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Industry roundup: 14 October 2020

BMO partners with The Clearing House and Mastercard to enhance services for US corporates 

BMO Financial Group has announced its partnership with The Clearing House Payments, allowing business customers in the US to receive funds immediately from any sending participant bank in the Real-Time Payments (RTP) network, the real-time US payment system developed and operated by TCH.

BMO business customers will have the ability to send payments via the Real-Time Payments network in 2021.

In partnership with Mastercard, BMO also recently launched BMO Global Pay in the US.  Using Mastercard Cross-Border Services, BMO business customers have the ability to send payments to more than 30 countries. Customers can view the final exchange rate before sending the payment and track the status of the payment from the moment the payment has been approved, with some destinations experiencing close to real-time delivery.  The service is already available to BMO customers in Canada.

"As a cross-border bank, we understand that managing cross-border business can be complex," said Sharon Haward-Laird, head, North American Treasury & Payment Solutions at BMO Financial Group. "BMO Global Pay provides our customers with a quick, simple and secure option for cross-border payments. In an increasingly global marketplace, BMO Global Pay provides our customers with a cost effective and transparent option to meet their financial needs."


Pandemic accelerates key credit trends for North American banks

Amid the fallout from the coronavirus-induced global pandemic, banks in North America will continue to face a challenging operating environment throughout the medium term, according to a report by Fitch Ratings. Industry trends within North America that were emerging prior to the pandemic, such as persistently low interest rates, digital transformation/higher technology spend and industry consolidation, are expected to accelerate and ultimately challenge ratings over the longer term.

Going into 2020, North American banks were already confronting the challenges of lower interest rates along with tighter operating margins on fee-based products. The unprecedented monetary and fiscal policy responses to address economic concerns have amplified and accelerated these profitability challenges, which are expected to result in further industry consolidation and prompt more focused reviews of current business models. High levels of system liquidity, coupled with the US Federal Reserve and Bank of Canada's messaging around rates remaining low for even longer, present strategic and performance challenges that could result in weaker earnings over time.

North American banks also face accelerated competition from nonbank peers as well as changing customer behaviour, trends that were already occurring pre-pandemic, and these will magnify the importance of technology spending. The need - and increased difficulty - for banks to address these trends amid a more challenging environment will likely create winners that will see relatively steady or positive rating outcomes as well as laggards that could experience rating headwinds over the longer term.

An acceleration of environmental, social and governance (ESG) factors are expected to figure more prominently in North American bank risk management frameworks which would be viewed positively, although unlikely to have a material effect on ratings. 


FSB roadmap looks to enhance cross-border payments

The Financial Stability Board (FSB) has published a roadmap to enhance cross-border payments. The roadmap has been delivered to G20 Finance Ministers and Central Bank Governors for their meeting on 14 October 2020. The G20 has made enhancing cross-border payments a priority during the Saudi Arabian Presidency. Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, while maintaining their safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.

This roadmap has been developed by the FSB, in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other relevant international organisations and standard-setting bodies. It builds on the FSB’s Stage 1 report, setting out the challenges and the frictions in cross-border payments that contribute to them, and the CPMI’s Stage 2 report, describing the necessary elements of a response, in the form of a set of 19 building blocks.

The roadmap provides a high-level plan, which sets what the FSB describes as "ambitious but achievable" goals and milestones, and is designed to allow for flexibility and adaptation in the path to get there as the work progresses, while ensuring that the safeguards in terms of secure processing and legal compliance are observed. It encompasses a variety of approaches and time horizons, in order to achieve practical improvements in the shorter term while acknowledging that other initiatives will need to be implemented over longer time periods. It follows the structure of the Stage 2 report, setting out actions and indicative timelines in the following five focus areas:

  1. Committing to a joint public and private sector vision to enhance cross-border payments
  2. Coordinating on regulatory, supervisory and oversight frameworks
  3. Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
  4. Increasing data quality and straight-through processing by enhancing data and market practices
  5. Exploring the potential role of new payment infrastructures and arrangements

The first four focus areas seek to enhance the existing payments ecosystem. The fifth is more exploratory and covers emerging payment infrastructures and arrangements. While each of the building blocks in the first four focus areas individually has the ability to bring notable benefits to cross-border payments, they have many interdependencies and the most significant enhancements are likely to be achieved if they are all implemented in a coordinated manner. The potential for new payment infrastructures and arrangements will also depend on the first four focus areas delivering change.

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