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Bank of Japan yield curve control action surprises markets - Industry roundup: 28 July

Bank of Japan yield curve control action surprises markets

At today’s meeting, the Bank of Japan (BoJ) tweaked its threshold for yield curve control (YCC), surprising market participants. The BoJ decided to keep the target for 10-year Japanese government bonds (JGBs) at 0% and the range at +/- 0.5%, but it is going to allow greater flexibility with overshoots of the 0.5% threshold up to a level of 1%, where the Bank of Japan will conduct fixed-rate purchase operations. In a news release, Fredrik Repton, senior portfolio manager with the global fixed income and currency management teams at Neuberger Berman, commented that essentially, the new maximum level of 10-year JGB yields is now 1%, even though the 0.5% reference range is still in place. The bank also revised its inflation forecast to 2.5% from 1.8% for the current year while revising lower the inflation forecast for next year to 1.9% from 2%.

ING economists issued a statement saying they believe that the BoJ was forced to alter its YCC policy in light of higher-than-expected inflation and market pressures, but at the same time, the BoJ also needs to manage market expectations for future monetary policy changes and avoid a sudden hike in market rates. So, by keeping the 10Y limit at 0.5%, the BoJ seems to want to be considered as dovish as possible.

The BoJ would also probably like to see how the market reacts to the change and how far the 10Y JGB can go. The market really can test 1.0% or settle somewhere between 0.5%/1.0%. Today’s decision can also help anchor 20Y and 30Y so that they don't float too much. The BoJ is concerned that rising market rates could hurt investment recovery and overall growth.

Neuberger Berman’s Repton added: “We believe that it will take some time before we see the true impact of the policy change as global and in particular Japanese investors assess their asset allocation. In our view, it is likely that the tweak of YCC will cause bond flows to Japan from its domestic base as well as from foreign investors as JGB yields hedged to US dollars are attractive and the YCC as finally been adjusted, removing an uncertainty factor for investors. These capital flows are also likely to strengthen the yen on the margin.”


Commerzbank carries out live transactions on Contour’s trade finance network

Commerzbank says it has become the first German bank to have completed a blockchain-based letter of credit (LC) transaction for its client, Ascentex Exim LLP, a Singapore-based textile trader, on Contour, a digital trade finance platform. 

The LC was issued for a shipment of rubber threads from Thailand to Krungthai Bank. Contour’s decentralised platform resulted in significant time and cost savings. The bank’s China branch has also completed a blockchain-enabled LC transaction. Commerzbank was the issuing bank for Nanjing Iron and Steel Company, which imported raw materials from Hong Kong’s Jinteng International Co. Hang Seng Bank advised the LC.

“This milestone reinforces our commitment to driving digital innovation and delivering value-added solutions to our clients,” said Brigitte Réthier, Divisional Board Member for Institutional Clients & Transaction Banking Sales at Commerzbank. “By leveraging the power of advanced technology, we aim to enhance efficiency, reduce costs, and provide greater accessibility to trade finance, ultimately enabling businesses to thrive in today’s rapidly evolving global marketplace.”


Instant payments surge in Brazil sees card usage decline

Instant payments firm Matera has released its mid-year report on the adoption of Brazil’s Pix instant payments scheme. The latest ‘Pix by the Numbers’ report covers data through Q2 2023, showing more Pix transactions than credit and debit cards combined.

Matera reviewed data from the Central Bank of Brazil and noted several pivotal points in the shift to instant payments. Pix transactions for Q1 2023 totalled 8.1 billion, compared to 4.2 billion credit card and 3.8 billion debit card transactions. This is the first quarter where Pix transactions were more than credit and debit combined.

Pix accounted for 35% of all transactions in Q1 2023, up from 23% a year ago. Credit card transactions were 18% of the total, down from 20% one year ago. Debit card transactions were 16% of the total, down from 20%. Nearly 30% of Pix transactions are initiated by QR Codes. Billers and merchants present a QR code to consumers that can be scanned and paid by mobile phone.


SMEs are struggling with unfair pricing and slow cross-border payments 

A report from FX and payments provider Neo found that SMEs still rely heavily on traditional banks and struggle with the cost and speed of cross-border payments. The report entitled ‘Growing pains: the escalating cross-border payment challenges for SMEs’ highlights that traditional banking partners are failing to meet SMEs’ cross-border payments needs. Nearly four-fifths (78%) of SMEs rely on traditional banks for cross-border payments. Their most significant pain point was unfair pricing which over half of SMEs (55%) stated they struggle with. This was followed by speed of execution (45%) and reporting transactions (42%). For the majority of SMEs (72%), it takes 2-5 days for funds to appear on their suppliers’ bank statements, with the average being 2.81 days.

It revealed a similar theme when it comes to managing foreign exchange (FX). Over four-fifths (83%) use traditional banking to manage FX, and the three main point points were again unfair pricing (48%), speed of execution (45%) and reporting transactions (34%). The research also highlighted that SMEs are exploring new alternatives which help tackle these issues. The vast majority (92%) stated they have had conversations about virtual account solutions, while 65% are utilising non-banking payment solutions such as payment service providers (PSPs), money services businesses (MSB) and electronic money institutions (EMI).

The report finds that 75% of SMEs are considering diversifying their bank pool in the coming months following the banking crisis, while 6% have already done so. Half (50%) of SMEs said they always enquire about the name and credit rating of the safeguarding partner, while 47% said they sometimes enquire. More than seven in every ten SMEs (72%) said that FX had been a critical matter this year, while 25% said it was a relatively important matter. Nearly all SMEs (95%) take the threat of unfavourable currency impacts on their bottom lines seriously and have an FX risk management policy, while 84% have an in-house FX expert. Despite this, SMEs struggle with a lack of automation (29%), reconciliation of flows for receivers (27%) and a lack of support from experts (25%).


SEPAexpress and Tink to offer a seamless European payments

SEPAexpress, an account-to-account payments provider, has partnered with open banking platform Tink to offer open banking data products and payments services to its clients across Europe. 

The German-based B2B payment solution will leverage Tink’s API to provide Pay by Bank for seamless in-app payments, simplifying the payment process to improve the customer experience and optimise conversion.

SEPAExpress has also integrated Tink’s Account Check and Balance Check services to optimise its direct debit product and improve success rates. Account Check instantly verifies account ownership using real-time data straight from a user’s bank account, minimising user error in setting up direct debits and significantly streamlining the user experience. Balance Check uses up-to-date account data to verify how much a user has in their bank account in seconds. This can be used pre-purchase to check for sufficient funds or post-purchase to check for sufficient funds before a monthly direct debit collection.

By using Tink’s pan-European connectivity, SEPAexpress says it can extend its open banking payments coverage across all 18 markets that Tink serves. This supports merchants to do business across multiple markets while remaining agile to provide individual solutions to their customers.


Westpac gives customers more control over their direct debits

Westpac Group has introduced a feature in mobile and internet banking that allows customers to stop certain scheduled direct debit payments instantly. This will temporarily block a company from debiting any funds from the customer’s account.

The feature is available for consumer and sole trader business customers when they request to cancel a direct debit by simply searching ‘cancel a direct debit’ in their banking app or online and selecting from their list of direct debits made in the past 90 days.

If customers block all direct debit payments from a particular company, the block will be in place for three years unless the customer decides to remove the block and reinstate the direct debit earlier. In addition to the block, customers can request to cancel the direct debit altogether, and Westpac will notify the company to action the cancellation.

“We know cancelling direct debits can be challenging and we want to make the process easier for our customers,” commented Mandy Rutherford, Managing Director of Cash & Transactional Banking, Westpac. “With 5.5 million of our customers actively using digital banking, we are giving them more choice in how they manage direct debits on their transaction accounts. Customers can now stop a payment for a future direct debit in their app, giving them greater control over their money.”


Nexo Standards and the Berlin Group to support digital euro standards

Technical standards organisations nexo standards and the Berlin Group have announced a collaboration to align their standards to support the implementation of a CBDC payments ecosystem. The collaboration will help foster the development of an integrated, innovative, efficient and competitive market for retail payments that promote financial inclusion for all citizens.

Describing their standards as complementary, nexo and the Berlin Group aim to ensure full interoperability of digital euro payments, something critical to a successful rollout, as it will need to work across a range of acceptance devices deployed by multiple private vendors. The aligned standards would also use the experience of the organisations in standardising other payment means, such as cards and instant payments, which should facilitate a smooth integration into existing payments infrastructures.

The two firms say they are encouraged by the recently proposed digital euro regulation text from the European Commission. Notably, in article 26, the ECB is asked to ensure compatibility of the digital euro with private digital payment solutions to enable functional and technical synergies, including shared infrastructures and terminals at the point of interaction.


Solactive launches Blue Bond Index to track bonds supporting clean water and oceans

Blue bonds are financial instruments that support and finance sustainable marine and water-related projects. They are debt securities issued by governments, development banks, or other financial institutions with the specific aim of funding initiatives promoting marine conservation and sustainable use of marine resources, protecting ocean ecosystems, and improving water management. Solactive announced that it has just launched the first-ever Blue Bond Index, based on data from the Climate Bonds Initiative.

The release comes a decade after Solactive introduced the world’s inaugural green bond index, which marked the first partnership with the data provider. Several launches of green bond index variations followed over the years, serving as the basis for ETFs. Earlier this year, the German index provider unveiled the Solactive Social and Sustainable Bond Index, offering a standalone strategy for the ‘S’ in ESG. Alongside green bonds, social and sustainable bonds offer a way of investing with impact in a traditional asset class.

Expanding on this trajectory, the Blue Bond Index enables clients and investors to participate in financing water and ocean life protection. It comprises bonds from the Climate Bonds Initiative Green Bond or Social & Sustainable Bond databases that are self-labelled as Blue Bonds. Inflation-linked bonds, convertible bonds, US municipal bonds, ABS, MBS, and other structured securities are not eligible to be included in the index.

The blue economy, encompassing sectors such as shipping and aquatic resources, contributes to approximately 5% of the global GDP, equivalent to around US$3 trillion annually and comparable to the world’s seventh-largest economy, according to the UN Global Compact. This sector plays a crucial role in supporting the livelihoods of approximately three billion people worldwide.


Same Day ACH transfers US$1.2 trillion in H1 2023 

The use of Same Day ACH payments grew significantly in the first half of 2023, Nacha has reported. In the first six months of the year, the value of Same Day ACH payments stands at nearly US$1.2 trillion, up 51.7% from a year earlier. The volume of 385.6 million Same Day ACH payments in the first half of 2023 is an increase of 13.7%.

For the second quarter of 2023, there were 199.4 million Same Day ACH payments, up 7.7% from a year earlier. The value of those payments was US$612.6bn, an increase of 26.1%.

The ACH Network's overall growth continued in the second quarter of this year, with 7.8 billion payments transferring US$20 trillion. Those are 4.3% and 2.9% increases, respectively, over 2022’s second quarter. B2B payments increased 10.4% from a year earlier to more than 1.6 billion, continuing their double-digit growth trajectory. 

“The growth in the volume and especially the value of Same Day ACH payments shows the impact and the benefits of increasing the payment limit in 2022 to US$1m,” said Jane Larimer, Nacha President and CEO. “Whether it’s emergency and unscheduled payroll, insurance claim payments, account transfers or business-to-business payments, these results show that Same Day ACH is a leader in faster payments.”

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