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European Central Bank rate hikes – Industry roundup: 10 June

Apple bypasses banks to provide BNPL loans directly

Apple has taken another significant move into the financial services arena by directly lending to users of its new BNPL product rather than going through a bank. Apple Financing, a wholly-owned subsidiary of Apple, has been established to provide loans directly for the Apple Pay Later service. Reports indicate that Apple had US $73 billion in net cash at the end of March 2022.

According to reports, Goldman Sachs is the official Banking Identification Number (BIN) sponsor in addition to supporting the service as the technical issuer of the loans. Apple is also expected to use a white label BNPL installments product from Mastercard. Additionally, credit checks will be managed inhouse by Apple using Credit Kudos, a UK credit agency that Apple purchased earlier this year. Credit Kudos employs open banking technology to produce regulated credit scores.

Apple will reportedly earn interchange fees from transactions and avoid sharing customer data with third parties by bringing the process in-house. Consistent with a report from early 2022, Apple aims to bring a variety of financial services in-house, including payments processing, to minimize its reliance on outside bank and fintech partners. The tech behemoth has launched a multi-year plan called 'Breakout', in which it will handle payments processing, loan risk assessments, fraud analysis, credit checks and customer service. Peer-to-peer payments, the Wallet app, a credit card and the ability for merchants to accept payments from an iPhone are already available from Apple. However, the company claims that it does not currently need to apply for a banking license.

Credit Suisse clamps down on China growth, delays local bank inaugural

Credit Suisse Group AG, Zurich-based financial services institution, has paused its China project expansion, signalling global banks to slow growth plans due to the latent financial stress in Asia’s economic system. Reports indicate that a local bank would enable Credit Suisse to establish a branch network to boost its wealth management business sector. However, the launch will be delayed by a year, to 2024, as the licensing process has been slow due to unclear regulatory guidelines in China.

Credit Suisse, the first global bank to slow its pace after rushing to leverage China's opening to its $57 trillion financial sector in 2020, has also slowed hiring on the mainland, particularly in the back-end and information technology operations. In 2021, the firm hired more than 200 employees in China.

The firm’s securities venture in mainland China has not yet had an on-site inspection of the firm by the securities regulator. This would be the final step in order to build its wealth management business and expand securities services into other locations beyond Shenzhen.

Credit Suisse posted a loss in the second quarter, stating “it would speed up cost cuts amid challenging markets, weak customer flows and client deleveraging, citing the Asia-Pacific region specifically.” Credit Suisse is said to evaluate the workforce throughout their regions and divisions such as the investment banking and wealth management units. Additionally, the bank’s stock declined by 3% on 9 June after rumours of takeover by State Street Corp.

According to a Credit Suisse spokesperson, the bank has identified China as a strategic market within its APAC footprint and plans to continue expanding their wealth management, investment banking and asset management charters in tandem with China’s regulatory and market opportunities.

ECB stops bond purchases and plans rate hikes

The European Central Bank (ECB) reaffirmed on Thursday that it will cease a prevailing bond-buying program effective on 1 July and that it plans a succession of interest rate hikes to manage inflation. The ECB is also said to be reversing its stimulus measures that had been in place for most of the last ten years due to the rapid growth of prices – a record high of 8.1 percent last month. The ECB’s stated goal is to prevent rapid price increases from spreading across the economy and “becoming perpetuated via a hard-to-break wage-price spiral.”

The ECB also announced that it would cease its Asset Purchase Programme, which is its primary stimulus tool since the eurozone financial crisis. Additionally, the bank said a rate hike by 25 basis points is expected in July 2022 by the Governing Council, then a larger margin potentially in September 2022 if the inflation outlook continues to weaken.

The ECB's deposit rate is reported currently at minus 0.5 percent. Christine Lagarde, Chief, ECB, predicts that by the end of the third quarter 2022, it might return to zero or slightly higher. Since 2014, the bank has not raised rates in eleven years, and the deposit rate has been negative. Markets, on the other hand, reportedly anticipate stronger moves, such as pricing in 135 basis point hikes by the end of 2022, or incremental increases possibly exceeding 25 basis points commencing from July.

Ecuador-based payments infrastructure firm, Kushki, raises $100 million at a $1.5 billion value

Kushki, a payments infrastructure company based in Ecuador S.A., has raised US $100 million in a Series B round extension, more than doubling its valuation to US $1.5 billion. In June 2021, the startup “raised $86 million in the first tranche of financing at a post-money valuation of $600 million.” Crunchbase reported that Kushki has raised nearly $200 million since its inception in 2017.

According to Kushki’s CEO and co-founder Aron Schwarzkopf, “raising an extension as opposed to a new round made more sense because it was the same investors doubling down.” Among the investors are Kaszek Ventures, Clocktower Ventures, SoftBank Latin America Fund, and DILA Capital. Schwarzkopf commented that the company’s rapid growth was significant and that additional funds would increase their business. The boost comes following a year in which Kushki's income increased by 200%. It also comes on the heels of a quarter in which the company increased by 100% year-over-year, said Schwarzkopf.

Kushki seeks to make sending and receiving/processing digital payments simple, cost-effective and more secure for businesses across Latin America (LatAm). Reports indicate that it specifically allows LatAm businesses to accept global payments and receive funds in their local currency. The ultimate goal, according to Schwarzkopf, is to help businesses, such as digital banks, migrate online quickly while increasing consumer adoption of digital payments. Simultaneously, Kushki claims that its infrastructure can help increase acceptance rates and reduce fraud.

Reports indicate that the capital will be used primarily to advance the company's mission of developing "a modern payment infrastructure for Latin America that facilitates payment transactions of any type in any country."

Hernan Kazah, Managing Partner, Kaszek, said, "We believe Kushki is just getting started in its mission to connect LatAm with efficient digital payments." In early 2020, Kaszek made its first investment in the company's Series A round.

In recent years, reports show that LatAm businesses have attracted a growing amount of attention and venture capital funding. According to Schwarzkopf, “one of the most significant differences between startups in the region and those in the United States is that LatAm startups have frequently demonstrated significantly more traction than their foreign counterparts at lower valuations.”

Mastercard introduces the 'Pay by link' open banking capability

Mastercard has announced its latest payments tool, Pay by Link, which will be led by Aiia, a Europe-based open banking developer. Businesses in any industry can reportedly use the feature to eliminate unnecessary payment steps by creating a simple link that allows customers to pay immediately in any given situation. The new payment feature is said to be directly related to Mastercard's open banking goals to provide simple and customizable solutions while remaining safe and secure.

The feature, which is based on open banking payments, is intended to empower multiple financial sectors and new use cases ranging from accounting, insurance and telecom companies to social commerce, payment service providers and utility companies. Rune Mai, Co-Founder and CEO, Aiia, a Mastercard company, commented that they have been developing innovative ways for people to pay their bills in a frictionless manner. In addition to using a simple, secure link, with the ability to accept and receive payments from anywhere, users will also reportedly eliminate the need to enter or remember payment information.

The new feature aims to bridge the gap between open banking payments and a diverse range of businesses. Aiia, through their expanded payments customization options, offers customers the ability to develop and brand a fully embedded payment experience. Dinero, a Nordic accounting software provider, is currently simplifying invoice payments for over 77,000 small and medium-sized businesses through Aiia’s new feature and is integrating it with account information to automatically reconcile invoices instantly.

The feature is currently available in the Nordics and is expected to expand throughout Europe in 2022.

Enhanced embedded banking platform via KeyBank’s new payment solution

In a recent announcement, Cleveland-based financial services institution, KeyBank, has developed end-to-end payment facilitation capabilities, which reportedly allow software companies to own and process payments in an easy and efficient manner.

KeyBank’s new end-to-end solutions, powered by their latest acquisition, XUP Payments, is said to enable payment facilitators to digitally onboard new merchants, set and manage risk thresholds and handle their transactions through a single reporting tool. In addition to improving onboarding and reducing payment complexity, software companies can use the solutions to exercise better control over risk management and customer service.

Ken Gavrity, Head of Enterprise Payments & Analytics, KeyBank, commented that the bank has “simplified the experience for software companies by offering a fintech-led, bank-sponsored, processor-powered solution.”

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