BoE sets out approach to innovation in money and payments

The Bank of England (BoE) has published a discussion paper on its approach to innovation in money and payments. Building on the bank’s work to date, the paper asks for responses on the next step in a wide-ranging conversation on how to deliver an ambitious agenda for the UK payments landscape.

The discussion paper sets out how rapid payment innovations can impact the BoE’s monetary and financial stability objectives, bringing both opportunities and risks. It then outlines the bank’s response to these innovations to date, including the renewal of the BoE’s real-time gross settlement (RTGS) service, and how its response will evolve going forward so that innovation can take place safely.

The bank says that the pace of technological change in financial markets over the past few years makes this an opportune moment for it to take stock and set out its approach.

The discussion paper sets out the BoE’s plans in several areas. First, the bank has set out the financial stability risks of financial markets moving away from using central bank money. The BoE’s approach is to preserve the role of central bank money as an anchor for confidence in the financial system.

Second, to preserve the role of central bank money, the BoE will explore technological innovations to the systems it operates, including enhanced functionality for the renewed RTGS system, and a programme of experiments which would also cover wholesale central bank digital currency (CBDC).

Third, the BoE has set out its objectives in retail payments and the importance of ensuring businesses and households across the UK can make payments with ease, speed and confidence. Meeting these retail payments objectives will require clear and renewed leadership by the UK authorities in this space. The bank says it will work closely with HM Treasury, the Financial Conduct Authority and the Payment Systems Regulator to achieve this.

The BoE invites responses to this discussion paper by 31 October 2024.

 

UBS and CIBC claim world’s first intraday FX swap via Finteum

UBS and CIBC have settled the world’s first intraday FX swap to be executed on a regulated venue. The EUR/USD intraday FX swap, negotiated using the Finteum Platform and executed on the TP ICAP UK MTF, was completed within minutes. The banks settled both legs of the swap at pre-agreed times within the same business day on T+0.

With further banks preparing to execute similar transactions this year, this approach promises to deliver significant savings for banks. Given there are few solutions to control the receipt of funds within a settlement window, bank treasury teams maintain large buffers of high-quality liquid assets (HQLA) for intraday. Holding this HQLA is particularly expensive, partly due to interest rates falling more slowly than expected. Finteum notes it is estimated to cost up to US$75m per year for a large bank.

The DLT-enabled Finteum Platform specialises in trades that last hours instead of days, thereby enabling banks to meet customer obligations more quickly, reduce their HQLA requirements, and meet increasing regulatory expectations to fund payment activity in real-time.

Rupert Hume-Kendall, former Chair of Bank of America Merrill Lynch International, who recently joined as Finteum Vice-Chair and board member, said: “Recent regulatory focus has highlighted the need for banks to have access to multiple tools and sources of liquidity. Intraday FX swaps and intraday repo are recognised to be an increasingly important part of liquidity management strategies at global banks and we’re excited to be working with many of the world’s largest banks to bring this new technology to fruition and reduce their costs.”

 

Surecomp and Visa partner on trade finance and cross-border payments

Surecomp has announced a collaboration with Visa, as both parties look to offer banks an efficient alternative to traditional payments systems and improving international transaction processes worldwide.

The collaboration brings together Surecomp’s cloud-based trade finance platform RIVO with Visa B2B Connect, creating a solution designed to streamline operations and enhance efficiency for financial institutions. This partnership extends the reach of both companies, providing banks with access to a network for trade finance and cross-border payment services.

Visa B2B Connect is a multilateral B2B cross-border payments network designed to help financial institutions process high-value corporate cross-border payments globally. The platform facilitates transactions directly from the origin bank to the recipient bank, increasing transparency and predictability of such payments. Banks can use RIVO for trade finance-related messaging alongside Visa B2B Connect for payment messaging, offering a more streamlined process for managing trade finance transactions and associated payments. 

 

NatWest Group issues bond dedicated to financing and re-financing EVs

NatWest Group has issued its first Electric Vehicle Green bond (the EV Green Bond), raising net proceeds of €750m from institutional investors based in the UK, Europe & Asia. The issuance makes NatWest Group the first UK bank to issue a green bond where the proceeds are intended to finance or re-finance electric vehicles exclusively.

The electric vehicle financing the EV Green Bond is intended to support will originate from the banking group’s asset finance arm, Lombard. 

In 2019, the bank developed its Green, Social & Sustainability Financing Framework. Since launching the framework, up to 31 December 2023, NatWest Group has issued three social bonds and three green bonds with a combined aggregate principal amount at issuance of £3.9bn. The impact of the green bonds for the 12 months ended 31 December 2023 is an estimated 0.121 million tonnes of CO2e emissions avoided.

NatWest Group says it intends to report on the allocation of the proceeds of the EV Green Bond and provide an estimate of the resulting tailpipe CO2 emissions avoided, based on management information or industry data, within 12 months of the date of issuance.

 

Stripe selects Fifth Third to support embedded financial services

A collaborative agreement has been announced between Newline by Fifth Third, an embedded payments provider, and the financial infrastructure platform Stripe. Together, the pair will expand embedded financial services for Stripe’s platform users and their customers.

Later this year, Newline will power Stripe Treasury, a service that enables software platforms on Stripe to offer embedded financial accounts to their customers. Newline by Fifth Third is an API platform that allows enterprises to launch and scale payment, card, and deposit products directly with Fifth Third Bank.

According to a survey conducted by Stripe, 46% of businesses reported that traditional financial experiences have hindered their growth. Modern companies want intuitive, digital financial services embedded within the software platforms they use daily. This collaboration with Newline aims to enhance Stripe’s ability to deliver compliant embedded money movement solutions for their platform clients and end users.

 

IFAD issues a €100m sustainable bond to Bank Al Maghrib

The International Fund for Agricultural Development (IFAD) and the Bank Al Maghrib have agreed to jointly take action in increasing funding to rural development. IFAD issued its eighth sustainable bond, as a private placement, under its Sustainable Development Finance Framework to the central bank of Morocco. With the issuance of this €100m bond, IFAD begins to implement its 2025 funding plan.

The proceeds will contribute to finance IFAD’s development projects globally, focusing on transforming rural areas to make them more productive and prosperous, ultimately improving the livelihoods, food security and resilience of millions of rural people.

“We are delighted to partner for the first time with a central bank, and particularly with Bank Al Maghrib,” said Natalia Toschi, Head of Funding, IFAD. “The bank has an explicit 10% target of Environmental Social and Governance investments and applies a Corporate Social Responsibility Policy that is aligned with IFAD’s values.”

In Morocco, IFAD has worked with farming cooperatives, grassroots and women’s organisations to develop new food value chains from production to transformation and commercialisation. Globally, IFAD also invests significantly to support small-scale farmers to adapt to climate change.