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Hope that tech spending boosts productivity – Industry roundup: 31 August

FedNow, a CBDC alternative, to debut summer of 2023

The US Federal Reserve is preparing to launch FedNow, a new payment facilitation system that could reduce the need for a central bank digital currency (CBDC). According to Lael Brainard, Vice Chair, Federal Reserve, the FedNow Service is expected to become available between May and July 2023. Brainard also stated that technical testing for the system is set to start in September 2022.

US financial institutions and software providers are urged to upgrade their systems in advance of the debut of the new service. Though it is said to take concentrated effort, the transition to real-time payment infrastructure is inevitable, according to Brainard, and he adds that it is critical for all significant stakeholders to commit the resources required to facilitate immediate payments. Engagement is expected to rise as a result of initiatives such as pilot programs, the FedNow Explorer resource, the FedNow Community and the FedNow Early Adopter Workshop.

FedNow, as defined by the Federal Reserve, is an instant payment system that enables real-time transactions between US households, businesses and financial institutions. The payment system is expected to be able to scale without compromising resiliency due to the cloud technology used. This scalability applies to both the system's throughput and geographic coverage, ensuring ongoing service even in remote areas. The process is shown in Illustration 1.

Illustration 1: FedNow Payment Flow. Source: The Federal Reserve

Reports indicate that FedNow represents a significant step in the crypto industry because it has been promoted as an alternative to CBDC. A CBDC would entail approval from congress as well as a minimum of five years to develop and implement, according to Brainard. FedNow is currently superseding any CBDC efforts in the US.

(Read more about the global payments landscape here.)

US companies anticipate increasing their tech spending to boost productivity

According to the American Express Global Business Spend Indicator (GBSI) report, B2B spending is slightly higher in the US despite inflation rates that are near a record high. Two-thirds (67%) of these businesses anticipate spending more to increase productivity and efficiency through digitization and technology.

Inflation was named as the main factor having the most detrimental effect on businesses by 61% of US companies. According to the GBSI, the vast majority (79%) of respondents prioritize managing cash flow and access to working capital to help mitigate the effects of inflation. Additionally, 45% of respondents stated that optimizing the quality of their product offerings or services was key, while 37% would like to enhance the speed and efficiency of initiating and receiving payments.

The report further indicated that nearly half (45%) of companies that started using automated payments reported an improvement in their cash flow management in addition to receiving payments faster. The GBSI stated that 56% of businesses plan to automate payments to suppliers, while 63% look to automate payments received. The GBSI also discovered that 48% of respondents believe payment digitization has already helped reduce costs, while 50% correlate automation with more efficient payment processes.

Businesses in the US are reportedly reassessing their supply chains, with 40% revealing that supply chain issues will continue to impact them throughout 2022. In spite of supply chain and inflation issues, Trina Dutta, VP of B2B Payments Automation and Global Commercial Services, American Express, says businesses nationwide are said to be resolute, with 71% of American companies reporting they are optimistic about the growth of their business over the next 12 months.

First corporate services provider in the UAE to accept cryptocurrency via Binance and Virtuzone alliance

Binance, a global blockchain ecosystem and infrastructure provider for cryptocurrencies, has partnered with Virtuzone, a business formation and corporate services provider in the United Arab Emirates (UAE). The partnership is aimed at allowing Binance Pay, a proprietary crypto payment technology developed by Binance, to become the first cryptocurrency payment method for business formation in the UAE.

By enabling cryptocurrency payments for business formation, Virtuzone is said to lessen constraints to entrepreneurship and increase opportunities for foreign companies to engage with the country’s start-up businesses. In addition to advancing the use of blockchain and cryptocurrencies in the nation through the strategic partnership, Virtuzone expects to play a significant part in the Web 3.0 movement in the region. Additionally, the company has reportedly joined the group of trailblazing businesses in the UAE that have integrated Binance Pay in their systems, along with JA Resorts and Hotels and Majid Al Futtaim.

Binance Pay is said to provide contactless, borderless and safe cryptocurrency payments and transfers. Reports also indicate that it supports a variety of cryptocurrencies, immediate global funds transfers capabilities, and user-to-user transfers, eliminating fees and delays associated with transactions managed by intermediaries or third parties.

New ETF targets the expanding global carbon credit market unveiled by TD Asset Management

TD Asset Management Inc. (TDAM) unveiled a new low-cost Exchange Traded Fund (ETF) solution, dubbed TD Global Carbon Credit Index ETF (TCBMN), to provide investors with global exposure to the expanding carbon credit market.

Placing valuations on greenhouse gas emissions has become a strategy used by governments around the world to combat climate change. According to Bruce Cooper, Chief Executive Officer, TDAM, and Senior Vice President, TD Bank Group, carbon credits have become a significant alternative asset class by valuing carbon and establishing a market where businesses can exchange emissions permits.

The objective of the TCBN is to track the performance of a global carbon credits market index. TCBN is currently aiming to follow the Solactive Global Carbon Credit CAD Hedged Index, which gauges the return on capital of international cap-and-trade carbon emission credits. Cooper commented that this new ETF provides investors with a simple and low-cost way to participate in a unique market that benefits from rising carbon prices.

The TCBN looks to provide the following advantages:

• Exposure to a Growing Market: The carbon credit market has reportedly seen incredible growth in both trading volumes and carbon prices, and it is expected to maintain above-average long-term growth.

• Diversification and Growth Opportunities: Carbon credits have historically had a low correlation to traditional asset classes such as fixed income and equities, and they provide exposure to the energy transition economy, added reports.

• Low-Cost Structure: TCBN claims to have one of the lowest management fees in North America for this asset class, at 0.65%.

The Abu Dhabi regulatory body imposes US $360k fine on fintech firm Wise for AML violations

Wise, a London-based financial technology company, has been fined US $360,000 by Abu Dhabi's regulators for violating anti-money laundering regulations. Wise reportedly failed to establish and maintain appropriate anti-money laundering (AML) controls and procedures to fully comply with its AML obligations by the Financial Services Regulatory Authority (FSRA).

The report indicated that Wise failed to identify and verify the source of funds and wealth from a number of high-risk customers. Additionally, the firm conducted inspections above a high-value payment threshold only after it had already established a business relationship with those customers, excluding nationality or business category in its risk-based assessment and due diligence examinations.

However, FSRA's investigation found no evidence of actual money laundering as a result of Wise's AML systems and control failures. In addition, Wise did not contest the FSRA's findings and agreed to settle as soon as possible, which qualified it for a 20% reduction in the financial penalty. FSRA would normally have imposed a $450,000 financial penalty, according to reports.

Emmanuel Givanakis, CEO, FSRA, commented that all regulated entities must uphold high standards to address money laundering risks and that FSRA expects to take decisive action to ensure that businesses fully adhere to the anti-money laundering requirements in the Abu Dhabi Global Market (ADGM).

Banco Santander to automate corporate cash forecasting and liquidity management via Trovata partnership

Trovata, a US-based fintech company that automates cash workflows for treasury and corporate finance teams by combining data from multiple bank APIs, has signed a global distribution deal with Santander, a commercial bank headquartered in Spain. Through this collaboration, Santander is said to promote and recommend Trovata's cash management platform to its corporate and investment banking clients in order to streamline treasury workflows using data-driven automation.

Santander's clients can expect to digitally transform their cash operating workflows with Trovata's next-generation platform, which includes automated cash reporting, greater insights into analysing historical cash flows, and a modern categorizing system that uses artificial intelligence to simulate future cash flows in a matter of seconds, according to reports. Furthermore, the companies intend to work together to improve cash visibility and cash flow insights in order to help their large corporate clients make business decisions more quickly and effectively.

Eva Bueno, Managing Director & Global Head of Cash Management, Banco Santander, commented that Trovata automates a significant portion of the cash forecasting process by gathering and transforming corporate banking data at scale, enabling clients to become more efficient.

Major financial institutions across the globe have reportedly been releasing APIs for direct access since February 2018 under the term "open banking". Balances and transactions are said to transmit much more interactively, in real time, and with detailed metadata in this way as opposed to static files. Trovata claims that it has consequently grown to become the largest API-based aggregation hub for corporate bank data in the world.

Trovata's Founder and CEO, Brett Turner, commented that the collaboration with Santander will help them expand beyond the United States and deploy Trovata for the bank's clients in major European and Latin American markets.

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