically reduce implementation time and complexity compared to older systems. Overall, the firm says that ClearConnect Gateway can save corporates hundreds of thousands of dollars over many alternative and legacy systems by reducing expensive file costs.

“CFOs and treasurers understand that modern banking technologies are transforming the industry,” said German Karaivanov, VP Product Management, GTreasury. “Legacy connectivity to business-critical banking data slows productivity, blocks access to banking innovation, and is expensive. Early users of GTreasury’s banking API connections are already saving hundreds of thousands of dollars in connectivity fees. They are excited for our new API integrations, which will be fast to implement, provide significant and lasting cost reductions, and enable more organisations to immediately access all balance and transaction information, and tap into the newest bank payment types.”

SAP Fioneer releases B2B embedded finance solution

SAP Fioneer, a provider of financial services software solutions and platforms, has announced the launch of “Fioneer Embedded Finance as a Service” (EFaaS), a B2B embedded finance platform facilitating orchestration between SAP users and financial service institutions (FSIs). The service allows FSIs to connect to SAP enterprise resource planning (ERP) processes, enabling them to develop embedded finance solutions tailored to the specific needs of their corporate clients in one centralised platform.

Embedded finance is becoming more critical for the financial services industry and the wider economy. By placing a financial product in a non-financial business process, client journey or e-commerce platform, embedded finance accounted for US$2.6 trillion of total US financial transactions in 2021. Its total value shall exceed US$7 trillion globally by 2026. 

SAP Fioneer’s EFaaS capabilities can be deployed to support several different use cases, such as buy now, pay later (BNPL), Request to Pay (R2P), purchase order finance, and invoice finance. These offerings allow businesses to embed financial solutions into their operations, create seamless transaction flows, increase cash flow visibility and reduce costs.

“By bridging the gap between banks and their corporate clients, we are enabling financial institutions to better serve the needs in a digitised trade environment and stand out in a highly competitive environment,” said Charlie Platt, Managing Director, Banking, SAP Fioneer. “With our platform, banks can now directly connect to their clients’ ERP system processes, bringing the two closer together.”


BIS prototype links Eurosystem, Malaysia and Singapore instant payments systems

The BIS Innovation Hub Singapore Centre and partners have announced the successful connection of the test versions of three established instant payments systems using the Nexus model and outlined the project’s next phase to work on the real-world potential of a multilateral network that could be scaled up across more countries.

The year-long collaboration included the Bank of Italy, Central Bank of Malaysia (BNM) and Monetary Authority of Singapore (MAS), plus the payment systems operators PayNet and Banking Computer Services (BCS). Test payments were initiated using only the mobile phone numbers or the recipients’ company registration numbers via the Eurosystem’s TARGET Instant Payment Settlement (TIPS), Malaysia’s Real-time Retail Payments Platform (RPP) and Singapore’s Fast and Secure Transfers (FAST) payment system. The experiment’s success paves the way for the BIS Innovation Hub Singapore Centre to explore the practical applications of a distributed multilateral network.

Nexus aims to support the G20 priorities of improving the cost, speed, access and transparency of cross-border payments by connecting domestic instant payments systems across multiple countries through a standardised and multilateral approach. It is designed to accommodate differences between the systems rather than trying to homogenise them.

For the next phase of the project - in line with their November 2022 Memorandum of Understanding on Cooperation in Regional Payment Connectivity - Bank Indonesia (BI), BNM, Bangko Sentral ng Pilipinas (BSP), MAS and the Bank of Thailand will leverage experiences from Phase I and Phase II of the project towards connecting their countries’ instant payments systems and facilitate cross-border transactions across a combined population of about 500 million people. The Innovation Hub’s Singapore Centre will collaborate with these central banks to support their design processes as they aim to connect their domestic payment systems.

“The successful Nexus prototype between Singapore, Malaysia and the Eurosystem is a breakthrough that proves the technical viability of multilateral instant payment systems connectivity,” commented Sopnendu Mohanty, Chief FinTech Officer, MAS. “The next phase of work by the central banks of Singapore, Indonesia, Malaysia, Philippines and Thailand will be crucial in laying the foundations for future implementation at scale. ASEAN’s progress in regional payments connectivity puts us in good stead to realise Nexus’ vision for a global instant payments network.” 


Eastnets migrates its Americas Swift and sanctions screening infrastructure to Microsoft Azure

Eastnets, a compliance and payment solutions provider for the financial services industry, has become one of the first Swift service bureaus to migrate its entire infrastructure in the Americas to Microsoft Azure. This comes after Swift announced it would enable financial institutions to connect to its network and applications through public cloud providers.

The company says that using Swift connectivity on Azure will help banks manage growing regulatory and cybersecurity challenges, increased competition and digital disruption. It will also allow it to serve better a new generation of consumers who expect more from their financial service providers.

Eastnets believes that the most successful financial institutions will invest in cloud technology for key business areas, including payments, sanction screening and fraud detection. These investments will also see a positive return on investment as the cloud-based infrastructure will free up resources for banks to focus on other deliverables and projects.

Eastnets says it can now provide a fully outsourced, cloud-based alternative to the traditional Swift infrastructure without compromising operational efficiency, data security, and business availability at a lower cost of ownership.

“The benefits of running services in the cloud speak for themselves and we expect a growing demand for our assistance and expertise with migration,” reflected Anas Jaber, Cloud Services & Information Security Group Director, Eastnets. “The cloud enables us to create, launch, deliver and update tailored solutions even faster and assist customers in the rollout of changes in a timely manner.”


EBA Clearing to enrich RT1 and STEP2 with fraud prevention and detection capabilities

EBA Clearing has announced plans to enrich its SEPA payment systems, RT1 and STEP2, with fraud prevention and detection capabilities by November 2023. The company’s new Fraud Pattern and Anomaly Detection (FPAD) solution aims to support RT1 and STEP2 users in complementing their fraud-fighting tools and assessments with insights from a central network view.  

FPAD will cover a broad range of real-time fraud prevention and detection tools. The solution will also include ‘confirmation of payee’ functionality, allowing PSPs to flexibly integrate into their service offerings the ability for customers to detect any mismatches in the IBAN/name combination they have entered for the beneficiary of a payment. This will enable users to address fraud prevention requirements outlined in the proposed Instant Payments Regulation.

The development of the FPAD solution started in early 2023 following the release of a blueprint and subsequent RT1 and STEP2 user consultations in Q4 2022. The pan-European solution is being designed with the support of interested STEP2 and RT1 participants; it will be delivered in a phased approach, starting with transaction and account risk assessment modules. These first modules, including functionality allowing PSPs to request an IBAN/name-matching check, will become available in November 2023.

“Many fraud patterns and other anomalies can only be detected at network level, since fraudsters usually act across many accounts, institutions and even countries,” commented Hays Littlejohn, CEO of EBA Clearing. “That’s where our pan-European FPAD solution comes in to provide additional insights that only a central network view can generate. FPAD will be an integral part of RT1 and STEP2, available to all our users. It will allow them to take their payment solutions to the next level and capture value around SEPA and instant payments in particular.”

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