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Industry roundup: 28 February

Russia disconnected from SWIFT

The U.S. and European nations agreed in a joint statement to impose severe financial penalties on Russia’s central bank reserves and cut Russian banks from the global financial network due to its invasion of Ukraine. According to reports, the latest measures will have a serious impact on the Russian economy, severely limiting Russia’s ability to import and export commodities. Additionally, the central bank restrictions target access to the U.S. $600 billion or more in reserves, blocking Russia's ability to support the ruble as it falls with tightening Western sanctions.

US officials stated sanctions have already affected Russia, sending its currency to the lowest level against the dollar and giving their stock market the worst week in history. The sanctions include removing major Russian banks from the SWIFT financial messaging system, which processes billions of dollars a day at over 11,000 banks and other financial institutions globally. Details of the sanctions are still emerging as the U.S. and EU work to limit the impact of restrictions on other economies and on Europe’s purchases of energy from Russia. According to the EU Commission, disconnecting many commercial banks from SWIFT would ensure these banks are cut off from the international financial system and harm the ability to operate globally (blocking exports and imports). Sanctioning Russia through SWIFT was difficult for the EU since they trade volume with Russia amounting to 80 billion euros, approximately ten times as much as the U.S.

According to the report, the U.S. embassy states that U.S. citizens in Russia need to be prepared for alternative payment methods if credit or debit cards are rejected. Additionally, the State Department advises U.S. citizens against traveling to Russia at this time.

Liquidity improvements in B2B payment methods discovered by fintech

In efforts to address liquidity problems for both buyers and suppliers, European-based fintech iwoca revealed a new B2B payment solution to integrate instant payments, free transactions and flexible financing. Additionally, iwoca commented that embedded financial products can resolve issues faced by small businesses and their customers. According to the report, 80% of B2B companies depend on slow and tedious bank transfers, while the majority of the remaining 20% settle with inflexible and costly card payments. iwoca noted that SMBs are owed £10,000 on average at any given time due to the lack of swiftness of these payment methods and the unavailability of funding embedded in them.

Traditionally, suppliers have had to select between either simple payments or flexible terms. According to iwoca, using their new B2B payment method that combines open banking and embedded finance through iwocaPay enables buyers to obtain a streamlined payment process and flexible payment terms, while suppliers reduce the burden of outstanding payments tied up in their invoices. Additionally, iwoca stated that funds from the suppliers’ sales would immediately appear in their account, and buyers could disperse costs over 90 days to best fit their cash flow needs.

Per iwoca, one of the main benefits of the solution is that the majority of its finance and payment products are through embedded partners such as accounting software platforms, neobanks and online marketplaces, enabling companies to access services they utilize on a daily basis easily. This approach provides a simple and fast application approval process while greatly reducing declines.

As traditional payment methods continue to change significantly, digital providers such as iwoca are finding ways to enable suppliers to have instant access to funds, built-in flexible payment terms without risk, and control over who pays fees for extra time.

Transition to digital for Kenya’s financial payment ecosystem

Digital payment systems are making waves in Kenya. The Central Bank of Kenya (CBK) established the National Payment Strategy (NPS) 2022-2025 to develop and implement policies to control the establishment, regulation and supervision of an efficient and effective payment system in Kenya. The payment systems in Kenya transformed over time, with the modernization of domestic payments, introduction of real-time gross settlement (RTGS) systems, mobile money services, and strengthening and automating their clearing systems.

According to reports, the NPS in Kenya was created to meet the diverse needs of the Kenyan people and its economy by supporting their country’s goal to become a digital, innovative and inclusive economy. The NPS was implemented in 2004 to address risks due to the lack of a real-time settlement system, primitive policy and regulations, and limited trust in payment instruments. With the new NPS, Kenya’s legal and regulatory framework should strengthen its economy.

The CBK will operate with principles that include trust (in guaranteeing payments), security, usefulness, choice and innovation. Additionally, the CBK emphasized that all payments will follow these principles, instilling citizens’ trust in their monetary value supported by a secure, customer-centric system. The CBK is also exploring CBDCs as the emergence of payment innovations, such as cryptocurrencies, continue to evolve the payment landscape.

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