Goldman Sachs suggests the Fed is likely finished hiking rates

Worries that the Federal Reserve will continue raising interest rates to tame inflation appear to be fading amid encouraging signs in the jobs market, according to analysis by Goldman Sachs Research. 

“The puzzle of 2023 has been that we have indeed seen demand reaccelerate this year, but nevertheless, labour market rebalancing has continued in exactly the way you would have hoped,” David Mericle, Goldman Sachs Research's chief US economist, said on Goldman Sachs Exchanges. “That's been a bit of a stroke of good luck.”

The job market is rebalancing as people continue to look for jobs, US immigration runs higher than usual, and companies pull back on hiring, potentially because distortions from the pandemic are fading. 

“It's good news for the FOMC,” Mericle added. “It means that the strong demand growth we worried about at the start of the year actually hasn't been particularly costly because rebalancing has continued anyway, and I think there are a lot of signs that inflation will fall quite a bit further.”

As a result, Goldman Sachs Research expects the Fed to pause rate hikes later this month and to start cutting rates in the second quarter of 2024. And while a recent spike in interest rates raises concerns about the consumer impact, the effect on GDP growth is mainly in the past, Mericle notes.

In addition, as inflation cools and employment remains resilient, a US economic downturn is becoming less likely. Goldman Sachs Research economists cut their 12-month recession probability to 15%, down five percentage points from their prior estimate. The forecast is far below the Bloomberg consensus of economists, which remains at 60%. Goldman Sachs Research is also much more optimistic about US growth than most other forecasters, with its economists projecting GDP growth to average 2% through the end of 2024. 

 

FCA finds areas for improvement in firms’ sanctions compliance

The UK’s Financial Conduct Authority (FCA) has been engaged in a substantial programme of work assessing the systems and controls relating to sanctions compliance for over 90 firms across various sectors. This has involved proactive assessments of firms’ controls, using a new analytics-based tool, and using specific intelligence and reporting. 

On the positive side, good practices that the FCA identified included a proactive approach by firms to identify sanctions exposure to Russia. Several firms had conducted risk exposure assessments and scenario planning before the Russian invasion of Ukraine. While the level of sanctions post-invasion was unprecedented, the FCA found that firms who conducted these exercises were better placed to manage the resulting demands. 

The research also found that several firms could clearly articulate and show that their sanctions screening tools had been calibrated to ensure they were appropriate for the sanctions risks the firm was exposed to. They were also able to show the controls they had in place to measure the effectiveness of their sanctions systems thresholds and parameters, including sample testing and tuning. This helped firms show the effectiveness of their sanctions screening capabilities and ensure risks within their business are appropriately managed.  

The research also flagged areas that need improvement, particularly regarding governance and oversight. The FCA says it identified instances where senior management was not given sufficient management information to enable them to discharge their responsibilities appropriately. This included where multinational firms sought to rely upon systems and processes used in other jurisdictions. 

In one example, the FCA identified that the firm demonstrated limited knowledge of the operation, configuration, and testing of a solution used in its wider group to manage its sanctions risks in the UK. In another example, the firm had inadequate oversight and management information of the UK-related activities undertaken by globally run teams. 

In some global firms, the FCA saw evidence that international policies were not aligned with the UK sanctions regime. For example, some firms operating globally were focused on US sanctions and applied insufficient focus to the UK regime, particularly where firms’ sanctions controls were operated in global centres of excellence or service centres. The research also found instances of poor communication between global and regional sanctions teams. 

In addition, the FCA noted an over-reliance on third-party sanctions screening tools, where firms did not understand how their sanctions screening tools were calibrated and when lists were updated. Contingency planning and skills and resources were two additional areas that the FCA’s work identified as areas of concern.

 

Philippines selects tech for pilot CBDC project 

The central bank of the Philippines, Bangko Sentral ng Pilipinas (BSP), has selected Hyperledger Fabric as the distributed ledger technology (DLT) for Project Agila, its wholesale CBDC pilot project formerly known as Project CBDCPh. Project Agila aims to orient the BSP and participating financial institutions on CBDC technology solutions that have the potential to enhance the country’s large-value payment system.

The BSP says it decided on DLT with assistance from select financial institutions. This technology allows data and transactions to be recorded, shared and synchronised across a distributed network of participants. This would be a valuable mechanism for testing Project Agila’s use case scenario of enabling inter-institutional fund transfers even during off-business hours (i.e., evenings, weekends, and holidays) or when PhilPaSSplus is unavailable.

Hyperledger Fabric was selected through a process that included system demonstrations, walkthrough procedures, and a scoring system, covering the systems' access, security, 24/7 availability, interoperability, and programmability.

Participating financial institutions in this project are BDO Unibank, Inc., China Banking Corp., Land Bank of the Philippines, Rizal Commercial Banking Corporation, Union Bank of the Philippines, and Maya Philippines, Inc. Meanwhile, observing financial institutions for succeeding stages are Citibank N. A. Manila, China Bank Savings, Wealth Development Bank Corporation, and SeaBank Philippines, Inc. After the selection of the technology for the project, participants will test the use of wholesale CBDC technology alongside PhilPaSSplus in a sandbox environment.

“By the end of Project Agila, the pilot participants are expected to have a clearer understanding of CBDC technology and assess the capability of wholesale CBDCs to foster advancements in the large-value payment system,” said BSP Governor Eli M. Remolona, Jr. “The results of the assessment are seen to guide the BSP and the industry on a possible launch of wholesale CBDCs in the Philippines.”

 

Mastercard collaborates with KredX on B2B payments 

Mastercard has announced a collaboration with KredX, a supply chain finance platform. As part of the collaboration, Mastercard will integrate its commercial card service with the KredX platform, which it says will eliminate the complexities associated with B2B payments, particularly those made via cards.

With features such as dynamic discounting, early payment and price discovery, the platform aims to help enterprises and vendors improve their cash flows. AI will be used to enable a fast and efficient matching and processing of invoices. Further, a statement from Mastercard says that the Smart Bid algorithm will help enterprises discover the best discount rates from vendors.

The platform will also address some other challenges associated with B2B payments, such as long accounting and reconciliation processes, low vendor acceptance, and frequent chargeback. To promote digital payments acceptance, the platform will allow small vendors to receive payments even without in-house payment gateways and point-of-sale machines.

“B2B payments are ridden with complexities of diverse invoicing, payment terms, currency variations, and reconciliation procedures,” said Mukul Sukhani, senior vice president, Business Development, South Asia, Mastercard. “Combining KredX’s proprietary technology with Mastercard’s expertise in commercial payment solutions will create a pioneering B2B payments solution accessible to all businesses, supporting them with better cash flows and access to working capital."

 

BNY Mellon launches open banking solution

BNY Mellon has announced the launch of Bankify, an open banking payments solution designed to help organisations receive consumer payments from bank accounts with a seamless user experience and that offers guaranteed funds for business receivables.

With this solution, BNY Mellon's clients can offer end-users the ability to make payments directly from their bank accounts as an alternative to credit or debit cards and third-party payment platforms. Bankify was designed with all consumer-to-business payment flows in mind – ranging from merchant payments to bill pay or account/digital wallet funding.

“Whether you are a merchant looking for cost-efficiencies, a biller modernising how your customers share banking data, or a brokerage firm wanting guaranteed settlement in order to offer instant use of funds during enrolment, Bankify’s account linking experience and settlement guarantee are powerful tools that help an organisation's top and bottom lines,” commented Jennifer Barker, Global Head of Treasury Services for BNY Mellon.

 

Eni successfully places sustainability-linked convertible bond

Energy company Eni has successfully placed an offering of €1bn aggregate principal amount of a sustainability-linked senior unsecured convertible bond. The bonds will be convertible into Eni's existing ordinary shares bought under the share buyback programme approved by the company shareholders’ meeting held on 10 May 2023.

The bonds will have a maturity of seven years, will be issued at 100% of par and will pay an annual coupon of 2.95%. The conversion price will be €17.5513, representing a premium of 20% above the reference price of €14.6261, which has been determined as the volume-weighted average price of Eni ordinary shares on the regulated market of Borsa Italiana between the opening of trading on 7 September and the pricing of the offering.

The bonds will be linked to achieving sustainability targets related to Net Carbon Footprint Upstream (Scope 1 and 2) and renewable energy installed capacity, as detailed in the relevant terms and conditions.

The bonds were placed with qualified investors and received total orders of approximately €2.8bn, mainly from the UK, France and Switzerland. The settlement of the bonds will occur on 14 September 2023.

 

Barclays and Danske Bank join CLS cross-currency swaps service

Three settlement members, including Barclays Bank and Danske Bank, have enrolled in CLS’s cross-currency swaps (CCS) settlement service. In the first half of the year, the service has seen a 38% year-on-year increase in the values of CCS submitted to CLSSettlement.

The CCS service is an extension of CLS’s payment-versus-payment (PvP) settlement service, CLSSettlement. It allows settlement members to send their CCS into CLSSettlement for settlement. In addition to mitigating settlement risk, the CCS flows are multilaterally netted against all other FX transactions in CLSSettlement, reducing daily funding requirements for clients and improving liquidity optimisation benefits across the industry. 

“We are confident that CLS's CCS service will help us achieve greater efficiency and transparency in our FX operations,” commented Jeppe Østerby Thomsen, Global Head of STIR Trading, Danske Bank.

 

CFPB report highlights role of Big Tech in mobile payments

The US Consumer Financial Protection Bureau (CFPB) has published an issue spotlight highlighting the impacts of Big Tech companies’ policies and practices governing tap-to-pay on mobile devices like smartphones and watches. Apple currently forbids banks and payment apps from accessing the tap-to-pay functionality on Apple iOS devices and imposes fees through Apple Pay. Google’s Android operating system does not currently have such a policy. The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralised banking and payments in the US.

As of the second quarter of 2023, Apple’s iOS operating system was on 55% of smartphones shipped in the US, with Google’s Android operating system on 45%. Apple and Google set regulations that govern app developers’ ability to integrate near-field communication (NFC) technology into their apps, which is needed to execute tap-to-pay transactions. The dominant market share of these two operating systems, coupled with the increasing shift toward mobile device payments, underscores their policies and practices' vital role in retail payments.

The issue spotlight also highlighted the rapid growth of tap-to-pay usage in the US in recent years, nearing an estimated $300 billion across Apple Pay, Samsung Pay, and Google Pay, with some analysts estimating that digital wallet tap-to-pay transactions will grow by over 150% by 2028. 

Apple’s iPhone and other iOS devices do not permit third-party payment apps to access the NFC technology necessary to execute tap-to-pay contactless payments. Apple’s proprietary payment app, Apple Pay, is the only option for tap-to-pay payments on iOS devices. While Google’s Android operating system does not currently restrict third-party payment app access to the NFC chip on Android devices, this policy could change in the future.

The issue spotlight also noted that restrictions on tap-to-pay use reduce consumer choice and inhibit progress toward a more robust open banking ecosystem, where consumers have more control over their personal financial information and developers provide payments solutions that better meet consumers’ needs. For example, Apple’s current NFC policy prohibits directly integrating tap-to-pay functionality into existing banking applications and other payment apps (such as PayPal, Venmo, and Cash App).

“Regulations imposed by Big Tech firms have a big impact on whether consumers and businesses can make payments using third-party apps,” said CFPB Director Rohit Chopra. “We are carefully evaluating Big Tech’s role in our banking and payments system.”

 

Emirates NBD launches global sustainable tech accelerator programme

Emirates NBD has launched a sustainability-themed accelerator programme, inviting global green fintechs to co-create sustainability-focused financing solutions and processes to support a climate-resilient future. The SustainTech Accelerator Program is supported by Microsoft and aims to enable the focused advancement of sustainability goals for both parties.

The accelerator, which will accept applications up to 10 October, aims to support green fintechs developing solutions and tools that could help Emirates NBD boost its suitability performance through: access to accurate, reliable, standardised and consistent data, reliable indicators to quantify contributions and track progress to sustainable development, advanced risk management tools, solutions that can support the transition of legacy systems and products towards sustainability, tools to navigate the complex regulatory landscape and independent verification and certification services to enhance the credibility and integrity of sustainability claims.

Shortlisted participants will be invited to present their solutions, addressing the four key campaign opportunity areas identified by the bank:

• Advancing sustainability in finance with comprehensive emission tracking across all three scopes.
• Climate risk modelling for enhanced financial resilience.
• Innovative carbon trading for banks.
• Advancing ESG risk assessment solutions: pioneering sustainable business practices.

“We are happy to launch our SustainTech Accelerator program and are excited to discover the sustainable products and solutions promising sustaintechs from around the globe bring to the table,” said Vijay Bains, Group Chief Sustainability Officer and Group Head of ESG at Emirates NBD.

 

RTP Network surpasses one million payments in a day

The RTP network, the instant payments system operated by The Clearing House, surpassed the one million daily payment milestone on 1 September. TCH says the increased volume comes as more financial institutions and their customers realise the benefits of real-time payments, including immediate funds availability, confirmation of payment receipt, and payer control of when a payment is sent.

The increasing volume on the RTP network can be attributed to the number of use cases and other growth areas, including national technical access. Insured depository institutions in the US have technical access to the network through over 20 technology solutions providers, including Jack Henry & Associates, FIS, Fiserv, COCC, Finastra, Shazam, Finzly, and others. 

Business payment volumes are also increasing on the network. Some 150,000 businesses are now sending payments over the RTP network, a 50% increase since December 2022. Additionally, over three million consumers each month are sending account-to-account (A2A) payments and Zelle payments that clear and settle over the RTP network, and the RTP network currently reaches 65% of US demand deposit accounts.