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Federal reserve’s unspecified rate increase – Industry roundup: 26 August

Fed officials advocate for additional rate increases without specifying the magnitude

US central bankers emphasized the importance of continuing to raise interest rates, with some officials stating they should act quickly and raise their policy benchmark to a 3.75% to 4% range by year's end (the current rate is at 2.33%), according to reports.

The Federal Reserve of the United States is rapidly raising interest rates in order to combat the most volatile price pressures in forty years. According to Labor Department data, consumer prices in the US rose 8.5% in the twelve months ending in July. The Fed's target now is the personal consumption expenditures price index, a different indicator produced by the Commerce Department that increased 6.8% in the year through June.

Fed officials increased interest rates by 75 basis points at the most recent two meetings, and they have indicated that they may raise rates again when they convene at the Federal Open Market Committee (FOMC) on 20 September, depending on the current information on consumer prices and employment.

Reports indicate that investors see the odds of a 50 or 75 basis point increase as evenly balanced, according to pricing in interest-rate futures markets. Additionally, some officials asserted that the benchmark policy rate of the Fed, at its current target range of 2.25% to 2.5%, was not yet slowing down economic activity. Some estimate that the neutral rate, which is 3%, would neither speed up nor slow the economy. In June, Fed officials predicted that the long-run neutral rate would be 2.5%. However, last month’s discussions indicate that it might be higher in the near term.

FIS to revolutionize real-time payment infrastructure and CBDCs worldwide

The demand for real-time payments is driving many nations to either build brand-new real-time payment networks or upgrade outdated payment infrastructure to move funds rapidly. FIS has launched RealNet Central, a new central infrastructure payment solution designed to assist central banks in transitioning their markets to digital-first, real-time payment economies.

According to the 2022 Worldpay from the FIS Global Payments Report, seventy-two percent of the world's population currently has or will soon have access to instant payments. Many markets, including Brazil, the United Kingdom, Japan, South Africa and Mexico, are reportedly displacing or revamping their existing real-time services. India and the United States are also in the process of launching innovative competitive services to complement the existing ones, according to reports.

RealNet Central aims to accelerate the adoption of real-time payments by connecting a nation's businesses, consumers, financial institutions and government entities to real-time networks both domestically and internationally.

FIS also assists central banks in the launch and integration of Central Bank Digital Currencies (CBDC) into their economies through its CBDC Virtual Lab, which was developed in collaboration with M10 Networks (M10) and its high-performance digital money platform. The CBDC Virtual Lab enables central banks, commercial banks and other financial participants to test and pilot the fundamental ideas behind issuance, transfer, redemption, retail, wholesale, cross-border, offline and programmable payments. Additionally, FIS’ CBDC Virtual Lab enterprise-grade technology reportedly supports over a million transactions per second with a delay time of less than one second.

Aman Cheema, Head of Global Real-Time Payments and CBDCs, FIS, stated that while the concept of real-time payments may seem straightforward, carrying it out in practice requires a great deal of sophistication, particularly for international transactions.

FIS has been selected as a finalist for the G20 TechSprint 2022 CBDC challenge to create a prototype using its Virtual Lab to demonstrate safe, resilient and efficient CBDC issuance, redemption and transfer while maintaining financial stability and integration with the current payments landscape, according to reports.

Citi Ventures funds the LatAm open finance fintech company Belvo

Citi Ventures, subsidiary of Citi, one of the world's largest investment banks, has made an investment in Belvo, an open finance API platform in Latin America. The investment is expected to fund the co-development of an open finance ecosystem in Mexico by the bank and fintech.

Pablo Viguera, co-CEO and co-founder, Belvo, commented that there is a growing trend in Latin America of open finance collaboration between fintechs and conventional financial organizations. Furthermore, Viguera added that cooperating with financial institutions will be essential in leveraging these new models for a growing number of businesses and end-users, specifically as regulation progresses in nations like Brazil, Mexico and Colombia. Additionally, the partnership is said to significantly increase access to improved financial services throughout the region.

According to reports, Belvo closed a US $43 million Series A round in which Visa also participated. The company provides secure connections for end users' financial data to institutions and banks. Belvo currently works with over 150 clients, including financial institutions and fintechs in Mexico, Brazil and Colombia like Tribanco, Rappi, Mobills and Mercado Libre, and connects to over sixty financial institutions through its API platform.

Pablo Viguera and Oriol Tintoré founded Belvo in 2019, and it has reportedly received a total of $56 million in funding from Kaszek, Founders Fund, Future Positive and Kibo Ventures. According to Sinead O'Connor, Corporate Director of Consumer Banking, Citibanamex, Citi Ventures' investment in Belvo is expected to accelerate its goal towards developing open banking capabilities while also creating a digital and customizable e-commerce platform to benefit clients.

HSBC introduces variable recurring payments for open banking clients

HSBC is reportedly the first bank in the United Kingdom to finalize the deployment of its sweeping variable recurring payments (VRP), overseen by the Open Banking Implementation Entity (OBIE), launched on 25 August.

The UK's Competition and Markets Authority (CMA) has selected sweeping VRP for automated ongoing payments between bank customer accounts and external providers. The system will reportedly shift surplus funds into a separate savings account or use them to repay a loan or overdraft accounts.

Once the initial consent is established, sweeping VRPs will enable the automated transfer of money between a customer's own accounts without manual intervention. Furthermore, VRP enables businesses and consumers to use open banking to make recurring payments of varying amounts without having to re-authenticate each transaction. According to George Miltiadious, Head of Open Banking Channel Management (UK), HSBC, this service can be used to pay off a monthly credit card bill, transfer money regularly into a savings account, or lower an overdraft balance.

The CMA9 (the UK’s nine largest banks and building societies) is required to provide API access to third-party providers as part of the criteria, enabling simpler transfers of funds between different financial services organizations. Third-party providers, such as Lloyds, Barclays, Nationwide, RBS, Santander, Danske Bank, HSBC, Allied Irish Banks and Bank of Ireland, have taken steps to support the service ahead of the CMA9's full-scale implementation of sweeping VRPs in the first half of 2022. Third-party suppliers such as GoCardless, Plaid, Yapily and Truelayer have all launched VRP offerings as part of their open banking strategy.

Russia and India are no longer dependent on the US dollar per BRICS president

BRICS (Brazil, Russia, India, China and South Africa) International Forum President Purnima Anand announced on 25 August that Russia and India no longer require the US dollar to trade, having switched to national currencies for mutual settlements in rubles and rupees. Additionally, Anand stated that China is also developing a similar mechanism for mutual settlements in rubles and yuan, indicating that the BRICS nations are becoming more open to Russia while avoiding the negative effects of sanctions.

According to the BRICS president, bilateral trade between India and Russia has risen significantly in the last forty years. Moscow reportedly supplies an increasing amount of oil to India in exchange for large quantities of agricultural products, textiles, medicines and other goods. Anand also stated that New Delhi regards itself as a neutral party in the ongoing sanctions conflict between the West and Russia and is expected to continue to cooperate with Moscow in any capacity that is required despite the constraints of sanctions.

Visa and Skyflow collaborate further to make network tokenization the secure payment standard

Skyflow, a data privacy vault company, has partnered with Visa to tokenize cards directly with Visa and other major card brands. As noted by reports, Skyflow plans to facilitate adoption of network tokenization and investment in secure payments by leveraging Token ID, a Visa solution, to simplify the initial process for merchants, payment facilitators and payment gateways. This collaboration expands on Skyflow's existing partnership with Visa, which includes participation in Visa Fintech Partner Connect, connecting Visa's clients with fintech providers.

According to Ansar Ansari, SVP, Global Head of Platform Products, Visa, network tokens can aid online merchants in decreasing card-not-present fraud and help maintain card-on-file information, resulting in improved customer experiences, a simpler payment process, and secured storage of payment card information. Additionally, network tokenization can reportedly increase approval rates and decrease total transaction costs.

The implementation process is said to be simple without the hassle of integrating with multiple card network providers. Additionally, businesses can expect to collect and store customers’ personally identifiable information, run workflows, integrate with third-party services, and process payment data in a secure manner while reducing the compliance burden and protecting customer privacy.

Texas bans doing business with BlackRock, UBS and 349 ESG funds

US Texas officials announced a list of ten companies and 349 investment funds that are expected to be barred from doing business with the state due to their alleged embargo with energy firms. According to reports, the list comes after a law was passed last year that prohibited most state agencies and local governments from contracting with such firms. BlackRock, Credit Suisse and UBS, as well as sustainable investment funds from other banks, were added to the list.

Trillions of dollars in investments are reportedly at stake, including those made by state pension funds and individual retirement savings, in addition to the future of the fossil fuel industry. Regulatory agencies are reportedly pressuring investment firms like BlackRock to consider climate-related risks when making investment decisions.

Reports indicate that the ten businesses prohibited from operating business with the state of Texas claim that they do maintain sizable investments in fossil fuels, with BlackRock stating recently that it makes investments in the energy sector on a regular basis. Additionally, the company holds significant shares of ConocoPhilips and Exxon Mobil, according to Bloomberg. A spokesperson from BlackRock commented that they have invested over US $100 billion in Texas energy companies. Erica Chase, a spokesperson from UBS, stated that they have provided the state with a plethora of details about their policies and practices that demonstrate their support for energy companies under Texas law.

Daniel Firger, Managing Director, Great Circle Capital Advisors, a climate finance consultancy, claims that the banned list is not likely to have a significant effect on Wall Street, and the Texas action is not an isolated occurrence. Apparently, the US state of West Virginia also barred five major financial firms, including BlackRock and JPMorgan Chase, from engaging in new state business in late July 2022.

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