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Businesses hesitant to implement security measures – Industry roundup: 19 September

The ECB chooses five companies to collaborate on the development of prototype digital Euro user interfaces

The European Central Bank (ECB) is teaming up with five companies to create potential user interfaces for the digital euro in order to assess how well the technology integrates with company prototypes. The organizations selected by the ECB include Amazon, the world's largest e-commerce company by market capitalization, and the European Payments Initiative (EPI), a group of 31 banks and credit institutions. The other participants are CaixBank, a Spanish multinational, Wordline, a French payments platform, and Nexi, an Italian payments-focused bank.

The ECB has reportedly been in the midst of a two-year investigation into whether to issue a digital euro, which it describes as a central bank-issued alternative to cash. Reports indicate that no decision has been solidified. However, if issued, it would be used solely to facilitate personal payments within the European Union.

The ECB is planning to make a decision on whether to issue one by September 2023. In the interim, the prototyping project is expected to measure potential design alternatives, with preliminary results anticipated in the first quarter of next year.

Each of the five companies was reportedly selected to test specific uses for the ECB's design trial. For instance, the ECB stated that Amazon plans to work on e-commerce payments. CaixaBank intends to create a mobile app to simulate the steps users will take to transfer digital euros to their bank accounts or to other individuals. Worldline plans to investigate offline payments between individuals, while EPI and Nexi expect to focus on retail point-of-sale payments.

According to reports, the EU is considered one of approximately 100 jurisdictions actively investigating central bank digital currencies. Although the EU is further behind than countries such as China, where citizens are currently using CBDC in real-world experimentations, it is still ahead of other significant nations such as the US.

Survey results shows fraud as more widespread, according to financial professionals

Businesses are reportedly hesitant to implement more cumbersome security measures regardless of the rise in fraudulent financial activities. Financial executives have stated that adding new forms of authentication, restricting privileges and creating digital walls around databases will improve security but may hinder usage simplicity.

The State of Fraud and Financial Crime in the US is a current research study conducted by Featurespace, an enterprise financial crime prevention developer, in conjunction with PYMTS.com. The study, which included more than 200 US financial executives from companies with assets over US $5 billion, found that US banks are experiencing significant challenges as they attempt to combat the increased number of cyberattacks while keeping their services available to customers.

The survey respondents stated that fraud is becoming increasingly more prevalent and costly in their organizations, despite their efforts to mitigate risks. They also expressed concern that tighter security implementation might cause problems and make providing convenient digital access more difficult.

An example from the study showed that more than three out of every five financial institutions (62%) have reported an increase in the volume and cost of fraudulent transactions since 2021. Additionally, smaller banks between $5 billion to $25 billion in assets experienced a higher increase in financial crime at 71%. According to Carolyn Homberger, President of the Americas, Featurespace, financial institutions facing the challenges of fraud costs is not a new development, but the growing trend of criminals targeting smaller organizations in larger numbers indicates that more thorough investigation is needed.

Additionally, two-thirds of respondents (66%) stated that "complex regulatory requirements" have posed a significant barrier to their institutions' adoption of new security technologies. Furthermore, two out of five (40%) financial executives noted concerns about the complexity of new technologies in general as well as potential limitations to combat fraud with the integration of old and new systems.

The survey reportedly found that nearly half (49%) of financial executives were concerned that any system would inevitably be weighed down by the rapid rise of attacks. More than half (58%) were concerned that no solution could match the threat actors' rapidly increasing technological sophistication.

Ratio to transform B2B SaaS payments, financing and pricing; secures US $411 million

Ratio, a new type of fintech platform that combines payments, predictive pricing, financing and a zero-friction quote to cash process into one platform for SaaS and technology companies, has emerged from Stealth and secured a US $11M venture funding round, as well as a $400M credit facility for customer financing. Reports indicate that Ratio aims to reconfigure the set of rules for SaaS pricing and financing, creating value for vendors by providing a new set of tools to spur growth in a volatile and competitive market.

Various industries have adopted subscription-based business models, and the subscription economy is reportedly now a US $1.5 trillion segment of the recurring revenue market. Despite this, businesses still struggle with deferred cash flow, steep discounting, and the time it takes to recover customer acquisition costs.  According to reports, the current cash flow crisis has only worsened the issue.

However, Ratio is said to help with this need by offering SaaS providers and other businesses recurring revenue for embedded buy now pay later (BNPL) services that precisely match the cash flow requirements of their clients. In addition to increasing sales for the vendors and providing them immediate access to the customer contract’s value, this solution reportedly also provides customers with the maximum amount of flexibility.

Ratio enables SaaS businesses to simultaneously leverage their recurring sources of revenue to access new non-dilutive capital without having to forfeit additional equity, cede control of their company, drastically reduce the price of their goods or devote time in perpetual fundraising. The platform of Ratio is based on two core products: Ratio Boost (a fully integrated BNPL payment and checkout product), and Ratio Trade (a non-dilutive upfront capital solution for high-growth SaaS and recurring revenue companies). With Ratio Trade, Ratio says vendors are able to obtain financing in days, not months, to continue to grow their brands.

Streamlined Ventures, Cervin Ventures, 8-Bit Capital, HoneyStone Ventures, multibillion-dollar asset managers, and a variety of tech CEOs from large and small companies are among Ratio's investors. Ullas Naik, General Partner, Streamlined Ventures, commented that “Ratio is on the forefront of two critical trends; first, the ability for SaaS companies to leverage their recurring revenue to their benefit and second, embedded intelligent sales and finance tools to enable greater efficiency. Ratio gives companies a new and powerful strategic lever to accelerate growth.”

Small business payments increase 11%, while card usage increases by 13% per Bank of America’s data reports

Bank of America Institute’s recent publication reveals that small businesses continue to grow in areas such as credit and debit card spending, business travel expenses and payroll payments amid economic challenges. In August, small business payment transactions reportedly increased 11% over the previous year per client, up from 3% over the same period in July. Additionally, last month, card spending per customer increased 13% year over year, exceeding the 7% growth rate in July, per reports.

The resurgence of business travel is reportedly one of the key factors for small businesses' sustained adaptability. The number of travel transactions per small business client is said to be at 90% of the annual average from 2019, reportedly the highest level since the start of the pandemic, per the bank’s internal data. Reports also indicate that spending on small business cards per client for travel increased 31% year over year in August, up from 19% in July.

Furthermore, payroll payments are continuing to be strong for small businesses. On a three-month rolling basis, the average overall payroll spend per client was up 11% year over year in July, indicating strong hiring and wage growth momentum.

The following are additional publication highlights:

  • •Across annual income tiers, small business card spending varied greatly, and businesses with higher annual revenues spent more quickly than those with lower annual revenues.
  • In August, card spending per client for travel reportedly increased by 43% year over year for small businesses with annual sales revenue greater than US $1 million. This increase was attributed to a reversal of last August's low levels of business travel spending due to the pandemic.

Small businesses are reportedly entering the last quarter of 2022 with cautious optimism despite the economic challenges such as high inflation, according to Anna Zhou, Economist, Bank of America Institute. The increase in small business travel and the tenacity of payroll payments may indicate a recovery in the economy, commented Zhou.

Broadridge joins forces with Coinbase on an integrated trading solution

Broadridge Financial Solutions, a fintech company headquartered in New York, has partnered with Coinbase to enable interoperability between Broadridge's trading and connectivity NYFIX order-routing network with Coinbase Prime, a trading platform that includes secure custody and prime services to manage cryptocurrency assets in a single location. NYFIX, a broker-independent, vendor-agnostic FIX order routing network is said to connect the buy-side, sell-side, and trading sites across various asset classes. All NYFIX clients, through this integration, can expect to route order flow to Coinbase Prime using FIX, an industry standard protocol.

Reports indicate that it also enables buy-side traders to source cryptocurrency liquidity from Coinbase and trade it through their OMS. Greg Tusar, Vice President of Institutional Products, Coinbase, commented that despite short-term fluctuations, institutional adoption trends are progressing towards more exploration and desire to engage. Additionally, using the NYFIX order-routing network, this collaboration is said to bring profound, multi-venue crypto liquidity to more buy-side traders' desks, reducing barriers of entry to this rapidly increasing asset class. According to Broadridge, the new solution is currently available in the US market and expected to expand into other regions pending regulatory approval.

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