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Industry roundup: 17 January

East analyses future of Asia cross-border payments

East & Partners, the Australia-based global banking research and advisory firm reports that central banks across Asia are swiftly signing a slew of cross border payments agreements to integrate their real-time and quick response (QR) payment systems. Singapore’s PayNow is set to link with Thailand's PromptPay, Malaysia’s DuitNow, India's Unified Payment Interface (UPI) and Philippines’ InstaPay in its latest initiative.

Strategic partnerships between eWallet providers such as Ant Group’s “AlipayHK”, Malaysia’s “Touch ‘n Go”, Thailand’s “TrueMoney” and Singapore’s “Nets” are also forming a flourishing ecosystem of mobile wallets region-wide, the firm notes. Within existing payment networks, Visa B2B Connect offers a non- card-based payment network enabling seamless bank-to-bank cross border business transactions while SWIFT’s global payment initiative (gpi) provides an instant service connecting high-speed cross-border rails with real-time domestic infrastructure.

In its recently published research note Connecting CBDC Hype with Reality – What Does the Future Hold for Asian Cross Border Payments? East & Partners considers resurgent cross border payments innovation and collaboration, which it adds is “a welcome development by major industry stakeholders and arguably a move that is long overdue” and the potential impact of central bank digital currency (CBDC) initiatives.

“With the pandemic induced consumer behavioural shift towards eCommerce now firmly embedded, what more can be done by key financial services players to set the stage for safe, simple, cost-effective and real-time cross border payments?” the firm asks. “Will CBDCs emerge as the missing piece in the puzzle that has prevented wider scale adoption of international money transfer innovation until now?”

East & Partners has researched key cross border pain points routinely experienced by Asia’s CFOs and corporate treasurers – who it says are looking for ways of simplifying compliance management, increasing the predictability of payment transactions and enhancing payments visibility – along with their views on CBDCs.

“Adoption sentiment is a crucial factor in determining whether CBDCs will become a reality, along with other considerations including regulations and uptake of cryptocurrencies,” the firm reports.  “With 36.3% of corporates in Asia expressing interest in using CBDCs as a mode of cross-border payment, the technology appears to appeal more to these corporates in contrast to the muted response cryptocurrencies garnered. This is partly driven by the possibility of CBDCs solving many cross border payment pain points currently faced.

“Perhaps unsurprisingly, corporates in China, Singapore and Hong Kong are more receptive to CBDCs, reflecting the current pace of innovation and development in each market.”

The firm says that lack of familiarity appears to be the underlying motivation behind why Asian corporates are shunning wider scale adoption of CBDCs – although its recent survey of CFOs found that nearly one in three holds no immediate thoughts on CBDCs generally, suggesting that there is an immense “learning curve” and CDBC market education opportunity.

At a broader level, there is a distinct chance for banks to own the industry narrative around CBDCs, with 82% of Asian corporates surveyed by the firm admitting that they are unfamiliar with CBDCs and only 18% saying that they are familiar.

More on the East & Partners research can be read here.

BNP Paribas seeks additional low-cost location

BNP Paribas SA, which has long-standing technical and administrative operations in India and Portugal, is reported to be seeking an additional low-cost location to house support staff as part of the French bank’s continuing campaign to trim costs under its new strategic plan. 

According to a Bloomberg report, which cited individuals familiar with the bank’s plans but who requested anonymity, Paris-based BNP Paribas wants to choose a third country to host more middle- and back-office employees and is likely to make a final decision over the coming months, the people. 

The report comes three weeks ahead of BNP Paribas’ announcement of a new strategic plan scheduled for 8 February, in which further cost containment measures are expected to feature. It adds that the bank is also considering boosting its payout ratio to 60% from 50%, rewarding investors after the lifting of pandemic-era restrictions on dividends.

BNP Paribas employed about 10,900 staff in India as of the end 2020 and has a further 6,585 staff in Portugal. It also maintains smaller support operations in other countries.

The bank has already initiated further cost-cutting initiatives in Italy, where BNP’s Banca Nazionale del Lavoro SpA unit (BNL) is divesting its back office and IT activities by selling them to specialised firms that can offer the benefit of scale, make the necessary investments and improve the quality of client services, according to sources. 

BNL reached separate accords to sell the IT business to Capgemini SE and the back office operations to Accenture PLC, the individuals divulged while requesting anonymity. As part of the accords, about 900 employees will move to the new entities and the Italian bank has signed outsourcing accords to get services from them.

Workers at BNL staged a one-day strike on 27 December, the first since the 1990s, to protest against the decision to switch IT and back office services to external providers. Conciliation attempts to resolve the issue ended without agreement last week, following which the unions announced a second one-day strike for 24 January.

Bank of America upbeat on Solana’s prospects

Bank of America analysts have issued a bullish forecast of prospects for the Solana blockchain, which has already settled more than 50 billion transactions since its creation in 2020 and could become the “Visa of the crypto ecosystem” they suggest.

Solana provides a decentralised computing platform that uses Solana (SOL) cryptocurrency to pay for transactions. Its aim is to improve blockchain scalability and achieve high transaction speeds by using a combination of proof of stake consensus and so-called proof of history.

Proof of history is designed to keep time between computers on a decentralised network without all the computers having to communicate about it and come to an agreement. As a result, Solana claims to be able to support 50,000 transactions per second without sacrificing decentralisation.

Bank of America analysts suggest that this its scalability and low transaction fees could enable Solana to compete effectively with Ethereum, the largest altcoin, to capture higher market capitalisation. Like Ethereum, the Solana computing platform can interact with the smart contracts that power a wide range of applications from non-fungible token (NFT) markets and decentralised finance (DeFi) to games and decentralised lotteries. Ethereum can currently handle around 12 transactions per second, but Solana – according to data from its network – has consistently processed over 2,400 transactions per second.

Ethereum 2 (ETH2) – an upgrade to the Ethereum network that aims to improve the network's security and scalability – is underway with the first phase launched in December 2020 and completion expected this year. However, some analysts believe that Solana has the advantage of offering developers and users the advantages similar to Ethereum’s future upgrade right away.

“Solana prioritises scalability, but a relatively less decentralised and secure blockchain has trade-offs, illustrated by several network performance issues since inception,” writes Bank of America analyst Alkesh Shah in a research note. “Ethereum prioritises decentralisation and security, but at the expense of scalability, which has led to periods of network congestion and transaction fees that are occasionally larger than the value of the transaction being sent.”

Shah also comments that Solana’s settlement of more than 50 billion transactions since its 2020 launch in 2020 compares against Visa’s processing of 164.7 billion transactions in the year ended 30 September. The research note also mentions that the network has over US $11 billion in total value locked on its DeFi ecosystem and has been used to mint over 5.7 million NFTs.

Pangolin integrates with Gnosis Safe for DAO treasury management

Pangolin, the decentralised exchange (DEX) run on Avalanche, announced that it has integrated with Gnosis Safe to simplify swap management for decentralised autonomous organisations (DAOs). 

Its release describes Gnosis Safe as “a market leader for multi-signature wallet solutions, used by most DAOs and companies to effectively manage treasuries without single points of failure. In environments that involve more than one user, it is critical to guarantee the safety of accounts that require a shared consensus, which is why multi-sigs are extremely widespread”.

However, Pangolin says that the decentralised finance (DeFi) and DAO boom means that the basic Gnosis Safe product has limited usability for more advanced interactions. “For example, swapping one token for another cannot be done directly from the multi-sig wallet, requiring treasuries to first send tokens to an Externally Owned Account (EOA), or in other words, a single-private key wallet. This is where the integration with Pangolin comes in.”

The integration of Pangolin plus Gnosis Safe “enables Avalanche-based DAOs to directly swap assets from the multi-sig, eliminating the single point of failure and hassle of using EOAs. Another unique feature is the ability to directly farm on Pangolin with treasury assets, which gives treasuries additional income to sustain themselves.” 

The release also notes that the large sums of assets controlled by DAOs has seen technical and security challenges preventing many from effectively leveraging their assets. “Through Pangolin, professional DeFi users will be able to both swap and farm from Gnosis Safe, giving them the opportunity to safely earn yield on staked assets without the need to move their assets.

“For Pangolin, the integration means a wealth of new asset holders that can use the exchange. Gnosis Safe is today the most popular wallet used to store and manage funds by DAOs, securing over US$22 billion in assets.” 

Gnosis Safe users can store Ethereum (ETH), Avalanche (AVAX), ERC-20, Tether (USDT), Decentralised Stablecoin (DAI) and other tokens, choosing between different management methods and levels of security. The number of keys required for an operation can be customised, including full N-of-N arrangements like 2 of 2, 3 of 3 — as well as N-1-of-N like 2 out of 3, or 3 out of 4 etc.

Indifi-GPay partnership offers instant digital credit

India’s Indifi Technologies, a lending platform for the country’s micro, small and medium enterprises (MSMEs) has partnered with Google Pay to provide instant loans to eligible small merchants on the Google Pay platform.

The partnership “enables enables presence-less and instant access to unsecured loans to a large pool of small businesses that are registered on GPay.” 

A press release stated that the biggest challenge currently faced by most of India’s small business owners is working capital management and the speed of securing capital to manage the same. The collaboration “aims to address this problem and help small merchants to meet their working capital needs and thrive in their business journey.” 

The partnership is “aligned to Indifi’s differentiated ecosystem-based approach to lending”, the release adds.

As “the leading ecosystem lending player in the digital MSME credit space, Indifi has already partnered with Amazon, Zomato, Swiggy and more. Indifi serves the MSMEs present on these ecosystem platforms, through embedded lending offerings. Indifi has been successful in bridging the credit gap of these underserved, yet credit worthy businesses by leveraging data and technology mitigating the underwriting challenges associated with MSMEs.” 

Aditya Harkauli, Indifi’s chief business officer adds: “Several small businesses in India still struggle to run their operations seamlessly due to lack of access to formal credit. Since its inception, Indifi has strived to address this credit gap. Our collaboration with Google Pay is another step in this direction. Further, Indifi has always been mindful of the larger social impact it can create for the community that it serves.”

A statement from the company adds that the lending experience is designed to be simple, smooth and entirely digital. Eligible merchants on the Google Pay for business app will see loan offers from Indifi which they can click and complete through a simple online application.

Citi launches sustainability-linked supply chain financing in Algeria

Citi announced the launch of its first Middle East and North Africa (MENA) Sustainability-linked Supply Chain Finance (SSCF) programme in Algeria with the aim of supporting clients as they advance their environmental, social and governance (ESG) priorities, improve the resilience of their supply chains and manage their working capital needs.

The SSCF programme was implemented for German chemical and consumer goods company, Henkel. It has been initially launched with suppliers in Algeria and will be expanded to include additional markets and suppliers in the coming months.

Citi says that the programme is also a first for Henkel in India, the Middle East, Africa and Turkey (IMEAT) and is targeted at existing or new suppliers who demonstrate strong or improving sustainability performance. Qualifying suppliers can access Citi’s supply chain financing at preferential rates, improving as a supplier’s sustainability score improves. Henkel, with the support of a global leading sustainability assessment agency, will periodically assess the sustainability performance of its suppliers.

Bülent Pehlivan, Henkel’s Regional Head of Finance - IMEA said, “With sustainability being at the core of our company’s strategy, we are engaging in a range of activities with new ways of growing and innovative solutions to create value. We are delighted to collaborate with Citi Group to introduce a sustainable SCF programme for the first time in the region. Launching first in Algeria, we are committed to continue to implement it in other countries of the region in the near future.”

Citi says that SCF programmes benefit companies and their suppliers as they prioritise their working capital positions respectively. In using Citi’s SCF programme, for example, the bank would provide financing to a client’s suppliers from the date of collection of specific goods/provision of services to the date on which payment is owed to these suppliers. The cost of this financing is borne by suppliers at a rate lower than their usual cost of funds. As a result, suppliers benefit from cash flow acceleration, quicker payment, and improved financing costs.

The bank adds that the SSCF programme in MENA aligns with its ESG commitments. To help accelerate the transition to a global low-carbon economy, Citi launched its updated Sustainable Progress Strategy in July 2021, which includes its global US$500 Billion Environmental Finance Goal. Citi also recently established a commitment to US$1 trillion in sustainable finance by 2030, which includes the environmental finance goal and a US$500 billion Social Finance Goal.

Ghana’s fintech start-up Float gains traction

Ghana fintech start-up Float, which was set up last year to provide credit lines for Africa’s smaller business, has raised US$17 million in funding that it plans to use to bolster its offerings and expand geographically.

The TechCrunch.com website, reporting on the funding round, notes that cash flow is a major pain point for small businesses in Africa with long payment cycles, which can take from 30-90 days after services or products have been rendered, and little or no capital. Research suggests that these major culprits of cash flow issues affect 85% of African SMEs. Many start-ups are addressing the problem, which enabled Float to attract a mix of US$7 million equity and US$10 million debt.

CEO Jesse Ghansah set up the company, formerly known as Swipe, with its project manager Barima Effah in 2020 and following its rebrand as Float, went live with its product in June 2021. Ghansah told TechCrunch that the idea for the company – which is backed by the US technology start-up accelerator Y Combinator (YC) – came during his time at OMG Digital, a media company that he also founded, in 2016

“We needed credit and proceeded to get an overdraft from a long-term partner bank where we had transacted more than $100,000. But the bank wanted us to deposit 100% collateral in cash before they could give the overdraft,” he recalled.

“I also remember taking money from loan sharks with ridiculous interest rates, sometimes as high as 20% a month, to meet payroll. That threw me into solving those problems with Float.”

TechCrunch adds that the same problem is faced by more than 51% of 44 million formal SMEs in sub-Saharan Africa that report they need more finance than they can access to grow their businesses. Float offers an alternate source of credit for those unable to access it from traditional banks.

In addition to flexible credit lines for businesses to cover cash flow gaps, Float also has software tools for businesses to manage accounts and wallets in one dashboard, as well as automate bills, vendor or supplier payments and invoice collections. The company aims to serve as the “financial operating system” for Africa’s SMEs.

Other features on Float’s platform include invoice advance, opening a business account, payment links, budget management and spend cards. Most recently it added revenue advances and instant payouts.

Float is currently active in Ghana and Nigeria, with plans to use the new capital to set up entities in Kenya and South Africa by Q2 once it secures operating licenses to operate, says Ghansah. The company will also use the investment to improve its cash management platform and launch new credit products tailored to specific business verticals and industries.

“Float set out on a mission to provide more cash flow and liquidity for millions of businesses across the continent to help them grow and reach their true potential,” said the CEO in a statement.

“With this new funding, we will continue to refine both our credit and software products to deliver the best experiences for our fast-growing customer base. We are excited to be the growth partner of choice for businesses in Africa.”

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