Concerns over “greedflation” increase! – Industry roundup: 06 March
by Monica Zangerle, Writer, CTMfile
BIS and central banks complete 'Hub-and-Spoke' cross-border transfers, stating retail CBDC benefits
The Bank for International Settlements (BIS) states that Project Icebreaker, a cross-border payment model for central bank digital currency (CBDC), offers advantages to both banks and retail users.
A hub-and-spoke mechanism was reportedly employed in the project to link each nations’ CBDC systems with the assistance of the central banks of Israel, Norway and Sweden. With this system, a cross-border transaction, supported by a foreign exchange provider operating in both countries, is divided into two local payments. The mechanism reportedly offers central banks total control over their CBDC and allows competitive exchange rate quotations to be sent to the hub.
BIS states that the structure minimizes the risk of insufficient liquidity in the two currencies, which would typically increase fees and cause delayed transactions. The hub-and-spoke architecture was also shown to speed up cross-border transactions and reduce counterparty risk by employing coordinated payments in central bank money in this experiment, added BIS.
The report indicates that a variety of technological, governmental and legal issues would need to be resolved in order to implement the Icebreaker concept in the real world. Additionally, there are a few regulatory issues to consider, such as the governance structure, the business model feasibility, liquidity provision, privacy, AML/CFT (anti-money laundering/countering the financing of terrorism), compliance and monitoring, and payment initiation-related criteria.
UK financial institutions restrict the use of their credit cards for digital currencies
A number of UK institutions have reportedly restricted customer purchases of cryptocurrency due to the growing risks posed by digital currency. Nationwide stated that it would prohibit the use of its credit cards to make payments to cryptocurrency exchanges and intends to implement a £5,000 daily cap on current account cryptocurrency spending. HSBC has also reportedly imposed limitations on the purchase of cryptocurrencies and prohibited customers from using its credit cards to make such purchases since February 2023.
The Financial Conduct Authority has raised concerns to the building society regarding the potential risks of cryptocurrencies to customers, said reports. The FCA's concerns that cryptocurrencies are high-risk speculative assets were reportedly the reason for HSBC’s decision. Charles Kerrigan, a crypto and digital assets partner, CMS legal firm, commented that banks are approaching cryptocurrencies with more caution as the new consumer duty will reportedly increase pressure on banks to protect their clients.
Santander and NatWest introduced caps on the sums customers may transfer to cryptocurrency exchanges in November 2022 and 2021, respectively. A NatWest representative stated that they evaluate crypto exchanges using a risk-based method, which is not publicly disclosed, indicating that they may limit payments to particular exchanges dependent on the level of risk imposed. Additionally, in 2018, Lloyds prohibited cryptocurrency transactions using its credit cards, said reports.
Approximately 85% of cryptocurrency firms did not meet the minimum regulatory standards during their registration, stated the FCA. The UK government has reportedly imposed rules on the cryptocurrency sector in an effort to promote technological development while safeguarding consumers from potential risk.
Whitepaper reveals US SMBs divert US $225 billion from subpar banks to third-party providers
A recent report revealed that the vast majority of US small and medium-sized businesses (SMBs) are shifting away from conventional financial institutions and toward the payment and accounting services of third-party suppliers. The report indicated that US SMBs spend over US $225 billion yearly for accounting and payment services. SMBs reportedly account for approximately 90% of all enterprises in the US, and their employees account for about half of the US workforce.
The whitepaper published by BankiFi and RedCompass Labs, “SME Banking Channels: converting a money pit into a business opportunity”, reportedly details the causes of this migration from traditional firms to third-party providers and explores the most efficient and profitable ways for banks to provide sophisticated technology.
The research identified that although banks are a logical first option for SMBs searching for payment and accounting services, banks are reportedly unable to offer solutions that are on par with those of their third-party rivals, minimizing the financial institutions' ability to compete and hold onto market share. Additionally, a 30% increase in open banking reportedly indicates that small firms are increasingly resorting to outside service providers.
The total cost of ownership for internal digital platforms by financial institutions has reportedly been intensified further by rising human and technology expenditures. However, by collaborating with third-party service providers, banks could reportedly minimize these expenses and offer advanced technology at competitive prices.
Walmart and Citi collaborate to launch Citi’s Bridge platform to Walmart’s suppliers
Walmart and Citi have partnered to launch the Bridge platform, also known as Bridge developed by Citi, to link the retail giant’s 10,000 US-based SMB suppliers with more than 70 distinct lenders, who will reportedly offer qualified companies loans of up to US $10 million.
Suppliers may reportedly communicate with a large variety of lenders spread out across the country by using a single loan request form. The platform is expected to offer lenders and suppliers a more effective lending procedure while empowering suppliers with more options, ease and access to finance. Additionally, it reportedly provides lenders with the ability to diversify their lending operations and extend beyond their immediate local market.
Citi is reportedly concentrating on expanding the number of Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) on the platform in order to engage Walmart's supplier network. More than twenty MDIs and four women-owned institutions reportedly comprise the seventy lenders presently using the Bridge platform. Additionally, the platform reportedly has lenders from 15 of the 20 black-owned banks in the US. Furthermore, Walmart and Citi intend to offer suppliers educational resources to boost financial literacy.
ECB to monitor unfair price hikes as concerns over "greedflation" increase
The European Central Bank has reportedly issued a warning that it is carefully tracking unreasonable or unfair pricing practices to customers amid concerns that European businesses may potentially utilize high inflation to boost their bottom lines.
While policymakers have reportedly called for a wage limitation, there are growing concerns that businesses exploiting inflation as a justification for raising profit margins, a practice unions have dubbed "greedflation", may become a major cause of the wave of price increases.
Profit margins have reportedly been increasing rather than decreasing with the surge in price of raw materials and other variable expenditures such as transportation and labour, revealed a recent analysis by the ECB. In addition, Refinitiv statistics indicate that eurozone businesses reportedly increased their operating margins to an average of 10.7% in 2022, a 25% increase from 2019, prior to the pandemic and conflict in Ukraine.
The EU’s statistical agency, Eurostat, revealed that eurozone inflation in February 2022 was reportedly higher than anticipated at 8.5%, which was lower than January's 8.6% but higher than the economists' estimated 8.2%. Furthermore, with food and energy excluded, core inflation increased from 5.3% to a record-high 5.6%, said reports. Ruth Gregory, Deputy Chief UK Economist, Capital Economics, stated that profit margins were on track with their post-2019 average, but highlighted that there was a probability that businesses may try to broaden their margins by taking advantage of a deceleration in cost inflation, deterring the consumer price index from rapidly dropping to the Bank of England's target inflation rate of 2.0%, said reports.
Coinbase reveals its acquisition of One River Digital Asset Management
Coinbase, a US-based crypto exchange, has acquired One River Digital Asset Management (ORDAM), a cryptocurrency-focused hedge fund, and will reportedly maintain its staff and CEO Eric Peters.
One River Digital is expected to become Coinbase Asset Management, an independent company and a wholly-owned subsidiary of the cryptocurrency exchange, said reports. One River Digital, which is registered as an investment advisor with the US SEC, has reportedly accepted prior funding from Coinbase in order to expand its business operations.
ORDAM and Coinbase reportedly share a commitment to sensible risk management, particularly during the current market volatility.
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